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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2002

Commission file number 1-82

PHELPS DODGE CORPORATION

(a New York corporation)

13-1808503
(I.R.S. Employer Identification No.)

One North Central Avenue, Phoenix, AZ 85004-2306

Registrants telephone number: (602) 366-8100

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

|                                         |  |                        
|---------------------------------------- |  | -----------------------
|                                         |  | Name of each exchange  
|Title of each class                      |  | on which registered    
|                                         |  |                        
|                                         |  |                        
|Common Shares, $6.25 par value per share |  | New York Stock Exchange
|Mandatory Convertible Preferred Shares,  |  |                        
|$1.00 par value per share                |  | New York 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 (or for such shorter period that the
registrant was required to file such reports) 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]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 126-2 of the Act).    Yes   [x]    No   [ ].

The aggregate market value of Common Shares of the issuer held by
nonaffiliates
at April 9, 2003, was approximately $2,892,046,398.

Number of Common Shares outstanding at
April 9, 2003: 88,986,043 shares.

Documents Incorporated by Reference:

|                                        |  |                 
|--------------------------------------- |  | ----------------
|Document                                |  | Location in 10-K
|                                        |  |                 
|Proxy Statement for 2003 Annual Meeting |  | Part III        



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TABLE OF CONTENTS



|               |                                                                                   |                                                                                                                      |  |  |  |  |  | 
|-------------- | --------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------- |  |  |  |  |  | 
|Part I        
|               | Items 1. and 2. Business and Properties                                          
|               | PHELPS DODGE MINING COMPANY                                                      
|               |                                                                                   | Properties, Facilities and Production                                                                               
|               |                                                                                   | U.S. Mines                                                                                                          
|               |                                                                                   | South American Mines                                                                                                
|               |                                                                                   | Manufacturing and Sales Segment                                                                                     
|               |                                                                                   | Primary Molybdenum Segment                                                                                          
|               |                                                                                   | Worldwide Copper Production by Source, Other Metal Production and Sales Data, and Manufacturing and Sales Production
|               |                                                                                   | Other Mining Segment                                                                                                
|               |                                                                                   | Exploration                                                                                                         
|               |                                                                                   | Process Technology                                                                                                  
|               |                                                                                   | Other                                                                                                               
|               |                                                                                   | Other Mining Investments                                                                                            
|               |                                                                                   | Ore Reserves                                                                                                        
|               |                                                                                   | Average Drill-Hole Spacing at Ore Reserve Properties                                                                
|               |                                                                                   | Metallurgical Recovery                                                                                              
|               |                                                                                   | Mill and Leach Stockpiles                                                                                           
|               |                                                                                   | Copper and Molybdenum Prices                                                                                        
|               |                                                                                   | Mineralized Material                                                                                                
|               |                                                                                   | Sales and Competition                                                                                               
|               |                                                                                   | Prices, Supply and Consumption                                                                                      
|               |                                                                                   | Costs                                                                                                               
|               |                                                                                   | Environmental and Other Regulatory Matters                                                                          
|               |                                                                                   | PHELPS DODGE INDUSTRIES                                                                                             
|               |                                                                                   | Ownership of Property                                                                                               
|               |                                                                                   | Wire and Cable Segment                                                                                              
|               |                                                                                   | Environmental Matters                                                                                               
|               |                                                                                   | LABOR MATTERS                                                                                                       
|               |                                                                                   | RESEARCH AND DEVELOPMENT                                                                                            
|               |                                                                                   | OTHER ENVIRONMENTAL MATTERS                                                                                         
|               | Item 3. Legal Proceedings                                                        
|               | Item 4. Submission of Matters to a Vote of Security Holders                      
|               | Executive Officers of Phelps Dodge Corporation                                   
|Part II       
|               | Item 5. Market for the Registrants Common Equity and Related Stockholder Matters
|               | Item 6. Selected Financial Data                                                  
|               | Item 7. Managements Discussion and Analysis                                     
|               | Item 7A. Quantitative and Qualitative Disclosures About Market Risk              
|               | Item 8. Financial Statements and Supplementary Data                              
|               | Item 9. Disagreements on Accounting and Financial Disclosure                     
|               |                                                                                   | MANAGEMENTS DISCUSSION AND ANALYSIS                                                                                
|               |                                                                                   | RESULTS OF PHELPS DODGE MINING COMPANY                                                                              
|               |                                                                                   | RESULTS OF PHELPS DODGE INDUSTRIES                                                                                  
|               |                                                                                   | OTHER MATTERS RELATING TO THE STATEMENT OF CONSOLIDATED OPERATIONS                                                  
|               |                                                                                   | CHANGES IN FINANCIAL CONDITION; CAPITALIZATION                                                                      
|               |                                                                                   | CAPITAL OUTLAYS                                                                                                     
|               |                                                                                   | INFLATION                                                                                                           
|               |                                                                                   | DIVIDENDS AND MARKET PRICE RANGES                                                                                   
|               |                                                                                   | QUARTERLY FINANCIAL DATA                                                                                            
|               |                                                                                   | PHELPS DODGE CORPORATION AND CONSOLIDATED SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS                   
|               |                                                                                   | REPORT OF MANAGEMENT                                                                                                
|               |                                                                                   | REPORT OF INDEPENDENT ACCOUNTANTS                                                                                   
|               |                                                                                   | REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE                                                   
|               |                                                                                   | STATEMENT OF CONSOLIDATED OPERATIONS                                                                                
|               |                                                                                   | CONSOLIDATED BALANCE SHEET                                                                                          
|               |                                                                                   | CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY                                                                      
|               |                                                                                   | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                                                          
|               |                                                                                   | FINANCIAL DATA BY GEOGRAPHIC AREA                                                                                   
|Part III      
|               | Items 10, 11, 12 and 13.                                                         
|               | Item 14. Controls and Procedures                                                 
|               | Item 15. Exhibits, Financial Statement Schedule and Reports on Form 8-K          
|SIGNATURES    
|Certifications
|EX-11         
|EX-12         
|EX-21         
|EX-23         
|EX-24         



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PHELPS DODGE CORPORATION

Annual Report on Form 10-KFor the Year Ended December 31, 2002

Table of Contents

|        |                                                                                   |                             |                                                      |                                                                                                                      |    |      |    | 
|------- | --------------------------------------------------------------------------------- | --------------------------- | ---------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|        |                                                                                   |                             |                                                      |                                                                                                                      |    | Page
|        |                                                                                   |                             |                                                      |                                                                                                                      |    |     
|Part
I  |                                                                                   |                             |                                                      |                                                                                                                     
|        | Items 1. and 2. Business
and Properties                                           |                             |                                                      | 1                                                                                                                    |   
|        |                                                                                   | Phelps Dodge Mining
Company |                                                      |                                                                                                                      | 2  |     
|        |                                                                                   |                             | Properties, Facilities and
Production                |                                                                                                                      |    | 3    |   
|        |                                                                                   |                             |                                                      | U.S. Mines                                                                                                           |    |      | 3  | 
|        |                                                                                   |                             |                                                      | South American
Mines                                                                                                 |    |      | 5  | 
|        |                                                                                   |                             |                                                      | Manufacturing and
Sales                                                                                              |    |      | 6  | 
|        |                                                                                   |                             |                                                      | Primary Molybdenum
Segment                                                                                           |    |      | 7  | 
|        |                                                                                   |                             |                                                      | Worldwide Copper Production by
Source, Other Metal Production
and Sales Data, and Manufacturing and Sales Production |    |      | 7  | 
|        |                                                                                   |                             |                                                      | Phelps Dodge Copper Production
Data, by Source                                                                       |    |      | 9  | 
|        |                                                                                   |                             |                                                      | Phelps Dodge Other Metal Production
and Sales                                                                        |    |      | 12 | 
|        |                                                                                   |                             |                                                      | Phelps Dodge Manufacturing and
Sales Production                                                                      |    |      | 13 | 
|        |                                                                                   |                             |                                                      | Other Mining
Segment                                                                                                 |    |      | 14 | 
|        |                                                                                   |                             |                                                      | Exploration                                                                                                          |    |      | 14 | 
|        |                                                                                   |                             |                                                      | Process
Technology                                                                                                   |    |      | 14 | 
|        |                                                                                   |                             |                                                      | Other                                                                                                                |    |      | 15 | 
|        |                                                                                   |                             |                                                      | Other Mining
Investments                                                                                             |    |      | 15 | 
|        |                                                                                   |                             | Ore
Reserves                                         |                                                                                                                      |    | 16   |   
|        |                                                                                   |                             | Average Drill Hole
Spacing at Ore Reserve Properties |                                                                                                                      |    | 18   |   
|        |                                                                                   |                             | Metallurgical
Recovery                               |                                                                                                                      |    | 18   |   
|        |                                                                                   |                             | Mill and Leach
Stockpiles                            |                                                                                                                      |    | 19   |   
|        |                                                                                   |                             | Copper and Molybdenum
Prices                         |                                                                                                                      |    | 21   |   
|        |                                                                                   |                             | Mineralized
Material                                 |                                                                                                                      |    | 22   |   
|        |                                                                                   |                             | Sales and
Competition                                |                                                                                                                      |    | 23   |   
|        |                                                                                   |                             | Prices, Supply and
Consumption                       |                                                                                                                      |    | 24   |   
|        |                                                                                   |                             | Costs                                                |                                                                                                                      |    | 25   |   
|        |                                                                                   |                             | Environmental and Other
Regulatory Matters           |                                                                                                                      |    | 26   |   
|        |                                                                                   |                             | Ownership of
Property                                |                                                                                                                      |    | 32   |   
|        |                                                                                   | Phelps Dodge
Industries     |                                                      |                                                                                                                      | 32 |     
|        |                                                                                   |                             | Specialty Chemicals
Segment                          |                                                                                                                      |    | 33   |   
|        |                                                                                   |                             | Wire and Cable
Segment                               |                                                                                                                      |    | 34   |   
|        |                                                                                   |                             | Environmental
Matters                                |                                                                                                                      |    | 36   |   
|        |                                                                                   | Labor
Matters               |                                                      |                                                                                                                      | 36 |     
|        |                                                                                   | Research and
Development    |                                                      |                                                                                                                      | 37 |     
|        |                                                                                   | Other Environmental
Matters |                                                      |                                                                                                                      | 37 |     
|        | Item 3. Legal
Proceedings                                                         |                             |                                                      | 39                                                                                                                   |   
|        | Item 4. Submission
of Matters to a Vote of Security Holders                       |                             |                                                      | 47                                                                                                                   |   
|        | Executive Officers of
Phelps Dodge Corporation                                    |                             |                                                      | 47                                                                                                                   |   
|Part
II |                                                                                   |                             |                                                      |                                                                                                                     
|        | Item 5. Market for
the Registrants Common Equity and Related
Stockholder Matters |                             |                                                      | 48                                                                                                                   |   





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|          |                                                                         |                                                                   |                                                                    |     |     |      |  | 
|--------- | ----------------------------------------------------------------------- | ----------------------------------------------------------------- | ------------------------------------------------------------------ | --- | --- | ---- |  | 
|          |                                                                         |                                                                   |                                                                    |     |     | Page
|          |                                                                         |                                                                   |                                                                    |     |     |     
|          | Item 6. Selected
Financial Data                                         |                                                                   |                                                                    | 48  |    
|          | Item 7.
Managements Discussion and Analysis                            |                                                                   |                                                                    |     |    
|          |                                                                         | Managements Discussion and Analysis                              |                                                                    | 51  |    
|          |                                                                         |                                                                   | Results of Phelps Dodge
Mining Company                             |     |     | 64   | 
|          |                                                                         |                                                                   | Results of Phelps Dodge
Industries                                 |     |     | 85   | 
|          |                                                                         |                                                                   | Other Matters Relating to
the Statement of Consolidated Operations |     |     | 88   | 
|          |                                                                         |                                                                   | Changes in Financial
Condition; Capitalization                     |     |     | 90   | 
|          |                                                                         |                                                                   | Capital
Outlays                                                    |     |     | 105  | 
|          |                                                                         |                                                                   | Inflation                                                          |     |     | 105  | 
|          |                                                                         |                                                                   | Dividends and Market
Price Ranges                                  |     |     | 105  | 
|          |                                                                         |                                                                   | Quarterly Financial
Data                                           |     |     | 106  | 
|          | Item 7A.
Quantitative and Qualitative Disclosures About Market Risk     |                                                                   |                                                                    | 51  |    
|          | Item 8. Financial
Statements and Supplementary Data                     |                                                                   |                                                                    |     |    
|          |                                                                         | Index to Consolidated Financial Statements                        |                                                                    |     | 110 |     
|          |                                                                         | Report of
Management                                              |                                                                    |     | 110 |     
|          |                                                                         | Report of Independent
Accountants                                 |                                                                    |     | 111 |     
|          |                                                                         | Report of Independent
Accountants on Financial Statement Schedule |                                                                    |     | 111 |     
|          |                                                                         | Statement of
Consolidated Operations                              |                                                                    |     | 112 |     
|          |                                                                         | Consolidated Balance
Sheet                                        |                                                                    |     | 113 |     
|          |                                                                         | Consolidated Statement
of Cash Flows                              |                                                                    |     | 114 |     
|          |                                                                         | Consolidated Statement
of Shareholders Equity                    |                                                                    |     | 115 |     
|          |                                                                         | Notes to Consolidated
Financial Statements                        |                                                                    |     | 116 |     
|          |                                                                         | Financial Data by
Geographic Area                                 |                                                                    |     | 163 |     
|          |                                                                         | Financial Data by
Business Segment                                |                                                                    |     | 164 |     
|          | Item 9.
Disagreements on Accounting and Financial Disclosure            |                                                                   |                                                                    | N/A |    
|Part
III. |                                                                         |                                                                   |                                                                    |    
|          | Item 10. Directors
and Executive Officers of the Registrant             |                                                                   |                                                                    | 174 |    
|          | Item 11. Executive
Compensation                                         |                                                                   |                                                                    | 174 |    
|          | Item 12. Security
Ownership of Certain Beneficial Owners and Management |                                                                   |                                                                    | 174 |    
|          | Item 13. Certain
Relationships and Related Transactions                 |                                                                   |                                                                    | 174 |    
|          | Item 14. Controls
and Procedures                                        |                                                                   |                                                                    | 174 |    
|          | Item 15. Exhibits,
Financial Statement Schedule and Reports on Form 8-K |                                                                   |                                                                    | 174 |    
|          | Valuation and Qualifying
Accounts and Reserves                          |                                                                   |                                                                    | 178 |    
|          | Signatures                                                              |                                                                   |                                                                    | 179 |    
|          | Certifications                                                          |                                                                   |                                                                    | 179 |    



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PHELPS DODGE CORPORATION

2002 Annual Report on Form 10-K

Part I




Restatements

Phelps Dodge Corporation (the Company,
which also may be referred to as
Phelps Dodge, PD, we, us or ours) identified certain accounting matters
relating to our December 31, 2001 and 2000, Consolidated Financial Statements
that require restatement. The matters subject to adjustment, which are
summarized below and discussed in Note 22 to the Consolidated Financial
Statements increased retained earnings by $22.9 million at December 31, 2001 to
reflect the after-tax effect of such items. These adjustments were necessary
(i) to change the Companys units-of-production depreciation rate methodology
for mining, smelting and refining assets to exclude estimates of future capital
as well as any material other than proven and probable ore reserves, and to
depreciate short-lived assets on a straight-line basis over their estimated
useful lives, less salvage value; (ii) to adjust the fair value estimates of
acquired reclamation obligations and to recognize the related annual accretion
expense, and to revise certain reclamation cost estimates and associated
charges for information obtained in 2001; (iii) to capitalize as inventory
copper contained in low-grade mill and leach stockpiles, and consequent
in-process materials being converted to salable products; (iv) to reverse a
loss contingency reserve associated with legal matters; and (v) to increase the
valuation allowance for deferred tax assets. Additionally, as discussed in
Note 21, Business Segment Data, our presentation of reportable segment
information for Phelps Dodge Mining Company for 2001 and 2000 has been revised
to reflect additional segments.

Items 1. and 2. Business and Properties




The Company is the worlds second
largest producer of copper, among the
worlds largest carbon black and magnet wire producers, and is the worlds
largest producer of continuous-cast copper rod. On October 16, 1999, we
acquired Cyprus Amax Minerals Company (Cyprus Amax or Cyprus). As a result of
the acquisition, we also became one of the worlds largest producers/processors
of molybdenum and molybdenum products.

The Company consists of two major
divisions: (i) Phelps Dodge Mining
Company (PDMC) and (ii) Phelps Dodge Industries (PDI).



| | (i)  |  | PDMC includes our worldwide, vertically integrated copper
operations from mining through rod production, marketing and
sales; molybdenum operations from mining through conversion,
marketing and sales; other mining operations and investments;
and worldwide mineral exploration and development programs.
PDMC comprises 11 reportable segments  Morenci,
Bagdad/Sierrita, Miami/Bisbee, Chino/Cobre and Tyrone (located
in the United States), Candelaria, Cerro Verde and El Abra
(located in South America), Manufacturing and Sales, Primary
Molybdenum and Other Mining.
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (ii) |  | PDI comprises two reportable
segments   Specialty
Chemicals and Wire and Cable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

In 2002, PDMC produced 1,028,800 tons of
copper for our account from
worldwide mining operations, and an additional 246,800 tons of copper for the
accounts of our minority interest joint-venture partners. Gold, silver,
molybdenum, rhenium and sulfuric acid are by-products of our copper and
molybdenum operations. Production of copper for our own account from our U.S.
operations constituted approximately 49 percent of the copper mined in the
United States in 2002. Much of our U.S. cathode copper production, together
with additional copper purchased from others, is used to produce
continuous-cast copper rod, the basic feed for the electrical wire and cable
industry. We also explore for metals and minerals throughout the world.

Our South American mining operations
include Candelaria and El Abra, major
copper mines in Chile, the Cerro Verde copper mine in Peru, and other
operations and investments in Chile and Peru. These operations produce a
variety of metals and minerals including copper, gold and silver.

High-purity, chemical-grade molybdenum
concentrate is produced at our
Henderson mine in Colorado. Most of the concentrate produced at Henderson is
roasted at our Fort Madison roasters and then further processed at the facilitys chemical plant into
value-added molybdenum chemical products.
In addition, some of the concentrate is processed into salable molysulfide for
use primarily in the lubricant industry.

Molybdenum concentrate is also produced
as a by-product at two of our U.S. copper operations.





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This concentrate is generally roasted at one of our three
roasting operations to produce technical grade molybdic oxide for sale into the
metallurgical markets (i.e., steel industries).

In addition to our mining interests, we
produce engineered products
principally for the global energy, telecommunications, transportation and
specialty chemicals sectors through PDI.

We produce specialty chemicals at
operations in North America, Europe,
South America and Asia through Columbian Chemicals Company, one of the worlds
largest producers of carbon black. Carbon black is a reinforcing agent in
natural and synthetic rubber that increases the service life of tires, hoses,
belting and other products for the rubber industry. We also produce specialty
carbon black for other industrial applications such as pigments for printing,
coatings, plastics and other non-rubber applications.

Our Wire and Cable segment has
operations in the United States, Latin
America, Asia, Europe and Africa. This segment produces magnet wire and other
copper products for sale principally to original equipment manufacturers for
use in electrical motors, generators, transformers and other products, and
manufactures copper and aluminum energy cables, telecommunications cables and
specialty conductors.

Note 21 to our Consolidated Financial
Statements contained herein includes
financial data for each of the last three years relating to our business
segments, including data by geographic area.

Phelps Dodge was incorporated as a
business corporation under the laws of
the state of New York in 1885. Our world headquarters is located in Phoenix,
Arizona, and is a leased property. We employed approximately 13,500 people
worldwide on December 31, 2002.

Throughout this document, unless otherwise
stated, all references to tons
are to short tons, and references to ounces are to troy ounces.

Available Information.Phelps
Dodge files annual, quarterly and current
reports, proxy statements and other information with the U.S. Securities and
Exchange Commission (the SEC). You may read and copy any document we file at
the SECs public reference room at Room 1024, 450 Fifth Street, NW, Washington,
D.C. 20549. Please call the SEC at 1-800-SEC-0330 for information on the
public reference room. The SEC maintains a Web site that contains annual,
quarterly and current reports, proxy statements and other information that
issuers (including Phelps Dodge) file electronically with the SEC. The SECs
Web site is http://www.sec.gov.

Phelps Dodges Web site is
http://www.phelpsdodge.
com. Phelps Dodge makes available free of charge through its Internet site,
via a link to the SECs Web site at http://www.sec.gov, its annual reports on
Form 10-K; quarterly reports on Form 10-Q; current reports on Form 8-K; Forms
3, 4 and 5 filed on behalf of directors and executive officers; and any
amendments to those reports filed or furnished pursuant to the Securities
Exchange Act of 1934 as soon as reasonably practicable after such material is
electronically filed with, or furnished to, the SEC.

Phelps Dodge makes available free of
charge on http://www. phelpsdodge.comits
most recent annual report on Form 10-K, its quarterly reports on Form 10-Q for
the current fiscal year, its most recent proxy statement and its most recent
summary annual report to shareholders, although in some cases these documents
are not available on our site as soon as they are available on the SECs site.
You will need to have on your computer the Adobe Acrobat Reader software to
view some of these documents, which are in PDF format. If you do not have
Adobe Acrobat, a link to Adobes Internet site, from which you can download the
software, is provided. The information on Phelps Dodges Web site is not
incorporated by reference into this report.

PHELPS DODGE MINING COMPANY




PDMC is our international business division
that comprises our vertically
integrated copper operations from mining through rod production, primary
molybdenum operations through conversion, marketing and sales, and worldwide
exploration. PDMC comprises 11 reporting segments.

Our copper mines comprise five reportable
segments in the United States
(Morenci, Bagdad/Sierrita, Miami/Bisbee, Chino/Cobre, and Tyrone) and three
reportable segments in South America (Candelaria, Cerro Verde and El Abra).
These segments include open-pit mining, sulfide ore concentrating and
electrowinning. In addition, they produce gold and silver, and the Bagdad and
Sierrita mines also produce molybdenum and rhenium, as by-products.

The Manufacturing and Sales segment
consists of conversion facilities
including our smelters, refineries and rod mills, as well as sales and
marketing. The Manufacturing and Sales segment sells copper to others
primarily as rod, cathode or concentrate, and as rod to our Wire and Cable
segment. In addition, at times it smelts and refines copper and produces
copper rod for customers on a toll basis. Toll





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- 3 -

arrangements require the
tolling customer to deliver appropriate copper-bearing material to our
facilities, which we then process into a product that is returned to the
customer. The customer pays PDMC for processing its material into the
specified products.

The Primary Molybdenum segment consists
of the Henderson and Climax mines
and related conversion facilities. This segment is an integrated producer of
molybdenum, with mining, roasting and processing facilities producing
high-purity, molybdenum-based chemical and metallurgical products. In
addition, at times it roasts and/or processes material on a toll basis. Toll
arrangements require the tolling customer to deliver appropriate
molybdenum-bearing material to our facilities, which we then process into a
product that is returned to the customer. The customer pays PDMC for
processing its material into the specified products.

Other Mining segment includes our
worldwide mineral exploration and
development programs, a process technology center that directs its activities
at improving existing processes and developing new cost-competitive
technologies, and other ancillary operations.

Our five reportable U.S. Mines segments
(Morenci, Bagdad/Sierrita,
Miami/Bisbee, Chino/Cobre, and Tyrone), the Manufacturing and Sales segment and
the Other Mining segment are discussed herein together, where appropriate, as
U.S. Mining Operations.

Our U.S. Mining Operations (defined above)
and our South American Mines
(Candelaria, Cerro Verde and El Abra segments) are discussed herein together,
where appropriate, as our Worldwide Copper Mining Operations.

Properties, Facilities and Production




Following is a map indicating the
approximate location of PDMCs U.S.
copper and molybdenum mines:

United States Mines

U.S. Mines




We produce electrowon copper cathode at
solution extraction/electrowinning
(SX/EW) operations near Tyrone and Silver City, New Mexico (Tyrone and Chino
mines, respectively); and Morenci, Miami (currently curtailed), Bagdad
(partially curtailed) and Green Valley (partially curtailed), Arizona (Morenci,
Miami, Bagdad and Sierrita mines, respectively). We produce copper concentrate
from open-pit mines and concentrators located at Bagdad and Green Valley,
Arizona (Bagdad and Sierrita mines, respectively); and Silver City, New Mexico
(currently curtailed, Chino mine).

We are the worlds leading producer
of copper using the SX/EW process. In
2002, we produced a total of 578,700 tons of cathode copper at our SX/EW
facilities in the United States, compared with 585,300 tons in 2001 and 510,200
tons in 2000. SX/EW is a cost-effective process for extracting copper from
cer-





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- 4 -

tain types of ores. SX/EW is a major factor in our continuing efforts to
maintain internationally competitive costs. Our total annual capacity of
electrowon copper cathode production currently is 410,000 tons at Morenci,
105,000 tons at Miami, 75,000 tons at Chino, 84,000 tons at Tyrone, 25,000 tons
at Sierrita and 16,000 tons at Bagdad.

The Morenci complex in southeastern
Arizona comprises an open-pit mine, a
concentrator, four solution extraction facilities and three electrowinning
tankhouses. We operate Morenci and own an 85 percent undivided interest; the
remaining 15 percent interest is owned by Sumitomo Metal Mining Arizona, Inc.
(Sumitomo), a jointly owned subsidiary of Sumitomo Metal Mining Co., Ltd., and
Sumitomo Corporation. Each partner takes in kind its share of Morenci
production. Morenci is the largest copper producing operation in North
America.

In 2001, the Company completed its
$220 million mine-for-leach project at
Morenci. As a result, the Morenci concentrator was placed on
care-and-maintenance status. The crushing facility at the Metcalf concentrator
continues to process approximately 85,000 tons of ore daily for the expanded
leach operation. The new mine-for-leach facilities increased Morencis annual
electrowon cathode production capacity to 410,000 tons. Under certain
favorable economic circumstances, Morenci may produce concentrates from primary
sulfide ores.

In 1999, the Metcalf concentrator was
permanently closed as a result of
rebalancing PDMC operations. After the 1999 acquisition of Cyprus Amax and the
Companys decision to convert Morenci to mine-for-leach processing, it became
clear that the Metcalf concentrator would not likely operate in the future.
This resulted in a pre-tax impairment of $88 million recorded in 1999.

We are presently a party to litigation that
could adversely impact the
allocation of available water supplies for the Morenci operation and our other
properties in Arizona. (Refer to Item 3, Legal Proceedings, for information
concerning the status of these proceedings.)

Our wholly owned Bagdad mine in
northwestern Arizona primarily mines
copper sulfide ore. It produces copper and molybdenum concentrates and minor
amounts of silver. The operation consists of an open-pit mine, sulfide ore
concentrator producing copper and molybdenum concentrates, and a leaching
system with an SX/EW operation producing copper cathode. In January 2002, as a
result of the then-current economic environment, Bagdads mill throughput was
curtailed temporarily to approximately one-half capacity. At the time of this
curtailment, we estimated that approximately 70,500 tons of annual copper
production and 7 million pounds of annual by-product molybdenum production
would be reduced. In 2002, copper production at Bagdad exceeded our estimates
due to improved production from our SX/EW operation, higher ore grades from
normal mine planning improvements, and improvements in copper recovery and
improved milling efficiency resulting from Quest for Zeroactions. As a
result, 2002 annual copper production was reduced by approximately 44,600 tons.
Throughput at Bagdad also exceeded half capacity at various times during the
year, primarily driven by smelter and sulfuric acid supply requirements.

In February 2002, we announced that
Bagdad would construct an
approximately $40 million copper concentrate leaching demonstration plant
designed to recover commercial-grade copper cathode from chalcopyrite
concentrates. The plant is scheduled to commence production in the second
quarter of 2003. At full capacity, the plant is expected to produce 35 million
pounds of copper cathode from concentrate annually. If successful, this
technique could assist in our long-term cost reduction strategy.

We own the Sierrita mine near Green Valley,
Arizona. The facility
consists of an open-pit mine, sulfide ore concentrator producing copper and
molybdenum concentrates, two molybdenum roasters and a rhenium processing
facility. Sierrita also uses an oxide and low-grade sulfide ore stockpile
leaching system with an SX/EW operation to produce copper cathode. Sierritas
on-site roasters process molybdenum concentrates produced at Sierrita and
Bagdad as well as purchased concentrates or concentrates tolled for third
parties. The resulting metallurgical grade molybdic oxide and related products
are either packaged for shipment to customers worldwide or transported to other
Phelps Dodge facilities for further processing. At year-end 2001, as a result
of the then-current economic environment, mill throughput at the Sierrita mine
was reduced temporarily to approximately one-half of its capacity. Our
estimates at the time were that these actions would eliminate approximately
49,600 tons of annual copper production and 7 million pounds of by-product
molybdenum. In 2002, copper production at Sierrita exceeded our estimates due
to improved production from higher ore grades from normal mine planning
improvements, improvements in copper recovery and improved milling efficiency
resulting from Quest for Zeroactions, and smelter and acid supply
requirements. As a result, 2002 annual copper production was reduced by
approximately 44,200 tons.

Our wholly owned operations at Miami,
Arizona, consist of an open-pit
copper mine, an SX/EW operation producing copper cathode, a smelter, an





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acid
plant, an electrolytic refinery and a copper rod plant. In January 2002, as a
result of the then-current economic environment, the Miami mine and refinery
were closed temporarily. Our estimate at the time was that this curtailment
action would eliminate approximately 49,600 tons of annual copper production.
In 2002, Miamis copper production was improved by higher than expected output
from residual leach stockpiles, various other improvements resulting from Quest
for Zeroactions, and the use of smelter weak acid in leaching operations. As
a result, 2002 annual copper production was reduced by approximately 30,400
tons.

We operate an open-pit copper mine,
concentrator and SX/EW facility near
Silver City, New Mexico, and a smelter in Hurley, New Mexico, that are owned by
Chino Mines Company (Chino), a general partnership in which we hold a
two-thirds interest. Heisei Minerals Corporation (Heisei), a subsidiary of
Mitsubishi Materials Corporation and Mitsubishi Corporation, owns the remaining
one-third interest in Chino. Each partner purchases its proportionate share of Chinos copper
production each month. Beginning in late 1998 and through the first half of 1999,
production was curtailed resulting in a reduction of approximately 35,000 tons
of annual copper production. In March 2001, the concentrator was temporarily
shut down, and in January 2002, the Chino mine and smelter were closed
temporarily. Our estimates at the time were that these actions would eliminate
approximately 144,400 tons of annual copper production. We anticipated that
residual leaching operations at Chino would become uneconomic by mid-year 2002.
However, copper recoveries from leach stockpiles have been better than
anticipated and leaching operations are now expected to remain economic for
several more years, even with the mine curtailed. As a result, 2002 annual
copper production was reduced by approximately 97,400 tons.

Phelps Dodge operates its wholly owned
Tyrone open-pit mine and SX/EW
plant near Tyrone, New Mexico. Tyrone has been a mine-for-leach operation
since 1992. The Tyrone mine is currently operating at less than full capacity
due to current unfavorable market conditions.

In February 1998, we acquired Cobre Mining
Company Inc. (Cobre) located in
southwestern New Mexico adjacent to our Chino operations. The primary assets
of Cobre include an open-pit copper mine, two underground copper mines, two
mills, and the surrounding 11,000 acres of land, including mineral rights. In
late 1998 and early 1999, all of these operations were indefinitely suspended,
reducing copper production by approximately 35,000 tons per year. The entire
Cobre operation remains on care-and-maintenance status. In December 2002, the
Company recognized an impairment charge to write-down Cobres assets by $115.5
million (before and after taxes). We took this action after revising mine
plans and assessing recoverability. The impairment assessment used a copper
price lower than the prior-year assumption. The copper price used was based on
the historical moving average copper price for the past 10 years, which we
believe to be indicative of full economic and pricing cycles for copper. The
amount of Cobres impairment was determined through an assessment of projected
discounted cash flows for the remaining ore reserves.

South American Mines




We produce electrowon copper cathode at
SX/EW operations near Arequipa,
Peru; and near Calama, Chile. We produce copper concentrate from open-pit
mines and concentrators located near Copiapó, Chile. We also produce copper
concentrate from two underground mines and a concentrator located near Copiapó,
Chile (currently curtailed).

Following is a map indicating the
approximate location of PDMCs South
American mines:

South American Mines





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We operate the Candelaria mine located
near Copiapó in the Atacama Desert
of northern Chile. The operation presently consists of an open-pit copper
mine, concentrator, port and associated facilities. We own an 80 percent
partnership interest in Candelaria, a Chilean contractual mining company,
through Phelps Dodge Candelaria, Inc., a wholly owned subsidiary. Sumitomo
Metal Mining Co., Ltd. and Sumitomo Corporation own the remaining 20 percent
interest.

Phelps Dodge owns a 51 percent
partnership interest in Sociedad
Contractual Minera El Abra (El Abra), a Chilean contractual mining company. El
Abra holds mining concessions over more than 33,000 acres of land near Calama
in the copper-rich Second Region of northern Chile. The remaining 49 percent is
owned by the state-owned copper enterprise Corporación Nacional del Cobre de
Chile (CODELCO). The El Abra operation, which began commercial production in
the second half of 1996, consists of a mine-for-leach, open-pit mining
operation that uses three stages of crushing prior to leaching, an on/off leach
pad, and an SX/EW operation to produce copper cathode. In 2001, El Abra
completed a $70 million project (including our partners share) to leach
uncrushed run-of-mine (ROM) material. The ROM project allows El Abra to
maintain tankhouse design capacity. ROM production began in January 2002, with
full production from the project achieved in the second half of 2002.

We own approximately 82 percent of
the common stock of Sociedad Minera
Cerro Verde S.A.A. (Cerro Verde). Compañia de Minas Buenaventura S.A., a
long-established Peruvian mining concern, owns approximately 9 percent and the
employees of Cerro Verde and other shareholders own approximately 9 percent.
The Cerro Verde operation, located approximately 30 kilometers southwest of
Arequipa, Peru, consists of two open pits, Cerro Verde and Santa Rosa, a
heap-leach operation and an SX/EW operation to produce copper cathode. The ore
is processed through primary, secondary and tertiary crushers and placed on a
leach pad after agglomeration.

Until the fourth quarter of 1998, we
produced copper concentrate from two
underground mines and a concentrator located near Copiapó, Chile, through our
wholly owned Chilean subsidiary, Compañía Contractual Minera Ojos del Salado
(Ojos del Salado). We suspended operations indefinitely at Ojos del Salado in
October 1998, resulting in a reduction of more than 22,000 tons of annual
copper production. The Ojos del Salado operations remain on
care-and-maintenance status.

In 2002, we produced a total of 343,500
tons of cathode copper at our
SX/EW facilities in South America, compared with 324,700 tons in 2001 and
296,100 tons in 2000. Our total annual capacity of electrowon copper cathode
production currently is 248,000 tons at El Abra and 95,000 tons at Cerro Verde.

Manufacturing and Sales Segment




We own and operate a copper smelter in
Miami, Arizona, and, through Chino
Mines Company, a two-thirds interest in the Chino smelter in Hurley, New
Mexico. In January 2002, the Chino smelter was temporarily closed. We smelt
virtually all of our share of our U.S. copper concentrate production and,
depending on market circumstances and internal production requirements, some
concentrate production from Candelaria. In addition, we may purchase
concentrate to keep our smelters operating at efficient levels.

In September 1999, we suspended
operations at our Hidalgo smelter in
Hidalgo County, New Mexico, due to a general lack of concentrate availability
in the United States and depressed copper market fundamentals (this suspension
was coincident with the closure of the Metcalf concentrator as previously
discussed). As a result of the successful acquisition of Cyprus Amax and the
decision to convert Morenci to a mine-for-leach operation, we concluded that
Hidalgo would likely not be operated in its historic configuration in the
foreseeable future. Accordingly, a pre-tax write-down of the Hidalgo assets of
$201.5 million was taken in 1999. However, it was anticipated at the time that
Hidalgo may have a future use for sulfuric acid production for the Companys
leach operations. In December 2002, the Company recognized an impairment
charge to write-down Hidalgos assets by an additional $12.9 million (before
and after taxes). As a result of the Companys ability to use acid more
efficiently and an updated assessment of PDMCs long-term acid production and
consumption balance, the Company determined that Hidalgo probably will not be
reconfigured to produce acid as originally anticipated and that the net book
value of Hidalgo assets probably would not be recovered. Hidalgos power
facilities will continue to generate electricity when needed, and the facility
will continue to be a backup alternative as a reliable producer of acid if
conditions warrant. The remaining Hidalgo assets were written down to their
estimated fair value. The Company also recognized a $7.0 million (before and
after taxes) charge for the estimated remaining costs of its closure obligation
at Hidalgo.

We refine our share of anode copper
production from our smelters at our
refineries in El Paso, Texas, and Miami, Arizona. During 2002, 2001 and 2000,
the El Paso refinery operated significantly below capacity due to the late 1999
third quarter closing of the Hidalgo smelter. The closure of the Hidalgo
smelter resulted not only in a curtailment of operations





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at the El Paso refinery, but also a reduction of approximately 200 refinery jobs.
Our Miami
refinery has an annual production capacity of about 200,000 tons of copper
cathode, and the El Paso refinery has an annual production capacity of about
450,000 tons of copper cathode. The total combined capacity of about 650,000
tons of electrolytic copper per year is sufficient to refine all the anode
copper we produce for our account at our operating smelters, as well as anodes
from other customers that we refine on a toll basis. As a result of production
curtailments announced in the fourth quarter of 2001, the Miami refinery
temporarily was closed. Our refineries also produce copper sulfate, nickel
sulfate, copper telluride, and autoclaved slimes material containing gold,
silver, selenium, platinum and palladium.

We are the worlds largest producer
of continuous-cast copper rod, the
basic feed for the electrical wire and cable industry. Most of our refined
copper, and additional purchased copper, is converted into rod at our
continuous-cast copper rod facilities in El Paso, Texas; Norwich, Connecticut;
Miami, Arizona; and Chicago, Illinois. Our four plants have a collective
annual capacity to convert more than 1.1 million tons of refined copper into
rod and other refined copper products.

Primary Molybdenum Segment




See United States Mines map on page 3 for
the location of our molybdenum
mines.

Phelps Dodge owns the underground
Henderson molybdenum mine near Empire,
Colorado. The operation consists of an underground block-caving mine where
molybdenite ore is mined and transported to a conventional sulfide
concentrator. The concentrator is capable of operating at a rate of 32,000 tons
of ore per day, producing molybdenum disulfide concentrate containing up to 58 percent molybdenum.
Most of the concentrate is shipped to our Fort Madison roasting and chemical
processing facility in Iowa where a number of different high-purity products
are made for final sale to customers. A portion of Hendersons production is
further refined and sold to customers as molysulfide. In 1999, Hendersons
mine was modernized (i) to replace a 20-year old underground and surface rail
transportation system with a modern conveyor and (ii) to develop a new
production level using more efficient high-lift caving methods.

In May 2000, as a result of an oversupply of
molybdenum and continued low
prices in the world market, Phelps Dodge announced a plan to curtail molybdenum
production by approximately 20 percent and reduce its Henderson workforce by
approximately 130 workers. In 2002, the previously announced production
curtailment remained essentially in place.

Phelps Dodge also owns the Climax
molybdenum mine near Leadville,
Colorado. The operation consists of both an underground and open-pit mine, and
a 16,000 ton-per-day concentrator. The Climax molybdenum mine had been placed
on care-and-maintenance in 1995 by the predecessor owner. At year-end 2002, as
well as at the acquisition, we expected to bring Climax into production
concurrent with the exhaustion of the Henderson molybdenum mine reserves for
continued long-term primary molybdenum supply for the chemicals business. The
property occupies more than 14,000 acres.

Phelps Dodge processes molybdenum
concentrates at its conversion plants in
the United States and Europe into such products as technical grade molybdic
oxide, ferromolybdenum, pure molybdic oxide, ammonium molybdates and
molysulfide. The Company operates molybdenum roasters at Green Valley,
Arizona; Fort Madison, Iowa; and Rotterdam, The Netherlands.

The Fort Madison, Iowa, facilities consist of
two molybdenum roasters, a
sulfuric acid plant, a metallurgical (technical oxide) packaging facility, and
a chemical conversion plant, which includes a wet chemicals plant and
sublimation equipment. In the chemical plant, molybdic oxide is further
refined into various high-purity molybdenum chemicals for a wide range of uses
by chemical and catalyst manufacturers. The Fort Madison facilities produce
ammonium dimolybdate, pure molybdic oxide, ammonium heptamolybdate, ammonium
octamolybdate, sodium molybdate, sublimed pure molybdic oxide and molysulfide.

The Rotterdam conversion plant consists of
a molybdenum roaster, sulfuric
acid plant, a metallurgical packaging facility and a chemical conversion plant.
The plant produces metallurgical products primarily for third parties.
Ammonium dimolybdate and pure molybdic oxide are produced in a wet chemical
plant.

We also produce ferromolybdenum and
molysulfide at our conversion plant
located in Stowmarket, United Kingdom, both for European and worldwide
customers. The plant is operated both as an internal and external customer
tolling facility.

Worldwide Copper Production by Source,
Other Metal Production and Sales
Data, and Manufacturing and Sales Production




The following tables show our worldwide
copper production by source for
the years 1998 through 2002; aggregate production and sales data for copper,





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- 8 -

gold, silver, molybdenum and sulfuric acid from these sources for the same
years; annual average copper and molybdenum prices; and production from our
smelters and refineries. Major changes in operations during the five-year
period included:



| |  |  | completion of the run-of-mine leach project at El Abra in
2002;                                                                                                                                                                                                                                                                   
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | curtailment of Chino operations beginning in the 1998 fourth
quarter, followed by temporary shut-down of the concentrator in March
2001 and temporary closure of the mine and smelter in January 2002;                                                                                                                            
|
| |  |  | temporary closure of the Miami mine and refinery in January
2002;                                                                                                                                                                                                                                                                 
|
| |  |  | curtailment of mill throughput at Sierrita and Bagdad to approximately
one-half capacity in January 2002;                                                                                                                                                                                                                         
|
| |  |  | conversion of Morenci operations to mine-for-leach during 1999
and 2000, with completion in the 2001 first quarter;                                                                                                                                                                                                               
|
| |  |  | partial curtailment of Henderson operations beginning in the
2000 second quarter;                                                                                                                                                                                                                                                 
|
| |  |  | acquisition of Cyprus Amax on October 16, 1999 (the primary
assets acquired included the Bagdad, Sierrita, Miami, El Abra and
Cerro Verde copper mines; the Henderson and Climax molybdenum mines;
a copper smelter, refinery and two rod plants; three molybdenum
roasting operations and four molybdenum conversion facilities);
|
| |  |  | permanent closure of Morencis Metcalf concentrator at the end of
1999;                                                                                                                                                                                                                                                           
|
| |  |  | temporary closure of the Hidalgo smelter facilities in September
1999;                                                                                                                                                                                                                                                            
|
| |  |  | acquisition of Cobre in February 1998 followed by suspension of
underground mining in October 1998 and the remaining facilities in
March 1999;                                                                                                                                                                                    
|
| |  |  | suspension of operations at Ojos del Salado in October 1998;
and                                                                                                                                                                                                                                                                  
|
| |  |  | completion of the Southwest solution extraction project at Morenci in the
1998 third quarter.                                                                                                                                                                                                                                     





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- 9 -

Phelps Dodge Copper Production Data, by Source (a)
(thousand tons)

|                   |                                         |  |                 |                          |  |         |         |      |  |         |         |      |  |         |         |  |  |         |         |  |  |         |         | 
|------------------ | --------------------------------------- |  | --------------- | ------------------------ |  | ------- | ------- | ---- |  | ------- | ------- | ---- |  | ------- | ------- |  |  | ------- | ------- |  |  | ------- | ------- | 
|                   |                                         |  |                 |                          |  | 2002    |         | 2001 |  | 2000    |         | 1999 |  | 1998   
|                   |                                         |  |                 |                          |  |         |         |      |  |         |         |      |  |        
|Material mined
(b) |                                         |  |                 |                          |  |         |         |      |  |         |         |      |  |         |         |  |  |         |         | 
|                   |                                         |  | Morenci         |                          |  | 248,505 |         |      |  | 281,474 |         |      |  | 274,871 |         |  |  | 297,872 |         |  |  | 288,200 |        
|                   |                                         |  | Bagdad          |                          |  | 42,912  |         |      |  | 63,680  |         |      |  | 69,101  |         |  |  | 16,233  |         |  |  |        |        
|                   |                                         |  | Sierrita        |                          |  | 23,066  |         |      |  | 60,869  |         |      |  | 75,319  |         |  |  | 15,875  |         |  |  |        |        
|                   |                                         |  | Miami           |                          |  |        |         |      |  | 32,702  |         |      |  | 46,446  |         |  |  | 13,787  |         |  |  |        |        
|                   |                                         |  | Chino           |                          |  | 220     |         |      |  | 59,277  |         |      |  | 61,519  |         |  |  | 44,562  |         |  |  | 117,432 |        
|                   |                                         |  | Cobre           |                          |  |        |         |      |  |        |         |      |  |        |         |  |  | 4,558   |         |  |  | 15,763  |        
|                   |                                         |  | Tyrone          |                          |  | 45,515  |         |      |  | 73,990  |         |      |  | 113,937 |         |  |  | 113,422 |         |  |  | 108,359 |        
|                   |                                         |  | Candelaria      |                          |  | 109,211 |         |      |  | 126,509 |         |      |  | 128,464 |         |  |  | 139,886 |         |  |  | 131,155 |        
|                   |                                         |  | Ojos del
Salado |                          |  |        |         |      |  |        |         |      |  |        |         |  |  |        |         |  |  | 1,336   |        
|                   |                                         |  | Cerro
Verde     |                          |  | 75,982  |         |      |  | 68,685  |         |      |  | 61,400  |         |  |  | 11,459  |         |  |  |        |        
|                   |                                         |  | El
Abra         |                          |  | 76,831  |         |      |  | 82,737  |         |      |  | 67,786  |         |  |  | 10,029  |         |  |  |        |        
|                   |                                         |  |                 |                          |  |         |         |      |  |         |         |      |  |         |         |  |  |         |         | 
|                   |                                         |  |                 | Total material
mined     |  |         | 622,242 |      |  |         | 849,923 |      |  |         | 898,843 |  |  |         | 667,683 |  |  |         | 662,245 | 
|                   | Less minority
participants shares (c): |  |                 |                          |  |         |         |      |  |         |         |      |  |         |         |  |  |         |         |  | 
|                   |                                         |  | Morenci         |                          |  | 37,276  |         |      |  | 42,220  |         |      |  | 41,231  |         |  |  | 44,681  |         |  |  | 43,230  |        
|                   |                                         |  | Chino           |                          |  | 73      |         |      |  | 19,758  |         |      |  | 20,506  |         |  |  | 14,854  |         |  |  | 39,144  |        
|                   |                                         |  | Candelaria      |                          |  | 21,842  |         |      |  | 25,302  |         |      |  | 25,693  |         |  |  | 27,977  |         |  |  | 26,231  |        
|                   |                                         |  | El
Abra         |                          |  | 37,647  |         |      |  | 40,541  |         |      |  | 33,215  |         |  |  | 4,914   |         |  |  |        |        
|                   |                                         |  |                 |                          |  |         |         |      |  |         |         |      |  |         |         |  |  |         |         |  |  |         |        
|                   |                                         |  |                 | Net Phelps Dodge
share   |  |         | 525,404 |      |  |         | 722,102 |      |  |         | 778,198 |  |  |         | 575,257 |  |  |         | 553,640 | 
|                   |                                         |  |                 |                          |  |         |         |      |  |         |         |      |  |         |         |  |  |         |         | 
|Mill ore
processed |                                         |  |                 |                          |  |         |         |      |  |         |         |      |  |         |         |  |  |         |         | 
|                   |                                         |  | Morenci         |                          |  |        |         |      |  | 4,301   |         |      |  | 26,698  |         |  |  | 38,283  |         |  |  | 47,108  |        
|                   |                                         |  | Bagdad          |                          |  | 19,783  |         |      |  | 31,667  |         |      |  | 29,846  |         |  |  | 6,211   |         |  |  |        |        
|                   |                                         |  | Sierrita        |                          |  | 21,439  |         |      |  | 38,133  |         |      |  | 38,319  |         |  |  | 8,046   |         |  |  |        |        
|                   |                                         |  | Chino           |                          |  |        |         |      |  | 3,109   |         |      |  | 13,889  |         |  |  | 16,056  |         |  |  | 16,431  |        
|                   |                                         |  | Cobre           |                          |  |        |         |      |  |        |         |      |  |        |         |  |  | 654     |         |  |  | 4,291   |        
|                   |                                         |  | Candelaria      |                          |  | 28,507  |         |      |  | 27,365  |         |      |  | 26,165  |         |  |  | 22,405  |         |  |  | 24,432  |        
|                   |                                         |  | Ojos del
Salado |                          |  |        |         |      |  |        |         |      |  |        |         |  |  |        |         |  |  | 1,210   |        
|                   |                                         |  |                 |                          |  |         |         |      |  |         |         |      |  |         |         |  |  |         |         | 
|                   |                                         |  |                 | Total mill ore
processed |  |         | 69,729  |      |  |         | 104,575 |      |  |         | 134,917 |  |  |         | 91,655  |  |  |         | 93,472  | 
|                   | Less minority
participants shares (c): |  |                 |                          |  |         |         |      |  |         |         |      |  |         |         |  |  |         |         |  | 
|                   |                                         |  | Morenci         |                          |  |        |         |      |  | 645     |         |      |  | 4,004   |         |  |  | 5,742   |         |  |  | 7,066   |        
|                   |                                         |  | Chino           |                          |  |        |         |      |  | 1,036   |         |      |  | 4,630   |         |  |  | 5,352   |         |  |  | 5,477   |        
|                   |                                         |  | Candelaria      |                          |  | 5,701   |         |      |  | 5,473   |         |      |  | 5,233   |         |  |  | 4,481   |         |  |  | 4,886   |        
|                   |                                         |  |                 |                          |  |         |         |      |  |         |         |      |  |         |         |  |  |         |         |  |  |         |        
|                   |                                         |  |                 | Net Phelps Dodge
share   |  |         | 64,028  |      |  |         | 97,421  |      |  |         | 121,050 |  |  |         | 76,080  |  |  |         | 76,043  | 
|                   |                                         |  |                 |                          |  |         |         |      |  |         |         |      |  |         |         |  |  |         |         | 

See footnote explanations on page 13.





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- 10 -

Phelps Dodge Copper Production Data, by Source (a)
(thousand tons)

|                                    |                                         |                        |                                      |      |         |         |  |      |         |         |  |  |         |         |  |  |         |         |  |  |         |         | 
|----------------------------------- | --------------------------------------- | ---------------------- | ------------------------------------ | ---- | ------- | ------- |  | ---- | ------- | ------- |  |  | ------- | ------- |  |  | ------- | ------- |  |  | ------- | ------- | 
|                                    |                                         | 2002                   |                                      | 2001 |         | 2000    |  | 1999 |         | 1998   
|                                    |                                         |                        |                                      |      |         |         |  |      |         |        
|Leach ore placed in
stockpiles      |                                         |                        |                                      |      |         |         |  |      |         |         |  |  |         |         |  |  |         |         |  | 
|                                    |                                         | Morenci                |                                      |      | 241,955 |         |  |      | 258,202 |         |  |  | 236,696 |         |  |  | 250,680 |         |  |  | 232,120 |        
|                                    |                                         | Bagdad                 |                                      |      | 328     |         |  |      | 696     |         |  |  |        |         |  |  |        |         |  |  |        |        
|                                    |                                         | Sierrita               |                                      |      | 170     |         |  |      | 14,347  |         |  |  | 18,386  |         |  |  | 4,307   |         |  |  |        |        
|                                    |                                         | Miami                  |                                      |      |        |         |  |      | 10,208  |         |  |  | 11,032  |         |  |  | 2,379   |         |  |  |        |        
|                                    |                                         | Chino                  |                                      |      | 198     |         |  |      | 31,009  |         |  |  | 12,875  |         |  |  | 12,400  |         |  |  | 44,734  |        
|                                    |                                         | Tyrone                 |                                      |      | 34,835  |         |  |      | 27,513  |         |  |  | 51,446  |         |  |  | 55,693  |         |  |  | 55,086  |        
|                                    |                                         | Cerro
Verde            |                                      |      | 24,096  |         |  |      | 23,436  |         |  |  | 17,833  |         |  |  | 2,642   |         |  |  |        |        
|                                    |                                         | El
Abra                |                                      |      | 71,224  |         |  |      | 75,875  |         |  |  | 62,042  |         |  |  | 8,678   |         |  |  |        |        
|                                    |                                         |                        |                                      |      |         |         |  |      |         |         |  |  |         |         |  |  |         |         |  | 
|                                    |                                         |                        | Total leach ore placed in
stockpiles |      |         | 372,806 |  |      |         | 441,286 |  |  |         | 410,310 |  |  |         | 336,779 |  |  |         | 331,940 | 
|                                    | Less minority
participants shares (c): |                        |                                      |      |         |         |  |      |         |         |  |  |         |         |  |  |         |         |  |  |        
|                                    |                                         | Morenci                |                                      |      | 36,293  |         |  |      | 38,729  |         |  |  | 35,503  |         |  |  | 37,602  |         |  |  | 34,817  |        
|                                    |                                         | Chino                  |                                      |      | 66      |         |  |      | 10,336  |         |  |  | 4,292   |         |  |  | 4,133   |         |  |  | 14,911  |        
|                                    |                                         | El
Abra                |                                      |      | 34,900  |         |  |      | 37,179  |         |  |  | 30,401  |         |  |  | 4,252   |         |  |  |        |        
|                                    |                                         |                        |                                      |      |         |         |  |      |         |         |  |  |         |         |  |  |         |         |  | 
|                                    |                                         |                        | Net Phelps Dodge
share               |      |         | 301,547 |  |      |         | 355,042 |  |  |         | 340,114 |  |  |         | 290,792 |  |  |         | 282,212 | 
|                                    |                                         |                        |                                      |      |         |         |  |      |         |         |  |  |         |         |  |  |         |         |  | 
|Grade of ore mined
- percent copper |                                         |                        |                                      |      |         |         |  |      |         |         |  |  |         |         |  |  |         |         |  | 
|                                    |                                         | Morenci -
mill         |                                      |      |        |         |  |      | 0.78    |         |  |  | 0.71    |         |  |  | 0.68    |         |  |  | 0.68    |        
|                                    |                                         | Morenci -
leach        |                                      |      | 0.28    |         |  |      | 0.30    |         |  |  | 0.26    |         |  |  | 0.26    |         |  |  | 0.26    |        
|                                    |                                         | Bagdad -
mill          |                                      |      | 0.43    |         |  |      | 0.43    |         |  |  | 0.43    |         |  |  | 0.43    |         |  |  |        |        
|                                    |                                         | Bagdad -
leach         |                                      |      | 0.29    |         |  |      | 0.28    |         |  |  |        |         |  |  |        |         |  |  |        |        
|                                    |                                         | Sierrita -
mill        |                                      |      | 0.32    |         |  |      | 0.29    |         |  |  | 0.29    |         |  |  | 0.29    |         |  |  |        |        
|                                    |                                         | Sierrita -
leach       |                                      |      | 0.21    |         |  |      | 0.22    |         |  |  | 0.20    |         |  |  | 0.20    |         |  |  |        |        
|                                    |                                         | Miami -
leach          |                                      |      |        |         |  |      | 0.41    |         |  |  | 0.71    |         |  |  | 0.52    |         |  |  |        |        
|                                    |                                         | Chino -
mill           |                                      |      |        |         |  |      | 0.79    |         |  |  | 0.83    |         |  |  | 0.59    |         |  |  | 0.68    |        
|                                    |                                         | Chino -
leach          |                                      |      | 0.29    |         |  |      | 0.48    |         |  |  | 0.22    |         |  |  | 0.25    |         |  |  | 0.18    |        
|                                    |                                         | Cobre -
mill           |                                      |      |        |         |  |      |        |         |  |  |        |         |  |  | 1.00    |         |  |  | 0.79    |        
|                                    |                                         | Tyrone -
leach         |                                      |      | 0.35    |         |  |      | 0.29    |         |  |  | 0.26    |         |  |  | 0.28    |         |  |  | 0.26    |        
|                                    |                                         | Candelaria -
mill      |                                      |      | 0.84    |         |  |      | 0.96    |         |  |  | 0.93    |         |  |  | 1.22    |         |  |  | 1.07    |        
|                                    |                                         | Ojos del Salado -
mill |                                      |      |        |         |  |      |        |         |  |  |        |         |  |  |        |         |  |  | 1.64    |        
|                                    |                                         | Cerro Verde -
leach    |                                      |      | 0.55    |         |  |      | 0.53    |         |  |  | 0.59    |         |  |  | 0.78    |         |  |  |        |        
|                                    |                                         | El Abra -
leach        |                                      |      | 0.50    |         |  |      | 0.60    |         |  |  | 0.56    |         |  |  | 0.79    |         |  |  |        |        
|                                    |                                         |                        | Average copper grade -
mill          |      |         | 0.56    |  |      |         | 0.54    |  |  |         | 0.59    |  |  |         | 0.75    |  |  |         | 0.80    | 
|                                    |                                         |                        | Average copper grade -
leach         |      |         | 0.35    |  |      |         | 0.38    |  |  |         | 0.33    |  |  |         | 0.28    |  |  |         | 0.25    | 

See footnote explanations on page 13.





---



##### Table of Contents



- 11 -

Phelps Dodge Copper Production and Sales Data, by Source (a)
(thousand tons)

|                                                          |                                         |      |                             |                                                            |  |       |         |       |  |       |         |       |  |       |         |       |  |       |         |       |   |       |         | 
|--------------------------------------------------------- | --------------------------------------- | ---- | --------------------------- | ---------------------------------------------------------- |  | ----- | ------- | ----- |  | ----- | ------- | ----- |  | ----- | ------- | ----- |  | ----- | ------- | ----- | - | ----- | ------- | 
|                                                          |                                         | 2002 |                             | 2001                                                       |  | 2000  |         | 1999  |  | 1998 
|                                                          |                                         |      |                             |                                                            |  |       |         |       |  |      
|Copper
Production                                         |                                         |      |                             |                                                            |  |       |         |       |  |       |         |       |  |       |         |       |  |       |         |      
|                                                          | Morenci:                                |      |                             |                                                            |  |       |         |       |  |       |         |       |  |       |         |       |  |       |         |       |  
|                                                          |                                         |      | Concentrate                 |                                                            |  |      |         |       |  | 23.5  |         |       |  | 132.3 |         |       |  | 195.2 |         |       |   | 247.2 |        
|                                                          |                                         |      | Electrowon                  |                                                            |  | 412.7 |         |       |  | 368.1 |         |       |  | 284.7 |         |       |  | 284.7 |         |       |   | 275.8 |        
|                                                          | Bagdad:                                 |      |                             |                                                            |  |       |         |       |  |       |         |       |  |       |         |       |  |       |         |       |  
|                                                          |                                         |      | Concentrate                 |                                                            |  | 68.4  |         |       |  | 118.1 |         |       |  | 111.5 |         |       |  | 22.3  |         |       |   |      |        
|                                                          |                                         |      | Electrowon                  |                                                            |  | 15.6  |         |       |  | 10.5  |         |       |  | 11.8  |         |       |  | 2.9   |         |       |   |      |        
|                                                          | Sierrita:                               |      |                             |                                                            |  |       |         |       |  |       |         |       |  |       |         |       |  |       |         |       |  
|                                                          |                                         |      | Concentrate                 |                                                            |  | 60.0  |         |       |  | 94.6  |         |       |  | 95.9  |         |       |  | 19.7  |         |       |   |      |        
|                                                          |                                         |      | Electrowon                  |                                                            |  | 16.2  |         |       |  | 26.3  |         |       |  | 26.5  |         |       |  | 5.8   |         |       |   |      |        
|                                                          | Miami:                                  |      |                             |                                                            |  |       |         |       |  |       |         |       |  |       |         |       |  |       |         |       |  
|                                                          |                                         |      | Electrowon                  |                                                            |  | 10.5  |         |       |  | 44.1  |         |       |  | 59.3  |         |       |  | 13.2  |         |       |   |      |        
|                                                          | Bisbee:                                 |      |                             |                                                            |  |       |         |       |  |       |         |       |  |       |         |       |  |       |         |       |  
|                                                          |                                         |      | Precipitate                 |                                                            |  | 0.1   |         |       |  | 0.2   |         |       |  | 0.1   |         |       |  | 0.1   |         |       |   | 0.6   |        
|                                                          | Chino:                                  |      |                             |                                                            |  |       |         |       |  |       |         |       |  |       |         |       |  |       |         |       |  
|                                                          |                                         |      | Concentrate and
precipitate |                                                            |  |      |         |       |  | 18.3  |         |       |  | 87.0  |         |       |  | 74.3  |         |       |   | 85.5  |        
|                                                          |                                         |      | Electrowon                  |                                                            |  | 53.8  |         |       |  | 59.9  |         |       |  | 48.6  |         |       |  | 55.8  |         |       |   | 72.4  |        
|                                                          | Cobre:                                  |      |                             |                                                            |  |       |         |       |  |       |         |       |  |       |         |       |  |       |         |       |  
|                                                          |                                         |      | Concentrate                 |                                                            |  |      |         |       |  |      |         |       |  |      |         |       |  | 6.6   |         |       |   | 34.2  |        
|                                                          | Tyrone:                                 |      |                             |                                                            |  |       |         |       |  |       |         |       |  |       |         |       |  |       |         |       |  
|                                                          |                                         |      | Electrowon                  |                                                            |  | 69.9  |         |       |  | 76.4  |         |       |  | 79.3  |         |       |  | 80.1  |         |       |   | 82.6  |        
|                                                          | Candelaria:                             |      |                             |                                                            |  |       |         |       |  |       |         |       |  |       |         |       |  |       |         |       |  
|                                                          |                                         |      | Concentrate                 |                                                            |  | 219.5 |         |       |  | 243.2 |         |       |  | 224.7 |         |       |  | 250.1 |         |       |   | 236.9 |        
|                                                          | Ojos del
Salado:                        |      |                             |                                                            |  |       |         |       |  |       |         |       |  |       |         |       |  |       |         |       |  
|                                                          |                                         |      | Concentrate                 |                                                            |  |      |         |       |  |      |         |       |  |      |         |       |  |      |         |       |   | 17.9  |        
|                                                          | Cerro
Verde:                            |      |                             |                                                            |  |       |         |       |  |       |         |       |  |       |         |       |  |       |         |       |  
|                                                          |                                         |      | Electrowon                  |                                                            |  | 95.3  |         |       |  | 84.9  |         |       |  | 78.7  |         |       |  | 16.2  |         |       |   |      |        
|                                                          | El
Abra:                                |      |                             |                                                            |  |       |         |       |  |       |         |       |  |       |         |       |  |       |         |       |  
|                                                          |                                         |      | Electrowon                  |                                                            |  | 248.2 |         |       |  | 239.8 |         |       |  | 217.4 |         |       |  | 52.8  |         |       |   |      |        
|                                                          | Manufacturing and Sales
(d)             |      |                             | 5.4                                                        |  |       |         | 3.0   |  |       |         | 1.2   |  |       |         | 1.5   |  |       |         | (0.4  | )
|                                                          |                                         |      |                             |                                                            |  |       |         |       |  |       |         |       |  |       |         |       |  |       |         |      
|                                                          |                                         |      |                             | Total copper
production                                    |  |       | 1,275.6 |       |  |       | 1,410.9 |       |  |       | 1,459.0 |       |  |       | 1,081.3 |       |   |       | 1,052.7 | 
|                                                          |                                         |      |                             |                                                            |  |       |         |       |  |       |         |       |  |       |         |       |  |       |         |      
|                                                          | Less minority
participants shares (c): |      |                             |                                                            |  |       |         |       |  |       |         |       |  |       |         |       |  |       |         |       |  
|                                                          |                                         |      | Morenci                     |                                                            |  | 61.9  |         |       |  | 58.8  |         |       |  | 62.5  |         |       |  | 72.0  |         |       |   | 78.4  |        
|                                                          |                                         |      | Chino                       |                                                            |  | 17.9  |         |       |  | 26.1  |         |       |  | 45.2  |         |       |  | 43.3  |         |       |   | 52.6  |        
|                                                          |                                         |      | Candelaria                  |                                                            |  | 43.9  |         |       |  | 48.6  |         |       |  | 45.0  |         |       |  | 50.0  |         |       |   | 47.4  |        
|                                                          |                                         |      | El
Abra                     |                                                            |  | 121.7 |         |       |  | 117.5 |         |       |  | 106.5 |         |       |  | 25.9  |         |       |   |      |        
|                                                          |                                         |      | Manufacturing and Sales
(d) |                                                            |  | 1.4   |         |       |  | (0.2  | )       |       |  | (0.5  | )       |       |  |      |         |       |   | 0.3   |        
|                                                          |                                         |      |                             |                                                            |  |       |         |       |  |       |         |       |  |       |         |       |  |       |         |       |   |       |        
|                                                          |                                         |      |                             | Net Phelps Dodge
share                                     |  |       | 1,028.8 |       |  |       | 1,160.1 |       |  |       | 1,200.3 |       |  |       | 890.1   |       |   |       | 874.0   | 
|                                                          |                                         |      |                             |                                                            |  |       |         |       |  |       |         |       |  |       |         |       |  |       |         |      
|Copper sales -
net Phelps Dodge share from own mines (e): |                                         |      |                             |                                                            |  |       |         |       |  |       |         |       |  |       |         |       |  |       |         |      
|                                                          | Morenci                                 |      |                             | 350.8                                                      |  |       |         | 333.0 |  |       |         | 354.4 |  |       |         | 415.5 |  |       |         | 445.8 |  
|                                                          | Bagdad                                  |      |                             | 92.3                                                       |  |       |         | 132.9 |  |       |         | 123.3 |  |       |         | 25.2  |  |       |         |      |  
|                                                          | Sierrita                                |      |                             | 83.8                                                       |  |       |         | 125.1 |  |       |         | 122.4 |  |       |         | 25.6  |  |       |         |      |  
|                                                          | Miami                                   |      |                             | 15.2                                                       |  |       |         | 46.6  |  |       |         | 59.2  |  |       |         | 13.2  |  |       |         |      |  
|                                                          | Bisbee                                  |      |                             | 0.1                                                        |  |       |         | 0.3   |  |       |         | 0.1   |  |       |         | 0.1   |  |       |         | 0.6   |  
|                                                          | Chino                                   |      |                             | 35.8                                                       |  |       |         | 52.1  |  |       |         | 90.4  |  |       |         | 89.3  |  |       |         | 105.6 |  
|                                                          | Cobre                                   |      |                             |                                                           |  |       |         |      |  |       |         |      |  |       |         | 6.6   |  |       |         | 33.8  |  
|                                                          | Tyrone                                  |      |                             | 69.9                                                       |  |       |         | 76.4  |  |       |         | 79.2  |  |       |         | 81.7  |  |       |         | 82.8  |  
|                                                          | Candelaria                              |      |                             | 174.6                                                      |  |       |         | 190.1 |  |       |         | 181.5 |  |       |         | 187.4 |  |       |         | 190.2 |  
|                                                          | Cerro
Verde                             |      |                             | 94.9                                                       |  |       |         | 84.7  |  |       |         | 78.8  |  |       |         | 16.5  |  |       |         |      |  
|                                                          | El
Abra                                 |      |                             | 129.6                                                      |  |       |         | 126.7 |  |       |         | 109.5 |  |       |         | 29.3  |  |       |         |      |  
|                                                          | Ojos del
Salado                         |      |                             |                                                           |  |       |         |      |  |       |         |      |  |       |         |      |  |       |         | 18.2  |  
|                                                          | Manufacturing and Sales
(d)             |      |                             | 4.1                                                        |  |       |         | 2.9   |  |       |         | 1.8   |  |       |         | 1.5   |  |       |         | (0.7  | )
|                                                          |                                         |      |                             |                                                            |  |       |         |       |  |       |         |       |  |       |         |       |  |       |         |      
|                                                          |                                         |      |                             | Total copper sales - net Phelps
Dodge share
from own mines |  |       | 1,051.1 |       |  |       | 1,170.8 |       |  |       | 1,200.6 |       |  |       | 891.9   |       |   |       | 876.3   | 
|                                                          |                                         |      |                             |                                                            |  |       |         |       |  |       |         |       |  |       |         |       |  |       |         |      
|Purchased
copper:                                         |                                         |      |                             |                                                            |  |       |         |       |  |       |         |       |  |       |         |       |  |       |         |      
|                                                          | Morenci                                 |      |                             |                                                           |  |       |         |      |  |       |         |      |  |       |         | 0.1   |  |       |         | 0.1   |  
|                                                          | Candelaria                              |      |                             | 35.8                                                       |  |       |         | 37.0  |  |       |         | 5.0   |  |       |         |      |  |       |         | 3.7   |  
|                                                          | El
Abra                                 |      |                             | 56.5                                                       |  |       |         | 5.8   |  |       |         |      |  |       |         |      |  |       |         |      |  
|                                                          | Manufacturing and Sales
(d)             |      |                             | 350.7                                                      |  |       |         | 418.4 |  |       |         | 490.0 |  |       |         | 289.6 |  |       |         | 305.5 |  
|                                                          |                                         |      |                             |                                                            |  |       |         |       |  |       |         |       |  |       |         |       |  |       |         |      
|                                                          |                                         |      | Total purchased
copper      |                                                            |  | 443.0 |         |       |  | 461.2 |         |       |  | 495.0 |         |       |  | 289.7 |         |       |   | 309.3 |        
|                                                          |                                         |      |                             |                                                            |  |       |         |       |  |       |         |       |  |       |         |       |  |       |         |      
|                                                          |                                         |      |                             | Total sales                                                |  |       | 1,494.1 |       |  |       | 1,632.0 |       |  |       | 1,695.6 |       |  |       | 1,181.6 |       |   |       | 1,185.6 | 
|                                                          |                                         |      |                             |                                                            |  |       |         |       |  |       |         |       |  |       |         |       |  |       |         |       |   |       |        

See footnote explanations on page 13.





---



##### Table of Contents



- 12 -

Phelps Dodge Other Metal Production and Sales (a)

|                              |                                                   |                                                               |  |        |        |      |  |         |         |      |  |         |         |  |  |         |        |  |  |         |         | 
|----------------------------- | ------------------------------------------------- | ------------------------------------------------------------- |  | ------ | ------ | ---- |  | ------- | ------- | ---- |  | ------- | ------- |  |  | ------- | ------ |  |  | ------- | ------- | 
|                              |                                                   |                                                               |  | 2002   |        | 2001 |  | 2000    |         | 1999 |  | 1998   
|                              |                                                   |                                                               |  |        |        |      |  |         |         |      |  |        
|Gold (thousand
ounces)        |                                                   |                                                               |  |        |        |      |  |         |         |      |  |         |         |  |  |         |        |  |  |        
|                              | Total
production                                  |                                                               |  | 132    |        |      |  | 140     |         |      |  | 151     |         |  |  | 173     |        |  |  | 185     |        
|                              | Less minority
participants shares (c)            |                                                               |  | 24     |        |      |  | 31      |         |      |  | 33      |         |  |  | 37      |        |  |  | 36      |        
|                              |                                                   |                                                               |  |        |        |      |  |         |         |      |  |         |         |  |  |         |        |  |  |        
|                              |                                                   | Net Phelps Dodge
share                                        |  |        | 108    |      |  |         | 109     |      |  |         | 118     |  |  |         | 136    |  |  |         | 149     | 
|                              |                                                   |                                                               |  |        |        |      |  |         |         |      |  |         |         |  |  |         |        |  |  |        
|                              | Sales
(e)                                         |                                                               |  | 136    |        |      |  | 77      |         |      |  | 120     |         |  |  | 138     |        |  |  | 159     |        
|                              |                                                   |                                                               |  |        |        |      |  |         |         |      |  |         |         |  |  |         |        |  |  |        
|Silver (thousand
ounces)      |                                                   |                                                               |  |        |        |      |  |         |         |      |  |         |         |  |  |         |        |  |  |        
|                              | Total
production                                  |                                                               |  | 2,582  |        |      |  | 3,773   |         |      |  | 4,985   |         |  |  | 4,284   |        |  |  | 3,566   |        
|                              | Less minority
participants shares (c)            |                                                               |  | 225    |        |      |  | 490     |         |      |  | 657     |         |  |  | 877     |        |  |  | 713     |        
|                              |                                                   |                                                               |  |        |        |      |  |         |         |      |  |         |         |  |  |         |        |  |  |        
|                              |                                                   | Net Phelps Dodge
share                                        |  |        | 2,357  |      |  |         | 3,283   |      |  |         | 4,328   |  |  |         | 3,407  |  |  |         | 2,853   | 
|                              |                                                   |                                                               |  |        |        |      |  |         |         |      |  |         |         |  |  |         |        |  |  |        
|                              | Sales
(e)                                         |                                                               |  | 3,317  |        |      |  | 2,504   |         |      |  | 4,813   |         |  |  | 3,415   |        |  |  | 3,251   |        
|                              |                                                   |                                                               |  |        |        |      |  |         |         |      |  |         |         |  |  |         |        |  |  |        
|Molybdenum
(thousand pounds)  |                                                   |                                                               |  |        |        |      |  |         |         |      |  |         |         |  |  |         |        |  |  |        
|                              | Primary
Molybdenum:                               |                                                               |  |        |        |      |  |         |         |      |  |         |         |  |  |         |        |  |  |         |        
|                              |                                                   | Henderson                                                     |  |        | 20,517 |      |  |         | 18,603  |      |  |         | 19,727  |  |  |         | 1,718  |  |  |         |        | 
|                              |                                                   | By-product                                                    |  |        | 24,448 |      |  |         | 36,912  |      |  |         | 31,751  |  |  |         | 6,585  |  |  |         | 1,369   | 
|                              |                                                   |                                                               |  |        |        |      |  |         |         |      |  |         |         |  |  |         |        |  |  |        
|                              |                                                   | Total
production                                              |  |        | 44,965 |      |  |         | 55,515  |      |  |         | 51,478  |  |  |         | 8,303  |  |  |         | 1,369   | 
|                              | Less minority
participants shares (c):           |                                                               |  |        |        |      |  |         |         |      |  |         |         |  |  |         |        |  |  |         |        
|                              |                                                   | Chino                                                         |  |        |       |      |  |         | 50      |      |  |         | 419     |  |  |         | 241    |  |  |         | 355     | 
|                              |                                                   |                                                               |  |        |        |      |  |         |         |      |  |         |         |  |  |         |        |  |  |        
|                              |                                                   | Net Phelps Dodge
share                                        |  |        | 44,965 |      |  |         | 55,465  |      |  |         | 51,059  |  |  |         | 8,062  |  |  |         | 1,014   | 
|                              |                                                   |                                                               |  |        |        |      |  |         |         |      |  |         |         |  |  |         |        |  |  |        
|                              | Sales - Net Phelps
Dodge share from own mines (e) |                                                               |  | 46,665 |        |      |  | 55,105  |         |      |  | 57,988  |         |  |  | 11,391  |        |  |  | 1,050   |        
|                              | Purchased
molybdenum                              |                                                               |  | 7,393  |        |      |  | 1,609   |         |      |  |        |         |  |  | 26      |        |  |  |        |        
|                              |                                                   |                                                               |  |        |        |      |  |         |         |      |  |         |         |  |  |         |        |  |  |        
|                              |                                                   | Total sales                                                   |  |        | 54,058 |      |  |         | 56,714  |      |  |         | 57,988  |  |  |         | 11,417 |  |  |         | 1,050   | 
|                              |                                                   |                                                               |  |        |        |      |  |         |         |      |  |         |         |  |  |         |        |  |  |        
|Sulfuric acid
(thousand tons) |                                                   |                                                               |  |        |        |      |  |         |         |      |  |         |         |  |  |         |        |  |  |        
|                              | Total production from
copper smelters (f)         |                                                               |  | 748.6  |        |      |  | 1,236.7 |         |      |  | 1,231.8 |         |  |  | 1,172.1 |        |  |  | 1,222.1 |        
|                              | Less minority
participants shares (c)            |                                                               |  | 1.6    |        |      |  | 190.2   |         |      |  | 186.3   |         |  |  | 212.5   |        |  |  | 200.9   |        
|                              |                                                   |                                                               |  |        |        |      |  |         |         |      |  |         |         |  |  |         |        |  |  |        
|                              |                                                   | Net Phelps Dodge
share                                        |  |        | 747.0  |      |  |         | 1,046.5 |      |  |         | 1,045.5 |  |  |         | 959.6  |  |  |         | 1,021.2 | 
|                              |                                                   |                                                               |  |        |        |      |  |         |         |      |  |         |         |  |  |         |        |  |  |        
|                              | Sales from copper
smelters                        |                                                               |  | 14.5   |        |      |  | 15.9    |         |      |  | 35.0    |         |  |  | 625.5   |        |  |  | 196.1   |        
|                              |                                                   |                                                               |  |        |        |      |  |         |         |      |  |         |         |  |  |         |        |  |  |        
|                              |                                                   | COMEX copper price per pound
(g)                              |  | $      | 0.72   |      |  |         | 0.73    |      |  |         | 0.84    |  |  |         | 0.72   |  |  |         | 0.75    | 
|                              |                                                   | LME copper price per pound
(h)                                |  | $      | 0.71   |      |  |         | 0.72    |      |  |         | 0.82    |  |  |         | 0.71   |  |  |         | 0.75    | 
|                              |                                                   | Metals Week-
molybdenum dealer oxide mean
price per pound (i) |  | $      | 3.77   |      |  |         | 2.36    |      |  |         | 2.56    |  |  |         | 2.65   |  |  |         | 3.41    | 

See footnote explanations on page 13.





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##### Table of Contents



- 13 -

Phelps Dodge Manufacturing and Sales Production (a)

|               |                                        |                        |  |         |       |      |  |         |       |      |  |         |       |  |  |         |       |  |  |         |       | 
|-------------- | -------------------------------------- | ---------------------- |  | ------- | ----- | ---- |  | ------- | ----- | ---- |  | ------- | ----- |  |  | ------- | ----- |  |  | ------- | ----- | 
|               |                                        |                        |  | 2002    |       | 2001 |  | 2000    |       | 1999 |  | 1998   
|               |                                        |                        |  |         |       |      |  |         |       |      |  |        
|Smelters
(j)   |                                        |                        |  |         |       |      |  |         |       |      |  |         |       |  |  |         |       |  |  |        
|               | Total copper (thousand
tons)           |                        |  | 243.8   |       |      |  | 463.5   |       |      |  | 439.8   |       |  |  | 267.4   |       |  |  | 405.8   |      
|               | Less minority
participants shares (c) |                        |  | 0.5     |       |      |  | 36.7    |       |      |  | 49.5    |       |  |  | 57.0    |       |  |  | 60.1    |      
|               |                                        |                        |  |         |       |      |  |         |       |      |  |         |       |  |  |         |       |  |  |        
|               |                                        | Net Phelps Dodge
share |  |         | 243.3 |      |  |         | 426.8 |      |  |         | 390.3 |  |  |         | 210.4 |  |  |         | 345.7 | 
|               |                                        |                        |  |         |       |      |  |         |       |      |  |         |       |  |  |         |       |  |  |        
|Refineries
(k) |                                        |                        |  |         |       |      |  |         |       |      |  |         |       |  |  |         |       |  |  |        
|               | Copper (thousand
tons)                 |                        |  | 319.6   |       |      |  | 502.6   |       |      |  | 471.2   |       |  |  | 422.6   |       |  |  | 429.3   |      
|               | Gold (thousand
ounces)                 |                        |  | 79.0    |       |      |  | 86.6    |       |      |  | 52.6    |       |  |  | 72.9    |       |  |  | 74.6    |      
|               | Silver (thousand
ounces)               |                        |  | 1,786.0 |       |      |  | 3,719.1 |       |      |  | 3,838.9 |       |  |  | 3,681.5 |       |  |  | 2,523.8 |      
|Rod
(l)        |                                        |                        |  |         |       |      |  |         |       |      |  |         |       |  |  |         |       |  |  |        
|               | Total copper (thousand
tons)           |                        |  | 850.6   |       |      |  | 879.8   |       |      |  | 1,153.9 |       |  |  | 805.1   |       |  |  | 764.4   |      



---

Footnotes to tables on pages 9 through 13:

|(a) |  | Includes Cyprus Amax production and sales from the time it was acquired
on October 16, 1999.                                                                                                                                                   
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | Includes material mined for leaching operations.                                                                                                                                                                                               
|   
|(c) |  | Interests in mining joint ventures in which we own more than
50 percent are reported using the
proportional consolidation method. Cerro Verde, in which we own 82 percent of its common stock,
is reported using the full consolidation method.
|   
|(d) |  | Includes smelter production from custom receipts and fluxes as well as
tolling gains or losses.                                                                                                                                                
|   
|(e) |  | Excludes sales of purchased copper, molybdenum, silver and
gold.                                                                                                                                                                               
|   
|(f) |  | Sulfuric acid production results from smelter air quality control operations;
sales do not include internal
usage.                                                                                                                             
|   
|(g) |  | New York Commodity Exchange annual average spot price per pound
 cathodes.                                                                                                                                                                    
|   
|(h) |  | London Metal Exchange annual average spot price per pound 
cathodes.                                                                                                                                                                          
|   
|(i) |  | Annual molybdenum dealer oxide average mean price per pound 
as quoted in Platts Metals Week.                                                                                                                                                 
|   
|(j) |  | Includes production from purchased concentrates and copper smelted for
others on a toll basis.                                                                                                                                                 
|   
|(k) |  | Includes production from purchased material and copper refined for
others on a toll basis.                                                                                                                                                     
|   
|(l) |  | Includes rod, wire, oxygen-free billets/cakes, scrap and other
shapes.                                                                                                                                                                         





---



##### Table of Contents



- 14-

Other Mining Segment




This segment includes our worldwide
mineral exploration and development
programs, a process technology center that directs its activities at improving
existing processes and developing new cost-competitive technologies, and other
ancillary operations.

Exploration




Our exploration groups primary
objectives are to increase PDMCs reserve
base through discoveries and joint ventures and, where appropriate, to
diversify into other metals, minerals and geographic areas. Exploration is
focused on finding large-scale copper, and copper and gold deposits in the four
principal copper-producing regions of the world: southwest USA/Mexico, South
American Cordillera, Central Africa, and Australia, as well as in other highly
prospective areas. This group operates in over 12 countries and maintains
offices in Australia, Brazil, Canada, Chile, India, Indonesia, Mexico, Peru,
the Philippines and the United States.

In 2002, Phelps Dodge expended
$20.0 million on worldwide exploration,
compared with $36.8 million in 2001 and $39.7 million in 2000. Approximately
33 percent of the 2002 expenditures occurred in the United States with 24
percent being spent at our U.S. mines. This compares with 14 percent in 2001
(13 percent at U.S. mine sites) and 23 percent in 2000 (17 percent at U.S. mine
sites). The balance of our exploration expenditures was spent principally in
Australasia, Brazil, Chile, Mexico, Canada, Peru and Central Africa, including
7 percent at our South American mine sites.

During 2002, exploration efforts continued at
our existing copper
operations. Work commenced on an underground decline at Candelaria to provide
exploration drilling access in 2003 to a high-grade underground zone of
mineralization at depth adjacent to the Candelaria open pit. Drilling programs
at Tyrone continued to further define two oxide copper deposits situated very
near the surface. At our Morenci mine, the first phase drilling of five
district targets intersected promising mineralized intercepts.

Environmental permitting continues at our
Safford project in eastern
Arizona to enable development of the Dos Pobres and San Juan deposits. The two
deposits contain an estimated total of 533 million tons of leachable reserves
with an ore grade of 0.37 percent copper.

In August 2002, Phelps Dodge announced it
had replaced BHP Billiton as
option holder under an existing agreement among BHP Billiton, Tenke Mining
Corp. and others to acquire a controlling interest and operatorship in the
Tenke Fungurume copper/cobalt project in the Democratic Republic of the Congo.

In December 2001, we recorded a charge
of $3.9 million to write-off the
net book value of the Piedras Verdes project in Sonora, Mexico, as it no longer
met our development criteria. In March 2002, Phelps Dodge reached an agreement
with Frontera Copper Corporation to sell its interest in the Piedras Verdes
project in Mexico. The agreement gave Phelps Dodge $0.5 million in cash plus
other consideration, which are subject to a number of conditions, not to exceed
$16 million.

In October 2001, Phelps Dodge sold its
50 percent interest in Mineração
Serra do Sossego to Companhia Vale do Rio Doce (CVRD) for $42.5 million in
cash. Sossego is a copper-gold deposit in the Carajas region of Brazil.

Work on our Ambatovy nickel/cobalt deposit
in central Madagascar remains
on hold pending resolution of certain regulatory and permitting issues, and
evaluation of strategic options. A feasibility study previously estimated
mineralized material of 210 million tons at an estimated grade of 1.1 percent
nickel and 0.1 percent cobalt.

Process Technology




The objectives of PDMCs process
technology center (PTC) in Safford,
Arizona, are to enhance and strengthen Phelps Dodges competitive position in
the world copper market. PTC was established in 1996 to provide metallurgical
process development capabilities, process optimization services, metallurgical
testing and advanced material characterization services to meet the needs of
PDMC and its operations. PTC is ISO-9001 certified. The activities at PTC are
directed at continuous improvement of existing processes and the development of
new cost-competitive technologies, and are an integral part of our Quest for
Zeroprogram. PTC employs approximately 72 engineers, scientists and technical
support staff. The facilities include:



| |  | a large-diameter column leach facility for testing run-of-mine
material, which is capable of processing up to approximately 600 tons of
ore annually;
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | a continuous SX/EW test facility capable of producing 1.5 tons of cathode
copper per day;                                                            
| 
| |  | a small-diameter column leach facility with a capacity of 250 individual
tests per year for crushed material;                                        
| 
| |  | a metallurgical laboratory for the development of biological leaching
processes and enhancements and other biological applications; and              





---



##### Table of Contents



-15-



| |  | a state-of-the-art material characterization laboratory with advanced
mineralogy, analytical chemistry and metallography capabilities.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------

The principal areas of activity include
hydrometallurgy, mineral
processing (grinding and flotation), material characterization and technical
information services. Some of the most important projects and milestones in
2002 were:



| |  | The design and construction of a new concentrate pressure leaching
demonstration plant at the Bagdad mine. The facility is
the first of its kind in the world to use high-temperature pressure leaching to process chalcopyrite concentrates.
The
technology is proprietary and is covered under a Technology Development Agreement between Phelps Dodge
and Placer Dome Inc.
The plant is being constructed at a cost of approximately $40 million and is designed to produce
35 million pounds of
copper cathode from concentrate annually. Copper recovery is expected to be 98 percent compared with
96 to 97 percent by
conventional smelting and refining. The plant will be used to prove this new technology, and related technology,
for
possible application at other PDMC properties in the future. The plant is scheduled to start production in the
second
quarter of 2003.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | The successful completion of continuous pilot plant testing of a new
medium-temperature pressure leaching process for
copper concentrate treatment at the Hazen Research facility in Golden, Colorado. This process is designed to
minimize acid
production and has potential application for the processing of concentrates where sulfuric acid cannot be
beneficially used
in stockpile or heap leaching operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| 
| |  | The development of a direct electrowinning technology for use in
conjunction with the pressure leaching technology
described above.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| 
| |  | The continued advancement of proprietary technology for heap and
stockpile leaching of low-grade chalcopyrite ores.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| 
| |  | The investigation of alternative technologies to reduce the cost of copper
electrowinning.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| 
| |  | The investigation of alternative sulfuric acid production
techniques.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| 
| |  | The successful installation and commissioning of a second QemSCAN
scanning electron microscope in the second quarter of
2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

Total expenditures for PTC in 2002 were
approximately $13 million,
compared with $11 million in 2001 and $9 million in 2000. PDMC intends to
advance all of these research and development projects aggressively in 2003.

Other




Additionally, this segment includes our
Tohono copper operation in south
central Arizona, which includes an SX/EW facility capable of producing copper
cathode. The facility is located on lands leased from the Tohono Oodham
Nation. Although mining of ore ceased in July 1997, production of copper
continued from existing leach stockpiles until February 1999 when the facility
was placed on care-and-maintenance status. The property has mineralized
material for which, at higher copper prices, various alternatives could be
considered.

Other Mining Investments




We own a 14.0 percent interest in
Southern Peru Copper Corporation (SPCC),
which operates two open-pit copper mines, two concentrators, an SX/EW
operation, a smelter and a refinery in Peru. SPCCs other principal
shareholders are a subsidiary of Grupo Mexico, S.A. de C.V., with a 54.2
percent interest, and Cerro Trading Company, Inc., with a 14.2 percent
interest. A total of 17.6 percent interest is publicly held. SPCCs results
are not included in our earnings because we account for our investment in SPCC
on the cost basis. Based on the composition of SPCCs Board of Directors,
Grupo Mexico has majority control and the two principal minority shareholders
cannot override Grupo Mexicos decisions. During 2002, we received dividend
payments of $4.0 million from SPCC, compared with $4.0 million in 2001 and $3.8
million in 2000.

In May 1997, we acquired an indirect
40 percent voting interest,
representing a 26.67 percent economic interest, in a Peruvian zinc mining
company, Compañía San Ignacio de Morococha S.A. (SIMSA) and its San Vicente
mine. SIMSAs other shareholder with voting shares was the Jesus Arias family.
We accounted for our investment in SIMSA on the equity basis. During the
fourth quarter of 2001, the investment was written down by $9.1 million due to
the impact of low zinc prices on the operations ability to generate cash flows
to cover operational and debt costs and our belief that we could not recover
our investment. In November 2002, we sold our interest in SIMSA to the Arias
family for $0.2 million.

In March 2000, we sold Cyprus Australia
Coal Company, a wholly owned
subsidiary that we acquired as part of the Cyprus transaction, to a subsidiary
of Glencore International for $150 million in cash.





---



##### Table of Contents



- 16 -

Ore Reserves




Ore reserves are those estimated quantities
of proven and probable material that may be economically mined
and processed for extraction of their constituent values. Estimates of our ore reserves are based upon
engineering evaluations of assay values derived from sampling of drill holes and other openings. In our opinion,
the sites for such samplings are spaced sufficiently close and the geologic characteristics of the deposits are
sufficiently well defined to render the estimates reliable. The ore reserve estimates include assessments of the
resource, mine, and metallurgical models as well as consideration of economic, marketing, legal, environmental,
social and governmental factors.

Phelps Dodge uses several additional
factors to determine mine design limits that it believes maximize the value
of future cash flows including time-valued concepts to recognize, for example, any elapsed time between mining
of overburden and the mining of ore. Our mine designs recognize capital and other expenditures required
to extract the ore reserves over the life of the mine. Cutoff grade strategies are implemented to maximize
time-valued cash flows. Phelps Dodge believes that its ore reserve calculation methodology is prudent and
consistent with appropriate industry standards.

Proven and probable ore reserves at
December 31, 2002, and 2001 for each of our operating, curtailed and
development properties are summarized as follows:

|                                                                                        |  |                                                   |         |               |  |                   |      |         |  |        |      |         |  |                    |       |          |  |  |      |  |  |  |         |  |  |  |      |  |  |  |       | 
|--------------------------------------------------------------------------------------- |  | ------------------------------------------------- | ------- | ------------- |  | ----------------- | ---- | ------- |  | ------ | ---- | ------- |  | ------------------ | ----- | -------- |  |  | ---- |  |  |  | ------- |  |  |  | ---- |  |  |  | ----- | 
|                                                                                        |  | Total Reserves Estimated at December 31,
2002 (1)
|                                                                                        |  |                                                  
|                                                                                        |  |                                                   |         |               |  |                   |      |         |  |        |      |         |  | Leachable Reserves |       |         
|                                                                                        |  |                                                   |         |               |  |                   |      |         |  |        |      |         |  |                    |       |         
|                                                                                        |  | Millable Reserves                                 |         | Crushed Leach |  | Run-of-Mine (ROM) |      | Phelps 
|                                                                                        |  |                                                   |         |               |  |                   |      | Dodge  
|                                                                                        |  | Million                                           |         | %             |  | %                 |      | Million |  | %      |      | Million |  | %                  |       | Interest
|                                                                                        |  | Tons                                              |         | Copper        |  | Moly              |      | Tons    |  | Copper |      | Tons    |  | Copper             |       | (%)     
|                                                                                        |  |                                                   |         |               |  |                   |      |         |  |        |      |         |  |                    |       |         
|Operating and Curtailed
Operations                                                      |  |                                                   |         |               |  |                   |      |         |  |        |      |         |  |                    |       |          |  |  |      |  |  |  |         |  |  |  |      |  |  |  |       | 
|Morenci (2)                                                                             |  |                                                   | 181.5   |               |  |                   | 0.47 |         |  |        |     |         |  |                    | 587.7 |          |  |  | 0.57 |  |  |  | 2,303.0 |  |  |  | 0.19 |  |  |  | 85.0  | 
|Bagdad                                                                                  |  |                                                   | 873.6   |               |  |                   | 0.36 |         |  |        | 0.02 |         |  |                    |      |          |  |  |     |  |  |  | 17.2    |  |  |  | 0.29 |  |  |  | 100.0 | 
|Sierrita                                                                                |  |                                                   | 1,040.9 |               |  |                   | 0.27 |         |  |        | 0.03 |         |  |                    |      |          |  |  |     |  |  |  | 26.7    |  |  |  | 0.19 |  |  |  | 100.0 | 
|Miami (3)                                                                               |  |                                                   |        |               |  |                   |     |         |  |        |     |         |  |                    |      |          |  |  |     |  |  |  | 126.9   |  |  |  | 0.37 |  |  |  | 100.0 | 
|Chino (3) (4)                                                                           |  |                                                   | 187.0   |               |  |                   | 0.62 |         |  |        | 0.02 |         |  |                    |      |          |  |  |     |  |  |  | 263.8   |  |  |  | 0.42 |  |  |  | 66.7  | 
|Cobre (3) (4)                                                                           |  |                                                   | 57.6    |               |  |                   | 0.55 |         |  |        |     |         |  |                    |      |          |  |  |     |  |  |  | 77.8    |  |  |  | 0.26 |  |  |  | 100.0 | 
|Tyrone (4)                                                                              |  |                                                   |        |               |  |                   |     |         |  |        |     |         |  |                    |      |          |  |  |     |  |  |  | 224.5   |  |  |  | 0.32 |  |  |  | 100.0 | 
|Candelaria (5)                                                                          |  |                                                   | 387.0   |               |  |                   | 0.70 |         |  |        |     |         |  |                    |      |          |  |  |     |  |  |  |        |  |  |  |     |  |  |  | 80.0  | 
|Ojos del Salado (3)
(5)                                                                 |  |                                                   | 18.7    |               |  |                   | 1.32 |         |  |        |     |         |  |                    |      |          |  |  |     |  |  |  |        |  |  |  |     |  |  |  | 100.0 | 
|Cerro Verde                                                                             |  |                                                   |        |               |  |                   |     |         |  |        |     |         |  |                    | 198.8 |          |  |  | 0.66 |  |  |  | 133.5   |  |  |  | 0.30 |  |  |  | 82.0  | 
|El Abra                                                                                 |  |                                                   |        |               |  |                   |     |         |  |        |     |         |  |                    | 309.3 |          |  |  | 0.54 |  |  |  | 281.2   |  |  |  | 0.27 |  |  |  | 51.0  | 
|Primary
Molybdenum:                                                                     |  |                                                   |         |               |  |                   |      |         |  |        |      |         |  |                    |       |          |  |  |      |  |  |  |         |  |  |  |      |  |  |  |       | 
|Climax (3)                                                                              |  |                                                   | 145.2   |               |  |                   |     |         |  |        | 0.23 |         |  |                    |      |          |  |  |     |  |  |  |        |  |  |  |     |  |  |  | 100.0 | 
|Henderson                                                                               |  |                                                   | 170.7   |               |  |                   |     |         |  |        | 0.21 |         |  |                    |      |          |  |  |     |  |  |  |        |  |  |  |     |  |  |  | 100.0 | 
|                                                                                        |  |                                                   |         |               |  |                   |      |         |  |        |      |         |  |                    |       |          |  |  |      |  |  |  |         |  |  |  |      |  |  |  |       | 
|Undeveloped Reserves -
require substantial capital
investments to bring into production |  |                                                   |         |               |  |                   |      |         |  |        |      |         |  |                    |       |          |  |  |      |  |  |  |         |  |  |  |      |  |  |  |       | 
|Cerro Verde                                                                             |  |                                                   | 464.0   |               |  |                   | 0.61 |         |  |        | 0.02 |         |  |                    |      |          |  |  |     |  |  |  |        |  |  |  |     |  |  |  | 82.0  | 
|Other Mining:                                                                           |  |                                                   |         |               |  |                   |      |         |  |        |      |         |  |                    |       |          |  |  |      |  |  |  |         |  |  |  |      |  |  |  |       | 
|Ajo (6)                                                                                 |  |                                                   |        |               |  |                   |     |         |  |        |     |         |  |                    |      |          |  |  |     |  |  |  |        |  |  |  |     |  |  |  | 100.0 | 
|Safford (7)                                                                             |  |                                                   |        |               |  |                   |     |         |  |        |     |         |  |                    | 447.2 |          |  |  | 0.40 |  |  |  | 86.1    |  |  |  | 0.20 |  |  |  | 100.0 | 



---

|(1) |  | Total reserves estimated (i) are 100% basis, (ii) include only
in-situ tonnages, and (iii) do not include stockpiled ores.                                                                                         
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Morenci ore reserves increased from 2001 primarily as a result of
additional drilling, completion of the resource model and development of an economic mine
plan for the Fairbanks area.                           
|   
|(3) |  | Chino, Cobre, Climax, Miami and Ojos del Salado properties are on
care-and-maintenance status with no mining taking place.                                                                                         
|   
|(4) |  | Chino, Cobre and Tyrone reserves were reduced from 2001 primarily as a
result of new mine plans and new economic parameters.                                                                                       
|   
|(5) |  | The Candelaria and Ojos del Salado deposits also contain, respectively,
0.006 ounces and 0.008 ounces of gold per ton. Candelaria reserves increased from
2001 primarily due to additional drilling and remodeling.
|   
|(6) |  | Material previously characterized as ore reserves at the Ajo development
property were reclassified as mineralized material in 2002 as a result of an updated mine
plan and economic assessment.                   
|   
|(7) |  | The Safford property is in the permitting process. Safford ore reserves
were reduced from 2001 due to a new mine plan and new economic parameters.                                                                 





---



##### Table of Contents



-17-

|                                                                                        |  |                                                   |         |               |  |                   |      |         |  |        |      |         |  |                    |       |          |  |  |      |  |  |  |         |  |  |  |      |  |  |  |       | 
|--------------------------------------------------------------------------------------- |  | ------------------------------------------------- | ------- | ------------- |  | ----------------- | ---- | ------- |  | ------ | ---- | ------- |  | ------------------ | ----- | -------- |  |  | ---- |  |  |  | ------- |  |  |  | ---- |  |  |  | ----- | 
|                                                                                        |  | Total Reserves Estimated at December 31,
2002 (1)
|                                                                                        |  |                                                  
|                                                                                        |  |                                                   |         |               |  |                   |      |         |  |        |      |         |  | Leachable Reserves |       |         
|                                                                                        |  |                                                   |         |               |  |                   |      |         |  |        |      |         |  |                    |       |         
|                                                                                        |  | Millable Reserves                                 |         | Crushed Leach |  | Run-of-Mine (ROM) |      | Phelps 
|                                                                                        |  |                                                   |         |               |  |                   |      | Dodge  
|                                                                                        |  | Million                                           |         | %             |  | %                 |      | Million |  | %      |      | Million |  | %                  |       | Interest
|                                                                                        |  | Tons                                              |         | Copper        |  | Moly              |      | Tons    |  | Copper |      | Tons    |  | Copper             |       | (%)     
|                                                                                        |  |                                                   |         |               |  |                   |      |         |  |        |      |         |  |                    |       |         
|Operating and Curtailed
Operations                                                      |  |                                                   |         |               |  |                   |      |         |  |        |      |         |  |                    |       |          |  |  |      |  |  |  |         |  |  |  |      |  |  |  |       | 
|Morenci                                                                                 |  |                                                   | 128.7   |               |  |                   | 0.41 |         |  |        |     |         |  |                    | 468.8 |          |  |  | 0.60 |  |  |  | 2,853.0 |  |  |  | 0.22 |  |  |  | 85.0  | 
|Bagdad                                                                                  |  |                                                   | 884.9   |               |  |                   | 0.36 |         |  |        | 0.02 |         |  |                    |      |          |  |  |     |  |  |  | 17.7    |  |  |  | 0.29 |  |  |  | 100.0 | 
|Sierrita                                                                                |  |                                                   | 1,052.1 |               |  |                   | 0.27 |         |  |        | 0.03 |         |  |                    |      |          |  |  |     |  |  |  | 62.5    |  |  |  | 0.19 |  |  |  | 100.0 | 
|Miami                                                                                   |  |                                                   |        |               |  |                   |     |         |  |        |     |         |  |                    |      |          |  |  |     |  |  |  | 117.6   |  |  |  | 0.38 |  |  |  | 100.0 | 
|Chino                                                                                   |  |                                                   | 303.6   |               |  |                   | 0.59 |         |  |        |     |         |  |                    |      |          |  |  |     |  |  |  | 448.8   |  |  |  | 0.30 |  |  |  | 66.7  | 
|Cobre                                                                                   |  |                                                   | 132.4   |               |  |                   | 0.73 |         |  |        |     |         |  |                    |      |          |  |  |     |  |  |  |        |  |  |  |     |  |  |  | 100.0 | 
|Tyrone                                                                                  |  |                                                   |        |               |  |                   |     |         |  |        |     |         |  |                    |      |          |  |  |     |  |  |  | 434.3   |  |  |  | 0.29 |  |  |  | 100.0 | 
|Candelaria                                                                              |  |                                                   | 375.7   |               |  |                   | 0.83 |         |  |        |     |         |  |                    |      |          |  |  |     |  |  |  |        |  |  |  |     |  |  |  | 80.0  | 
|Ojos del
Salado                                                                         |  |                                                   | 18.7    |               |  |                   | 1.32 |         |  |        |     |         |  |                    |      |          |  |  |     |  |  |  |        |  |  |  |     |  |  |  | 100.0 | 
|Cerro Verde                                                                             |  |                                                   |        |               |  |                   |     |         |  |        |     |         |  |                    | 207.2 |          |  |  | 0.66 |  |  |  | 123.3   |  |  |  | 0.28 |  |  |  | 82.0  | 
|El Abra                                                                                 |  |                                                   |        |               |  |                   |     |         |  |        |     |         |  |                    | 353.0 |          |  |  | 0.55 |  |  |  | 383.8   |  |  |  | 0.30 |  |  |  | 51.0  | 
|Primary
Molybdenum:                                                                     |  |                                                   |         |               |  |                   |      |         |  |        |      |         |  |                    |       |          |  |  |      |  |  |  |         |  |  |  |      |  |  |  |       | 
|Climax                                                                                  |  |                                                   | 145.2   |               |  |                   |     |         |  |        | 0.23 |         |  |                    |      |          |  |  |     |  |  |  |        |  |  |  |     |  |  |  | 100.0 | 
|Henderson                                                                               |  |                                                   | 175.9   |               |  |                   |     |         |  |        | 0.21 |         |  |                    |      |          |  |  |     |  |  |  |        |  |  |  |     |  |  |  | 100.0 | 
|                                                                                        |  |                                                   |         |               |  |                   |      |         |  |        |      |         |  |                    |       |          |  |  |      |  |  |  |         |  |  |  |      |  |  |  |       | 
|Undeveloped Reserves -
require substantial capital
investments to bring into production |  |                                                   |         |               |  |                   |      |         |  |        |      |         |  |                    |       |          |  |  |      |  |  |  |         |  |  |  |      |  |  |  |       | 
|Cobre                                                                                   |  |                                                   |        |               |  |                   |     |         |  |        |     |         |  |                    |      |          |  |  |     |  |  |  | 98.0    |  |  |  | 0.35 |  |  |  | 100.0 | 
|Cerro Verde                                                                             |  |                                                   | 464.0   |               |  |                   | 0.61 |         |  |        | 0.02 |         |  |                    |      |          |  |  |     |  |  |  |        |  |  |  |     |  |  |  | 82.0  | 
|Other Mining:                                                                           |  |                                                   |         |               |  |                   |      |         |  |        |      |         |  |                    |       |          |  |  |      |  |  |  |         |  |  |  |      |  |  |  |       | 
|Ajo (2)                                                                                 |  |                                                   | 150.0   |               |  |                   | 0.56 |         |  |        |     |         |  |                    |      |          |  |  |     |  |  |  |        |  |  |  |     |  |  |  | 100.0 | 
|Safford
(2)                                                                             |  |                                                   |        |               |  |                   |     |         |  |        |     |         |  |                    | 474.7 |          |  |  | 0.39 |  |  |  | 151.6   |  |  |  | 0.16 |  |  |  | 100.0 | 



|(1) |  | Total reserves estimated (i) are 100% basis, (ii) include only
in-situ tonnages, and (iii) do not include stockpiled ores.                                                                                                                                                                                    
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | The Ajo and Safford properties were at various stages in the permitting
process. The current mine plan for Safford is based on an open-pit leach operation. Prior
to 2001, material previously characterized as underground ore reserves at Safford has, therefore, been
reclassified as mineralized material.





---



##### Table of Contents



- 18 -

Average Drill-Hole Spacing at Ore Reserve Properties




The following table sets forth the average
drill-hole spacing for proven
and probable ore reserves by process types:

|                |  |                         |     |                        |  |      |     |       |  |  |     |  |  |  |     | 
|--------------- |  | ----------------------- | --- | ---------------------- |  | ---- | --- | ----- |  |  | --- |  |  |  | --- | 
|                |  | As of December 31, 2002
|                |  |                        
|                |  | Proven                  |     | Probable              
|                |  | (average spacing feet)  |     | (average spacing feet)
|                |  |                         |     |                       
|Property        |  | Mill                    |     | Leach                  |  | Mill |     | Leach
|                |  |                         |     |                        |  |      |     |      
|Morenci         |  |                         | 283 |                        |  |      | 283 |       |  |  | 400 |  |  |  | 400 | 
|Bagdad          |  |                         | 190 |                        |  |      | 81  |       |  |  | 441 |  |  |  | 323 | 
|Sierrita        |  |                         | 224 |                        |  |      | 141 |       |  |  | 339 |  |  |  | 243 | 
|Miami           |  |                         | N/A |                        |  |      | 200 |       |  |  | N/A |  |  |  | 300 | 
|Chino           |  |                         | 141 |                        |  |      | 200 |       |  |  | 200 |  |  |  | 283 | 
|Cobre           |  |                         | 150 |                        |  |      | 200 |       |  |  | 200 |  |  |  | 300 | 
|Tyrone          |  |                         | N/A |                        |  |      | 283 |       |  |  | N/A |  |  |  | 283 | 
|Candelaria      |  |                         | 115 |                        |  |      | N/A |       |  |  | 230 |  |  |  | N/A | 
|Ojos del
Salado |  |                         | 82  |                        |  |      | N/A |       |  |  | 164 |  |  |  | N/A | 
|Cerro Verde     |  |                         | 196 |                        |  |      | 121 |       |  |  | 444 |  |  |  | 303 | 
|El Abra         |  |                         | N/A |                        |  |      | 197 |       |  |  | N/A |  |  |  | 328 | 
|Climax          |  |                         | 200 |                        |  |      | N/A |       |  |  | 200 |  |  |  | N/A | 
|Henderson       |  |                         | 65  |                        |  |      | N/A |       |  |  | 290 |  |  |  | N/A | 
|Safford         |  |                         | N/A |                        |  |      | 200 |       |  |  | N/A |  |  |  | 400 | 

Metallurgical Recovery




The following table sets forth the average
expected metallurgical recovery by process type:

|                |  |            |      |             |  |            |      |  |  |  |      | 
|--------------- |  | ---------- | ---- | ----------- |  | ---------- | ---- |  |  |  | ---- | 
|                |  | Copper     |      | Molybdenum 
|                |  |            |      |            
|                |  | Mill % (a) |      | Leach % (b) |  | Mill % (c)
|                |  |            |      |             |  |           
|Morenci         |  |            | 80.2 |             |  |            | 58.4 |  |  |  | N/A  | 
|Bagdad          |  |            | 85.8 |             |  |            | 44.4 |  |  |  | 67.3 | 
|Sierrita        |  |            | 84.1 |             |  |            | 53.0 |  |  |  | 78.9 | 
|Miami           |  |            | N/A  |             |  |            | 64.7 |  |  |  | N/A  | 
|Chino           |  |            | 77.9 |             |  |            | 53.1 |  |  |  | 16.9 | 
|Cobre           |  |            | 85.5 |             |  |            | 56.4 |  |  |  | N/A  | 
|Tyrone          |  |            | N/A  |             |  |            | 64.2 |  |  |  | N/A  | 
|Candelaria      |  |            | 92.0 |             |  |            | N/A  |  |  |  | N/A  | 
|Ojos del
Salado |  |            | 88.3 |             |  |            | N/A  |  |  |  | N/A  | 
|Cerro Verde     |  |            | 84.8 |             |  |            | 71.5 |  |  |  | 59.4 | 
|El Abra         |  |            | N/A  |             |  |            | 65.9 |  |  |  | N/A  | 
|Climax          |  |            | N/A  |             |  |            | N/A  |  |  |  | 86.8 | 
|Henderson       |  |            | N/A  |             |  |            | N/A  |  |  |  | 85.8 | 
|Safford         |  |            | N/A  |             |  |            | 70.0 |  |  |  | N/A  | 



|(a) |  | Mill recoveries include expected mill and smelter recoveries
and an allowance for concentrate transportation losses.
|--- |  | --------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | Leach recoveries are the expected total recoveries over
multiple leach cycles.                                      
|   
|(c) |  | Molybdenum recoveries include mill recoveries and roaster
deductions.                                               





---



##### Table of Contents



- 19 -

Mill and Leach Stockpiles




Stockpiled copper-bearing material that has
been removed from the mine,
and for which we have reasonable certainty of processing is summarized below:

(in million tons)

|                  |                    |  |           |       |        |  |           |      |             |  |           |      |        |  |          |     |             |  |  |       |           |  |  |      |  |  |  |      |  |  |  |     | 
|----------------- | ------------------ |  | --------- | ----- | ------ |  | --------- | ---- | ----------- |  | --------- | ---- | ------ |  | -------- | --- | ----------- |  |  | ----- | --------- |  |  | ---- |  |  |  | ---- |  |  |  | --- | 
|                  |                    |  | 2002      |       | 2001  
|                  |                    |  |           |       |       
|                  |                    |  |           |       |        |  | Contained |      |             |  |           |      |        |  |          |     |             |  |  |       | Contained |  |  |      |  |  |  |      | 
|                  |                    |  | Stockpile |       | Copper |  | Recovery  |      | Recoverable |  | Stockpile |      | Copper |  | Recovery |     | Recoverable
|                  |                    |  | Material  |       | (%)    |  | (%)       |      | Copper      |  | Material  |      | (%)    |  | (%)      |     | Copper     
|                  |                    |  |           |       |        |  |           |      |             |  |           |      |        |  |          |     |            
|Mill
stockpiles:  |                    |  |           |       |        |  |           |      |             |  |           |      |        |  |          |     |             |  |  |       |           |  |  |      |  |  |  |      |  |  |  |    
|                  | 100% basis         |  |           | 45    |        |  |           | 0.46 |             |  |           | 91.9 |        |  |          | 0.2 |             |  |  | 43    |           |  |  | 0.45 |  |  |  | 92.2 |  |  |  | 0.2 | 
|                  | Phelps Dodge
share |  |           |       |        |  |           |      |             |  |           |      |        |  |          | 0.2 |             |  |  |       |           |  |  |      |  |  |  |      |  |  |  | 0.1 | 
|Leach
stockpiles: |                    |  |           |       |        |  |           |      |             |  |           |      |        |  |          |     |             |  |  |       |           |  |  |      |  |  |  |      |  |  |  |    
|                  | 100% basis         |  |           | 7,745 |        |  |           | 0.16 |             |  |           | 11.7 |        |  |          | 1.4 |             |  |  | 6,857 |           |  |  | 0.17 |  |  |  | 8.3  |  |  |  | 0.9 | 
|                  | Phelps Dodge
share |  |           |       |        |  |           |      |             |  |           |      |        |  |          | 1.2 |             |  |  |       |           |  |  |      |  |  |  |      |  |  |  | 0.8 | 

Note: We did not have stockpiled molybdenum-bearing material that had been
removed from the mine at December 31, 2001 and 2002.

The determination of copper contained in
mill and leach stockpiles by
physical count is impracticable. We employ reasonable estimation methods to
determine such amounts.

Mill Stockpiles

Mill stockpiles contain low-grade ore that has
been extracted from the
mine and is available for processing to recover the contained copper by
milling, concentrating, smelting and refining. The quantity of material
delivered to the stockpiles is based on surveyed volumes of mined material and
daily production records. Sampling and assaying of blast-hole cuttings
determine the estimated amount of copper contained in the material delivered to
the mill stockpiles.

Expected copper recovery rates are
determined by metallurgical testing.
The recoverable copper in mill stockpiles can be extracted into copper
concentrate almost immediately upon processing. Estimates of copper contained
in mill stockpiles are reduced as material is removed and fed to the mill.

Leach Stockpiles

Leach stockpiles contain low-grade ore that
has been extracted from the
mine and is available for processing to recover the contained copper through a
leaching process. Leach stockpiles are exposed to acidic solutions that
dissolve contained copper and deliver the copper in solution to the extraction
processing facilities. The quantity of material is based on surveyed volumes
of mined material and daily production records. Sampling and assaying of
blast-hole cuttings determine the estimated amount of copper contained in
material delivered to the leach stockpiles.

Expected copper recovery rates are
determined using small-scale laboratory
tests, medium-scale column testing (which simulates the production-scale
process), historical trends and other factors, including mineralogy of the ore
and rock type.

Ultimate recovery of copper contained in
leach stockpiles can vary from a
very low percentage to over 90 percent depending on several variables including
type of processing, mineralogy and particle size of the rock. Although as much
as 70 percent of the copper ultimately recoverable may be extracted during the
first year of processing, recovery of the remaining copper may take several
years.





---



##### Table of Contents



- 20 -

The estimated recoverable copper
contained in stockpiles at each mine
follows:

(in million tons)

|                  |                    |  |              |     |      |  |     |     | 
|----------------- | ------------------ |  | ------------ | --- | ---- |  | --- | --- | 
|                  |                    |  | December 31,
|                  |                    |  |             
|                  |                    |  | 2002         |     | 2001
|                  |                    |  |              |     |     
|Mill
stockpiles:  |                    |  |              |     |      |  |     |    
|                  | Candelaria         |  |              | 0.2 |      |  |     | 0.2 | 
|                  |                    |  |              |     |      |  |     |    
|Leach
stockpiles: |                    |  |              |     |      |  |     |    
|                  | Morenci            |  |              | 0.4 |      |  |     | 0.4 | 
|                  | Bagdad             |  |              | 0.1 |      |  |     |    | 
|                  | Sierrita           |  |              | 0.1 |      |  |     |    | 
|                  | Miami              |  |              | 0.1 |      |  |     | 0.1 | 
|                  | Chino              |  |              | 0.4 |      |  |     | 0.2 | 
|                  | Tyrone             |  |              | 0.1 |      |  |     | 0.1 | 
|                  | Cerro Verde        |  |              | 0.1 |      |  |     |    | 
|                  | El Abra            |  |              | 0.1 |      |  |     | 0.1 | 
|                  |                    |  |              |     |      |  |     |    
|                  |                    |  | 1.4          |     |      |  | 0.9 |    
|                  |                    |  |              |     |      |  |     |    
|                  | Total              |  |              | 1.6 |      |  |     | 1.1 | 
|                  | Phelps Dodge
share |  |              | 1.4 |      |  |     | 0.9 | 

Note: The mill stockpiles are expected to be processed late in the Candelaria
mines life as milling capacity is available. The leach stockpiles are
expected to be processed over the lives of the respective mines. We began
capitalization of costs for mill and leach stockpiles when we had reasonable
certainty that the material would be processed. The capitalized costs are
evaluated periodically to ensure carrying amounts are stated at the lower of
cost or market. (Refer to Notes 1 and 7 to the Consolidated Financial
Statements for additional financial information regarding mill and leach
stockpiles.)

Our estimated share of aggregate copper
and molybdenum ore reserves as of
December 31 was as follows:

|                                                        |                                       |  |      |      |      |  |      |      |      |  |      |      |  |  |     |      |  |  |     |      | 
|------------------------------------------------------- | ------------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- | ---- |  | ---- | ---- |  |  | --- | ---- |  |  | --- | ---- | 
|                                                        |                                       |  | 2002 |      | 2001 |  | 2000 |      | 1999 |  | 1998
|                                                        |                                       |  |      |      |      |  |      |      |      |  |     
|Milling reserves (billion
tons)                         |                                       |  | 3.4  |      |      |  | 3.6  |      |      |  | 4.3  |      |  |  | 4.2 |      |  |  | 1.6 |     
|Leaching reserves (billion
tons)                        |                                       |  | 4.3  |      |      |  | 5.2  |      |      |  | 3.8  |      |  |  | 4.1 |      |  |  | 3.2 |     
|Commercially
recoverable copper (million of tons):      |                                       |  |      |      |      |  |      |      |      |  |      |      |  |  |     |      |  |  |     |     
|                                                        | Ore reserves                          |  |      | 19.6 |      |  |      | 22.1 |      |  |      | 23.1 |  |  |     | 23.7 |  |  |     | 13.7 | 
|                                                        | Stockpiles and in-process
inventories |  |      | 1.4  |      |  |      | 0.9  |      |  |      | 1.0  |  |  |     | 0.7  |  |  |     | 0.8  | 
|                                                        |                                       |  |      |      |      |  |      |      |      |  |      |      |  |  |     |      |  |  |     |     
|                                                        | Total                                 |  |      | 21.0 |      |  |      | 23.0 |      |  |      | 24.1 |  |  |     | 24.4 |  |  |     | 14.5 | 
|Commercially
recoverable molybdenum (billion of pounds) |                                       |  | 2.1  |      |      |  | 2.1  |      |      |  | 2.2  |      |  |  | 2.2 |      |  |  |    |     

Ore reserves reported by Southern Peru
Copper Corporation (SPCC) (in which
we hold a 14.0 percent interest) as of December 31, 2002, for its Peruvian
properties were approximately 2 billion tons of millable reserves at a grade of
0.68 percent copper and approximately 2 billion tons of leachable reserves at
an average grade of 0.20 percent copper. These in-pit reserves are the
combined totals for both the Cuajone and Toquepala properties. SPCC is
controlled by its majority shareholder, Grupo Mexico. We have relied on SPCCs
public filings and have not conducted an independent review of its ore
reserves.





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##### Table of Contents



- 21 -

Copper and Molybdenum Prices




The volatility of copper and molybdenum
prices is reflected in the
following table, which gives the high, low and average COMEX price of
high-grade copper and the Platts Metals Weekmean price of molybdenum oxide for
each of the last 15 years:

|                          |  |                                       |     |     |  |         |     |      |  |     |     |         |  |  |       |  |  |  |      |  |  |  |      | 
|------------------------- |  | ------------------------------------- | --- | --- |  | ------- | --- | ---- |  | --- | --- | ------- |  |  | ----- |  |  |  | ---- |  |  |  | ---- | 
|Cents per pound of
Copper |  | Dollars per pound of Molybdenum
Oxide
|COMEX                     |  | Platts Metals Week                   
|                          |  |                                      
|Year                      |  | High                                  |     | Low |  | Average |     | High |  | Low |     | Average
|                          |  |                                       |     |     |  |         |     |      |  |     |     |        
|1988                      |  |                                       | 165 |     |  |         | 87  |      |  |     | 115 |         |  |  | 4.40  |  |  |  | 2.98 |  |  |  | 3.47 | 
|1989                      |  |                                       | 160 |     |  |         | 99  |      |  |     | 125 |         |  |  | 3.89  |  |  |  | 2.44 |  |  |  | 3.40 | 
|1990                      |  |                                       | 138 |     |  |         | 96  |      |  |     | 119 |         |  |  | 3.30  |  |  |  | 2.52 |  |  |  | 2.85 | 
|1991                      |  |                                       | 120 |     |  |         | 96  |      |  |     | 105 |         |  |  | 2.78  |  |  |  | 2.08 |  |  |  | 2.38 | 
|1992                      |  |                                       | 116 |     |  |         | 93  |      |  |     | 103 |         |  |  | 2.44  |  |  |  | 1.82 |  |  |  | 2.21 | 
|1993                      |  |                                       | 107 |     |  |         | 72  |      |  |     | 85  |         |  |  | 2.80  |  |  |  | 1.82 |  |  |  | 2.32 | 
|1994                      |  |                                       | 140 |     |  |         | 78  |      |  |     | 107 |         |  |  | 17.00 |  |  |  | 2.68 |  |  |  | 4.51 | 
|1995                      |  |                                       | 146 |     |  |         | 121 |      |  |     | 135 |         |  |  | 17.50 |  |  |  | 3.90 |  |  |  | 8.08 | 
|1996                      |  |                                       | 131 |     |  |         | 86  |      |  |     | 106 |         |  |  | 5.50  |  |  |  | 2.90 |  |  |  | 3.79 | 
|1997                      |  |                                       | 123 |     |  |         | 76  |      |  |     | 104 |         |  |  | 4.90  |  |  |  | 3.52 |  |  |  | 4.31 | 
|1998                      |  |                                       | 86  |     |  |         | 64  |      |  |     | 75  |         |  |  | 4.60  |  |  |  | 2.00 |  |  |  | 3.41 | 
|1999                      |  |                                       | 85  |     |  |         | 61  |      |  |     | 72  |         |  |  | 2.90  |  |  |  | 2.48 |  |  |  | 2.65 | 
|2000                      |  |                                       | 93  |     |  |         | 74  |      |  |     | 84  |         |  |  | 2.98  |  |  |  | 2.15 |  |  |  | 2.56 | 
|2001                      |  |                                       | 87  |     |  |         | 60  |      |  |     | 73  |         |  |  | 2.65  |  |  |  | 2.15 |  |  |  | 2.36 | 
|2002                      |  |                                       | 78  |     |  |         | 65  |      |  |     | 72  |         |  |  | 8.30  |  |  |  | 2.40 |  |  |  | 3.77 | 

Phelps Dodges reported ore
reserves are economic at a three-year
historical average COMEX copper price of 76 cents per pound and a three-year
historical average molybdenum price of $2.89 per pound (Metals WeekMean Dealer
Oxide).

Phelps Dodge develops its business plans
using a time horizon that is
reflective of the historical, moving average for the full price cycle. We
currently use a long-term average COMEX price of 90 cents per pound of copper
and an average molybdenum price of $3.40 per pound (Metals WeekMean Dealer
Oxide), along with near-term price forecasts reflective of the current price
environment to develop mine plans and production schedules.

The per pound COMEX copper price over
the past 10 years, 15 years and 20
years averaged 91 cents, 99 cents and 91 cents, respectively. The per pound
Metals WeekMean Dealer Oxide molybdenum price over the same periods averaged
$3.78, $3.47 and $3.44, respectively.





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##### Table of Contents



- 22 -

Mineralized Material




We hold various properties containing
mineralized material that we believe
could be brought into production should market conditions warrant. Permitting
and significant capital expenditures would likely be required before operations
could commence at these properties. The deposits are estimated to contain the
following mineralized material as of December 31, 2002:

|                     |  |            |  |         |     |                  |  |                   |      |          |  |        |       |        |  |          |      |  |  |  |      |  |  |  |       |  |  | 
|-------------------- |  | ---------- |  | ------- | --- | ---------------- |  | ----------------- | ---- | -------- |  | ------ | ----- | ------ |  | -------- | ---- |  |  |  | ---- |  |  |  | ----- |  |  | 
|                     |  |            |  |         |     |                  |  |                   |      |          |  |        |       |        |  |          |      |  |  |  |      |  |  |  |       | 
|                     |  |            |  |         |     | Milling Material |  | Leaching Material |      |          |  |        |       | Phelps
|                     |  |            |  |         |     |                  |  |                   |      |          |  |        |       | Dodge 
|                     |  |            |  |         |     | Millions         |  | %                 |      | Millions |  | %      |       | %      |  | Interest
|Property/Deposit     |  | Location   |  | of Tons |     | Copper           |  | of Tons           |      | Copper   |  | Nickel |       | (%)   
|                     |  |            |  |         |     |                  |  |                   |      |          |  |        |       |       
|Ambatovy (1)         |  | Madagascar |  |         |    |                  |  |                   |     |          |  |        | 210   |        |  |          |     |  |  |  | 1.10 |  |  |  | 100.0 | 
|Ajo (2)              |  | Arizona    |  |         | 205 |                  |  |                   | 0.50 |          |  |        |      |        |  |          |     |  |  |  |     |  |  |  | 100.0 | 
|Candelaria Norte
(3) |  | Chile      |  |         | 12  |                  |  |                   | 2.15 |          |  |        |      |        |  |          |     |  |  |  |     |  |  |  | 80.0  | 
|Cochise/Bisbee       |  | Arizona    |  |         |    |                  |  |                   |     |          |  |        | 276   |        |  |          | 0.47 |  |  |  |     |  |  |  | 100.0 | 
|El Abra              |  | Chile      |  |         | 650 |                  |  |                   | 0.53 |          |  |        | 100   |        |  |          | 0.31 |  |  |  |     |  |  |  | 51.0  | 
|Lone Star
(Safford)  |  | Arizona    |  |         |    |                  |  |                   |     |          |  |        | 1,600 |        |  |          | 0.38 |  |  |  |     |  |  |  | 100.0 | 
|Lumwana              |  | Zambia     |  |         | 220 |                  |  |                   | 0.83 |          |  |        |      |        |  |          |     |  |  |  |     |  |  |  | 50.0  | 
|Morenci              |  | Arizona    |  |         |    |                  |  |                   |     |          |  |        | 567   |        |  |          | 0.25 |  |  |  |     |  |  |  | 85.0  | 
|Niagara
(Tyrone)     |  | New Mexico |  |         |    |                  |  |                   |     |          |  |        | 500   |        |  |          | 0.29 |  |  |  |     |  |  |  | 100.0 | 
|Safford              |  | Arizona    |  |         | 330 |                  |  |                   | 0.65 |          |  |        |      |        |  |          |     |  |  |  |     |  |  |  | 100.0 | 
|Sanchez
(Safford)    |  | Arizona    |  |         |    |                  |  |                   |     |          |  |        | 230   |        |  |          | 0.29 |  |  |  |     |  |  |  | 100.0 | 
|Tohono               |  | Arizona    |  |         | 276 |                  |  |                   | 0.70 |          |  |        | 404   |        |  |          | 0.63 |  |  |  |     |  |  |  | 100.0 | 

|      |  |                                                                                                                                                                                                                                                                                                                                                                                    
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note: |  | Mineralized material has been delineated by appropriately spaced
drilling and/or underground sampling to support the reported tonnage
and average grade of metal(s). Such a deposit does not qualify as
an ore reserve until legal and economic feasibility is concluded
based upon a comprehensive evaluation of implied unit costs, grade,
recoveries and other material factors.
|     
|(1)   |  | Ambatovy deposit also contains 0.10 percent
cobalt.                                                                                                                                                                                                                                                                                                                                
|     
|(2)   |  | Material previously characterized as ore reserves at the Ajo
development property was reclassified as mineralized material in
2002 as a result of an updated mine plan and economic assessment.                                                                                                                                                                                    
|     
|(3)   |  | Candelaria Norte is a potential underground mine that would utilize
the existing process facilities and infrastructure. The stated
tonnage also contains 0.015 ounces of gold per ton.                                                                                                                                                                                             





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##### Table of Contents



- 23 -

Sales and Competition




U.S. Mining Operations

The majority of our copper, produced or
purchased, at our U.S. operations
is cast into rod. Rod sales to outside wire and cable manufacturers
constituted approximately 70 percent of PDMCs U.S. sales in 2002, 65 percent
in 2001 and 79 percent in 2000. The remainder of our U.S. copper sales are
primarily in the form of copper cathode or copper concentrate. Sales of rod
and cathode are made directly to wire and cable fabricators and brass mills
under contracts principally of a one-year duration. Our rod also is used by
our Wire and Cable segment. We generally sell our copper rod and cathode
produced at our U.S. operations at a premium over New York Commodity Exchange
(COMEX) prices.

South American Mines

The production from our South American
Mines is sold as copper concentrate
or as copper cathode. Our Candelaria mine sells its production in the form of
copper concentrates primarily to copper smelters located in Japan and the rest
of Asia under long-term, multi-year contracts or on a spot basis through
merchants. In addition, a portion of Candelarias production is shipped to
North America for further processing at our U.S. operations. El Abra produces
copper cathodes that are sold primarily under annual or multi-year contracts to
Asian or European rod or brass mill customers or to merchants. Cerro Verde
produces copper cathode; the majority of which are shipped to our U.S. rod
mills for processing. The remainder of Cerro Verdes production is sold under
annual contracts to South American customers or to merchants on a spot basis.
The copper cathode sold by our international operations generally is sold at a
premium over London Metal Exchange (LME) prices. We also sell copper
concentrate based on COMEX or LME prices.

Worldwide Copper Mining Operations

From time to time, we engage in hedging
programs designed to enable us to
realize current average prices for metal delivered or committed to be
delivered. We also have entered into price protection arrangements from time
to time, depending on market circumstances, to ensure a minimum price for a
portion of expected future mine production.

Most of the refined copper we sell is
incorporated into electrical wire
and cable products worldwide for use in the construction, electric utility,
communications and transportation industries. It also is used in industrial
machinery and equipment, consumer products and a variety of other electrical
and electronic applications.

When we sell copper as rod, cathode and
concentrate, we compete, directly
or indirectly, with many other sellers including at least two other U.S.
primary producers as well as numerous foreign producers, metal merchants,
custom refiners and scrap dealers. Some major producers outside the United
States have cost advantages resulting from richer ore grades, lower labor costs
and in some cases, a lack of strict regulatory requirements. We believe our
ongoing programs to contain costs, improve productivity and employ new
technologies will significantly narrow these cost advantages and place us in a
more competitive position with respect to a number of our international
competitors.

Other materials that compete with copper
include aluminum, plastics,
stainless steel and fiber optics. Our principal methods of competing include
pricing, product properties, product quality, customer service and
dependability of supply.

Primary Molybdenum Segment

Molybdic oxide is used primarily in the steel
industry for corrosion
resistance, strengthening and heat resistance. Molybdenum chemicals are used
in a number of diverse applications such as catalysts for petroleum refining, lubricants and
feedstock for pure molybdenum metal used in electronics. A substantial portion
of Phelps Dodges expected 2003 molybdenum production is committed for sale
throughout the world pursuant to annual and/or quarterly agreements based
primarily on prevailing market prices one month prior to the time of sale.

The molybdenum market is generally
characterized by cyclical and volatile
prices, little product differentiation and strong competition. Prices are
influenced by production costs of domestic and foreign competitors, worldwide
economic conditions, world supply/demand balances, inventory levels, the U.S.
dollar exchange rate and other factors. Molybdenum prices also are affected by
the demand for end-use products in, for example, the construction,
transportation and durable goods markets. A substantial portion of world
molybdenum is produced as a by-product of copper mining, which is relatively
insensitive to molybdenum price levels. China exports quantities of molybdenum
that represent a significant portion of world consumption. China also imports
quantities of molybdenum but usually, we believe, in quantities significantly
less than it exports. Because of their size, Chinas net exports can
significantly affect the balance of supply and demand, and pricing, in the
world molybdenum market. Our estimates place Chinas molybdenum net exports at
approximately 20 to 25 percent of global consumption.





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##### Table of Contents



- 24  -

Prices, Supply and Consumption




Worldwide Copper Mining Operations

Copper is an internationally traded
commodity, and its prices are
effectively determined by the two major metals exchanges  COMEX and LME. The
prices on these exchanges generally reflect the worldwide balance of copper
supply and demand, but are also influenced significantly from time to time by
speculative actions and by currency exchange rates.

Copper is a critical component of the
worlds infrastructure. The demand
for copper ultimately reflects the rate of underlying world economic growth,
particularly the growth in industrial production, construction and durable
goods. Coppers end-use markets reflect its fundamental role in the world
economy. Estimated percentages of copper consumption by end-use markets
comprise (i) construction  40 percent, (ii) electrical applications  25
percent, (iii) industrial machinery  15 percent, (iv) transportation  10
percent, and (v) consumer products  10 percent. Since 1990, refined copper
consumption grew by an estimated compound rate of 2.8 percent to 15 million
tons according to published data by the World Bureau of Metals Statistics
(WBMS) and PDs estimate for 2002. This rate of increase was slightly higher
than the growth of world industrial production, which grew at an estimated
compound annual rate of 2.3 percent over the same period. Asian copper
consumption, led by China, was particularly strong, increasing by 5.9 percent
per year from 1990 through 2002. Asia now represents approximately 43 percent
of world refined copper consumption compared with 25 percent for Europe and 25
percent for the Americas. The strong demand for copper in Asia has been driven
by the increasing standard of living in this region as well as production of
value added products for export to the developed world.

From 1990 through 2002, refined copper
production has grown at an average
annual rate of 2.9 percent according to WBMS (based on published data through
2001) and PDs estimate for 2002. This growth was encouraged by a number of
factors. First, limited investment in new mine production in the latter half
of the 1980s coupled with growing demand for copper during that period resulted
in market deficits and declining copper inventories that in turn encouraged new
investment. Second, an improved investment climate in Latin America,
particularly Chile, encouraged investment in this region. In 2002, Latin
America represented 44 percent of world mine production, a significant increase
from 25 percent in 1990. Third, SX/EW technology made some previously
uneconomic resources viable investments.

Copper demand and price tend to follow
economic cycles and, therefore,
copper price has historically experienced significant fluctuations.
Considering the period from 1990 to 2002, the LME price of copper averaged 95
cents per pound, and ranged from a high annual average price of $1.33 per pound
in 1995 to a low annual average price of 71 cents per pound in 2002. The COMEX
price of copper averaged 95 cents per pound from 1990 through 2002, but has
ranged from a high annual average price of $1.35 per pound in 1995 to a low
annual average price of 72 cents per pound in 2002.

In 2002, the average COMEX copper price
of 72 cents per pound was 1 cent
less than the 2001 average price. Continued low prices resulted from weak
global economic conditions and a resulting modest surplus of production over
consumption. More than 175,000 metric tons of excess metal in the market was
delivered into LME and COMEX warehouses, bringing the combined inventories to
historically high levels of more than 1.2 million metric tons. Demand for
copper remained sluggish in 2002 increasing a modest 1.8 percent from 2001
levels as copper consumption in many regions, particularly the United States,
Europe and Japan, remained weak as the result of depressed global economic
conditions. Expectations of improvement in global manufacturing diminished as
technology, telecommunications and electronics sectors stagnated. Chinese
copper demand, however, continued to outpace the rest of the world as
government infrastructure projects, an expanding industrial complex and
increasing domestic prosperity led to the third year of double digit growth in
copper consumption.

World refined copper production declined
1.7 percent in 2002 from 2001 due
to a number of announced production curtailments. Beginning in October 2001,
world copper producers, including Phelps Dodge, independently announced a
series of production curtailments with a combined total of approximately
580,000 metric tons of copper. The cutbacks served to curb production of
copper in concentrates and corresponding global primary refined production. As
a result, the copper market moved back into balance during the second half of
2002, as evidenced by modest declines in reported LME and COMEX warehouse
stocks. The tightened supply chain, however, was not enough to prevent a
150,000 metric ton surplus for the year.

In 2001, the COMEX copper price averaged
73 cents per pound, 11 cents less
than the 2000 average price. The decrease in price was the result of a surplus
market as modest growth in refined production outpaced weak global demand for
metal. The market imbalance resulted in approximately 627,000 metric tons of
excess copper being delivered into western world exchange inventories,
increasing warehouse stocks to more than 1 million metric tons. The
signifi-





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##### Table of Contents



- 25  -

cant rise in inventory caused the price to fall below the 70-cent level
where it remained for nearly all of the second half of 2001. Weakness in the
U.S. and Japanese economies reduced world demand for copper, particularly in
the electronics and technology sectors where metal off-take had been expanding.
Output from manufacturing industries in the large copper consuming regions of
the world were slowed by the economic downturn, especially those heavily
dependent on export markets in the United States, Europe and Japan. The lone
bright spot in the copper market was China whose economy continued to expand
supported by increases in consumer demand, government-funded infrastructure
projects, and its acceptance into the World Trade Organization.

The COMEX copper price averaged 84
cents per pound for the year 2000, a
12-cent improvement over the previous year. The increase in price was
triggered by deficit market conditions created by robust demand for the metal
coupled with lower world copper production growth following the closure of
nearly 780,000 metric tons of capacity during 1998 and 1999. After having
added nearly 480,000 metric tons during the previous two years, combined
Western exchange inventories topped 930,000 metric tons in early March 2000.
During the remainder of the year, LME and COMEX inventories declined by
approximately 515,000 metric tons to end the year at 415,000 metric tons, a
decline of 52 percent from the beginning of the year.

Primary Molybdenum Segment

Molybdenum demand depends heavily on
worldwide steel industry consumption
and to a lesser extent on chemical applications. During 2002, demand in the
United States held steady compared with 2001; however, demand in Europe and
Japan declined slightly compared with 2001. Overall global demand decreased
slightly in 2002 compared with 2001. We estimate consumption declined
approximately 1 percent in 2002. Our estimates for worldwide production
indicate an approximate 4 percent decline in 2002 compared with 2001. The
decline in 2002 was primarily due to production curtailments at several large
copper mines that produce molybdenum as a by-product. Overall, primary
molybdenum mines appear to have maintained production cuts, which took place in
prior years. The additional production curtailments in 2002 and relatively
flat global consumption levels placed the overall molybdenum market in slight
deficit for 2002. The molybdenum business and prices improved during the year
from 2001 levels as a result of the tight supply market.

Molybdenum prices experienced a steady
rise during the first five months
of 2002. In the month of June, molybdenum prices spiked hitting a Metals Week
dealer oxide weekly average high of $7.90 per pound and a monthly Metals Week
dealer oxide mean price of $6.93 per pound. Molybdenum prices moved downwards
in the following months ending at $3.26 per pound for the month of December.
Metals Weekdealer oxide mean prices averaged $3.77 per pound in 2002 compared
with $2.36 per pound in 2001. The production curtailments and tightness of
supply caused molybdenum prices to improve from their previous low levels.
Phelps Dodge received an average realized price of $4.57 per pound in 2002,
compared with $3.64 per pound in 2001, reflecting a broad mix of upgraded molybdenum products as well as
technical grade molybdic oxide.

Costs




Worldwide Copper Mining Operations

Implied unit cost of copper
production measures the all-in cost of
each pound of copper produced by PDMC. As the title indicates, this measure is
the cost implied by the market price of copper (i.e., LME average spot) for a
given period versus PDMCs operating income (loss) for the same period.

There is no established common standard
for calculating unit production
costs in the copper industry. PDMCs implied unit production costs indicator
(which is based on readily accessible, publicly disclosed data) acts as a proxy
to enable investors to follow and interpret cost trends over historical
periods.

PDMC calculates its all-in operating
margin per pound of copper sold by
dividing its operating income (loss) excluding special items by the total
pounds of copper sold from its own mines for its own account. This results in
an all-in operating margin (i.e., inclusive of cost of products sold;
depreciation, depletion and amortization; selling and general administrative
expense; and exploration and research expense for the segments operations)
that is compared with the market price of copper to render an implied cost of
copper production.

In 2002, the full and cash implied unit cost of
copper production each
decreased 7 cents per pound compared with 2001. In 2002, approximately 3 cents
of the cost improvement was due to lower energy costs, and the remainder was
primarily due to operational improvements associated with the Companys Quest
for Zeroprogram.

In 2001, the full and cash implied unit cost of
copper production
increased 4 and 2 cents per pound, respectively, compared with 2000, primarily
due to slightly higher energy costs (approximately 1 cent). The remainder of
the increase in the full implied unit cost was primarily due to depreciation
expense.





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##### Table of Contents



- 26 -

Energy, including electricity, diesel fuel and
natural gas, represents a
significant portion of the production costs for our operations. During the
first quarter of 2001 and much of 2000, our Arizona and New Mexico operations
were affected adversely by significantly higher costs for all three.

In response, the Company implemented a
power cost stabilization plan in
March 2001 that consisted of an additional negotiated firm power contract; the
construction of a power co-generation plant in New Mexico; short-term,
alternating production curtailments at the Companys Tyrone, Sierrita, Bagdad
and Henderson operations; and a partial production curtailment at Chino.

Additionally, to mitigate the
Companys exposure to increases in diesel
fuel and natural gas prices, we implemented several price protection programs
in late 2000 and early 2001 designed to protect the Company against a
significant upward movement in energy prices. The Companys diesel fuel price
protection program consisted of a combination of purchasing out-of-the-money
(OTM) diesel fuel call options and fixed-price diesel fuel swaps for our North
American operations. The OTM call options give the holder the right, but not
the obligation, to purchase a specific commodity at a pre-determined dollar
cost, or strike price. OTM call options are options with a strike price
above the prevailing market price for that commodity when purchased.

The OTM diesel fuel call options mitigated a
portion of our exposure to
volatile markets by capping the cost of the commodity if prices were to rise
above the strike price. If the price of diesel fuel is lower than the strike price, the Company has the
flexibility to purchase diesel fuel at prices lower than the strike price and
the options expire with no value. The swaps allow us to establish a fixed
price for a specific commodity product for delivery during a specific future
period.

Our natural gas price protection program
consisted of purchasing OTM call
options or OTM collars for our North American operations. OTM call options
capped the commodity purchase cost at the strike price while allowing the
Company the ability to purchase natural gas at a lower cost when market prices
were lower than the strike price. The purchase of collars (the simultaneous
purchase of an OTM call option and the sale of an OTM put option) allows us to
establish both a price ceiling and a price floor for natural gas costs.

As a result of the above-mentioned plans
and programs, in 2002 and 2001
Phelps Dodge was able to reduce and partially mitigate the impacts of volatile
electricity markets and rising diesel fuel and natural gas prices.

Environmental and Other Regulatory Matters




U.S. Mining Operations

Significant Federal Environmental Programs

Our operations in the United States are
subject to stringent federal,
state and local laws and regulations relating to improving or maintaining
environmental quality. Our global operations are also subject to many
environmental protection laws in the jurisdictions where we operate. We pursue
environmental performance at all of our operations with the same diligence that
we pursue financial, health and safety performance. We are committed to
pollution prevention and responsible environmental stewardship worldwide.

Environmental regulatory programs create
potential liability for our
domestic operations, which may result in requirements to perform environmental
investigations or corrective actions under federal and state laws, in addition
to federal and state Superfund requirements (refer to the discussion of
Superfund requirements in OTHER ENVIRONMENTAL MATTERS). Major environmental
programs and developments of particular interest are summarized in the
paragraphs that follow.

Most air emissions from our domestic
operations are subject to regulation
under the federal Clean Air Act (CAA) and related state laws. These laws
impose permitting, performance standards, emission limits, and monitoring and
reporting requirements on sources of regulated air pollutants.

Several of our domestic operations have
obtained, or are in the process of
obtaining, major source operating permits under Title V of the CAA and related
state laws. Facilities with smelters, rod mills, molybdenum roasters and power
plants are the primary examples of our operations that are subject to this
program. These permits typically do not impose new substantive requirements,
but rather incorporate in one permit all existing requirements. However, they
can increase compliance costs by imposing new monitoring requirements, such as
more frequent emission testing, to demonstrate compliance with existing
requirements. The process of developing these comprehensive permits also can
bring to light new or previously unknown agency interpretations of existing
regulations, which also may increase compliance costs.

At least one of our smelters will be subject
to one or more Maximum
Achievable Control Technology (MACT) standards under the CAA. These standards
do not have immediate compliance dates; instead they allow two or three years
after promulgation to provide the opportunity to come into compliance or to
reduce





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- 27  -

emissions to avoid regulation before the compliance date. For example,
the copper smelter MACT standard was issued in 2002, and the
compliance date for that standard is June 2005. Other potentially
applicable MACT standards are still in development. Therefore, we still are in
the process of determining applicability and compliance strategies.

Most discarded materials from our domestic
operations are subject to
regulation as solid waste under the federal Resource Conservation and Recovery
Act (RCRA) and related state laws. These laws impose design, operating,
closure and post-closure care requirements on facilities used to store, treat
or dispose of solid waste.

Mineral extraction (mining) and
beneficiation (the concentration of
economic minerals) occurs at our mining operations. The solid wastes uniquely
associated with these activities are exempt from hazardous waste regulation.
Mineral processing (the alteration of a mineral from one mineralogic state to
another) occurs at our smelter, refinery and molybdenum roasting operations.
Except for a list of 20 exempt processing wastes (three of which include wastes
from copper mineral processing operations), all mineral processing wastes
generated at our domestic mining operations are subject to hazardous waste
regulation if they exhibit a hazardous waste characteristic or if the U.S.
Environmental Protection Agency (EPA) specifically designates them as a listed
hazardous waste. In 1998, EPA finalized its supplemental Land Disposal
Restriction Phase IV (LDR) rules that imposed regulation on hazardous mineral
processing wastes that are stored before they are recycled or disposed. This
final LDR rule also subjects mineral processing wastes that exhibit a hazardous
waste characteristic to stringent treatment standards if the materials are
disposed on land. A portion of the LDR rule was judicially vacated on appeal.
While EPAs final LDR rule likely will require us to continue to make
expenditures to manage hazardous mineral processing wastes, it is not possible
to determine the full impact on us of the new LDR requirements until the
requirements are fully adopted and implemented.

The federal Emergency Planning and
Community Right-to-Know Act was
expanded in 1997 to cover mining operations. This law, which has applied to
other Phelps Dodge businesses for more than a decade, requires companies to
report to EPA the amount of certain materials managed in or released from their
operations each year. Annually, we report the volume of naturally occurring
minerals and other substances that we managed during the previous year once the
usable metals were extracted. These materials are very high in volume and how
they are managed is covered by existing regulations and permit requirements.

The federal National Pollutant Discharge
Elimination System (NPDES)
program requires a permit for the point source discharge of pollutants to
surface waters that qualify as waters of the United States. Although most
states have received authorization to implement this program in lieu of EPA,
New Mexico has not received such authorization and therefore the NPDES permit
program in New Mexico continues to be implemented primarily by EPA. On
December 5, 2002, Arizona obtained authorization to implement the NPDES permit
program in the state. Colorado has maintained authorization of the NPDES
program for several years. The NPDES permit program also regulates the
discharge of storm water runoff from active and inactive mines and construction
activities. EPA and authorized states have issued general permits that cover
discharges from active and inactive mines. We likely will continue to have to
make expenditures to comply with the NPDES permit program, especially as the
program continues to expand as applied to storm water discharges.

Significant Arizona Environmental and
Reclamation Programs

The Arizona Department of Environmental
Quality (ADEQ) has adopted
regulations for its aquifer protection permit (APP) program that replaced the
previous Arizona groundwater quality protection permit regulations. Several of
our properties continue to operate pursuant to the transition provisions for
existing facilities under the APP regulations. The APP regulations require
permits for certain facilities, activities and structures for mining,
concentrating and smelting. The APP requires compliance with aquifer water
quality standards at an applicable point of compliance well or location. The APP also may require mitigation and
discharge reduction or elimination of some discharges. Existing facilities
operating under the APP transition provisions are not required to modify
operations until requested by the state of Arizona, or unless a major
modification at the facility alters the existing discharge characteristics. We
have received an APP for our Morenci operations, for portions of our Bagdad and
Miami mines, for the sewage treatment facility at Ajo, and for a closed tailing
pile in Clarkdale, Arizona. We have also conducted groundwater studies and
submitted APP applications for several of our other properties and facilities,
including the Bagdad, Sierrita and Miami mines, our Safford development
property and Ajo, Copper Queen and United Verde branches. We will continue to
submit all required APP applications for our remaining properties and
facilities, as well as for any new properties or facilities. We do not know
what the APP requirements are going to be for all existing and new facilities
and, therefore, it is not possible for us to estimate costs associated with
those requirements. We are likely to continue to have to make expenditures to
comply with the APP program.





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An application for an APP requires a
description of a closure strategy to
meet applicable groundwater protection requirements following cessation of
operations and a cost estimate to implement the closure strategy. An APP may
specify closure requirements, which may include postclosure monitoring and
maintenance requirements. A more detailed closure plan must be submitted
within 90 days after a permittee notifies ADEQ of its intent to cease
operations. A permit applicant must demonstrate its financial capability to
meet the costs required under the APP, including closure costs.

Portions of the Companys Arizona
mining operations that operated after
January 1, 1986, also are subject to the Arizona Mined Land Reclamation Act
(AMLRA). AMLRA requires reclamation to achieve stability and safety consistent
with post-mining land use objectives specified in a reclamation plan.
Reclamation plans require approval by the State Mine Inspector and must include
a cost estimate to perform the reclamation measures specified in the plan.
Financial assurance must be provided under AMLRA covering the estimated cost of
performing the reclamation plan.

Under both APP regulations and AMLRA, a
publicly traded company may
satisfy the financial assurance requirements by showing that its unsecured debt
rating is investment grade and that it meets certain requirements regarding
assets in relation to the estimated closure and post-closure cost and
reclamation cost estimates. If this test is not met, the permittee must
provide an alternative form of financial assurance that meets the requirements
of the applicable regulations or that is approved by ADEQ or the State Mine
Inspector, as applicable. The Companys Arizona operations have met the
applicable financial assurance requirements by supplying a demonstration of the
Companys investment-grade bond rating.

At December 31, 2002 and 2001, we
had accrued closure costs of
approximately $43 million and $38 million, respectively, for our Arizona
operations. The amount of financial assurance currently provided under both
regulatory programs is approximately $115 million. If the Companys bond
rating falls below investment-grade, the Arizona mining operations would be
required to supply financial assurance in another form.

Cyprus Tohono Corporation (Cyprus
Tohono), a wholly owned subsidiary of
Cyprus Amax, leases lands on the Tohono Oodham Indian Nation (the Nation).
The leased lands include the site of a mining operation, currently on
care-and-maintenance status, comprising an open pit, underground mine workings,
leach and non-leach rock stockpiles, tailing and evaporation ponds, SX/EW
operations, and ancillary facilities. Many of these facilities are covered by
Mine Plans of Operations (MPOs) that were issued by the federal Bureau of Land
Management (BLM). The leases and MPOs impose certain environmental compliance,
closure and reclamation requirements upon Cyprus Tohono. The closure and
reclamation requirements under the leases require action to be taken upon
termination of the leases, which currently expire between 2012 and 2017, unless
terminated earlier in accordance with the terms of the leases. Preliminary studies indicate that closure and
reclamation requirements,
excluding the potential Superfund environmental response costs discussed in
OTHER ENVIRONMENTAL MATTERS, are estimated to cost $5.0 million.

The Nation, along with several federal
agencies, have notified Cyprus
Tohono of groundwater quality concerns and concerns with other environmental
impacts of historical mining operations. In 2001, Cyprus Tohono conducted
additional groundwater investigations at the site. Analytical results from
samples taken from newly installed groundwater monitoring wells show
contaminants above primary or secondary drinking water standards. A
neighboring Native American villages water supply has been contaminated with
sulfate. Cyprus Tohono is providing an alternative supply to the village and
has installed two new water wells for the village. A pipeline to connect the
two new water wells to the village water system was completed in 2003. The
cost of the new wells was $175,000; the cost to complete the pipeline to the
village was approximately $175,000.

The Companys historic United Verde
Mine has obtained an APP for closure
of a tailing pond located near Clarkdale, Arizona, and is awaiting approval of
an APP for existing mine water discharge containment facilities at the mine
near Jerome, Arizona. The tailing pond has not received tailing discharges
since the early 1950s, but has received discharges of municipal sewage effluent
from the town of Clarkdale since the late 1970s. Closure work under the APP
for the tailing pond has been partially completed, but the remaining work has
not been completed pending the issuance of a stormwater discharge permit under
the Clean Water Act for construction of a related development project.
Construction of improvements under the proposed APP for the mine are expected
to begin following issuance of the APP, and implementation of the plan under
the proposed APP may be used to partially address the claims asserted by EPA
and the Department of Justice as described in Item 3 of the Legal Proceedings
section. A voluntary remediation project also is under way under supervision
of ADEQ at the nearby historic Iron King mine to treat potential discharges of
acidic water from an adit. Additional work may be required at historical mine
workings in the district that are owned by the Company to satisfy requirements
under storm water discharge permits. At the United Verde Mine, APP costs are
estimated to be





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$13.6 million; at the Clarkdale tailing, APP costs are
estimated to be $12.2 million; and at the Iron King Mine, voluntary remediation
costs are estimated to be $2.2 million. These amounts, totaling $28.0 million,
are included in environmental reserves.

Significant New Mexico Environmental and
Reclamation Programs

Mining and smelting operations with
leaching, tailing ponds, surface
impoundments and other discharging facilities in New Mexico are subject to
regulation under the New Mexico Water Quality Act and Water Quality Control
Commission (WQCC) Regulations. The Chino, Cobre and Tyrone mines and the
Hidalgo smelter each have obtained multiple discharge permits for their
operations, which specify operational, monitoring and notification
requirements. These permits are issued for five-year terms and require renewal
following the end of each permit term. The WQCC Regulations authorize the New
Mexico Environment Department (NMED), which administers the discharge permit
program, to require the submission of closure plans showing how applicable
discharge permit requirements will be met following closure. Under certain
circumstances, NMED also may require submission and approval of abatement plans
to address the exceedance of applicable water quality standards.

Further, Chino, Cobre, Tyrone and Hidalgo
must submit closure plans for
their operations. Hidalgo has an approved closure plan under its discharge
permit. The three mines have submitted closure plans, which have been combined
with closeout plans under the New Mexico Mining Act (NMMA), as discussed below.
The proposed closure plans currently are subject to approval by NMED as part
of separate discharge permits for closure for each of the three operations that
would supplement the existing discharge permits (hereinafter referred to as
closure permits). The proposed closure permits contain a number of permit
conditions that would modify the proposed closure plans. Chino Mines Company and NMED
reached agreement in December 2001 on proposed closure permit conditions
presented at a public hearing in February 2002. On January 23, 2003, NMEDs
hearing officer issued a decision approving the closure permit as proposed by
NMED and Chino, with minor changes. NMED issued a permit consistent with the
hearing officers decision on February 24, 2003. An appeal has been filed by a
local environmental group. Phelps Dodge Tyrone, Inc. and NMED were unable to
reach agreement on permit terms before a public hearing held in May 2002, and
presented competing permit proposals. Other parties who participated in the
public hearing presented their own proposals. On March 7, 2003, Tyrone
received the hearing officers decision on its permit, which generally adopted
NMEDs proposal. On April 2, 2003, Tyrone filed an appeal of the hearing
officers decision with the WQCC. NMED issued a permit in accordance with the
hearing officers decision on April 8, 2003, which Tyrone also expects to
appeal. Cobre Mining Company and NMED also have not reached agreement on the
terms of a closure permit. The closure permit for Cobre Mining Company does
not require a public hearing, and may be issued by NMED at any time.

Chino, Cobre and Tyrone also are subject to
permit requirements under
NMMA, which was passed in 1993. Following adoption of the New Mexico Mining
Act Rules (NMMAR) in 1994, Chino, Cobre and Tyrone received initial permits as
existing mining operations under NMMAR in 1997. These permits require
revisions to incorporate approved closeout plans, which consist of plans for
reclamation of the mining operations to achieve a self-sustaining ecosystem or
an approved post-mining land use following cessation of operations at a mine.
Existing mining operations may seek a waiver of these reclamation standards for
open pits and waste units based upon a demonstration that achieving these
standards is technically or economically infeasible or environmentally unsound,
as long as measures will be taken to meet air and water quality standards
following closure.

NMMAR originally required approval of a
closeout plan for an existing
mining operation by December 31, 1999, based upon an extension granted by the
Director of the Mining and Minerals Division (MMD). NMMAR subsequently was
amended to extend the deadline for closeout plan approval until December 31,
2001, and later to October 1, 2002. NMMAR contains a requirement that NMED
must provide MMD with a determination that a closeout plan meets applicable
environmental standards, including air and water quality standards, before MMD
can approve the closeout plan. NMEDs policy is to issue this determination
after it has issued closure permits for the facility that submits the closeout
plan. In early 2001, Chino, Cobre and Tyrone submitted comprehensive
closure/closeout plans (CCPs) to both NMED and MMD intended to address the
requirements of both the WQCC Regulations and NMMAR. Approval of the CCPs
under NMMAR would require the granting of waivers by MMD as authorized under
NMMAR. The CCPs were the subject of the public hearings before NMED for Chino
and Tyrone, as discussed above.

As of October 1, 2002, NMED had
not issued closure permits for Chino,
Cobre or Tyrone. Consequently, as of October 1, 2002, MMD had not approved
closeout permits for these three mines. As discussed in Item 3 of the Legal
Proceedings section, MMD issued Notices of Violation (NOVs) to Chino, Cobre and
Tyrone because the three mines did not obtain approved closeout plans by the
October 1, 2002, deadline. The NOVs were modified by the Mining Commission
following a public hearing to set new deadlines for closeout plan approval tied
to NMED permit actions.





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Based on NMEDs permit actions, closeout plan approval
for Chino is now due by September 24, 2003, and the closeout plan approval date
for Tyrone should be about April 8, 2004. The closeout plan approval deadline
for Cobre will be nine months from the date of NMEDs permit issuance, which is
currently pending.

NMMAR contains specific requirements
regarding financial assurance that
must be provided to MMD to assure that sufficient funds would be available to
MMD to carry out the closeout plan in the event of a default by the permittee.
NMED also may require financial assurance under the WQCC Regulations. The
financial assurance requirements are based upon the net present value of estimated costs to carry out the
requirements of
the closure permit and the approved closeout plan, assuming the state would
hire a third-party contractor to conduct the work. Actual reclamation costs
may differ significantly from the costs estimated under the permits due to
advances in technology and reclamation techniques and opportunities to prepare
each site for more efficient reclamation through careful development of the
site over time. Consequently, the estimated costs under the permits are higher
than the cost the Company would be expected to incur if the Company performed
the work.

The CCPs submitted in early 2001
contained cost estimates of approximately
$100 million for Chino, $121 million for Tyrone, and $9 million for Cobre,
based upon unescalated and undiscounted capital and operating costs over a
30-year operating period. The closure permit negotiated by NMED and Chino
Mines Company and approved by the NMED hearing officer has an estimated cost of
approximately $391 million, based upon third-party unescalated and undiscounted
capital and operating costs over a 100-year operating period. This cost
estimate will be adjusted to include the cost of technical studies required
under the permit conditions after a cost estimate for those costs has been
approved by NMED. The Companys two-thirds share of NMEDs $391 million
estimate is approximately $261 million and our joint venture partners cost
share is approximately $130 million. We estimate total costs to achieve the
closure standards required by NMED to be approximately $261 million. The
Companys cost estimate to achieve the New Mexico closure standards is
approximately one-third lower than the financial assurance cost estimate as a
result of the Companys historical cost advantages, savings from the use of the
Companys own personnel and equipment versus third-party contract costs, and
opportunities to prepare the site for more efficient reclamation. The
financial assurance cost estimate includes approximately $10 million (100
percent basis) of costs the Company has recognized in environmental reserves.
The Companys two-thirds share of these costs is approximately $174 million and
our joint venture partners cost share is approximately $87 million. At
December 31, 2002 and 2001, we had accrued approximately $8 million and $5
million, respectively, (two-thirds basis) for reclamation at Chino. The NMED
cost estimate for Chino is subject to further review, and possible adjustment,
by MMD under NMMAR.

NMED estimated the cost to carry out the
requirements of its proposed
closure permit for Tyrone at approximately $440 million, without discounting or
escalation, under NMEDs proposal at the May 2002 hearing; Tyrone estimated the
cost of its proposal at approximately $328 million, without discounting or
escalation over a 100-year operating period. NMED has not yet supplied its
proposed cost estimate for Cobre. The proposed terms of the closure permits
would require additional studies over the five-year term of the permits to
refine the closure plan. The plan requirements and cost estimates may increase
or decrease based upon the results of the studies and other factors, including
changes in technology, completion of some closure and reclamation work, and
inflation.

Based upon NMEDs undiscounted
financial assurance cost estimates for the
Tyrone plan of approximately $440 million, and considering the same cost
advantages as indicated in the above discussion regarding Chino, we estimate
the Companys costs to achieve the closure standards under that estimate to be
approximately $288 million for Tyrone. The Company has not obtained approval
from NMED of an estimate of its cost to achieve the closure standards that
would be required by the hearing officers decision. The Companys current
cost estimate for Cobre of approximately $9 million will be updated with the
issuance of the discharge permit. At December 31, 2002 and 2001, we had
accrued closure costs of approximately $27 million and $8 million,
respectively, at Tyrone and approximately $2 million at Cobre.

Following NMEDs issuance of the
closure permits, Chino, Cobre and Tyrone
are required to submit proposals for financial assurance based upon the permit
requirements and subject to NMEDs approval. Under the proposed closure permit
terms, the amount of financial assurance may be based upon the net present
value of the estimated cost for a third-party to implement the plan, using
discount and escalation rates specified in the permit. These amounts are
expected to be substantially lower than the undiscounted and unescalated cost
estimates. For example, based upon the cost estimate approved by the hearing officer,
the financial assurance amount for Chino could be approximately $189 million.
This amount is based on annual escalation rates of approximately 3.2 percent
for long-term water treatment costs and approximately 3.6 percent for other
costs and discount rates of 5 percent for years one through 12 of the plan and
8 percent for years 13 through 100.

NMMAR requires that financial assurance for
a closeout plan be approved
and put in place before





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MMD can approve the closeout plan. Currently, under
interim financial assurance required under the terms of their NMED closure
permits, Chino and Tyrone have provided approximately $56 million and $58
million of financial assurance, respectively, which is held by NMED. Cobre
also has approximately $2 million of financial assurance in place held jointly
by NMED and MMD. Following NMEDs issuance of the closure permits, and prior
to MMDs approval of the closeout plans, Chino, Tyrone and Cobre will be
required to provide substantial amounts of additional financial assurance to
cover the amounts of the approved cost estimates and may involve material cost
depending on the form of financial assurance provided. Hidalgo currently has
provided financial assurance in the amount of approximately $11 million under
its discharge permit.

In December 1994, Chino Mines Company
entered into an Administrative Order
on Consent (AOC) with NMED. This AOC requires Chino to perform a Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA) quality
investigation of environmental impacts and potential risks to human health and
the environment associated with portions of the Chino property affected by
historical mining operations. The remedial investigations began in 1995 and
are still under way, although substantial portions of the remedial
investigations are near completion. While some remediation is expected to be
required, no feasibility studies have yet been completed, and NMED has not yet
issued a record of decision regarding any remediation that may be required
under the AOC. The Companys estimated cost is $14.1 million (two-thirds share
basis). In addition to work under the AOC, Chino is continuing ongoing
projects to place interim caps on inactive tailing ponds to control blowing
dust at an estimated cost of $2.5 million (two-thirds share basis) and to
excavate and remove copper-bearing sediments from an area known as Lake One
for copper recovery in existing leach stockpiles at the mine. The Companys
estimated cost for Lake One is $4.3 million (two-thirds share basis). The
Companys aggregate reserve for its share of liability under the Chino AOC and
for the interim work on the tailing ponds and Lake One is $20.9 million.

At Tyrone, an interim dust control cap has
been placed on a historic
tailing pile. Tyrone is considering implementing additional measures to
address the ponding of storm water that accumulates seasonally on inactive
tailing ponds and to reduce financial assurance requirements. Tyrone currently
is neutralizing the ponded water. Tyrone continues to operate groundwater
corrective action systems under the terms of its NMED discharge permits. The
current amount reserved for these items at Tyrone is $17.5 million.

The discharge permit issued by NMED for
the Hidalgo smelter contains
corrective action requirements for contaminated groundwater near the smelters
closed former wastewater evaporation pond. The evaporation pond has been
closed by construction of a soil cap approved by NMED. Impacted groundwater is pumped from a series of wells,
treated
in a neutralization facility, and discharged to a series of lined impoundments
or to an irrigation system. The discharge permit requires a comprehensive
groundwater study to characterize groundwater at the site. NMED could require
future enhancement of the system based upon the results of the ongoing study.

Primary Molybdenum Segment

Significant Colorado Reclamation Program

Our Climax and Henderson mines in
Colorado are subject to permitting
requirements under the Colorado Mined Land Reclamation Act, which requires
approval of reclamation plans and provisions for financial assurance. These
mines have had approved mined land reclamation plans for several years and have
provided the required financial assurance to the state of Colorado in the
amount of $52.4 million and $10.1 million, for Climax and Henderson,
respectively. As a result of adjustments to the approved cost estimates for
various reasons, the amount of financial assurance requirements can increase or
decrease over time. At December 31, 2002 and 2001, we had accrued closure
costs of approximately $19 million and $18 million, respectively, for our
Colorado operations.

Other Mining

Some portions of our mining operations
located on public lands are subject
to mine plans of operation approved by the federal BLM. BLMs regulations
include financial assurance requirements for reclamation plans required as part
of the approved plans of operation. As a result of recent changes to BLMs
regulations, including more stringent financial assurance
requirements, increases in existing financial assurance amounts held by BLM could be
required. Currently, financial assurance for the Companys operations held by
BLM totals $2.7 million.

The Company is investigating available
options to provide additional
financial assurance and, in some instances, to replace existing financial
assurance. The cost of surety bonds, the traditional source of financial
assurance, has increased significantly over the past year, and many surety
companies are now requiring an increased level of collateral supporting the
bonds such that they no longer are economically prudent. Some surety companies
that issued surety bonds to the Company are seeking to exit the market for
reclamation bonds. The terms and conditions presently available from our
principal surety bond provider for reclamation and other types of long-lived
surety bonds have made this type of financial assurance economically





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impractical. We are working with the impacted state and federal agencies to
put in place acceptable alternative forms of financial assurance in a timely
fashion.

We also are subject to federal and state
laws and regulations pertaining
to plant and mine safety and health conditions. These laws include the
Occupational Safety and Health Act of 1970 and the Mine Safety and Health Act
of 1977. Present and proposed regulations govern worker exposure to a number
of substances and conditions present in work environments. These include dust,
mist, fumes, heat and noise. We are making and will continue to make
expenditures to comply with health and safety laws and regulations.

We estimate that our share of capital
expenditures for programs to comply
with applicable environmental laws and regulations that affect our mining
operations will total approximately $21 million in 2003 and approximately $19
million in 2004; approximately $13 million was spent on such programs in 2002.
We also anticipate making significant capital and other expenditures beyond
2004 for continued compliance with such laws and regulations. In light of the
frequent changes in the laws and regulations and the uncertainty inherent in
this area, we are unable to reasonably estimate the total amount of such
expenditures over the longer term, but it may be material. (Refer to the
discussion of OTHER ENVIRONMENTAL MATTERS.)

We do not expect that additional capital and
operating costs associated
with achieving compliance with the many environmental, health and safety laws
and regulations will have a material adverse affect on our competitive position
relative to other U.S. copper producers. These domestic copper producers are
subject to comparable requirements. However, because copper is an
internationally traded commodity, these costs could significantly affect us in
our efforts to compete globally with those foreign producers not subject to
such stringent requirements.

Ownership of Property

U.S. Mining Operations

In the United States, most of the land
occupied by our copper mines,
concentrators, SX/EW facilities, smelters, refineries, rod mills, and
molybdenum roasters or processing facilities generally is owned by, or is
located on unpatented mining claims owned by, the Company. Certain portions of
our Henderson, Miami, Bagdad, Sierrita, Tyrone, Chino and Cobre operations are
located on government-owned land and are operated under a Mine Plan of
Operations. The Sierrita operation leases property adjacent to its mine upon
which its electrowinning tankhouse facility is located. The current lease
agreement expires in the year 2003 and future alternatives, including extension
of the lease, are being considered. Cyprus Tohono Corporation holds leases for
land, water and business purposes on land owned by the Tohono Oodham Indian
Nation for its operation that is presently on care-and-maintenance status.
Various federal and state permits or leases on government land are held for
purposes incidental to mine operations.

South American Mining

At the Candelaria, Ojos del Salado, El Abra
and Cerro Verde operations in
South America, mine properties and facilities are controlled through mining
concessions under the general mining laws of the relevant country. The
concessions are owned or controlled by the operating companies in which the
Company or its subsidiaries have an ownership interest.

PHELPS DODGE INDUSTRIES




PDI is our manufacturing division comprising
two business segments that
produce engineered products principally for the global energy,
telecommunications, transportation and specialty chemicals sectors. Its
operations are characterized by products with significant market share,
internationally competitive cost and quality, and specialized engineering
capabilities. The two segments are Specialty Chemicals and Wire and Cable. In
December 2000, we announced our intention to explore strategic alternatives,
including restructuring, selective asset sales, commercial arrangements
(including joint ventures) and mergers, for PDI. In May 2001, we terminated
the sales process, noting that the then current economic environment was not
delivering transactions that offered appropriate value to our shareholders.





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Specialty Chemicals Segment

Columbian Chemicals Company and its subsidiaries (Columbian Chemicals or
Columbian), our Specialty Chemicals segment headquartered in Marietta, Georgia,
is an international producer and marketer of carbon blacks. At Columbian
Chemicals, we produce a full range of rubber and industrial carbon blacks in 12
plants worldwide (although our El Dorado, Arkansas, plant is temporarily
closed), with approximately 35 percent of our production in North America and
the remaining 65 percent at facilities in Europe, Asia and South America. Our
rubber carbon blacks improve the tread wear and durability of tires, and extend
the service life of many rubber products such as belts and hoses. Our
industrial carbon blacks are used in such diverse applications as pigmentation
of coatings, inks and plastics; ultraviolet stabilization of plastics; and as
conductive insulation for wire and cable. We also maintain sales offices in 11
countries and make use of distributors worldwide.

Extensive research and development is performed at our technology centers
located at Marietta, Georgia, and Avonmouth, United Kingdom. These technology
centers are responsible for studies specific to both industrial and rubber
applications of carbon black. Carbon black product and process development at
these technology centers are supported by development work at Columbians
plants worldwide.

Beginning in December 2001, Columbian Chemicals curtailed 54,000 metric
tons of annual North American carbon black production at its El Dorado,
Arkansas, plant due to significant over-capacity in the U.S. market caused by
the economic recession. The facility is expected to reopen when economic
conditions improve.

In the second quarter of 2000, we acquired the remaining 40 percent share
in the carbon black manufacturing business of Columbian Tiszai Carbon Ltd. in
Hungary for $19.0 million, bringing our total interest to 100 percent.

In the first quarter of 2000, we acquired an additional 18 percent
ownership in Columbian Carbon Japan, a sales and distribution company serving
the Japanese market, bringing our total ownership interest to 68 percent.

In January 1999, we acquired an 85 percent interest in the Korean carbon
black manufacturing business of Korea Kumho Petrochemical Co., Ltd., for $76.1
million. This business includes a 110,000 metric-ton-per-year manufacturing
plant.

In October 1998, we acquired the Brazilian carbon black manufacturing
business of Copebras S.A., a subsidiary of Minorco, for $220 million. This
manufacturing facility has an annual production capacity of 170,000 metric tons
of carbon black.

In November 1999, our manufacturing facility in Bataan, the Philippines,
was permanently closed as it did not have the economies of scale to compete
profitably with imports from larger regional producers.

Competition and Markets

The principal competitive factors in the various markets in which our
Specialty Chemicals segment competes are product quality, customer service,
price, dependability of supply, delivery lead time, breadth of product line,
and technical service and innovation.

Columbian Chemicals is among the worlds largest producers of carbon
black. Approximately 90 percent of the carbon black it produces is used in
rubber applications, a substantial portion of which is used in the tire
industry. Major tire manufacturers worldwide account for a substantial portion
of our carbon black sales. In addition, we maintain a strong competitive
position in both the mechanical rubber goods market and the industrial carbon
black market based on our commitment to quality, service and technical
innovation. Despite ongoing attempts to substitute carbon black with silica,
reclaimed rubber or other materials, none has been able to match the cost and
performance of carbon black in its principal applications. The closest
successful substitute is a silane-treated silica which has made some in-roads
in the tire market due to its increased wet traction characteristics for
specific applications.

Including Columbian Chemicals, there are a total of five major carbon
black producers in the United States, three in Canada, three in western Europe
and three in South America. There also are many producers in Asia. The carbon
black industry is highly competitive, particularly in the rubber black market.

Raw Materials and Energy Supplies

Carbon black is produced primarily from heavy residual oil, a by-product
of the crude oil refining process. At Columbian Chemicals, we purchase
substantially all of our feedstock at market prices that fluctuate with world
oil prices. Our residual oil feedstock and other raw materials for our
specialty chemicals business are purchased from various suppliers. The cost of
feedstock is a significant factor in the cost of carbon black. To achieve
satisfactory financial results during periods of high and/or increasing oil
prices, we must be able to pass through these high and/or increasing prices to
our customers. We do not believe that the loss of any one supplier would have
a material adverse effect on our financial condition or on the results of our
operations.





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Our specialty chemical operations generally use purchased or internally
generated electricity and natural gas as their principal sources of energy.




Ownership of Property

Columbian Chemicals owns all property other than the leased land at its
Sevalco, Hannover and Korean facilities. This leased land is not material to
our overall operations.




Wire and Cable Segment

The Wire and Cable segment, headquartered in Phoenix, Arizona, consists of
three worldwide product line businesses comprising magnet wire, energy and
telecommunications cables, and specialty conductors.

Magnet wire, the insulated conductor used in most electrical motors, is
manufactured in the United States at plants in Fort Wayne, Indiana, and El
Paso, Texas. We also manufacture magnet wire at wholly owned subsidiaries in
Mureck, Austria, and Monterrey, Mexico. As part of a manufacturing
rationalization program aimed at significant cost reductions, our Laurinburg,
North Carolina, plant was temporarily closed in 2002 and our Hopkinsville,
Kentucky, plant was closed in 2000 and its value was written down by $3.3
million in the second quarter of 2001. The productive assets of our
Hopkinsville, Kentucky, plant were moved to other facilities in the United
States and Mexico. In 2000, a special, pre-tax charge of $5.8 million was
recognized for our wire and cable operations in Austria as a result of the
long-term impact of continuing extremely competitive pricing conditions in
Europe. Those conditions led to a determination that we should assess the
recoverability of our Austrian wire and cable asset values. In addition, we
permanently ceased the relatively small production of magnet wire at our
company in Venezuela in 1999.

Phelps Dodge International manufactures energy and telecommunication
cables for international markets and manufactures products in factories located
in 10 countries. We provide management, marketing assistance, technical
support, and engineering and purchasing services to these companies. Three of
our international wire and cable companies have continuous-cast copper rod
facilities (a fourth facility was closed in 1999), and three of our
international wire and cable companies have continuous-cast aluminum rod
facilities. We have majority interests in companies with production facilities
in seven countries  Brazil, Chile, Costa Rica, Honduras, Thailand, Venezuela
and Zambia. We also have minority interests in companies located in Hong Kong
and Thailand, accounted for on the equity basis, and in companies located in
Greece and India, accounted for on the cost basis.

In December 1997, we acquired a 60 percent interest in the Brazilian
copper and aluminum wire and cable manufacturing business (the Business) of
Alcoa Aluminio, S.A. (Aluminio) for $72 million. At that time, the fair value
of the Business was $120 million. As part of the purchase agreement, Aluminio
was given an optional exit mechanism to sell to the Company all, but not less
than all, of its remaining shares in the Business. The agreement stipulated
that Aluminio could exercise its option between December 31, 2000, and January
1, 2006. Under the terms of the agreement, the exit price would be the greater
of (a) the sum of (i) the aggregate amount of paid in cash by Aluminio to
subscribe to capital increases, plus (ii) $48 million, or (b) the value of
shareholders equity represented by Aluminios shares. In January 2001,
Aluminio gave the Company notice of its intent to exercise the option. As a
result of other commitments by Aluminio under the purchase agreement, the exit
price was renegotiated and the transaction to acquire Aluminios remaining 40
percent interest in the Business closed in March 2001 for $44.8 million. Given
the option price at the time of the transaction was equal to fair value, the
value of the put option was deminimus.

During the second quarter of 2000, we ceased production at two wire and
cable plants in Venezuela due to low forecast plant utilization levels as a
result of significantly reduced infrastructure spending in the Latin America
region. These plant closures resulted in a special, pre-tax loss of $26.1
million. We also ceased production at our majority-owned telephone cable
operation in El Salvador in the fourth quarter of 2000 due to low plant
utilization levels as a result of heightened global competition for
telecommunication cable. The plant closure resulted in a special, pre-tax loss
of $5.5 million. A charge of $7.2 million to miscellaneous income and expense
was recognized to reflect the impairment of our 40 percent equity interest in a
wire and cable operation in the Philippines. The impairment was based upon an
analysis of future cash flows of the operation, continuing economic uncertainty
in the Philippines and the erosion of our strategic and operating influence.

During 1999, we converted a small manufacturing facility in Ecuador to a
distribution center. Also in 1999, we opened a distribution center in
Colombia. In all, we operate distribution centers in nine countries in
addition to the United States  Guatemala, El Salvador, Honduras, Panama,
Puerto Rico, Colombia, Ecuador, Belgium and South Africa. At the end of 1999,
we recognized impairments of our equity basis investment in China as well as an
impairment of our telecommunications business in the Philippines.

We manufacture and market highly engineered conductors of copper and
copper alloy wire electroplated with silver, tin or nickel for sophisticated,
specialty product niches in the aerospace, automotive,





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biomedical, computer and
consumer electronics markets. Those products are manufactured in plants
located in Inman, South Carolina; Trenton, Georgia; and Elizabeth, New Jersey.
As part of the manufacturing rationalization program initiated in 1999, leased
plants in Fairfield and Montville, New Jersey, were closed in 2000, and the
West Caldwell, New Jersey, plant was temporarily closed in 2002. Their
productive capacities were transferred to the remaining facilities.

On September 10, 2002, we announced the temporary closure of two U.S. wire
and cable plants and other actions to improve efficiencies and consolidate
certain wire and cable operations. These temporary closures and internal
changes are expected to reduce our costs and align our business with current
market conditions. The actions included: (i) the temporary closure of the
Laurinburg, North Carolina, magnet wire plant at the end of 2002, with
production being shifted to the El Paso, Texas, and Fort Wayne, Indiana,
facilities; (ii) the temporary closure of the West Caldwell, New Jersey, High
Performance Conductors facility pending recovery of markets served by this
location, with production of certain products relocated to our Inman, South
Carolina, facility; (iii) operational and production support at other High
Performance Conductors facilities being streamlined in order to reduce costs
and increase operating efficiencies; and (iv) the restructuring and
consolidation of certain administrative functions. These actions resulted in
special, pre-tax charges of $23.0 million ($22.2 million after-tax) in the 2002
third quarter and $0.6 million ($0.8 million after-tax) in the 2002 fourth
quarter. Of these amounts, $16.9 million (before and after taxes) was
recognized as asset impairments and $6.7 million ($6.1 million after-tax) was
recognized for severance-related and relocation expenses associated with the
restructuring and temporary closures. The amount of the asset impairment was
determined through an assessment of fair market value, which was based on
independent appraisals, of the existing assets at the wire and cable plants.
We also performed an event-driven impairment test on the goodwill at our wire
and cable plants through a comparison of the carrying value to the respective
fair value (using an estimate of discounted cash flows) and determined that an
additional impairment loss was not required. The restructuring plan includes
the reduction of approximately 300 positions and charges associated with
employee severance and relocation ($3.9 million, of which $0.7 million and $1.9
million was paid in the 2002 third and fourth quarters, respectively) and
pension and other postretirement obligations ($2.8 million).

Competition and Markets

Phelps Dodge is one of the worlds largest manufacturers of magnet wire.
Our plants draw, roll and insulate copper and aluminum wire which is sold as
magnet wire and bare conductors to original equipment manufacturers for use in
electric motors, generators, transformers, televisions, automobiles and a
variety of small electrical appliances. Magnet wire also is sold to electrical
equipment repair shops and smaller original equipment manufacturers through a
network of distributors. We principally compete with two international and two
U.S. magnet wire producers.

Our international energy and telecommunication cable companies primarily
sell products to contractors, distributors, and public and private utilities.
Our products are used in lighting, power distribution, telecommunications and
other electrical applications. Our competitors range from worldwide wire and
cable manufacturers to small local producers.

Our specialty conductors are sold primarily to intermediaries (insulators,
assemblers, subcontractors and distributors). Approximately 40 percent of
these products ultimately are sold to commercial and military aerospace
companies for use in airframes, avionics, space electronics, radar systems and
ground control electronics. Specialty conductors also are used in appliances,
instrumentation, computers, telecommunications, military electronics, medical
equipment and other products. We have two primary U.S. competitors and compete
with three importers in the specialty conductor market; however, in those few
markets where we compete for high volume products, we face competition from
several U.S. fabricators.

Raw Materials and Energy Supplies

The principal raw materials used by our magnet wire manufacturing
operations are copper, aluminum and various chemicals and resins used in the
manufacture of electrical insulating materials. Most of the copper purchased
for our magnet wire operations is from our PDMC division.

The principal raw materials used by our international energy and
telecommunication cable companies are copper, copper alloy, aluminum, aluminum
alloy, copper-clad steel and various electrical insulating materials.

The specialty conductor product line usually is plated with silver, nickel
or tin. With the exception of copper needed in specialty conductors, a
majority of the materials used by these companies is purchased from others. We
do not believe that the loss of any one supplier would have a material adverse
effect on our financial condition or on the results of our operations.





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Most of our wire and cable operations generally use purchased electricity
and natural gas as their principal sources of energy. Our magnet wire
companys principal manufacturing equipment uses natural gas; however, it is
also equipped to burn alternative fuels.

Ownership of Property

We own most of the plants and land on which our wire and cable operations
are located. The exceptions are the leased land and buildings of our magnet
wire facilities in Austria and closed specialty conductor facilities in
Fairfield and Montville, New Jersey. This land is not material to our overall
operations.




Environmental Matters

Federal and state environmental laws and regulations affect many aspects
of our domestic industrial operations. We estimate that capital expenditures
for programs to comply with applicable environmental laws and regulations
within our PDI division will total approximately $8 million in 2003 and
approximately $11 million in 2004; approximately $3 million was spent on such
programs in 2002. We anticipate making significant capital and other
expenditures after 2003 for continued compliance with environmental laws and
regulations.

It is expected that most, and perhaps all, of our domestic carbon black
plants and magnet wire plants are or will become subject to one or more MACT
standards under the federal CAA. These standards do not have immediate
compliance dates; instead they allow two or three years after promulgation to
provide the opportunity to come into compliance or to reduce emissions to avoid
regulation before the compliance date. For example, the carbon black MACT
standard was issued in 2002, and the compliance date for the carbon black MACT
standard is July 2005. Other potentially applicable MACT standards are still
in development. We are in the process of determining applicability and
compliance strategies.

The European Union (EU) has commenced work on the development of Best
Available Technology (BAT) for the carbon black industry. The current BAT
Reference Document (BREF Note) proposes to control sulfur dioxide emissions by
limiting the annual sulfur content in feedstocks to 0.5 percent. This limit,
if adopted, could negatively impact the carbon black industry, including
Columbian. Columbian, through the carbon black industry trade association, is
actively involved in this process. It is expected that it will be
approximately two years before any final action will be taken.

Because of the frequent changes in environmental laws and regulations and
the uncertainty these changes create for us, we are unable to estimate
reasonably the total amount of such expenditures over the longer term, but it
may be material. (Refer to the discussion of OTHER ENVIRONMENTAL MATTERS.)




LABOR MATTERS

Employees at PDMCs Arizona operations, El Paso refinery and rod mill,
Tyrone, Hidalgo smelter, the Norwich and Chicago rod mills, the Henderson mine
in Colorado, the Fort Madison, Iowa, molybdenum processing facility, and some
employees at Chino are not represented by any unions.

Our El Abra mine in Chile had labor agreements that expired on October 30,
2001. Two new three-year agreements, covering approximately 593 employees,
were ratified with effective dates of November 1, 2001, through October 31,
2004. Candelaria has two labor agreements, covering approximately 700
employees, which expired in March 2003. On March 31, 2003, the 556 employees
represented by the Candelaria union elected to go on strike. A labor agreement
was reached earlier with the remaining non-union hourly employees. The mine
will remain in production as negotiations continue with the Candelaria union.
Cerro Verde has a three-year labor agreement, covering approximately 295
employees, that expires December 31, 2003. Our Chino mine in Hurley, New
Mexico, has an agreement covering approximately 447 employees that expired on
November 18, 2002; negotiations are still ongoing in regard to this agreement.
Our molybdenum operations in Stowmarket and Rotterdam have agreements covering
approximately 38 and 50 employees, respectively, that expire (or expired) on
May 31 and March 31, 2003.

In addition, we currently have labor agreements covering most of our U.S.
and international manufacturing division plants. Our specialty chemicals plant
in Trecate, Italy, has an agreement covering 89 employees that expires on
December 31, 2003, and an agreement covering seven employees that expired on
December 31, 2001; negotiations are still ongoing in regard to this agreement.
Our specialty chemicals plant in Hamilton, Ontario, Canada, had an agreement
that expired on September 30, 2002. In March 2003, a new four-year agreement
was reached covering 65 employees. The plant remained fully operational and
staffed by salaried and contract employees during the work stoppage enacted in
November 2002. Our specialty chemicals facilities in Cubatao and Sao Paulo,
Brazil, have agreements covering 211 and 26 employees, respectively, that
expire on October 31, 2003. Our specialty chemicals plant in Bristol, United
Kingdom, has an agreement covering 107 employees that expires on May 8, 2003;
negotiations are expected to begin in April 2003. Our specialty chemicals
plant in Hannover, Germany, has an agreement covering 74 employees that expires
on July 31, 2003. Our spe-





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cialty chemicals plant in Yosu, South
Korea, has a
wage agreement covering 49 employees that expired March 31, 2003; negotiations
are expected to begin during the 2003 second quarter. Our specialty chemicals
plant in Santander, Spain, has an agreement covering 48 employees that expired
on December 31, 2002; negotiations are expected to begin during the 2003 second
quarter. Our specialty chemicals plant in Marshall, West Virginia, has two
agreements covering 60 employees that expire in June 2003. Our specialty
chemicals North Bend plant in Franklin, Louisiana, had an agreement that
expired on February 28, 2003. In February 2003, a new three-year agreement was
reached covering 113 employees.

Our wire plant in Elizabeth, New Jersey, has an agreement covering 45
employees that expired on July 31, 2000; negotiations are still ongoing in
regard to this agreement. Our wire plant in West Caldwell, New Jersey, has an
agreement covering 88 employees that expires in September 2003; this facility
was temporarily closed in December 2002. Our plant in Zambia has an agreement
covering approximately 98 employees that expires in July 2003. Our magnet wire
plant in Monterrey, Mexico, has an agreement covering approximately 143
employees that expired in March 2003; negotiations began in April 2003. Our
magnet wire plant in Fort Wayne, Indiana, has an agreement covering
approximately 210 employees that expires in May 2005. Our magnet wire plant in
Austria has an agreement covering approximately 70 employees that expires in
October 2003. Our wire and cable facilities in Brazil have agreements covering
approximately 279 and 30 employees that expire in September and November 2003,
respectively. Our wire and cable facilities in Venezuela have agreements
covering approximately 80 and 78 employees that expire in March 2004 and
December 2005, respectively. Our wire and cable plant in Chile has an
agreement covering approximately 184 employees that expires in May 2007.




RESEARCH AND DEVELOPMENT

We conduct research and development programs relating to technology for
exploration for minerals, mining and recovery of metals from ores, concentrates
and solutions, smelting and refining of copper, metal processing and product
development. We also conduct research and development programs related to our
carbon products through Columbian Chemicals, and our wire insulating processes
and materials and conductor materials and processes through our Wire and Cable
segment. Expenditures for all of these research and development programs,
together with contributions to industry and government-supported programs,
totaled $26.0 million in 2002, compared with $27.1 million in 2001 and $24.7
million in 2000.




OTHER ENVIRONMENTAL MATTERS

Phelps Dodge or its subsidiaries have been advised by EPA, the U.S. Forest
Service and several state agencies that they may be liable under CERCLA or
similar state laws and regulations for costs of responding to environmental
conditions at a number of sites that have been or are being investigated by
EPA, the U.S. Forest Service or states to determine whether releases of
hazardous substances have occurred and, if so, to develop and implement
remedial actions.

Phelps Dodge has provided reserves for potential environmental obligations
that management considers probable and for which reasonable estimates can be
made. For closed facilities and closed portions of operating facilities with
closure obligations, an environmental liability is considered probable and is
accrued when a closure determination is made and approved by management.
Environmental liabilities attributed to CERCLA or analogous state programs are
considered probable when a claim is asserted, or is probable of assertion, and
we have been associated with the site. Other environmental remediation
liabilities are considered probable based upon specific facts and
circumstances. Liability estimates are based on an evaluation of, among other
factors, currently available facts, existing technology, presently enacted laws
and regulations, Phelps Dodges experience in remediation, other companies
remediation experience, Phelps Dodges status as a potentially responsible
party (PRP), and the ability of other PRPs to pay their allocated portions.
Accordingly, total environmental reserves of $305.9 million and $311.2 million
were recorded as of December 31, 2002 and 2001, respectively. The long-term
portion of these reserves is included in other liabilities and deferred credits
on the consolidated balance sheet and amounted to $261.7 million and $264.3
million at December 31, 2002 and 2001, respectively.

The sites for which we have received a liability claim, a notice of
potential liability or an information request that currently are considered to
be the most significant are the Pinal Creek site near Miami, Arizona; the
Laurel Hill site at Maspeth, New York; the former American Zinc and Chemical
site in Langeloth, Pennsylvania; and the Cyprus Tohono site near Casa Grande,
Arizona.

Pinal Creek Site

The Pinal Creek site was listed under the ADEQ Water Quality Assurance
Revolving Fund program in 1989 for contamination in the shallow alluvial
aquifers within the Pinal Creek drainage near Miami, Arizona. Since that time,
environmental remediation has been performed by the members of the Pinal Creek
Group (PCG), comprising Phelps Dodge Miami, Inc. (a wholly owned subsidiary of
the Company) and





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two other companies. In 1998, the District Court approved a
Consent Decree between the PCG members and the state of Arizona resolving all
matters related to an enforcement action contemplated by the state of Arizona
against the PCG members with respect to the groundwater matter. The Consent
Decree committed Phelps Dodge Miami, Inc. and the other PCG members to complete
the remediation work outlined in the Consent Decree. That work continues at
this time pursuant to the Consent Decree and consistent with the National
Contingency Plan prepared by EPA under CERCLA.

Phelps Dodge Miami, Inc. and the other members of the PCG are pursuing
contribution litigation against three other parties involved with the site. At
least two of the three defendants now have admitted direct liability as
responsible parties. The case is expected to be assigned a trial date in 2004.
Phelps Dodge Miami, Inc. also asserted claims against certain past insurance
carriers. As of November 2002, all of the carriers have settled or had their
liability adjudicated. One carrier has appealed the judgment against it.

In addition, a dispute between one dissenting PCG member and Phelps Dodge
Miami, Inc. and the other PCG member was filed in Superior Court in 2002. The
litigation seeks a declaratory judgment on the dissenting members contract
liability under the PCG agreement. Trial for this matter is scheduled for
early 2004.

While significant recoveries may be achieved in the contribution
litigation, the Company cannot reasonably estimate the amount and, therefore,
has not taken potential recoveries into consideration in the recorded reserve.

Phelps Dodge Miami, Inc.s share of the planned remediation work has a
cost range for reasonable expected outcomes estimated to be from $117 million
to $219 million, and, as no point within that range is more likely than any
other, the lower end of the range has been reserved as required by generally
accepted accounting principles. Approximately $117 million remained in the
Companys Pinal Creek remediation reserve at December 31, 2002.

Laurel Hill Site

Phelps Dodge Refining Corporation, a subsidiary of the Company, owns the
Laurel Hill property in Maspeth, New York, that formerly was used for
metal-related smelting, refining and manufacturing. All industrial operations
at the Laurel Hill site ceased in 1984. In June 1999, the Company entered into
an Order on Consent with the New York State Department of Environmental
Conservation (NYSDEC) that required the Company to perform, among other things,
a remedial investigation and feasibility study relating to environmental
conditions and remedial options at the Laurel Hill site.

The Companys final feasibility study, which was submitted to NYSDEC in
May 2002, recommended that the Laurel Hill site be remediated by removing
certain hot spots of contaminated soils, capping most of the surface of the
site, installing and operating a groundwater extraction, containment and
treatment system, long-term groundwater monitoring, and implementing
institutional controls concerning future land uses. In June 2002, NYSDEC
issued a Proposed Remedial Action Plan (PRAP) adopting Phelps Dodges remedial
recommendation. NYSDEC has held public meetings concerning its PRAP and issued
a final remedial decision in January 2003 in the form of a Record of Decision.
Phelps Dodge expects to commence implementation of the remedy sometime during
the second or third quarter of 2003. While the Laurel Hill site is under a
contract for sale for $34 million, and the contract vendee has assumed the
obligation of capping the site at a cost of about $5 million, implementing the
remainder of the remedy is expected to cost the Company as much as $16 million.
The Company has reserved the entire estimated cost of $21 million.

In July 2002, Phelps Dodge entered into another Order on Consent with
NYSDEC requiring the Company to conduct a remedial investigation and
feasibility study relating to sediments in Newtown and Maspeth Creeks, which
are located contiguous to the Laurel Hill site. The Company expects to
commence the remedial investigation in mid to late 2003. It cannot be
determined what, if any, remedial action will be required by NYSDEC concerning
the Newtown and Maspeth Creek sediments until the remedial investigation and
feasibility studies are complete.

American Zinc and Chemical Site

In June 1999, Cyprus Amax, now a subsidiary of Phelps Dodge, received an
information request from the Pennsylvania Department of Environmental
Protection (PADEP) regarding the former American Zinc and Chemical (AZC) site
in Langeloth, Pennsylvania. For PADEP, the AZC site consists of a former zinc
smelter facility operated until 1947 by the former American Zinc and Chemical
Company and a contiguous, currently operating molybdenum refinery formerly
owned by the Climax Molybdenum Company, a Cyprus Amax subsidiary. The American
Zinc and Chemical Company, which was dissolved in 1951, also was a subsidiary
of a corporate predecessor to Cyprus Amax.

In discussions with Cyprus Amax in 2001 and early 2002, PADEP informally
indicated that it expects Cyprus Amax to investigate and remediate
environ-





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mental conditions at the AZC site, which predominates at and about the
former zinc smelter facility. Preliminary evaluations of the nature and extent
of environmental conditions at and about the zinc smelter facility indicate
that remediation of the AZC site may range in cost from $18 million to $52
million. While the Company has reserved $20 million for possible remediation
work at the AZC site, which represents the most likely point within the range
of estimates, Cyprus Amax has indicated to PADEP that the Company is not liable
for the actions of its former subsidiary, American Zinc and Chemical Company,
under existing federal and state environmental laws. To date, PADEP has not
responded to Cyprus Amaxs assertion of non-liability.

Cyprus Tohono Site

Cyprus Tohono holds three leases for lands on the Tohono Oodham Indian
Nation. The leased lands include the site of a mining operation, currently on
care-and-maintenance status, comprising an open pit, underground mine workings,
leach and non-leach rock stockpiles, tailing and evaporation ponds, SX/EW
operations, and ancillary facilities.

EPA has started a Preliminary Assessment and Site Investigation of Cyprus
Tohono to evaluate the need to conduct remedial actions under CERCLA. We are
unable to project the remedial action measures, if any, that may be required as
a result of these investigations; however, based upon our best estimate of
remedial actions that Cyprus Tohono may undertake, the Company reserved $11
million for Cyprus Tohono for the CERCLA matter.

Other

In 2002, the Company recognized charges of $14.0 million for environmental
remediation primarily for the Laurel Hill site ($13.5 million) and the
remainder at closed sites, none of which increased or decreased individually
more than $2 million.

At December 31, 2002, the cost range for reasonably possible outcomes for
all reservable environmental remediation sites other than Pinal Creek, Laurel
Hill, AZC and Cyprus Tohono was estimated to be from $119 million to $219
million of which $137 million has been reserved. Work on these sites is
expected to be substantially completed in the next several years, subject to
inherent delays involved in the remediation process.

Phelps Dodge believes certain insurance policies partially cover the
foregoing environmental liabilities; however, some of the insurance carriers
have denied coverage. We presently are negotiating with the carriers over some
of these disputes. Further, Phelps Dodge believes it has other potential
claims for recovery from other third parties, including the United States
Government and other PRPs. Neither insurance recoveries nor other claims or
offsets are recognized unless such offsets are considered probable of
realization. In 2002 and 2001, the Company recognized proceeds from
settlements reached with several insurance companies on historic environmental
liability claims of $34.3 million and $61.8 million, net of fees and expenses,
respectively.

Phelps Dodge has a number of sites that are not the subject of an
environmental reserve because it is not probable that a successful claim will
be made against the Company for those sites, but for which there is a
reasonably possible likelihood of an environmental remediation liability. At
December 31, 2002, the cost range for reasonably possible outcomes for all such
sites was estimated to be from $4 million to $37 million. The liabilities
arising from potential environmental obligations that have not been reserved at
this time may be material to the results of any single quarter or year in the
future. Management, however, believes the liability arising from potential
environmental obligations is not likely to have a material adverse effect on
the Companys liquidity or financial position as such obligations could be
satisfied over a period of years.

Our operations are subject to many environmental laws and regulations in
jurisdictions both in the United States and in other countries in which we do
business. For further discussion of these laws and regulations, refer to PDMC
- Environmental and Other Regulatory Matters and PDI - Environmental Matters.
The estimates given in those discussions of the capital expenditures to comply
with environmental laws and regulations in 2003 and 2004, and the expenditures
in 2002, are separate from the reserves and estimates described above.

The Environmental, Health and Safety Committee of the Board of Directors
comprises five non-employee directors. The Committee met two times in 2002 to
review, among other things, the Companys policies with respect to
environmental, health and safety matters, and the adequacy of managements
programs for implementing those policies. The Committee reports on such
reviews and makes recommendations with respect to those policies to the Board
of Directors and to management.




Item 3. Legal Proceedings

I.     We are a member of several trade associations that, from time to time,
initiate legal proceedings challenging administrative regulations or court
decisions that the membership considers to be improper and potentially adverse
to their business interests. These legal proceedings are conducted in the name
of





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the trade associations, and the members of the trade association are not
parties, named or otherwise.

II.     Arizona water regulations, water rights adjudications and other
related water cases.



| |                      
| | ---------------------
| | A. General Background



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Arizona surface water law is based on the doctrine of prior
appropriation (first in time, first in right). Surface water rights in
Arizona are usufructuary rights, and as such the water right holder is
granted only the right to use public waters for a statutorily defined
beneficial use, at a designated location. Groundwater in Arizona is
governed by the doctrine of reasonable use. Arizona has initiated two
water rights adjudications in order to quantify and prioritize all of the
surface water rights and water right claims to two of the states river
systems and sources. Groundwater is not subject to the adjudication;
however, wells may be adjudicated to the extent that they are found to
produce or impact appropriable surface water. The two adjudication cases
that could potentially impact Phelps Dodges surface water rights and
claims (including some wells) are entitled In Re The General Adjudication
of All Rights to Use Water in the Little Colorado Water System and Source,
Superior Court Case No. 6417 (Superior Court of Arizona, Apache County;
petition filed on or about February 17, 1978), and In Re The General
Adjudication of All Rights to Use Water in the Gila River System and
Source, Superior Court, Case Nos. W-1 (Salt), W-2 (Verde), W-3 (Upper
Gila); W-4 (San Pedro); Consolidated (Superior Court of Arizona, Maricopa
County; petition filed on February 17, 1978). The major parties in
addition to Phelps Dodge in the Gila River Adjudication are: Gila Valley
Irrigation District, the San Carlos Irrigation and Drainage District, the
state of Arizona, the San Carlos Apache Tribe, the Gila River Indian
Community, and the United States on behalf of those Tribes, on its own
behalf and on the behalf of the White Mountain Apache Tribe, Ft. McDowell
Mohave-Apache Indian Community, Salt River Pima-Maricopa Indian Community
and the Payson Community of Yavapai Apache Indians. The major parties in
addition to Phelps Dodge in the Little Colorado Adjudication are: the
state of Arizona, the Salt River Project, Arizona Public Service Company,
the Navajo Nation, the Hopi Indian Tribe, the San Juan Southern Paiute
Tribe and the United States on behalf of those Indian Tribes, on its own
behalf and on behalf of the White Mountain Apache Tribe.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Phelps Dodge has four active operations in the state of Arizona:
Morenci, Miami, Sierrita and Bagdad. Each operation requires water for
mining and all related support facilities. With the exception of Bagdad,
each operation is located in a watershed within an ongoing surface water
adjudication. Each operation has sufficient water claims to cover its
operational demands. In many instances, the water supply may come from a
variety of possible sources. The potential impact of the surface water
adjudications on each active operation is discussed below.



| |              
| | -------------
| | B. Operations



| |        
| | -------
| | Morenci



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Morenci operation is located in eastern Arizona. Morenci water
is supplied by a combination of sources, including decreed surface water
rights in the San Francisco River, Chase Creek and Eagle Creek drainages,
groundwater from the Upper Eagle Creek wellfield, and Central Arizona
Project (CAP) water leased from the San Carlos Apache Tribe and delivered
to Morenci via exchange through the Black River Pump Station. Phelps
Dodge has filed Statements of Claimants in the adjudication for each of
its water sources for Morenci except the CAP water.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Phelps Dodges decreed water rights are subject to the Gila River
Adjudication and potentially could be impacted. Although the purpose of
the adjudication is to determine only surface water rights, wells such as
those in the Eagle Creek wellfield may be subject to the Gila River
Adjudication, but only to the extent those wells may be determined to
capture or impact appropriable surface water. The CAP water provided via
exchange is not subject to any state adjudication process. The CAP lease
became effective as of January 1, 1999, and has a 50-year term.



| |      
| | -----
| | Miami



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Miami operation obtains water from a number of sources in the
Salt River watershed. Statements of Claimants have been filed in
connection with these water sources, each of which is subject to the
adjudication and could be potentially impacted. Miami currently holds a
CAP subcontract, although CAP water is not currently used at the
operation. CAP water is not subject to adjudication; however, an exchange
agreement will need to be negotiated in order to deliver this water to
Miami.





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| |         
| | --------
| | Sierrita



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Sierrita operation is located in the Santa Cruz River watershed.
The water for the operation is groundwater. The wells that supply the
water may be subject to the Gila River Adjudication only to the extent
that such wells are determined to be pumping or impacting appropriable
surface water. Phelps Dodge has filed Statements of Claimants in the
adjudication for these water sources in case any are later determined to
produce or impact appropriable surface water. In 1980, the Arizona
legislature enacted the Arizona Groundwater Code. The Code established
Active Management Areas (AMAs) in several groundwater basins, including
the Santa Cruz Groundwater Basin. The groundwater at this operation is
subject to regulation under the Tucson AMA.



| |       
| | ------
| | Bagdad



| |                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Bagdad operation is located in the Bill Williams River watershed.
The water supply includes claims to both surface water and groundwater.
There is not an active adjudication proceeding in this watershed; however,
the legal precedent set in the active adjudications regarding the
determination of whether water pumped from wells is treated as surface
water or groundwater may impact the use of water from some wells.



| |                                   
| | ----------------------------------
| | C. Other Arizona Mining Properties



| |                                                                                                
| | -----------------------------------------------------------------------------------------------
| | The potential impact of the ongoing adjudication on other mining
properties is discussed below.



| |        
| | -------
| | Safford



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Water for the planned future operation at Safford may come from a
combination of sources. Wells that supply groundwater may be used and
those wells will be subject to the adjudication only to the extent that
such wells are determined to be pumping or impacting appropriable surface
water. CAP water may also be considered for use at the operation some
time in the future. CAP water is not subject to adjudication; however, an
exchange agreement will need to be negotiated in order to deliver the
water. The implementation of such an exchange will require approval of
the Globe Equity Court as well as environmental reviews and related agency
approvals.



| |    
| | ---
| | Ajo



| |                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The potential water supply for Ajo is groundwater. The wells that
supply the water may be subject to the Gila River Adjudication to the
extent that such wells are determined to be pumping or impacting
appropriable surface water. Phelps Dodge has filed a Statement of
Claimant in the adjudication for these water sources in case any are later
determined to produce or impact appropriable surface water.



| |       
| | ------
| | Bisbee



| |                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The potential water supply for Bisbee is groundwater. The wells that
supply the water may be subject to the Gila River Adjudication to the
extent that such wells are determined to be pumping or impacting
appropriable surface water. Phelps Dodge has filed a Statement of
Claimant in the adjudication for these water sources in case any are later
determined to produce or impact appropriable surface water.



| |                     
| | --------------------
| | D. Water Settlements



| |                                                
| | -----------------------------------------------
| | 1. Gila River Indian Community Water Settlement



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On May 4, 1998, Phelps Dodge executed a settlement agreement with
the Gila River Indian Community (the Community) that resolves the
issues between Phelps Dodge and the Community pertinent to the Gila
River Adjudication. Since that time, comprehensive settlement
negotiations with users all along the Gila River have been initiated.
Phelps Dodges settlement with the Community is now included in the
comprehensive settlement. This settlement is subject to the approval
of the Secretary of the Interior and the passage of federal
legislation.



| |                           
| | --------------------------
| | 2. San Carlos Apache Tribe



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In 1997, issues of dispute arose between Phelps Dodge and the San
Carlos Apache Tribe (the Tribe) regarding Phelps Dodges use and
occupancy of the Black River Pump Station, which delivers water to the
Morenci operation. In May 1997, Phelps Dodge reached an agreement with
the Tribe, and subsequently federal legislation (Pub. L. No. 105-18,
5003, 111 stat. 158, 181-87) was adopted. The legislation prescribes
arrangements intended to ensure a future supply of water for the
Morenci mining





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| |                                                                                                                                                                                                                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | complex in exchange for certain payments by Phelps
Dodge. The legislation does not address any potential claims by the
Tribe relating to Phelps Dodges historical occupancy and operation of
Phelps Dodge facilities on the Tribes Reservation, but does require
that any such claims be brought, if at all, exclusively in federal
district court. As of this writing, no such claims have been filed.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The 1997 legislation required that the Company and the Tribe enter
a lease for the delivery of CAP water through the Black River Pump
Station to Morenci on or before December 31, 1998. In the event a
lease was not signed, the legislation expressly provided that the
legislation would become the lease. On January 24, 2002, a lease
between the San Carlos Apache Tribe, Phelps Dodge and the United States
was executed (effective as of January 1, 1999) in accordance with that
legislation. On the same date, and in accordance with the legislation,
an Exchange Agreement between the San Carlos Apache Tribe, the United
States and the Salt River Project Water Users Association was executed
and subsequently approved by Phelps Dodge. Since that date, CAP water
has been delivered to Morenci. Phelps Dodge has not reached a
settlement with the Tribe on general water issues and Phelps Dodge
water claims within the Gila River Adjudication are still subject to
litigation with the Tribe and other parties.



| |                                             
| | --------------------------------------------
| | 3. Salt River Pima-Maricopa Indian Community



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Salt River Pima-Maricopa Indian Community, Salt River Valley
Water Users Association, the principal Salt River Valley Cities, the
state of Arizona and others have negotiated a settlement among
themselves for the Verde and Salt River system. The settlement has
been approved by Congress, the President and the Arizona Superior
Court. Under the settlement, the Salt River Pima-Maricopa Indian
Community waived all water claims it has against all other water
claimants (including Phelps Dodge) in Arizona.



| |                                                
| | -----------------------------------------------
| | 4. Fort McDowell Mohave-Apache Indian Community



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Fort McDowell Mohave-Apache Indian Community, Salt River
Valley Water Users Association, the principal Salt River Valley
Cities, the state of Arizona and others have negotiated a settlement as
among themselves for the Verde River system. This settlement has been
approved by Congress, the President and the Arizona Superior Court.
Under this settlement, the Fort McDowell Mohave-Apache Indian Community
waived all water claims it has against all other water claimants
(including Phelps Dodge) in Arizona.



| |                       
| | ----------------------
| | E. Other Related Cases



| |                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------
| | The following proceedings involving water rights adjudications are
pending in the U.S. District Court of Arizona:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. On June 29, 1988, the Gila River Indian Community filed a
complaint-in-intervention in United States v. Gila Valley Irrigation
District, et al., and Globe Equity No. 59 (D. Ariz.). The underlying
action was initiated by the United States in 1925 to determine
conflicting claims to water rights in certain portions of the Gila
River watershed. Although Phelps Dodge was named and served as a
defendant in that action, Phelps Dodge was dismissed without prejudice
as a defendant in March 1935. In June 1935, the Court entered a decree
setting forth the water rights of numerous parties, but not Phelps
Dodges. The Court retained, and still has, jurisdiction of the case.
The complaint-in-intervention does not name Phelps Dodge as a
defendant; however, it does name the Gila Valley Irrigation District as
a defendant. Therefore, the complaint-in-intervention could affect the
approximately 3,000 acre-feet of water that Phelps Dodge has the right
to divert annually from Eagle Creek, Chase Creek or the San Francisco
River pursuant to Phelps Dodges decreed rights and an agreement
between Phelps Dodge and the Gila Valley Irrigation District.



| |                                                                                                                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | During 1998, Phelps Dodge purchased farmlands with associated
water rights that are the subject of this litigation. As a result,
Phelps Dodge has been named and served as a party in this case. The
lands and associated water rights are not currently used in connection
with any Phelps Dodge mining operation.



| |                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------
| | Phelps Dodges Miami operation (formerly named Cyprus Miami Mining
Corporation) was named and served as a defen-





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| |                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------
| | dant in this action in
1989. These proceedings may affect water rights associated with former
Cyprus Miami lands in the Gila River Watershed.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2. Prior to January 1, 1983, various Indian tribes filed several
suits in the U.S. District Court for the District of Arizona claiming
prior and paramount rights to use waters, which at present are being
used by many water users, including Phelps Dodge, and claiming damages
for prior use in derogation of their allegedly paramount rights. These
federal proceedings have been stayed pending state court adjudication.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 3. Cyprus Sierrita Corporations predecessor in interest was a
defendant in United States, et al. v. City of Tucson, et al., No. CIV
75-39 (D. Ariz.). This is a consolidation of several actions seeking a
declaration of the rights of the United States, the Papago Indian Tribe
(now known as the Tohono Oodham Nation), and individual allottees of
the Tohono Oodham Nation, to surface water and groundwater in the
Santa Cruz River Watershed; damages from the defendants use of surface
water and groundwater from the watershed in derogation of those rights;
and injunctive relief. Congress in 1982 enacted the Southern Arizona
Water Rights Settlement Act, which was intended to resolve the water
right claims of the Tohono Oodham Nation and its member allottees
relating to the San Xavier Reservation and the Schuk Toak District of
the Sells Papago Reservation. The allottees contested the validity of
the Act and contended that the Court could not dismiss the litigation
without their consent. This prompted additional litigation, and
eventually culminated in settlement negotiations. The Court suspended
most aspects of the litigation to enable the parties to negotiate a
settlement with the allottees. The Courts recent attention has been
devoted to the composition of appropriate classes of allottees and
identification of class representatives, so that any settlement that is
reached would bind the allottees. It is anticipated that a settlement
and authorizing legislation would conclude all litigation on behalf of
the Tohono Oodham Nation, its allottee members, and the United States
as Trustee for the nation and its allottee members, relating to water
rights. As of this writing, however, a settlement has not been
reached. The outcome of this dispute could impact water right claims
associated with the acquired Cyprus operations at Sierrita, and
miscellaneous former Cyprus land holdings in the Santa Cruz River
Watershed.

III. The Company entered into a Consent Decree in December 2000 with the
Connecticut Department of Environmental Protection (CDEP) regarding purported
violations of state air emissions limitations associated with the Phelps Dodge
Norwich rod mill in Norwich, Connecticut. Under the terms of the Consent
Decree, the Company agreed to pay a penalty of $0.5 million, fund a
supplemental environmental project to be administered by CDEP, test the rod
mills newly installed state-of-the-art air pollution control equipment, and
perform a study on environmental impacts near the rod mill. CDEP has accepted
the completion of the first three requirements identified above. The Company
submitted the required environmental study to CDEP on July 2, 2002.

IV. On October 1, 1997, the U.S. Environmental Protection Agency (EPA)
issued a Notice of Violation (NOV) to Cyprus Amaxs (now the Companys)
Sierrita operations in southeastern Arizona. The NOV alleged certain emission
standards and permitting violations associated with the molybdenum roasting
facility at Sierrita. On September 6, 2000, EPA also issued an NOV to Phelps
Dodge Sierrita for alleged violations of Prevention of Significant
Deterioration permitting requirements, and New Source Performance Standards
under the federal Clean Air Act. No action has been filed at this time, and
the Company has asserted defenses to the NOVs in its response to EPA. EPA and
the Company have entered into a series of agreements tolling the running of the
statute of limitations on certain of the alleged violations while the parties
attempt to negotiate a settlement of the issues raised in the NOVs.

V. The Pinal Creek site was listed under the Arizona Department of
Environmental Qualitys Water Quality Assurance Revolving Fund program in 1989
for contamination in the shallow alluvial aquifer within the Pinal Creek
drainage near Miami, Arizona. Since that time, environmental remediation has
been performed by the Pinal Creek Group (PCG), comprising Phelps Dodge Miami,
Inc. (a wholly owned subsidiary of the Company) and two other companies. In
1998, the District Court approved a Consent Decree between the PCG members and
the state of Arizona resolving all matters related to an enforcement action
contemplated by the state of Arizona against the PCG members with respect to
the groundwater matter. The Consent Decree committed Phelps Dodge Miami, Inc.
and the other PCG members to complete the remediation work outlined in the
Consent Decree. That work continues at this time pursuant to the Consent Decree
and consistent with the National Contingency Plan





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prepared by EPA under the
Comprehensive Environmental Response, Compensation and Liability Act.

Phelps Dodge Miami, Inc. and the other members of the PCG are pursuing
contribution litigation against three other parties involved with the site. At
least two of the three defendants now have admitted direct liability as
responsible parties. The case is expected to be assigned a trial date in 2004.
Phelps Dodge Miami, Inc. also asserted claims against certain past insurance
carriers. As of November 2002, all of the carriers have settled or had their
liability adjudicated. One carrier has appealed the judgment against it.

In addition, a dispute between one dissenting PCG member and Phelps Dodge
Miami, Inc. and the other PCG member was filed in Superior Court in mid-2002.
The litigation seeks a declaratory judgment on the dissenting members contract
liability under the PCG agreement. Trial for this matter is scheduled for
early 2004.

Approximately $117 million remained in the Companys Pinal Creek
remediation reserve at December 31, 2002. While significant recoveries may be
achieved in the contribution litigation, the Company cannot reasonably estimate
the amount and, therefore, has not taken potential recoveries into
consideration in the recorded reserve.

VI. On February 28, 2000, Cobre Mining
Company (Cobre) received an Administrative Order (Docket No. CWA-6 1014-00, the
February 2000 Order) from EPA. The February 2000 Order alleged violations of
the Clean Water Act, required Cobre to deliver a response stating the steps it
has taken to address each of the incidents leading to the alleged violations,
and required Cobre to show cause why no further action is necessary. Cobre
submitted its response to EPA and indicated that it was prepared to construct
certain storm water control upgrades. On September 18, 2001, EPA issued a
second Administrative Order (Docket No. CWA-06-2001-1206) stating that Cobres
response to the February 2000 Order was acceptable and ordered Cobre to
complete the proposed storm water control upgrades. On January 7, 2002, EPA
issued its Final Order and entered into a Consent Agreement with Cobre to
resolve the civil penalty claims for this matter for $137,500. The penalty has
been paid and Cobre is implementing the required upgrades.

VII. The Companys wholly owned subsidiary, Cyprus Amax Minerals Company
(Cyprus), is the plaintiff in an action entitled Cyprus Amax Minerals Company
v. Asarco Incorporated, 99 Civ. 1198 (JSM), which was filed on November 9,
1999, in the U.S. District Court for the Southern District of New York. The
action arises out of the merger agreement between Cyprus and Asarco dated as of
July 15, 1999 (the merger agreement). The complaint alleges, among other
things, that Asarco breached the merger agreement and subsequent agreement by
soliciting an alternative takeover proposal for Asarco from another company.
Cyprus seeks compensatory damages of not less than $90 million. Asarco filed
an answer to the complaint on November 30, 1999. On November 8, 2000, Asarco
filed a motion for judgment on the pleadings pursuant to federal rules. On
March 14, 2001, the Court denied the motion by Asarco for judgment on the
pleadings pursuant to Fed. R. Civ. P. 12(c). On April 10, 2001, Asarco filed
an amended answer and counterclaims against Cyprus and the Company for recovery
of a $30 million termination fee paid to the Company in October 1999 and for
other unspecified damages related to the bidding process for Asarco.

VIII. In September 2000, RAG American Coal Company (RAG) filed a complaint
against Cyprus Amax Minerals Company and Amax Energy Inc. (Cyprus) in the
Supreme Court of New York, County of New York (RAG American Coal Company v.
Cyprus Amax Minerals Company and Amax Energy Inc., (CV 00-604200)). The
complaint alleged claims relating to breach of contract, fraud, negligent
misrepresentation, and negligence arising from alleged inaccuracies in
financial statements relating to the sale by Cyprus of its coal subsidiary to
RAG in June 1999. The complaint sought damages in the amount of $115 million
under four different legal theories (breach of contract, fraud, negligent
misrepresentation and negligence). Cyprus filed a motion to dismiss the
complaint. On April 18, 2002, the Court issued its decision on this motion to
dismiss. The Court granted Cyprus motion to dismiss with respect to the
negligent misrepresentation and negligence claims, and denied Cyprus motion to
dismiss with respect to the contract and fraud claims. In a November 21, 2002
decision, the appellate division denied Cyprus appeal of the lower courts
decision on the contract and fraud claims. On January 17, 2003, RAG and Cyprus
entered into a mediated settlement agreement. Under the settlement agreement,
Cyprus paid $43.5 million on February 7, 2003, to RAG, all RAGs claims under
this action were released, and the parties filed with the Court a stipulation
of discontinuance with prejudice.

IX. On June 14, 2001, the New Mexico Environment Department (NMED) issued
Compliance Orders to Chino Mines Company and Phelps Dodge Tyrone, Inc.,
alleging the companies failed to obtain air quality construction permits for
construction of their solution extraction electrowinning plants in the 1980s.
On July 3, 2002, Chino Mines Company and Phelps Dodge Tyrone, Inc. joined with
the Department in filing Stipulated Voluntary Dismissals with the Hearing
Officer. This action dismissed the Compliance Orders.





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NMED recognized that
agency management in the 1980s had indicated that permits were not required.
Also, the facilities had, in fact, obtained permits before the Compliance
Orders were issued. Therefore, it agreed to stop the enforcement action. This
matter is now resolved.

X. On May 30, 2001, the U.S. Department of Justice (DOJ) notified the
Company of alleged violations of the Clean Water Act at the United Verde Mine.
The Company has entered into settlement discussions with DOJ and EPA regarding
these claims.

XI. On June 25, 2001, Plateau Mining Corporation (Plateau Mining), now a
subsidiary of RAG, initiated binding arbitration proceedings against the
Companys subsidiary, Cyprus, demanding payment under the terms of a 1997 tax
sharing agreement previously entered into by the parties. Plateau Mining is a
former subsidiary of Cyprus. On July 18, 2002, the arbitration panel awarded
Plateau Mining the amount of $36.5 million on its claim, plus interest. On
August 15, 2002, Cyprus paid to Plateau Mining Corporation approximately $47
million (including approximately $11 million in interest) in satisfaction of
the July 18, 2002, arbitration award. This payment was made without
prejudicing the rights of Cyprus to seek indemnification for this payment from
RAG under the provisions of other agreements entered into by Cyprus and RAG.
On October 22, 2002, Cyprus served the required notice on RAG that it was
seeking indemnification of this amount under a 1999 tax sharing and
indemnification agreement entered into by Cyprus and RAG. In November 2002,
RAG commenced an action in the New York State Supreme Court, which seeks to bar
Cyprus from asserting its indemnification claim against RAG. In December 2002,
Cyprus filed its response to this legal action and asserted its claim for
indemnification with respect to this arbitration award (Indemnification
Action). In addition, potential claims continued to exist between Cyprus and
RAG with respect to the status of Plateau Mining in the Cyprus consolidated tax
group for certain tax periods prior to RAGs acquisition of Plateau Mining
(Potential Claims). On April 11, 2003, RAG and its subsidiaries and
affiliates entered into a settlement agreement with Cyprus whereby the parties
agreed not to pursue further the Indemnification Action and the Potential
Claims. Under the terms of the settlement, no further payments were required,
other than certain ongoing reimbursements to Cyprus for Black Lung Excise Tax
refunds and related state tax refunds which are not in dispute; the claims
included in the Indemnification Action and Potential Claims were released; and
the parties agreed to discontinue the Indemnification Action with prejudice.

XII. On September 26, 2002, Chino Mines Company (Chino), Phelps Dodge Tyrone,
Inc. (Tyrone), and Cobre Mining Company (Cobre) each filed Petitions for Review
with the New Mexico Water Quality Control Commission (WQCC) regarding
notifications from NMED dated August 30, 2002, that NMED had determined that
the Chino Mine, the Tyrone Mine and Cobres Continental Mine each pose a
hazard to public health. According to NMED, the determinations were intended
to preclude Chino, Tyrone and Cobre from asserting certain exemptions from the
requirement to obtain a discharge permit for portions of the three facilities
under the WQCC regulations. Each of the Petitions for Review alleged that NMED
failed to follow proper procedures in issuing the August 30, 2002, letters and
failed to undertake certain investigations and make certain findings required
before it can make a determination of a hazard to public health, and that
there was no basis in law or fact for NMED to make this determination for any
of the three mines. The WQCC held a public hearing on the three Petitions on
December 17, 2002. Prior to the presentation of evidence in support of the
appeals, NMED agreed to completely withdraw all of its letters to Chino, Tyrone
and Cobre regarding NMEDs determinations, and the WQCC dismissed the appeals
as moot.

XIII. On October 18, 2002, the Mining and Minerals Division (MMD) of the
New Mexico Energy, Minerals and Natural Resources Department issued NOVs under
the New Mexico Mining Act Rules (NMMAR) to Chino Mines Company (Chino), Phelps
Dodge Tyrone, Inc. (Tyrone) and Cobre Mining Company (Cobre). The NOVs allege
that Chino, Tyrone and Cobre failed to obtain approval of closeout plans as
required by NMMAR by October 1, 2002. A closeout plan under NMMAR consists of
a plan for reclamation of a mining operation following cessation of operations
and financial assurance sufficient for MMD to complete the closeout plan if the
operator defaults. The NOVs would have established schedules requiring that
the alleged violations be abated by April 20, 2003, for Chino, June 30, 2003,
for Cobre and September 30, 2003, for Tyrone. The NOVs did not assess civil
penalties, but reserved the right to assess penalties in the future in
accordance with the penalty assessment procedures in NMMAR. The NOVs further
stated that if the alleged violations were not abated by the dates set in the
NOVs, MMD would issue cessation orders in accordance with NMMAR requiring
that mining operations cease until the alleged violation is abated. On
November 1, 2002, Chino, Tyrone and Cobre each filed Petitions for Review of
the NOVs with the New Mexico Mining Commission (Commission). The Petitions
contended that closeout plan approval was not possible by October 1, 2002,
because of delays by the NMED in issuing discharge permits for closure and
issuing determinations that the closeout plans for Chino, Tyrone and Cobre are
expected to achieve compliance with environmental standards, including





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compliance with water quality standards. The Petitions requested that the NOVs
be vacated or, in the alternative, that different dates be set for abatement of
the alleged violations which allow a reasonable period of time after NMED
issues its discharge permits to obtain approval of the closeout plans. The
Commission held a public hearing on December 13-14, 2002, on the Petitions for
Review. The Commission upheld the Notices of Violation but modified the period
for abatement for each mine to run from the dates when NMED issues the
discharge permits for closure for the mines. Under the modified NOVs, Chino,
Cobre and Tyrone will have seven, nine and 12 months, respectively, after NMED
issues their closure permits to obtain approval of their closeout plans.

XIV. On September 30, 2002, EPA issued an administrative complaint for
alleged violations of the Clean Water Act at the inactive Christmas Facility
owned indirectly by the Companys subsidiary, Cyprus Amax Minerals Company.
The complaint alleged, among other things, that certain discharges in 2002 and
2001 failed to meet effluent limitations. On February 5, 2003, EPA signed a
negotiated Consent Agreement and Final Order requiring the payment of a
$105,000 civil penalty. No injunctive relief is required under the Consent
Agreement and Final Order.

XV. Since approximately 1990, Phelps Dodge or its subsidiaries have been
named as a defendant in a number of product liability or premises lawsuits
brought by electricians and other skilled tradesmen or contractors claiming
injury from exposure to asbestos found in limited lines of electrical wire
products produced or marketed many years ago, or from asbestos at certain
Phelps Dodge properties. Phelps Dodge believes its liability, if any, in these
matters will not have a material adverse effect, either individually or in the
aggregate, upon its business, financial condition, liquidity, results of
operations or cash flow. There can be no assurance; however, that future
developments will not alter this conclusion.

XVI. On September 30, 2002, Columbian Chemicals Company, a subsidiary of
the Company, received an administrative complaint from EPA for alleged
violations of the Clean Air Act at its El Dorado, Arkansas, carbon black plant.
Columbian Chemicals Company has met with EPA to conduct settlement discussions
in an effort to resolve the matter informally.

XVII. On November 7, 2002, the United Kingdom Environment Agency (Agency)
issued an enforcement notice to Columbian Chemicals Companys Sevalco plant in
the United Kingdom. This notice followed Sevalcos disclosure to the Agency in
October 2002 that Sevalco had discovered irregularities in its effluent
discharge reports, and requires the plant to implement procedures to ensure
that discharges satisfy permit limits and are properly reported. Columbian
Chemicals Company is cooperating with the Agency while the Agency continues its
investigation of this matter.

XVIII. In November 2002, Columbian Chemicals Company was contacted by U.S.
and European antitrust authorities regarding a joint investigation they
initiated into alleged price fixing in the carbon black industry. European
antitrust authorities have reviewed documents at three of Columbian Chemicals
facilities in Europe, and U.S. authorities have contacted Columbian Chemicals
headquarters in Marietta, Georgia.

XIX. The Company and Columbian Chemicals Company have been named as
defendants in actions entitled Technical Industries, Inc. v. Cabot Corporation,
et al., filed on January 30, 2003, in the U.S. District Court in Boston,
Massachusetts, and Parker Hannifin Corporation v. Cabot Corporation, et al. in
the Northern District of Ohio. The complaints, filed on behalf of a purported
class of all individuals or entities who purchased carbon black directly from
the defendants from January 30, 1999, to January 30, 2003, allege that the
defendants fixed the prices of carbon black. The complaints seek treble
damages in an unspecified amount and attorneys fees under the U.S. antitrust
laws. The Company understands that a similar action has been filed against
Columbian Chemicals Company in the District of New Jersey, but neither it nor
Columbian Chemicals Company has been served with the complaint. The Company
believes the claims are without merit and intends to defend the lawsuits
vigorously.





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

No matters were submitted during the fourth quarter of 2002 to a vote of
security holders, through solicitation of proxies or otherwise.




Executive Officers of Phelps Dodge
Corporation

The executive officers of Phelps Dodge Corporation are elected to serve at
the pleasure of its Board of Directors. As of March 1, 2003, the executive
officers of Phelps Dodge Corporation were as follows:

|                       |  |        |    |          |  |                                                                                           |  |  |      | 
|---------------------- |  | ------ | -- | -------- |  | ----------------------------------------------------------------------------------------- |  |  | ---- | 
|                       |  | Age at |    |          |  | Officer of the                                                                           
|Name                   |  | 3/1/03 |    | Position |  | Corporation Since                                                                        
|                       |  |        |    |          |  |                                                                                          
|J. Steven Whisler      |  |        | 48 |          |  | Chairman of the Board,
President and
Chief Executive Officer                              |  |  | 1987 | 
|Timothy R. Snider      |  |        | 52 |          |  | Senior Vice President;
President, Phelps
Dodge Mining Company                             |  |  | 1997 | 
|S. David Colton        |  |        | 47 |          |  | Senior Vice President, General Counsel                                                    |  |  | 1998 | 
|Arthur R. Miele        |  |        | 61 |          |  | Senior Vice President, Marketing;
President, Phelps Dodge Sales Company                   |  |  | 1987 | 
|Kalidas V. Madhavpeddi |  |        | 47 |          |  | Senior Vice President, Business
Development; President, Phelps Dodge
Wire and Cable Group |  |  | 1999 | 
|Ramiro G. Peru         |  |        | 47 |          |  | Senior Vice President and Chief
Financial Officer                                         |  |  | 1995 | 
|David L. Pulatie       |  |        | 61 |          |  | Senior Vice President, Human Resources                                                    |  |  | 1999 | 

Except as stated below, all of the above have been officers of Phelps
Dodge Corporation for the past five years.

Mr. Colton was elected Senior Vice President in November 1999. He was
elected Vice President and General Counsel in April 1998. Prior to that time,
Mr. Colton was Vice President and Counsel for Phelps Dodge Exploration, a
position he held since 1995.

Mr. Madhavpeddi was elected Senior Vice President, Business Development in
November 2000. He was elected Vice President, Business Development in November
1999 and President, Phelps Dodge Wire and Cable Group in May 2002. Prior to
that time, Mr. Madhavpeddi was Vice President, Business Development of Phelps
Dodge Mining Company, a position he held since 1995.

Mr. Pulatie was elected Senior Vice President, Human Resources in March
1999. Mr. Pulatie joined Phelps Dodge in March 1999 after a 34-year career
with Motorola Inc.

Mr. Manuel J. Iraola, an officer of the Corporation since 1995, retired on
June 30, 2002, from his position as a Senior Vice President of the Corporation
and President, Phelps Dodge Industries.





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Part II




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

The information called for in Item 5 appears on pages 105 through 109 of
this report.




Item 6. Selected Financial Data

The following financial and operating data should be read in conjunction with
the information set forth in Item 7, Managements Discussion and Analysis and
the Consolidated Financial Statements and related notes thereto appearing in
this Annual Report.

($ in millions except per share and per pound amounts)

|                                                                                                              |  |                         |         |          |  |                 |         |          |  |          |         |   |  |  |         |   |  |  |         |  
|------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ------- | -------- |  | --------------- | ------- | -------- |  | -------- | ------- | - |  |  | ------- | - |  |  | ------- | -
|                                                                                                              |  | Year Ended December 31,
|                                                                                                              |  |                        
|                                                                                                              |  | 2002 (a)                |         | 2001 (b) |  | 2000 (c)        |         | 1999 (d) |  | 1998 (e)
|                                                                                                              |  |                         |         |          |  |                 |         |          |  |         
|                                                                                                              |  |                         |         |          |  | As Restated (i)
|                                                                                                              |  |                         |         |          |  |                
|Statement of Operations Data                                                                                  |  |                         |         |          |  |                 |         |          |  |          |         |   |  |  |         |   |  |  |         |  
|Sales and other operating revenues                                                                            |  | $                       | 3,722.0 |          |  |                 | 4,002.4 |          |  |          | 4,525.1 |   |  |  | 3,114.4 |   |  |  | 3,063.4 |  
|Operating income (loss)                                                                                       |  |                         | (209.3  | )        |  |                 | (28.8   | )        |  |          | 268.2   |   |  |  | (361.6  | ) |  |  | 415.6   |  
|Income (loss) before extraordinary item and
cumulative effect of accounting change                            |  |                         | (288.6  | )        |  |                 | (329.5  | )        |  |          | 56.3    |   |  |  | (278.3  | ) |  |  | 189.0   |  
|Net income (loss)                                                                                             |  |                         | (338.1  | )        |  |                 | (331.5  | )        |  |          | 56.3    |   |  |  | (281.8  | ) |  |  | 189.0   |  
|Basic earnings (loss) per common share before
extraordinary item and cumulative effect
of accounting change   |  |                         | (3.54   | )        |  |                 | (4.19   | )        |  |          | 0.72    |   |  |  | (4.51   | ) |  |  | 3.25    |  
|Diluted earnings (loss) per common share before
extraordinary item and cumulative effect
of accounting change |  |                         | (3.54   | )        |  |                 | (4.19   | )        |  |          | 0.72    |   |  |  | (4.51   | ) |  |  | 3.23    |  
|Basic earnings (loss) per common share                                                                        |  |                         | (4.13   | )        |  |                 | (4.22   | )        |  |          | 0.72    |   |  |  | (4.57   | ) |  |  | 3.25    |  
|Diluted earnings (loss) per common share                                                                      |  |                         | (4.13   | )        |  |                 | (4.22   | )        |  |          | 0.72    |   |  |  | (4.57   | ) |  |  | 3.23    |  
|Balance Sheet Data (at period end)                                                                            |  |                         |         |          |  |                 |         |          |  |          |         |   |  |  |         |   |  |  |         |  
|Current assets                                                                                                |  | $                       | 1,428.2 |          |  |                 | 1,531.2 |          |  |          | 1,542.7 |   |  |  | 1,735.7 |   |  |  | 1,042.3 |  
|Total assets                                                                                                  |  |                         | 7,029.0 |          |  |                 | 7,584.3 |          |  |          | 7,841.2 |   |  |  | 8,212.1 |   |  |  | 5,096.7 |  
|Total debt                                                                                                    |  |                         | 2,110.6 |          |  |                 | 2,871.6 |          |  |          | 2,687.7 |   |  |  | 2,755.0 |   |  |  | 1,021.0 |  
|Long-term debt                                                                                                |  |                         | 1,948.4 |          |  |                 | 2,538.3 |          |  |          | 1,963.0 |   |  |  | 2,172.5 |   |  |  | 836.4   |  
|Shareholders equity                                                                                          |  |                         | 2,813.6 |          |  |                 | 2,730.1 |          |  |          | 3,184.4 |   |  |  | 3,328.9 |   |  |  | 2,663.5 |  
|Cash dividends declared per common share                                                                      |  |                         |        |          |  |                 | 0.75    |          |  |          | 2.00    |   |  |  | 2.00    |   |  |  | 2.00    |  
|Other Data                                                                                                    |  |                         |         |          |  |                 |         |          |  |          |         |   |  |  |         |   |  |  |         |  
|Net cash provided by operating activities                                                                     |  | $                       | 348.0   |          |  |                 | 302.7   |          |  |          | 511.2   |   |  |  | 204.5   |   |  |  | 378.4   |  
|Capital expenditures and investments                                                                          |  |                         | 133.2   |          |  |                 | 311.0   |          |  |          | 422.3   |   |  |  | 240.4   |   |  |  | 668.3   |  
|Net cash provided by (used in) investing
activities                                                           |  |                         | (140.3  | )        |  |                 | (266.8  | )        |  |          | (274.2  | ) |  |  | 6.0     |   |  |  | (184.0  | )
|Net cash provided by (used in) financing activities                                                           |  |                         | (244.8  | )        |  |                 | 101.0   |          |  |          | (221.2  | ) |  |  | (198.0  | ) |  |  | (130.6  | )
|Division Results                                                                                              |  |                         |         |          |  |                 |         |          |  |          |         |   |  |  |         |   |  |  |         |  
|Phelps Dodge Mining Company operating
income (loss)                                                           |  | $                       | (65.0   | )        |  |                 | (83.6   | )        |  |          | 276.0   |   |  |  | (346.6  | ) |  |  | 103.2   |  
|Phelps Dodge Industries operating income                                                                      |  |                         | 30.6    |          |  |                 | 74.0    |          |  |          | 70.3    |   |  |  | 49.7    |   |  |  | 353.6   |  
|Corporate and Other operating loss                                                                            |  |                         | (174.9  | )        |  |                 | (19.2   | )        |  |          | (78.1   | ) |  |  | (64.7   | ) |  |  | (41.2   | )
|                                                                                                              |  |                         |         |          |  |                 |         |          |  |          |         |   |  |  |         |   |  |  |         |  
|                                                                                                              |  | $                       | (209.3  | )        |  |                 | (28.8   | )        |  |          | 268.2   |   |  |  | (361.6  | ) |  |  | 415.6   |  
|                                                                                                              |  |                         |         |          |  |                 |         |          |  |          |         |   |  |  |         |   |  |  |         |  





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|                                                            |                                       |   |                         |      |          |  |                 |      |          |  |          |      |  |  |       |      |  |  |       |      | 
|----------------------------------------------------------- | ------------------------------------- | - | ----------------------- | ---- | -------- |  | --------------- | ---- | -------- |  | -------- | ---- |  |  | ----- | ---- |  |  | ----- | ---- | 
|                                                            |                                       |   | Year Ended December 31,
|                                                            |                                       |   |                        
|                                                            |                                       |   | 2002 (a)                |      | 2001 (b) |  | 2000 (c)        |      | 1999 (d) |  | 1998 (e)
|                                                            |                                       |   |                         |      |          |  |                 |      |          |  |         
|                                                            |                                       |   |                         |      |          |  | As Restated (i)
|                                                            |                                       |   |                         |      |          |  |                
|Copper                                                      |                                       |   |                         |      |          |  |                 |      |          |  |          |      |  |  |       |      |  |  |       |     
|Copper production (own production  thousand
tons)          |                                       |   | 1,028.8                 |      |          |  | 1,160.1         |      |          |  | 1,200.3  |      |  |  | 890.1 |      |  |  | 874.0 |     
|Copper sales (own production  thousand tons)               |                                       |   | 1,051.1                 |      |          |  | 1,170.8         |      |          |  | 1,200.6  |      |  |  | 891.9 |      |  |  | 876.3 |     
|COMEX copper price (per pound) (f)                          |                                       | $ | 0.72                    |      |          |  | 0.73            |      |          |  | 0.84     |      |  |  | 0.72  |      |  |  | 0.75  |     
|LME copper price (per pound) (g)                            |                                       | $ | 0.71                    |      |          |  | 0.72            |      |          |  | 0.82     |      |  |  | 0.71  |      |  |  | 0.75  |     
|Implied full unit cost of copper production (per
pound) (h) |                                       | $ | 0.68                    |      |          |  | 0.75            |      |          |  | 0.71     |      |  |  | 0.69  |      |  |  | 0.69  |     
|Commercially recoverable copper (million tons)              |                                       |   |                         |      |          |  |                 |      |          |  |          |      |  |  |       |      |  |  |       |     
|                                                            | Ore reserves                          |   |                         | 19.6 |          |  |                 | 22.1 |          |  |          | 23.1 |  |  |       | 23.7 |  |  |       | 13.7 | 
|                                                            | Stockpiles and in-process inventories |   |                         | 1.4  |          |  |                 | 0.9  |          |  |          | 1.0  |  |  |       | 0.7  |  |  |       | 0.8  | 
|                                                            |                                       |   |                         |      |          |  |                 |      |          |  |          |      |  |  |       |      |  |  |       |     
|                                                            |                                       |   | 21.0                    |      |          |  | 23.0            |      |          |  | 24.1     |      |  |  | 24.4  |      |  |  | 14.5  |     



|(a) |  | Reported amounts included after-tax, special charges of $146.5 million,
or $1.74 per common share, for asset impairment charges at Cobre of $115.5
million, Hidalgo of $12.9 million and Ajo of $18.1 million; $53.0 million,
or 63 cents per common share, for settlement of lawsuits related to Cyprus
Amax Minerals Company; $45.0 million, or 54 cents per common share, for a
binding arbitration award for Plateau Mining Corporation (a subsidiary of
Cyprus Amax Minerals Company); $26.6 million, or 32 cents per common
share, extraordinary loss on early extinguishment of debt; $23.0 million,
or 27 cents per common share, for restructuring activities; $22.9 million,
or 27 cents per common share, for cumulative effect of an accounting
change; $14.0 million, or 17 cents per common share, for environmental
provisions; $7.0 million, or 8 cents per common share, for estimated
remaining closure cost obligation at Hidalgo; and $1.2 million, or 1 cent
per common share, for write-off of two cost basis investments and $1.0
million, or 1 cent per common share, for the settlement of legal matters.
These were partially offset by $29.1 million, or 35 cents per common
share, for environmental insurance recoveries; $22.6 million, or 27 cents
per common share, for the sale of non-core parcel of real estate in New
Mexico; $13.0 million, or 15 cents per common share, for the release of
deferred taxes for Plateau Mining Corporation; and $66.6 million, or 79
cents per common share, for the tax benefit relating to the net operating
loss carryback prior to 2002.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | Reported amounts included after-tax, special gains of $61.8 million, or
79 cents per common share, for environmental insurance recoveries; $39.9
million, or 51 cents per common share, for the gain on the sale of Sossego
and $9.0 million, or 11 cents per common share, for an insurance
settlement associated with legal matters. These were partially offset by
special provisions of $57.9 million, or 74 cents per share, to increase
the deferred tax valuation allowance; $31.1 million, or 40 cents per
common share, reflecting provisions for environmental costs; $29.8
million, or 38 cents per common share, for restructuring activities; $12.9
million, or 16 cents per common share, for investment impairments; $2.0
million, or 3 cents per common share, for the cumulative effect of an
accounting change; and $3.4 million, or 4 cents per common share, for
other items, net.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|(c) |  | Reported amounts included after-tax, special provisions of $56.4 million,
or 72 cents per common share, for restructuring activities; offset by
income tax refund and related interest of $10.1 million, or 13 cents per
common share; and an insurance settlement refund of $3.0 million, or 4
cents per common share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|(d) |  | Reported amounts included after-tax, special provisions of $222.5
million, or $3.61 per common share, for asset impairments; $17.8 million,
or 29 cents per common share, reflecting provisions for environmental
costs; $65.7 million, or $1.07 per common share, for costs associated with
restructuring activities; and $3.5 million, or 6 cents per common share,
for the cumulative effect of an accounting change. These were partially
offset by a special gain of $30.0 million, or 49 cents per common share,
for an adjustment of prior years taxes. PD acquired Cyprus Amax Minerals
Company on October 16, 1999.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    





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|(e) |  | Reported amounts included an after-tax gain of $131.1 million, or $2.24
per common share, for the disposition of Accuride Corporation; an
after-tax loss of $26.4 million, or 45 cents per common share, from the
sale of our 44.6 percent interest in a South African mining company; and a
special, after-tax provision of $5.6 million, or 10 cents per common
share, for curtailments and indefinite closures primarily at Phelps Dodge
Mining Company (PDMC).
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(f) |  | New York Commodity Exchange annual average spot price per pound -
cathodes.                                                                                                                                                                                                                                                                                                                                                                                       
|   
|(g) |  | London Metal Exchange annual
average spot price per pound - cathodes.                                                                                                                                                                                                                                                                                                                                                                                             
|   
|(h) |  | Based on PDMCs all-in operating margin per pound of copper sold (i.e.
PDMC operating income (loss) excluding special items, divided by pounds of
copper sold from PDMC mines for its own account, plus or minus the LME
copper price).                                                                                                                                                                                                                         
|   
|(i) |  | We have restated our previously reported annual financial statements to
reflect certain adjustments as discussed in Item 7 and Note 22 of the
Notes to the Consolidated Financial Statements of this Form 10-K.                                                                                                                                                                                                                                                   




Item 7. Managements Discussion and Analysis

The information called for in Item 7 appears on pages 51 through 109 of
this report.




Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The information called for in Item 7A appears on pages 51 and 93 through
97 of this report.




Item 8. Financial Statements and Supplementary Data

The information called for in Item 8 appears on pages 110 through 173 of
this report.




Item 9. Disagreements on Accounting and Financial Disclosure

None.





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MANAGEMENTS DISCUSSION AND ANALYSIS

The following provides information that management believes is relevant to
an assessment and understanding of the consolidated results of operations and
financial condition of Phelps Dodge Corporation (the Company, which also may be
referred to as Phelps Dodge, PD, we, us or ours). It should be read in
conjunction with the Consolidated Financial Statements and accompanying Notes.
Our business consists of two major divisions, Phelps Dodge Mining Company
(PDMC) and Phelps Dodge Industries (PDI).

The United States securities laws provide a safe harbor for certain
forward-looking statements. This annual report contains forward-looking
statements that involve risks and uncertainties that could cause actual results
to differ materially from those projected in such forward-looking statements.
Statements regarding the expected commencement dates of operations, projected
quantities of future production, capital costs, production rates, cash flow and
other operating and financial data are based on expectations that the Company
believes are reasonable, but we can give no assurance that such expectations
will prove to have been correct.

Factors that could cause actual results to differ materially include,
among others: risks and uncertainties relating to general U.S. and
international economic and political conditions; the cyclical and volatile
price of copper and other commodities; political and economic risks associated
with foreign operations; unanticipated ground and water conditions; geological
problems; metallurgical and other processing problems; availability of
materials and equipment; delays in the receipt of or failure to receive
necessary government permits; appeals of agency decisions or other litigation;
volatility in the price or availability of oil (the main feedstock for our
carbon black operations), diesel fuel, electricity and natural gas; currency
fluctuations; changes in laws or regulations or the interpretation and
enforcement thereof (including changes in treaties or laws governing
international trade or tariffs); the occurrence of unusual weather or operating
conditions; force majeure events; lower than expected ore grades; the failure
of equipment or processes to operate in accordance with specifications or
expectations; unanticipated difficulties consolidating acquired operations and
obtaining expected synergies; labor relations; accidents; delays in anticipated
start-up dates; environmental risks; the ability to obtain anticipated cost
savings and efficiencies; the ability to obtain satisfactory insurance
coverages; the ability to obtain surety bonds or other financial assurance for
reclamation obligations; and the results of financing efforts and financial
market conditions.

These and other risk factors are discussed in more detail herein. Many
such factors are beyond our ability to control or predict. Readers are
cautioned not to put undue reliance on forward-looking statements. We disclaim
any intent or obligation to update these forward-looking statements, whether as
a result of new information, future events or otherwise.

Restatements

As further discussed in Note 22 to the Consolidated Financial Statements,
the Company identified certain accounting matters relating to our December 31,
2001 and 2000, Consolidated Financial Statements that require restatement. The
after-tax effect of these items increased retained earnings by $52.1 million at
January 1, 2000, increased net income for the year ended December 31, 2000, by
$27.3 million, or 35 cents per share, and increased the net loss for the year
ended December 31, 2001, by $56.5 million, or 72 cents per share. The
cumulative adjustments increased retained earnings by $22.9 million at December
31, 2001. These adjustments were necessary (i) to change the Companys
units-of-production depreciation rate methodology for mining, smelting and
refining assets to exclude estimates of future capital as well as any material
other than proven and probable ore reserves, and to depreciate short-lived
assets on a straight-line basis over their estimated useful lives, less salvage
value; (ii) to adjust the fair value estimates of acquired reclamation
obligations and to recognize the related annual accretion expense, and to
revise certain reclamation cost estimates and associated changes for
information obtained in 2001; (iii) to capitalize as inventory copper contained
in low-grade mill and leach stockpiles, and consequent in-process materials
being converted to salable products; (iv) to reverse a loss contingency reserve
associated with legal matters; and (v) to increase the valuation allowance for
deferred tax assets. Additionally, as discussed in Note 21, Business Segment
Data, our presentation of reportable segment information for PDMC for 2001 and
2000 has been revised to reflect additional segments.

Critical Accounting Policies and Estimates

Phelps Dodges discussion and analysis of its financial condition and
results of operations are based upon its consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements
requires Phelps Dodges management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the related
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. The more sig -





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nificant areas requiring the use of management
estimates and assumptions relate to mineral reserves that are the basis for
future cash flow estimates and units-of-production depreciation and
amortization calculations; environmental, reclamation and closure obligations;
estimates of recoverable copper in mill and leach stockpiles; asset impairments
(including estimates of future cash flows); postemployment, postretirement and
other employee benefit liabilities; bad debts; restructuring reserves;
valuation allowances for deferred tax assets; reserves for contingencies and
litigation; and fair value of financial instruments. Phelps Dodge bases its
estimates on the Companys historical experience and on various other
assumptions that are believed to be reasonable under the circumstances. Actual
results may differ from these estimates under different assumptions or
conditions.

Phelps Dodge believes the following significant assumptions and estimates
affect its more critical practices and accounting policies used in the
preparation of its consolidated financial statements.

Phelps Dodge, at least annually, estimates its ore reserves at active
properties and properties currently on care-and-maintenance status. There are
a number of uncertainties inherent in estimating quantities of reserves,
including many factors beyond the control of the Company. Ore reserve
estimates are based upon engineering evaluations of assay values derived from
samplings of drill holes and other openings. Additionally, declines in the
market price of a particular metal may render certain reserves containing
relatively lower grades of mineralization uneconomic to mine. Further,
availability of permits, changes in operating and capital costs, and other
factors could materially and adversely affect ore reserves. Phelps Dodge uses
its ore reserve estimates in determining the unit basis for units-of-production
depreciation and closure rates, as well as in evaluating mine asset
impairments. Changes in ore reserve estimates could significantly affect these
items. For example, a 10 percent increase in ore reserves at each mine would
decrease total depreciation expense by approximately $20 million in 2003; a 10
percent decrease in ore reserves at each mine would increase total depreciation
expense by approximately $24 million in 2003.

Phelps Dodges reported ore reserves are economic at a three-year
historical average COMEX copper price of 76 cents per pound and a three-year
historical average molybdenum price of $2.89 per pound (Metals WeekMean Dealer
Oxide).

Phelps Dodge develops its business plans using a time horizon that is
reflective of the historical, moving average for the full price cycle. We
currently use a long-term average COMEX price of 90 cents per pound of copper
and an average molybdenum price of $3.40 per pound (Metals WeekMean Dealer
Oxide), along with near-term price forecasts reflective of the current price
environment to develop mine plans and production schedules.

The per pound COMEX copper price over the past 10 years, 15 years and 20
years averaged 91 cents, 99 cents and 91 cents, respectively.

Phelps Dodge maintains allowances for doubtful accounts for estimated
losses resulting from the assessed inability of its customers to make required
payments. If the financial condition of Phelps Dodges customers were to
deteriorate unexpectedly, impacting their ability to make payments, additional
allowances may be required. Phelps Dodge routinely reviews the financial
condition of its customers and makes assessments of collectibility. The total
of these allowances for doubtful accounts at December 31, 2002 and 2001, was
$14.1 million and $14.2 million, respectively.

Phelps Dodge capitalizes applicable costs for copper contained in mill and
leach stockpiles that are expected to be processed in the future. The mill and
leach stockpiles are evaluated periodically to ensure that they are stated at
the lower of cost or market. Because the determination of copper contained in
mill and leach stockpiles by physical count is impracticable, we employ
reasonable estimation methods.

The quantity of material delivered to mill stockpiles is based on surveyed
volumes of mined material and daily production records. Sampling and assaying
of blast-hole cuttings determine the estimated amount of copper contained in
the material delivered to the mill stockpiles. Expected copper recovery rates
are determined by metallurgical testing. The recoverable copper in mill
stockpiles can be extracted into copper concentrate almost immediately upon
processing. Estimates of copper contained in mill stockpiles are reduced as
material is removed and fed to the mill. At December 31, 2002, the estimated
amount of recoverable copper contained in mill stockpiles was 0.2 million tons
(PD share) and had a carrying value of $31.9 million.

The quantity of material in leach stockpiles is based on surveyed volumes
of mined material and daily production records. Sampling and assaying of
blast-hole cuttings determine the estimated amount of copper contained in
material delivered to the leach stockpiles. Expected copper recovery rates are
determined using small-scale laboratory tests, medium-scale column testing
(which simulates the production-scale process), historical trends and other
factors, including mineralogy of the ore and rock type. Estimated





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amounts of
copper contained in the leach stockpiles are reduced as stockpiles are leached,
the leach solution is fed to the electrowinning process, and copper cathodes
are produced. Ultimate recovery of copper contained in leach stockpiles can
vary from a very low percentage to over 90 percent depending on several
variables, including type of processing, mineralogy and particle size of the
rock. Although as much as 70 percent of the copper ultimately recoverable may
be extracted during the first year of processing, recovery of the remaining
copper may take several years. At December 31, 2002, the estimated amount of
recoverable copper contained in leach stockpiles was 1.2 million tons (PD
share) and had a carrying value of $81.3 million.

Phelps Dodge records valuation allowances to reduce its deferred tax
assets to the amount that is more likely than not to be realized. While Phelps
Dodge has considered future taxable income and ongoing prudent and feasible tax
planning strategies in assessing the need for valuation allowances, in the
event Phelps Dodge determined that it would be able to realize deferred tax
assets in the future in excess of its net recorded amount, an adjustment to
valuation allowances would increase income in the period such determination was
made. Likewise, should Phelps Dodge determine that it would not be able to
realize all or part of its net deferred tax asset in the future, an adjustment
to valuation allowances would be charged to income in the period such
determination was made. Phelps Dodge assesses these determinations on a
quarterly basis. The total of these valuation allowances at December 31, 2002
and 2001, was $508.4 million and $550.4 million, respectively.

Phelps Dodge has trusteed, non-contributory pension plans covering
substantially all its U.S. employees and some employees of international
subsidiaries. The benefits are based on, in the case of certain plans, final
average monthly compensation and years of service and depending on the
applicable plan design and, in the case of other plans, a fixed amount for each
year of service. Participants generally vest in their benefits after five
years of service.

Under current financial accounting standards, any significant year-to-year
movement in the rate of interest on long-term, high-quality corporate bonds
necessitates a change in the discount rate used to calculate the actuarial
present value of our accumulated pension and other postretirement benefit
obligations. The discount rate was 6.75 percent at December 31, 2002, compared
with 7.25 percent at December 31, 2001, and 7.75 percent at December 31, 2000.
For our U.S. pension plans, the discount rate assumption is designed to reflect
yields on high-quality, fixed-income investments for a given duration. We
consider Moodys Long-term AA Corporate Bond yield prevailing at the end of the
plan year to be our principal guide in the determination of our discount rate.
At the end of November 2002, the Moodys Long-term AA Corporate Bond yield was
equal to 6.77 percent and we chose 6.75 percent as our discount rate. Changes
in this assumption are reflected in our benefit obligation and, therefore, in
our liabilities and income or expense we record. For example, a 25 basis point
increase/decrease in our assumed discount rate assumption as of the beginning
of 2003 would decrease/increase our pension expense by approximately $2 million
per year over the next three years. The change would not affect the minimum
required contribution.

Our pension plans were valued between December 1, 2000, and January 1,
2001, and between December 1, 2001, and January 1, 2002. Obligations were
projected to and assets were valued as of the end of 2001 and 2002. The
majority of plan assets are invested in a diversified portfolio of stocks,
bonds and cash or cash equivalents. A small portion of the plan assets is
invested in pooled real estate and other private investment funds.

The Master Trust, which holds plan assets for the Phelps Dodge Retirement
Plan and U.S. pension plans for bargained employees, constituted 95 percent of
total plan assets as of year-end 2002. These plans accounted for approximately
91 percent of benefit obligations. The investment portfolio for this trust as
of year-end 2002 had an asset mix that included 52 percent equities (37 percent
U.S. equities, 12 percent international equities and 3 percent emerging market
equities), 38 percent fixed income (20 percent U.S. fixed income, 5 percent
international fixed income, 4 percent emerging market fixed income, 5 percent
U.S. high yield, and 4 percent treasury inflation-protected securities), 7
percent real estate and real estate investment trusts, and 3 percent other.

Our policy for determining asset-mix targets for the Master Trust includes
the periodic development of asset/liability studies by a nationally recognized
third-party investment consultant (to determine our expected long-term rate of
return and expected risk for various investment portfolios). Management
considers these studies in the formal establishment of asset-mix targets that
are presented to and approved by the Finance Committee of the Board of
Directors.

Our expected long-term rate of return on plan assets is updated at least
annually, taking into consideration our asset allocation, historical returns on
the types of assets held in the Master Trust, and the current economic
environment. Based on these factors, we expect our pension assets will earn an
average of





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8.75 percent per annum over the 20 years beginning December 1, 2002,
with a standard deviation of 10.6 percent. The 8.75 percent estimation was
based on a passive return on a compound basis of 8.5 percent with a premium for
active management of 0.25 percent. On an arithmetic average basis, the passive
return would have been 9.0 percent with a premium for active management of 0.25
percent. The expected return as of December 1, 2001, was 9.0 percent with a
standard deviation of 11.1 percent.

For estimation purposes, we assume our long-term asset mix generally will
be consistent with the current mix. Changes in our asset mix could impact the
amount of recorded pension income or expense, the funded status of the plan and
the need for future cash contributions. A lower-than-expected return on assets
also would decrease plan assets and decrease the amount of recorded pension
income (or increase recorded pension expense) in future years. When
calculating the expected return on plan assets, the Company uses a
market-related value of assets that spreads asset gains and losses over five
years. As a result, changes in the fair value of assets prior to January 1,
2003, will be reflected in the results of operations by January 1, 2008. A 25
basis point increase/decrease in our expected long-term rate of return
assumption as of the beginning of 2003 would decrease/increase our pension
expense by approximately $2 million a year over the next three years. In
addition, a 25 basis point decrease in the long-term rate of return assumption
would increase the minimum required contribution to our pension plan by
approximately $1 million per year, over the same three-year period. Cash
contributions for 2003 are not expected to increase significantly; however, the
effects of declining equity markets could result in significant increases in
cash contributions in periods beginning after 2003.

Phelps Dodge has postretirement health care and life insurance benefit
plans covering most of its U.S. employees and, in some cases, employees of
international subsidiaries. Postretirement benefits vary among plans and many
plans require contributions from employees. We account for these benefits on
an accrual basis. Our funding policy provides that payments shall be at least
equal to our cash basis obligation, plus additional amounts that may be
approved by us from time to time.

A 1 percentage-point increase in the assumed health care cost trend rate
would increase net periodic benefit cost by approximately $1.2 million and
increase our postretirement benefit obligation by approximately $18.4 million;
a 1 percentage-point decrease in the assumed health care cost trend rate would
decrease net periodic benefit cost by approximately $1.1 million and decrease
our postretirement benefit obligation by approximately $16.8 million. Our
discount rate assumptions for postretirement benefits are determined on the
same basis as our discount rate assumptions for our pension plans, as discussed
previously. Changes in this assumption are reflected in our benefit obligation
and, therefore, in our liabilities and income or expense we record. For
example, a 25 basis point increase/decrease in our assumed discount rate
assumption as of the beginning of 2003 would increase/decrease our periodic
benefit cost by approximately $500,000 per year over the next three years.

Environmental expenditures are expensed or capitalized depending upon
their future economic benefits. Liabilities for such expenditures are recorded
when it is probable that obligations have been incurred and the costs can be
estimated reasonably. For closed facilities and closed portions of operating
facilities with closure obligations, an environmental liability is accrued when
a closure determination is made and approved by management, and when the
environmental liability is considered to be probable. Environmental
liabilities attributed to the Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA) or analogous state programs are
considered probable when a claim is asserted, or is probable of assertion, and
we have been associated with the site. Other environmental remediation
liabilities are considered probable based on the specific facts and
circumstances. Our estimates of these costs are based upon available facts,
existing technology and current laws and regulations, and are recorded on an
undiscounted basis. Where the available information is sufficient to estimate
the amount of liability, that estimate has been used. Where the information is
only sufficient to establish a range of probable liability and no point within
the range is more likely than any other, the lower end of the range has been
used. The possibility of recovery of some of these costs from insurance
companies or other parties exists; however, we do not recognize these
recoveries in our financial statements until they become probable. We
recognize insurance receivables for environmental remediation when a settlement
is reached with the insurance carrier.

At December 31, 2002, environmental reserves totaled $305.9 million. The
cost range for reasonably possible outcomes for all reservable environmental
remediation sites was estimated to be from $281 million to $527 million. In
addition, Phelps Dodge has a number of sites that are not the subject of an
environmental reserve because it is not probable that a successful claim will
be made, but for which there is a reasonably possible likelihood of an
environmental remediation liability. At December 31, 2002, the cost





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range for
all such sites was estimated to be from $4 million to $37 million.

Reclamation is an ongoing activity and we generally recognize estimated
final reclamation costs over the life of active mining properties on a
units-of-production basis. Non-operating sites that are currently on
care-and-maintenance status suspend accrual of mine closure costs until the
site resumes production. When management determines a mine should be
permanently closed, any unrecognized closure obligation is recognized. Phelps
Dodge assesses mine closure costs at least annually or when facts and
circumstances change. At December 31, 2002, closure and reclamation reserves
totaled $138.6 million, compared with estimated total reclamation and closure
costs of approximately $660 million, leaving approximately $521 million to be
accrued over the respective remaining mine lives. See Other Matters for a
discussion on the adoption of Statement of Financial Accounting Standards
(SFAS) No. 143, Accounting for Asset Retirement Obligations effective January
1, 2003.

Liabilities for contingencies and litigation are recorded when it is
probable that obligations have been incurred and the costs reasonably can be
estimated. Gains for contingencies and litigation are recorded when realized.

Refer to Summary of Significant Accounting Policies in Note 1 to the
Consolidated Financial Statements.

Consolidated Financial Results

Consolidated financial results were as follows:

($ in millions except per share data)

|                                                                                                                        |  |      |         |      |  |             |         |   |  |  |         | 
|----------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- |  | ----------- | ------- | - |  |  | ------- | 
|                                                                                                                        |  | 2002 |         | 2001 |  | 2000       
|                                                                                                                        |  |      |         |      |  |            
|                                                                                                                        |  |      |         |      |  | As Restated
|                                                                                                                        |  |      |         |      |  |            
|Sales and other
operating revenues                                                                                      |  | $    | 3,722.0 |      |  |             | 4,002.4 |   |  |  | 4,525.1 | 
|Operating income (loss)                                                                                                 |  | $    | (209.3  | )    |  |             | (28.8   | ) |  |  | 268.2   | 
|Income (loss) before extraordinary
item and cumulative effect
of accounting change                                      |  | $    | (288.6  | )    |  |             | (329.5  | ) |  |  | 56.3    | 
|Extraordinary item                                                                                                      |  |      | (26.6   | )    |  |             |        |   |  |  |        | 
|Cumulative effect of
accounting change                                                                                  |  |      | (22.9   | )    |  |             | (2.0    | ) |  |  |        | 
|                                                                                                                        |  |      |         |      |  |             |         |   |  |  |         | 
|Net income (loss)                                                                                                       |  | $    | (338.1  | )    |  |             | (331.5  | ) |  |  | 56.3    | 
|                                                                                                                        |  |      |         |      |  |             |         |   |  |  |         | 
|Basic and diluted earnings (loss)
per common share before
extraordinary item and
cumulative effect of
accounting change |  | $    | (3.54   | )    |  |             | (4.19   | ) |  |  | 0.72    | 
|Extraordinary item                                                                                                      |  |      | (0.32   | )    |  |             |        |   |  |  |        | 
|Cumulative effect of
accounting change                                                                                  |  |      | (0.27   | )    |  |             | (0.03   | ) |  |  |        | 
|                                                                                                                        |  |      |         |      |  |             |         |   |  |  |         | 
|Basic and diluted net earnings
(loss) per common share                                                                  |  | $    | (4.13   | )    |  |             | (4.22   | ) |  |  | 0.72    | 
|                                                                                                                        |  |      |         |      |  |             |         |   |  |  |         | 

In 2002, the Company had a consolidated loss of $338.1 million, or $4.13
per common share, including a special, net charge of $208.9 million, or $2.48
per common share, after taxes. (All references to per share earnings or losses
are based on diluted earnings per share.) In 2001, consolidated losses were
$331.5 million, or $4.22 per common share, including a special, net charge of
$26.4 million, or 34 cents per common share. The $6.6 million increase in
consolidated loss in 2002, compared with 2001, was primarily the result of
asset impairment charges and provisions ($153.5 million), historic Cyprus Amax
Minerals Company (Cyprus Amax) lawsuit settlement or awards expense ($101.2
million), lower average copper prices (approximately $19 million), an
extraordinary loss on the early extinguishment of debt ($26.6 million), the
cumulative effect of adopting SFAS No. 142 ($22.9 million), a decrease in
profits at our Wire and Cable segment due primarily to the temporary closure of
two facilities and restructuring charges ($23.6 million) and lower net
environmental insurance recoveries/provisions ($10.4 million); partially offset
by a lower implied unit cost of copper production, as defined on page 66
(approximately $145 million including higher molybdenum earnings of $20
million), the absence of the establishment of El Abras valuation allowance for
deferred tax assets in 2001 ($57.9 million), lower inter-





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est expense ($40.5
million), higher tax benefits primarily resulting from new tax legislation
($188.0 million), and the sale of non-core real estate ($22.6 million).

In 2000, consolidated earnings were $56.3 million, or 72 cents per common
share, including a special, net charge of $43.3 million, or 55 cents per common
share. The decrease in earnings in 2001 was primarily due to 11 cents per
pound lower copper prices (approximately $251 million), higher implied unit
cost of copper production (approximately $105 million), 59 million pounds of
lower produced copper sales volumes (approximately $7 million), a net charge
for environmental provisions ($31.1 million), lower miscellaneous income ($21.9
million), and higher interest expense ($9.7 million); partially offset by net
insurance recoveries ($61.8 million) and a gain from the sale of our 50 percent
interest in the Sossego project ($39.9 million).

Special Items

Throughout Managements Discussion and Analysis there is disclosure and
discussion of what management believes to be special items. We view special
items as unpredictable and atypical of our operations in the period. We
believe consistent identification, disclosure and discussion of such items,
both favorable and unfavorable, provide additional information to assess the
quality of our performance and our earnings or losses. This supplemental
information is not a substitute for any U.S. generally accepted accounting
principles (GAAP) measure and should be evaluated within the context of our
U.S. GAAP results. Any supplemental information references to earnings, losses
or results excluding special items or before special items is our non-GAAP
measure of items that may not be comparable to similarly titled measures
reported by other companies.

Note: Supplemental Data

The following table summarizes the consolidated special items for 2002,
2001 and 2000 and the resultant earnings (losses) excluding these special
items:

|                                                        |  |      |        |      |  |             |        |   |  |  |       |  
|------------------------------------------------------- |  | ---- | ------ | ---- |  | ----------- | ------ | - |  |  | ----- | -
|($   in millions)                                       |  |      |        |      |  |             |        |   |  |  |       |  
|                                                        |  | 2002 |        | 2001 |  | 2000       
|                                                        |  |      |        |      |  |            
|                                                        |  |      |        |      |  | As Restated
|                                                        |  |      |        |      |  |            
|Special items, net of taxes                             |  | $    | (208.9 | )    |  |             | (26.4  | ) |  |  | (43.3 | )
|Earnings (losses) excluding
special items (after taxes) |  | $    | (129.2 | )    |  |             | (305.1 | ) |  |  | 99.6  |  

Note: Supplemental Data

The following tables summarize the special items and provisions for 2002, 2001 and 2000:

($  in millions except per share data)

|                                         |                                                         |   |         |        |           |  |           |        |   |  |         |       |  
|---------------------------------------- | ------------------------------------------------------- | - | ------- | ------ | --------- |  | --------- | ------ | - |  | ------- | ----- | -
|                                         |                                                         |   | 2002   
|                                         |                                                         |   |        
|                                         |                                                         |   |         |        |           |  |           |        |   |  | $/Share
|                                         |                                                         |   | Pre-tax |        | After-tax |  | After-tax
|                                         |                                                         |   |         |        |           |  |          
|Special items and provisions, net:       |                                                         |   |         |        |           |  |           |        |   |  |         |      
|                                         | PDMC (see Business Division
disclosure)                 |   | $       | (116.9 | )         |  |           | (119.5 | ) |  |         | (1.42 | )
|                                         |                                                         |   |         |        |           |  |           |        |   |  |         |       |  
|                                         | PDI (see Business Division
disclosure)                  |   |         | (22.0  | )         |  |           | (21.4  | ) |  |         | (0.25 | )
|                                         |                                                         |   |         |        |           |  |           |        |   |  |         |       |  
|                                         | Corporate
and Other -
Environmental
provisions, net     |   |         | (12.7  | )         |  |           | (12.7  | ) |  |         | (0.15 | )
|                                         | Environmental insurance
recoveries, net                 |   |         | 17.4   |           |  |           | 14.8   |   |  |         | 0.18  |  
|                                         | Historic Cyprus Amax
lawsuit settlements                |   |         | (54.7  | )         |  |           | (53.0  | ) |  |         | (0.63 | )
|                                         | Historic Cyprus Amax
arbitration award                  |   |         | (46.5  | )         |  |           | (45.0  | ) |  |         | (0.54 | )
|                                         | Legal loss contingency                                  |   |         | (1.0   | )         |  |           | (1.0   | ) |  |         | (0.01 | )
|                                         |                                                         |   |         |        |           |  |           |        |   |  |         |       |  
|                                         |                                                         |   | (97.5   | )      |           |  | (96.9     | )      |   |  | (1.15   | )    
|                                         |                                                         |   |         |        |           |  |           |        |   |  |         |       |  
|                                         |                                                         |   | (236.4  | )      |           |  | (237.8    | )      |   |  | (2.82   | )    
|                                         |                                                         |   |         |        |           |  |           |        |   |  |         |       |  
|Miscellaneous income and expense, net:   |                                                         |   |         |        |           |  |           |        |   |  |         |      
|                                         | Cost investment
write-downs                             |   |         | (1.2   | )         |  |           | (1.2   | ) |  |         | (0.01 | )
|                                         |                                                         |   |         |        |           |  |           |        |   |  |         |       |  
|Taxes:                                   |                                                         |   |         |        |           |  |           |        |   |  |         |      
|                                         | Release of taxes provided with
regard to Plateau Mining |   |         |       |           |  |           | 13.0   |   |  |         | 0.15  |  
|                                         | Tax benefit for 2001 net
operating loss carryback       |   |         |       |           |  |           | 66.6   |   |  |         | 0.79  |  
|                                         |                                                         |   |         |        |           |  |           |        |   |  |         |       |  
|                                         |                                                         |   |        |        |           |  | 79.6      |        |   |  | 0.94    |      
|                                         |                                                         |   |         |        |           |  |           |        |   |  |         |       |  
|Extraordinary loss - debt
extinguishment |                                                         |   | (31.3   | )      |           |  | (26.6     | )      |   |  | (0.32   | )    
|                                         |                                                         |   |         |        |           |  |           |        |   |  |         |       |  
|Cumulative effect of
accounting change   |                                                         |   | (33.0   | )      |           |  | (22.9     | )      |   |  | (0.27   | )    
|                                         |                                                         |   |         |        |           |  |           |        |   |  |         |       |  
|                                         |                                                         | $ | (301.9  | )      |           |  | (208.9    | )      |   |  | (2.48   | )    
|                                         |                                                         |   |         |        |           |  |           |        |   |  |         |       |  





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($ in millions except per share data)

|                                       |                                                     |                                                 |      |             |      |           |       |           |      |   |       |         |       |  
|-------------------------------------- | --------------------------------------------------- | ----------------------------------------------- | ---- | ----------- | ---- | --------- | ----- | --------- | ---- | - | ----- | ------- | ----- | -
|                                       |                                                     |                                                 |      | 2001       
|                                       |                                                     |                                                 |      |            
|                                       |                                                     |                                                 |      |             |      |           |       |           |      |   |       | $/Share
|                                       |                                                     |                                                 |      | Pre-tax     |      | After-tax |       | After-tax
|                                       |                                                     |                                                 |      |             |      |           |       |          
|                                       |                                                     |                                                 |      | As
Restated
|                                       |                                                     |                                                 |      |            
|Special items and provisions, net:     |                                                     |                                                 |      |             |      |           |       |           |      |   |       |        
|                                       | PDMC (see Business Division
disclosure)             |                                                 | $    | (2.1        | )    |           |       | (2.1      | )    |   |       | (0.03   | )    
|                                       |                                                     |                                                 |      |             |      |           |       |           |      |   |       |         |      
|                                       | PDI (see Business Division
disclosure)              |                                                 |      | (4.7        | )    |           |       | (4.7      | )    |   |       | (0.06   | )    
|                                       |                                                     |                                                 |      |             |      |           |       |           |      |   |       |         |      
|                                       | Corporate and Other -
Environmental
provisions, net |                                                 |      | (16.2       | )    |           |       | (16.2     | )    |   |       | (0.21   | )    
|                                       |                                                     | Environmental insurance
recoveries, net         |      |             | 61.8 |           |       |           | 61.8 |   |       |         | 0.79  |  
|                                       |                                                     | Insurance settlement for
legal loss contingency |      |             | 9.0  |           |       |           | 9.0  |   |       |         | 0.11  |  
|                                       |                                                     | Restructuring programs                          |      |             | (1.3 | )         |       |           | (1.3 | ) |       |         | (0.01 | )
|                                       |                                                     | Other                                           |      |             | (5.9 | )         |       |           | (5.9 | ) |       |         | (0.07 | )
|                                       |                                                     |                                                 |      |             |      |           |       |           |      |   |       |         |      
|                                       |                                                     |                                                 | 47.4 |             |      |           | 47.4  |           |      |   | 0.61  |        
|                                       |                                                     |                                                 |      |             |      |           |       |           |      |   |       |         |      
|                                       |                                                     |                                                 | 40.6 |             |      |           | 40.6  |           |      |   | 0.52  |        
|                                       |                                                     |                                                 |      |             |      |           |       |           |      |   |       |         |      
|Miscellaneous income and expense, net: |                                                     |                                                 |      |             |      |           |       |           |      |   |       |        
|                                       | Impairment loss on
investments                      |                                                 |      | (12.9       | )    |           |       | (12.9     | )    |   |       | (0.16   | )    
|                                       | Interest on prior years
tax refunds                |                                                 |      | 4.3         |      |           |       | 4.3       |      |   |       | 0.05    |      
|                                       | Other                                               |                                                 |      | 1.5         |      |           |       | 1.5       |      |   |       | 0.02    |      
|                                       |                                                     |                                                 |      |             |      |           |       |           |      |   |       |         |      
|                                       |                                                     |                                                 | (7.1 | )           |      |           | (7.1  | )         |      |   | (0.09 | )      
|                                       |                                                     |                                                 |      |             |      |           |       |           |      |   |       |         |      
|Taxes:                                 |                                                     |                                                 |      |             |      |           |       |           |      |   |       |        
|                                       | El Abra deferred tax asset
valuation allowance      |                                                 |      |            |      |           |       | (57.9     | )    |   |       | (0.74   | )    
|                                       |                                                     |                                                 |      |             |      |           |       |           |      |   |       |         |      
|Cumulative effect of
accounting change |                                                     |                                                 | (2.0 | )           |      |           | (2.0  | )         |      |   | (0.03 | )      
|                                       |                                                     |                                                 |      |             |      |           |       |           |      |   |       |         |      
|                                       |                                                     | $                                               | 31.5 |             |      |           | (26.4 | )         |      |   | (0.34 | )      
|                                       |                                                     |                                                 |      |             |      |           |       |           |      |   |       |         |      

($ in millions except per share data)

|                                       |                                         |   |         |       |           |  |           |       |   |  |         |       |  
|-------------------------------------- | --------------------------------------- | - | ------- | ----- | --------- |  | --------- | ----- | - |  | ------- | ----- | -
|                                       |                                         |   | 2000   
|                                       |                                         |   |        
|                                       |                                         |   |         |       |           |  |           |       |   |  | $/Share
|                                       |                                         |   | Pre-tax |       | After-tax |  | After-tax
|                                       |                                         |   |         |       |           |  |          
|Special items and provisions, net:     |                                         |   |         |       |           |  |           |       |   |  |         |      
|                                       | PDMC (see Business Division
disclosure) |   | $       | (5.8  | )         |  |           | (3.8  | ) |  |         | (0.05 | )
|                                       |                                         |   |         |       |           |  |           |       |   |  |         |       |  
|                                       | PDI (see Business Division
disclosure)  |   |         | (46.0 | )         |  |           | (39.8 | ) |  |         | (0.51 | )
|                                       |                                         |   |         |       |           |  |           |       |   |  |         |       |  
|                                       |                                         |   | (51.8   | )     |           |  | (43.6     | )     |   |  | (0.56   | )    
|                                       |                                         |   |         |       |           |  |           |       |   |  |         |       |  
|Cost of products sold:                 |                                         |   |         |       |           |  |           |       |   |  |         |      
|                                       | PDI (see Business Segment
disclosure)   |   |         | (5.6  | )         |  |           | (5.6  | ) |  |         | (0.07 | )
|                                       |                                         |   |         |       |           |  |           |       |   |  |         |       |  
|Miscellaneous income and expense, net: |                                         |   |         |       |           |  |           |       |   |  |         |      
|                                       | Philippines investment
impairment       |   |         | (7.2  | )         |  |           | (7.2  | ) |  |         | (0.09 | )
|                                       | Interest on prior years
tax refunds    |   |         | 5.8   |           |  |           | 3.6   |   |  |         | 0.05  |  
|                                       | Settlement of insurance
claim           |   |         | 4.5   |           |  |           | 3.0   |   |  |         | 0.04  |  
|                                       |                                         |   |         |       |           |  |           |       |   |  |         |       |  
|                                       |                                         |   | 3.1     |       |           |  | (0.6      | )     |   |  |        |      
|                                       |                                         |   |         |       |           |  |           |       |   |  |         |       |  
|Taxes:                                 |                                         |   |         |       |           |  |           |       |   |  |         |      
|                                       | Income tax refund                       |   |         |      |           |  |           | 6.5   |   |  |         | 0.08  |  
|                                       |                                         |   |         |       |           |  |           |       |   |  |         |       |  
|                                       |                                         | $ | (54.3   | )     |           |  | (43.3     | )     |   |  | (0.55   | )    
|                                       |                                         |   |         |       |           |  |           |       |   |  |         |       |  

Restructuring Programs/Asset Impairments

In December 2002, PDMC recorded special, pre-tax charges for asset
impairments and closure provisions of $153.5 million (before and after taxes)
at Cobre, Hidalgo and Ajo. The Company recognized an impairment charge to
write-down Cobres assets by $115.5 million (before and after taxes). We took
this action after revising mine plans and assessing recoverability. The
impairment assessment used a copper price lower than the prior-year assumption,
reflecting moving average historical copper prices representing full economic
and pricing cycles. The amount of Cobres impairment was determined through an
assessment of the discounted cash flows of the remaining ore reserves. The
Hidalgo impairment included a $12.9 million (before and after taxes) write-down
of assets. As a result of the Companys ability to use acid more efficiently
and an updated assessment of PDMCs long-term acid production and consumption
balance, the Company determined that Hidalgo will probably not be reconfigured
to produce acid as originally anticipated and that the net book value of
Hidalgo assets would probably not be recovered. Hidalgos power facilities
will continue to generate electricity when needed, and the facility will
continue to be a backup alternative as a reliable producer of acid if
conditions warrant. The remaining Hidalgo assets were written down to their
estimated fair value. The Company also recognized a $7.0 million (before and
after taxes)





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##### Table of Contents



- 58 -

charge for the estimated remaining costs of its closure obligation
at Hidalgo. Phelps Dodge has reclassified material previously characterized as
reserves at Ajo to mineralized material and, as a result, recognized an
impairment charge to write down Ajos assets by $18.1 million (before and after
taxes). This action resulted from updating mine plans at this prospective
development property. The amount of Ajos impairment was determined through an
assessment of the fair value of its assets.

On September 10, 2002, we announced the temporary closure of two U.S. wire
and cable plants and other actions to improve efficiencies and consolidate
certain wire and cable operations. These temporary closures and internal
changes are expected to reduce our costs and align our business with current
market conditions. The actions included: (i) the temporary closure of the
Laurinburg, North Carolina, magnet wire plant at the end of 2002, with
production being shifted to the El Paso, Texas, and Fort Wayne, Indiana,
facilities; (ii) the temporary closure of the West Caldwell, New Jersey, High
Performance Conductors facility pending recovery of markets served by this
location, with production of certain products relocated to our Inman, South
Carolina, facility; (iii) operational and production support at other High
Performance Conductors facilities being streamlined in order to reduce costs
and increase operating efficiencies; and (iv) the restructuring and
consolidation of certain administrative functions. These actions resulted in
special, pre-tax charges of $23.0 million ($22.2 million after-tax) in the 2002
third quarter and $0.6 million ($0.8 million after-tax) in the 2002 fourth
quarter. Of these amounts, $16.9 million (before and after taxes) was
recognized as asset impairments and $6.7 million ($6.1 million after-tax) was
recognized for severance-related and relocation expenses associated with the
restructuring and temporary closures. The amount of the asset impairment was
determined through an assessment of fair market value, which was based on
independent appraisals, of the existing assets at the wire and cable plants.
We also performed an event-driven impairment test on the goodwill at our wire
and cable plants through a comparison of the carrying value to the respective
fair value (using an estimate of discounted cash flows) and determined that an
additional impairment loss was not required. The restructuring plan includes
the reduction of approximately 300 positions and charges associated with
employee severance and relocation ($3.9 million, of which $0.7 million and $1.9
million was paid in the 2002 third and fourth quarters, respectively) and
pension and other postretirement obligations ($2.8 million).

The following table presents a roll-forward of the liabilities incurred in
connection with the September 2002 restructuring program, which were reflected
as current liabilities in our consolidated balance sheet:

($ in millions)

|               |                                     |  |            |     |           |  |          |     |          |  |  |      |   |  |  |     | 
|-------------- | ----------------------------------- |  | ---------- | --- | --------- |  | -------- | --- | -------- |  |  | ---- | - |  |  | --- | 
|               |                                     |  | 2002       |     |           |  |          |     |          |  |  |      |   |  | 
|               |                                     |  | Provision* |     | Additions |  | Payments |     | 12/31/02
|               |                                     |  |            |     |           |  |          |     |         
|PDI           |                                     |  |            |     |           |  |          |     |          |  |  |      |   |  |  |    
|Wire and Cable |                                     |  |            |     |           |  |          |     |          |  |  |      |   |  |  |    
|               | Employee
severance and
relocation** |  | $          | 3.3 |           |  |          | 0.6 |          |  |  | (2.6 | ) |  |  | 1.3 | 
|               |                                     |  |            |     |           |  |          |     |          |  |  |      |   |  |  |     | 



|*  |  | Provision excluded $2.8 million of pension and other postretirement
charges included in long-term liabilities.
|-- |  | --------------------------------------------------------------------------------------------------------------
|  
|** |  | Relocation costs were charged to expense as incurred.                                                         

In the fourth quarter of 2001, Phelps Dodge announced a series of actions
to address the then current economic environment, including changes in copper
operations that led us to temporarily curtail approximately 220,000 metric tons
of copper production annually (including our partners share), and to curtail
54,000 metric tons of North American carbon black production annually in 2002.
These actions resulted in the layoff of approximately 1,600 employees mostly in
January 2002. The Chino and Miami mines were temporarily closed, the Bagdad
and Sierrita mines are operating at approximately one-half capacity, the Chino
smelter and the Miami refinery were temporarily closed (approximately 1,500
positions), and Columbian Chemicals Company temporarily closed its El Dorado,
Arkansas, facility (approximately 100 positions).

In the second quarter of 2001, we announced a restructuring of our
professional, administrative and operational support functions, as well as
various other operational improvement initiatives, which led to a reduction of
approximately 500 positions.

The restructuring plans for 2001 included charges of $15.0 million for
employee severance and relocation costs, $8.7 million for
mothballing/take-or-pay contracts, $0.6 million for asset disposal and
dismantling charges, and $6.3 million for pension and other postretirement
obligations.





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##### Table of Contents



- 59 -

The following tables present a roll-forward of the liabilities incurred in
connection with the 2001 restructuring programs, which were reflected as
current liabilities in our consolidated balance sheet:

($ in millions)

|                        |                                     |                                     |      |            |     |           |   |          |   |          |      |      |      |   |      |      |     | 
|----------------------- | ----------------------------------- | ----------------------------------- | ---- | ---------- | --- | --------- | - | -------- | - | -------- | ---- | ---- | ---- | - | ---- | ---- | --- | 
|                        |                                     |                                     |      | 2001       |     | Reassess- |   |          |   |          |      |      |      |  
|                        |                                     |                                     |      | Provision* |     | ments     |   | Payments |   | 12/31/01
|                        |                                     |                                     |      |            |     |           |   |          |   |         
|PDMC                   |                                     |                                     |      |            |     |           |   |          |   |          |      |      |      |   |      |     
|U.S. Mines              |                                     |                                     |      |            |     |           |   |          |   |          |      |      |      |   |      |     
|                        | Morenci                             |                                     |      |            |     |           |   |          |   |          |      |      |      |   |      |      |    
|                        |                                     | Employee
severance and
relocation** |      | $          | 1.7 |           |   |          |  |          |      |      | (1.4 | ) |      |      | 0.3 | 
|                        |                                     |                                     |      |            |     |           |   |          |   |          |      |      |      |   |      |      |     | 
|                        | Bagdad/Sierrita                     |                                     |      |            |     |           |   |          |   |          |      |      |      |   |      |      |    
|                        |                                     | Employee
severance and
relocation** |      |            | 3.6 |           |   |          |  |          |      |      | (0.1 | ) |      |      | 3.5 | 
|                        |                                     | Mothballing/take-or-pay
contracts   |      |            | 3.1 |           |   |          |  |          |      |      |     |   |      |      | 3.1 | 
|                        |                                     |                                     |      |            |     |           |   |          |   |          |      |      |      |   |      |      |     | 
|                        |                                     |                                     | 6.7  |            |     |           |  |          |   |          | (0.1 | )    |      |   | 6.6  |     
|                        |                                     |                                     |      |            |     |           |   |          |   |          |      |      |      |   |      |      |     | 
|                        | Miami/Bisbee                        |                                     |      |            |     |           |   |          |   |          |      |      |      |   |      |      |    
|                        |                                     | Employee
severance and
relocation** |      |            | 2.0 |           |   |          |  |          |      |      | (0.2 | ) |      |      | 1.8 | 
|                        |                                     | Mothballing/take-or-pay
contracts   |      |            | 1.0 |           |   |          |  |          |      |      |     |   |      |      | 1.0 | 
|                        |                                     |                                     |      |            |     |           |   |          |   |          |      |      |      |   |      |      |     | 
|                        |                                     |                                     | 3.0  |            |     |           |  |          |   |          | (0.2 | )    |      |   | 2.8  |     
|                        |                                     |                                     |      |            |     |           |   |          |   |          |      |      |      |   |      |      |     | 
|                        | Chino/Cobre                         |                                     |      |            |     |           |   |          |   |          |      |      |      |   |      |      |    
|                        |                                     | Employee
severance and
relocation** |      |            | 1.8 |           |   |          |  |          |      |      | (0.6 | ) |      |      | 1.2 | 
|                        |                                     | Mothballing/take-or-pay
contracts   |      |            | 0.2 |           |   |          |  |          |      |      |     |   |      |      | 0.2 | 
|                        |                                     |                                     |      |            |     |           |   |          |   |          |      |      |      |   |      |      |     | 
|                        |                                     |                                     | 2.0  |            |     |           |  |          |   |          | (0.6 | )    |      |   | 1.4  |     
|                        |                                     |                                     |      |            |     |           |   |          |   |          |      |      |      |   |      |      |     | 
|                        | Tyrone                              |                                     |      |            |     |           |   |          |   |          |      |      |      |   |      |      |    
|                        |                                     | Employee
severance and
relocation** |      |            | 0.5 |           |   |          |  |          |      |      | (0.3 | ) |      |      | 0.2 | 
|                        |                                     |                                     |      |            |     |           |   |          |   |          |      |      |      |   |      |      |     | 
|                        |                                     |                                     | 13.9 |            |     |           |  |          |   |          | (2.6 | )    |      |   | 11.3 |     
|                        |                                     |                                     |      |            |     |           |   |          |   |          |      |      |      |   |      |      |     | 
|Manufacturing and Sales |                                     |                                     |      |            |     |           |   |          |   |          |      |      |      |   |      |     
|                        | Employee
severance and
relocation** |                                     |      | 1.7        |     |           |   |         |   |          |      | (0.3 | )    |   |      | 1.4  |    
|                        | Mothballing/take-or-pay
contracts   |                                     |      | 4.4        |     |           |   |         |   |          |      | (0.3 | )    |   |      | 4.1  |    
|                        |                                     |                                     |      |            |     |           |   |          |   |          |      |      |      |   |      |      |     | 
|                        |                                     |                                     | 6.1  |            |     |           |  |          |   |          | (0.6 | )    |      |   | 5.5  |     
|                        |                                     |                                     |      |            |     |           |   |          |   |          |      |      |      |   |      |      |     | 
|Primary Molybdenum      |                                     |                                     |      |            |     |           |   |          |   |          |      |      |      |   |      |     
|                        | Employee
severance and
relocation** |                                     |      | 0.3        |     |           |   |         |   |          |      | (0.2 | )    |   |      | 0.1  |    
|                        |                                     |                                     |      |            |     |           |   |          |   |          |      |      |      |   |      |      |     | 
|                       
|                       
|                        |                                     |                                     |      | 2001       |     | Reassess- |   |          |   |          |      |      |      |  
|                        |                                     |                                     |      | Provision* |     | ments     |   | Payments |   | 12/31/01
|                        |                                     |                                     |      |            |     |           |   |          |   |         
|Other Mining            |                                     |                                     |      |            |     |           |   |          |   |          |      |      |      |   |      |     
|                        | Employee
severance and
relocation** |                                     |      | 1.7        |     |           |   |         |   |          | (    | 0.9  | )    |   |      | 0.8  |    
|                        |                                     |                                     |      |            |     |           |   |          |   |          |      |      |      |   |      |      |     | 
|                        |                                     |                                     |      | 22.0       |     |           |   |         |   |          |      | (4.3 | )    |   |      | 17.7 |    
|                        |                                     |                                     |      |            |     |           |   |          |   |          |      |      |      |   |      |      |     | 
|PDI                    |                                     |                                     |      |            |     |           |   |          |   |          |      |      |      |   |      |     
|Specialty Chemicals     |                                     |                                     |      |            |     |           |   |          |   |          |      |      |      |   |      |     
|                        | Disposal and
dismantling            |                                     |      | 0.6        |     |           |   |         |   |          | (    | 0.1  | )    |   |      | 0.5  |    
|                        | Employee
severance and
relocation** |                                     |      | 0.8        |     |           |   |         |   |          |      |     |      |   |      | 0.8  |    
|                        |                                     |                                     |      |            |     |           |   |          |   |          |      |      |      |   |      |      |     | 
|                        |                                     |                                     |      |            | 1.4 |           |   |          |  |          |      | (    | 0.1  | ) |      |      | 1.3 | 
|                        |                                     |                                     |      |            |     |           |   |          |   |          |      |      |      |   |      |      |     | 
|Corporate and Other    |                                     |                                     |      |            |     |           |   |          |   |          |      |      |      |   |      |     
|                        | Employee
severance and
relocation** |                                     |      | 0.9        |     |           |   |         |   |          | (    | 0.9  | )    |   |      |     |    
|                        |                                     |                                     |      |            |     |           |   |          |   |          |      |      |      |   |      |      |     | 
|                        |                                     |                                     | $    | 24.3       |     |           |   |         |   |          | (    | 5.3  | )    |   |      | 19.0 |    
|                        |                                     |                                     |      |            |     |           |   |          |   |          |      |      |      |   |      |      |     | 



|*  |  | Provision excluded $6.3 million of pension and other postretirement
charges for the second quarter 2001 restructuring, included in long-term
liabilities.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|** |  | Relocation costs were charged to expense as incurred.                                                                                                    





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##### Table of Contents



- 60 -

($ in millions)

|                        |                                   |                                   |      |          |     |       |      |           |      |          |       |      |      |   |     |     |     | 
|----------------------- | --------------------------------- | --------------------------------- | ---- | -------- | --- | ----- | ---- | --------- | ---- | -------- | ----- | ---- | ---- | - | --- | --- | --- | 
|                        |                                   |                                   |      |          |     |       |      | Reassess- |      |          |       |      |      |   |     |    
|                        |                                   |                                   |      | 12/31/01 |     | ments |      | Payments  |      | 12/31/02
|                        |                                   |                                   |      |          |     |       |      |           |      |         
|PDMC                   |                                   |                                   |      |          |     |       |      |           |      |          |       |      |      |   |     |    
|U.S. Mines              |                                   |                                   |      |          |     |       |      |           |      |          |       |      |      |   |     |    
|                        | Morenci                           |                                   |      |          |     |       |      |           |      |          |       |      |      |   |     |     |    
|                        |                                   | Employee
severance                |      | $        | 0.3 |       |      |           | 0.1  |          |       |      | (0.3 | ) |     |     | 0.1 | 
|                        |                                   |                                   |      |          |     |       |      |           |      |          |       |      |      |   |     |     |     | 
|                        | Bagdad/Sierrita                   |                                   |      |          |     |       |      |           |      |          |       |      |      |   |     |     |    
|                        |                                   | Employee
severance                |      |          | 3.5 |       |      |           | (1.1 | )        |       |      | (2.4 | ) |     |     |    | 
|                        |                                   | Mothballing/take-or-pay
contracts |      |          | 3.1 |       |      |           | (0.8 | )        |       |      | (2.1 | ) |     |     | 0.2 | 
|                        |                                   |                                   |      |          |     |       |      |           |      |          |       |      |      |   |     |     |     | 
|                        |                                   |                                   | 6.6  |          |     |       | (1.9 | )         |      |          | (4.5  | )    |      |   | 0.2 |    
|                        |                                   |                                   |      |          |     |       |      |           |      |          |       |      |      |   |     |     |     | 
|                        | Miami/Bisbee                      |                                   |      |          |     |       |      |           |      |          |       |      |      |   |     |     |    
|                        |                                   | Employee
severance                |      |          | 1.8 |       |      |           | (0.5 | )        |       |      | (1.3 | ) |     |     |    | 
|                        |                                   | Mothballing/take-or-pay
contracts |      |          | 1.0 |       |      |           | (0.4 | )        |       |      | (0.5 | ) |     |     | 0.1 | 
|                        |                                   |                                   |      |          |     |       |      |           |      |          |       |      |      |   |     |     |     | 
|                        |                                   |                                   | 2.8  |          |     |       | (0.9 | )         |      |          | (1.8  | )    |      |   | 0.1 |    
|                        |                                   |                                   |      |          |     |       |      |           |      |          |       |      |      |   |     |     |     | 
|                        | Chino/Cobre                       |                                   |      |          |     |       |      |           |      |          |       |      |      |   |     |     |    
|                        | Employee
severance                |                                   |      | 1.2      |     |       |      | (0.7      | )    |          |       | (0.4 | )    |   |     | 0.1 |    
|                        |                                   | Mothballing/take-or-pay
contracts |      |          | 0.2 |       |      |           | (0.1 | )        |       |      | (0.1 | ) |     |     |    | 
|                        |                                   |                                   |      |          |     |       |      |           |      |          |       |      |      |   |     |     |     | 
|                        |                                   |                                   | 1.4  |          |     |       | (0.8 | )         |      |          | (0.5  | )    |      |   | 0.1 |    
|                        |                                   |                                   |      |          |     |       |      |           |      |          |       |      |      |   |     |     |     | 
|                        | Tyrone                            |                                   |      |          |     |       |      |           |      |          |       |      |      |   |     |     |    
|                        |                                   | Employee
severance                |      |          | 0.2 |       |      |           |     |          |       |      | (0.2 | ) |     |     |    | 
|                        |                                   |                                   |      |          |     |       |      |           |      |          |       |      |      |   |     |     |     | 
|                        |                                   |                                   | 11.3 |          |     |       | (3.5 | )         |      |          | (7.3  | )    |      |   | 0.5 |    
|                        |                                   |                                   |      |          |     |       |      |           |      |          |       |      |      |   |     |     |     | 
|Manufacturing and Sales |                                   |                                   |      |          |     |       |      |           |      |          |       |      |      |   |     |    
|                        | Employee
severance                |                                   |      | 1.4      |     |       |      | (0.2      | )    |          |       | (1.1 | )    |   |     | 0.1 |    
|                        | Mothballing/take-or-pay
contracts |                                   |      | 4.1      |     |       |      | (1.2      | )    |          |       | (2.9 | )    |   |     |    |    
|                        |                                   |                                   |      |          |     |       |      |           |      |          |       |      |      |   |     |     |     | 
|                        |                                   |                                   | 5.5  |          |     |       | (1.4 | )         |      |          | (4.0  | )    |      |   | 0.1 |    
|                        |                                   |                                   |      |          |     |       |      |           |      |          |       |      |      |   |     |     |     | 
|Primary Molybdenum      |                                   |                                   |      |          |     |       |      |           |      |          |       |      |      |   |     |    
|                        | Employee
severance                |                                   |      | 0.1      |     |       |      |          |      |          |       | (0.1 | )    |   |     |    |    
|                        |                                   |                                   |      |          |     |       |      |           |      |          |       |      |      |   |     |     |     | 
|Other Mining            |                                   |                                   |      |          |     |       |      |           |      |          |       |      |      |   |     |    
|                        | Employee
severance                |                                   |      | 0.8      |     |       |      | (0.2      | )    |          |       | (0.6 | )    |   |     |    |    
|                        |                                   |                                   |      |          |     |       |      |           |      |          |       |      |      |   |     |     |     | 
|                        |                                   |                                   | 17.7 |          |     |       | (5.1 | )         |      |          | (12.0 | )    |      |   | 0.6 |    
|                        |                                   |                                   |      |          |     |       |      |           |      |          |       |      |      |   |     |     |     | 

|                    |                          |   |          |     |       |  |           |      |          |  |       |      |   |  |     |   | 
|------------------- | ------------------------ | - | -------- | --- | ----- |  | --------- | ---- | -------- |  | ----- | ---- | - |  | --- | - | 
|                    |                          |   |          |     |       |  | Reassess- |      |          |  |       |      |   |  |    
|                    |                          |   | 12/31/01 |     | ments |  | Payments  |      | 12/31/02
|                    |                          |   |          |     |       |  |           |      |         
|PDI                |                          |   |          |     |       |  |           |      |          |  |       |      |   |  |     |  
|Specialty Chemicals |                          |   |          |     |       |  |           |      |          |  |       |      |   |  |     |  
|                    | Disposal and
dismantling |   |          | 0.5 |       |  |           | (0.4 | )        |  |       | (0.1 | ) |  |     |  | 
|                    | Employee
severance       |   |          | 0.8 |       |  |           | (0.1 | )        |  |       | (0.7 | ) |  |     |  | 
|                    |                          |   |          |     |       |  |           |      |          |  |       |      |   |  |     |   | 
|                    |                          |   | 1.3      |     |       |  | (0.5      | )    |          |  | (0.8  | )    |   |  |    |  
|                    |                          |   |          |     |       |  |           |      |          |  |       |      |   |  |     |   | 
|                    |                          | $ | 19.0     |     |       |  | (5.6      | )    |          |  | (12.8 | )    |   |  | 0.6 |  
|                    |                          |   |          |     |       |  |           |      |          |  |       |      |   |  |     |   | 

A reassessment of $2.6 million for employee termination benefits at PDMCs
segments was made because subsequently, as the plan was being implemented, it
was determined that certain employees identified in the restructuring plan
would be retained to fill open positions or would not be eligible for
supplemental unemployment as originally anticipated. In addition, there was
reassessment of $2.5 million related to savings from renegotiated contracts or
from reduced penalties on demand contracts. Further, a $6.4 million charge was
recognized for additional pension-related benefits, which are included in
long-term liabilities, for employees at our Chino, Miami, Sierrita and Bagdad
operations because these operations were expected to remain curtailed beyond
one year from their January 2002 curtailment.

PDIs Specialty Chemicals segment reassessment related to (i) $0.4 million
for an adjustment to disposal and dismantling charges for the El Dorado plant
facility and (ii) a reclassification of $0.1 million to long-term pension
benefits.

In the second quarter of 2000, we announced a plan to reduce operating
costs and restructure operations at our Miami/Bisbee, Primary Molybdenum and
Wire and Cable segments. This plan comprised the following actions during
2000:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) High-cost production was curtailed at the Miami copper mine in
Arizona and production was reduced at the Henderson mine in Colorado.
Molybdenum production at the Henderson mine was curtailed by approximately
20 percent, and its workforce was reduced by approximately 130 workers.
The curtailment of production resulted in a special, pre-tax charge of
$4.3 million for severance-related costs. Additionally, our Miami copper
mine reduced its mining activities. The new mine plan temporarily
suspended stripping in a higher cost portion of the mine and has allowed
the redistribution of a variety of mining equipment, including shovels and
haul trucks, to other PDMC operations to reduce overall





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##### Table of Contents



- 61 -



| |                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------
| | capital
expenditures. The reduction of mining activities resulted in a special,
pre-tax charge of $1.5 million for severance and other related costs.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (ii) Production ceased at two wire and cable plants in Venezuela in
the second quarter of 2000 due to low forecast plant utilization levels as
a result of significantly reduced infrastructure spending in the Latin
America region. These plant closures resulted in a total special, pre-tax
loss of $26.1 million, consisting of an impairment in the carrying value
of property, plant and equipment and other assets of $19.5 million; an
impairment of goodwill of $1.7 million; and a restructuring accrual of
$4.9 million associated with severance-related costs ($2.2 million) and
plant dismantling costs ($2.7 million). In addition, working capital
write-downs of $3.4 million were recorded to cost of products sold as a
result of the decision to close the plants.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (iii) The closure of a telephone cable operation in El Salvador in
the fourth quarter of 2000 was due to low plant utilization levels as a
result of heightened global competition for telecommunication cable. The
plant closure resulted in a special, pre-tax loss of $5.5 million,
including $4.5 million relating to the impairment of the carrying value of
property, plant and equipment and other assets and a restructuring accrual
of $1.0 million associated with plant dismantling costs. In addition,
working capital write-downs of $2.2 million were recorded to cost of
products sold as a result of the decision to close the plant.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (iv) A special, pre-tax charge of $5.8 million was recognized for our
wire and cable operations in Austria as a result of the long-term impact
of continuing extremely competitive pricing conditions in Europe. The
continuing competitive pricing environment led to a determination that we
should assess the recoverability of our Austrian wire and cable asset
values. Our assessment of the carrying value of the property, plant and
equipment of $4.2 million and the goodwill balance of $2.8 million
indicated impairments of $3.0 million and $2.8 million, respectively.

In addition to the above items, during 2000, we recognized net additional
costs of $8.6 million at our wire and cable plants in conjunction with the June
30, 1999, restructuring programs.

The following tables present a roll-forward of the liabilities incurred in
connection with the June 2000 restructuring program, which were reflected as
current liabilities in our consolidated balance sheet:

($ in millions)

|                   |                                 |                       |      |           |   |           |     |          |     |          |      |      |      |   |     |     |   | 
|------------------ | ------------------------------- | --------------------- | ---- | --------- | - | --------- | --- | -------- | --- | -------- | ---- | ---- | ---- | - | --- | --- | - | 
|                   |                                 |                       |      | 2000      |   |           |     |          |     |          |      |      |      |   |     |    
|                   |                                 |                       |      | Provision |   | Additions |     | Payments |     | 12/31/00
|                   |                                 |                       |      |           |   |           |     |          |     |         
|PDMC              |                                 |                       |      |           |   |           |     |          |     |          |      |      |      |   |     |    
|U.S. Mines         |                                 |                       |      |           |   |           |     |          |     |          |      |      |      |   |     |    
|                   | Miami/Bisbee
Employee
severance |                       | $    | 0.9       |   |           |     |         |     |          |      | (0.2 | )    |   |     | 0.7 |  
|                   |                                 | Equipment
relocation* |      |           |  |           |     |          | 0.6 |          |      |      | (0.6 | ) |     |     |  | 
|                   |                                 |                       |      |           |   |           |     |          |     |          |      |      |      |   |     |     |  
|                   |                                 |                       | 0.9  |           |   |           | 0.6 |          |     |          | (0.8 | )    |      |   | 0.7 |    
|                   |                                 |                       |      |           |   |           |     |          |     |          |      |      |      |   |     |     |  
|Primary Molybdenum |                                 |                       |      |           |   |           |     |          |     |          |      |      |      |   |     |    
|Employee
severance |                                 |                       | 4.3  |           |   |           |    |          |     |          | (3.4 | )    |      |   | 0.9 |    
|                   |                                 |                       |      |           |   |           |     |          |     |          |      |      |      |   |     |     |  
|                   |                                 |                       | 5.2  |           |   |           | 0.6 |          |     |          | (4.2 | )    |      |   | 1.6 |    
|                   |                                 |                       |      |           |   |           |     |          |     |          |      |      |      |   |     |     |  
|PDI               |                                 |                       |      |           |   |           |     |          |     |          |      |      |      |   |     |    
|Wire and Cable     |                                 |                       |      |           |   |           |     |          |     |          |      |      |      |   |     |    
|                   | Employee
severance              |                       |      | 2.2       |   |           |     |         |     |          |      | (2.2 | )    |   |     |    |  
|                   | Plant removal and
dismantling*  |                       |      | 2.8       |   |           |     | 0.9      |     |          |      | (0.7 | )    |   |     | 3.0 |  
|                   |                                 |                       |      |           |   |           |     |          |     |          |      |      |      |   |     |     |  
|                   |                                 |                       | 5.0  |           |   |           | 0.9 |          |     |          | (2.9 | )    |      |   | 3.0 |    
|                   |                                 |                       |      |           |   |           |     |          |     |          |      |      |      |   |     |     |  
|                   |                                 | $                     | 10.2 |           |   |           | 1.5 |          |     |          | (7.1 | )    |      |   | 4.6 |    
|                   |                                 |                       |      |           |   |           |     |          |     |          |      |      |      |   |     |     |  



|* |  | Relocation costs were charged to expense as incurred.
|- |  | -----------------------------------------------------

($ in millions)

|                   |                               |                    |     |          |     |           |      |          |      |          |      |      |   |  |     |     |   | 
|------------------ | ----------------------------- | ------------------ | --- | -------- | --- | --------- | ---- | -------- | ---- | -------- | ---- | ---- | - |  | --- | --- | - | 
|                   |                               |                    |     |          |     | Reassess- |      |          |      |          |      |      |   | 
|                   |                               |                    |     | 12/31/00 |     | ments     |      | Payments |      | 12/31/01
|                   |                               |                    |     |          |     |           |      |          |      |         
|PDMC              |                               |                    |     |          |     |           |      |          |      |          |      |      |   |  |     |    
|U.S. Mines         |                               |                    |     |          |     |           |      |          |      |          |      |      |   |  |     |    
|                   | Miami/Bisbee                  |                    |     |          |     |           |      |          |      |          |      |      |   |  |     |     |  
|                   |                               | Employee
severance |     | $        | 0.7 |           |      |          | (0.7 | )        |      |      |  |  |     |     |  | 
|                   |                               |                    |     |          |     |           |      |          |      |          |      |      |   |  |     |     |   | 
|Primary Molybdenum |                               |                    |     |          |     |           |      |          |      |          |      |      |   |  |     |    
|                   | Employee
severance            |                    |     | 0.9      |     |           |      | (0.6     | )    |          |      | (0.3 | ) |  |     |    |  
|                   |                               |                    |     |          |     |           |      |          |      |          |      |      |   |  |     |     |   | 
|                   |                               |                    | 1.6 |          |     |           | (1.3 | )        |      |          | (0.3 | )    |   |  |    |    
|                   |                               |                    |     |          |     |           |      |          |      |          |      |      |   |  |     |     |   | 
|PDI               |                               |                    |     |          |     |           |      |          |      |          |      |      |   |  |     |    
|Wire and Cable     |                               |                    |     |          |     |           |      |          |      |          |      |      |   |  |     |    
|                   | Plant removal and
dismantling |                    |     | 3.0      |     |           |      |         |      |          |      | (1.1 | ) |  |     | 1.9 |  
|                   |                               |                    |     |          |     |           |      |          |      |          |      |      |   |  |     |     |   | 
|                   |                               | $                  | 4.6 |          |     |           | (1.3 | )        |      |          | (1.4 | )    |   |  | 1.9 |    
|                   |                               |                    |     |          |     |           |      |          |      |          |      |      |   |  |     |     |   | 

A reassessment of $1.3 million for employee termination benefits at PDMCs
segments was made



---



##### Table of Contents



- 62 -

because subsequently, as the plan was being implemented, it
was determined that certain employees identified in the restructuring plan
would be retained after all and moved to positions being filled by contractors.

($ in millions)

|               |                               |  |          |     |       |  |          |      |          |  |  |      |   |  |  |     | 
|-------------- | ----------------------------- |  | -------- | --- | ----- |  | -------- | ---- | -------- |  |  | ---- | - |  |  | --- | 
|               |                               |  |          |     |       |  | Reasess- |      |          |  |  |      |   |  | 
|               |                               |  | 12/31/01 |     | ments |  | Payments |      | 12/31/02
|               |                               |  |          |     |       |  |          |      |         
|PDI           |                               |  |          |     |       |  |          |      |          |  |  |      |   |  |  |    
|Wire and Cable |                               |  |          |     |       |  |          |      |          |  |  |      |   |  |  |    
|               | Plant removal and
dismantling |  | $        | 1.9 |       |  |          | (1.3 | )        |  |  | (0.1 | ) |  |  | 0.5 | 
|               |                               |  |          |     |       |  |          |      |          |  |  |      |   |  |  |     | 

PDIs Wire and Cable segment reassessment related to (i) a $0.5 million
adjustment to plant dismantling charges related to the wire and cable plant
closures in Venezuela and (ii) a $0.8 million non-cash deduction related to the
devaluation of Venezuelan currency.

In the second quarter of 1999, we announced a plan to reduce operating
costs and improve operating performance at our Manufacturing and Sales, Other
Mining, Specialty Chemicals and Wire and Cable segments by (i) curtailing
higher cost copper production by temporarily closing our Hidalgo smelter in New
Mexico and Morencis Metcalf concentrator, as well as curtailing production by
50 percent at our copper refinery in El Paso, Texas; (ii) selling a non-core
South African fluorspar mining unit; (iii) restructuring certain wire and cable
assets to respond to changing market conditions; and (iv) suspending operations
at Columbian Chemicals carbon black plant in the Philippines.

The following tables present a roll-forward from December 31, 1999, of the
liabilities incurred in connection with the June 1999 restructuring program,
which were reflected as current liabilities in our consolidated balance sheet:

($ in millions)

|                        |                                   |   |          |     |           |  |          |     |          |  |       |      |   |  |     |     | 
|----------------------- | --------------------------------- | - | -------- | --- | --------- |  | -------- | --- | -------- |  | ----- | ---- | - |  | --- | --- | 
|                        |                                   |   | 12/31/99 |     | Additions |  | Payments |     | 12/31/00
|                        |                                   |   |          |     |           |  |          |     |         
|PDMC                   |                                   |   |          |     |           |  |          |     |          |  |       |      |   |  |     |    
|Manufacturing and Sales |                                   |   |          |     |           |  |          |     |          |  |       |      |   |  |     |    
|                        | Employee
severance                |   | $        | 0.8 |           |  |          |    |          |  |       | (0.8 | ) |  |     |    | 
|                        |                                   |   |          |     |           |  |          |     |          |  |       |      |   |  |     |     | 
|Other Mining            |                                   |   |          |     |           |  |          |     |          |  |       |      |   |  |     |    
|                        | Employee
severance                |   |          | 0.6 |           |  |          |    |          |  |       | (0.2 | ) |  |     | 0.4 | 
|                        | Mothballing/take-or-pay
contracts |   |          | 3.5 |           |  |          |    |          |  |       | (1.0 | ) |  |     | 2.5 | 
|                        | Environmental
clean-up            |   |          | 5.9 |           |  |          |    |          |  |       | (5.9 | ) |  |     |    | 
|                        |                                   |   |          |     |           |  |          |     |          |  |       |      |   |  |     |     | 
|                        |                                   |   | 10.0     |     |           |  |         |     |          |  | (7.1  | )    |   |  | 2.9 |    
|                        |                                   |   |          |     |           |  |          |     |          |  |       |      |   |  |     |     | 
|                        |                                   |   | 10.8     |     |           |  |         |     |          |  | (7.9  | )    |   |  | 2.9 |    
|                        |                                   |   |          |     |           |  |          |     |          |  |       |      |   |  |     |     | 
|PDI                    |                                   |   |          |     |           |  |          |     |          |  |       |      |   |  |     |    
|Specialty Chemicals     |                                   |   |          |     |           |  |          |     |          |  |       |      |   |  |     |    
|                        | Employee
severance                |   |          | 0.3 |           |  |          |    |          |  |       | (0.3 | ) |  |     |    | 
|                        | Disposal and
dismantling          |   |          | 1.8 |           |  |          |    |          |  |       | (0.5 | ) |  |     | 1.3 | 
|                        | Environmental                     |   |          | 0.8 |           |  |          |    |          |  |       | (0.1 | ) |  |     | 0.7 | 
|                        |                                   |   |          |     |           |  |          |     |          |  |       |      |   |  |     |     | 
|                        |                                   |   | 2.9      |     |           |  |         |     |          |  | (0.9  | )    |   |  | 2.0 |    
|                        |                                   |   |          |     |           |  |          |     |          |  |       |      |   |  |     |     | 
|Wire and Cable          |                                   |   |          |     |           |  |          |     |          |  |       |      |   |  |     |    
|                        | Employee
severance                |   |          | 3.2 |           |  |          |    |          |  |       | (2.8 | ) |  |     | 0.4 | 
|                        | Take-or-pay
contracts             |   |          | 2.0 |           |  |          | 1.1 |          |  |       | (1.1 | ) |  |     | 2.0 | 
|                        | Plant removal and
dismantling*    |   |          | 1.0 |           |  |          | 9.4 |          |  |       | (9.6 | ) |  |     | 0.8 | 
|                        |                                   |   |          |     |           |  |          |     |          |  |       |      |   |  |     |     | 
|                        |                                   |   | 6.2      |     |           |  | 10.5     |     |          |  | (13.5 | )    |   |  | 3.2 |    
|                        |                                   |   |          |     |           |  |          |     |          |  |       |      |   |  |     |     | 
|                        |                                   |   | 9.1      |     |           |  | 10.5     |     |          |  | (14.4 | )    |   |  | 5.2 |    
|                        |                                   |   |          |     |           |  |          |     |          |  |       |      |   |  |     |     | 
|                        |                                   | $ | 19.9     |     |           |  | 10.5     |     |          |  | (22.3 | )    |   |  | 8.1 |    
|                        |                                   |   |          |     |           |  |          |     |          |  |       |      |   |  |     |     | 



|* |  | Relocation costs were charged to expense as incurred.
|- |  | -----------------------------------------------------





---



##### Table of Contents



- 63 -

($ in millions)

|                    |                                    |   |          |     |       |  |           |      |          |  |      |      |   |  |     |     | 
|------------------- | ---------------------------------- | - | -------- | --- | ----- |  | --------- | ---- | -------- |  | ---- | ---- | - |  | --- | --- | 
|                    |                                    |   |          |     |       |  | Reassess- |      |          |  |      |      |   |  |    
|                    |                                    |   | 12/31/00 |     | ments |  | Payments  |      | 12/31/01
|                    |                                    |   |          |     |       |  |           |      |         
|PDMC               |                                    |   |          |     |       |  |           |      |          |  |      |      |   |  |     |    
|Other Mining        |                                    |   |          |     |       |  |           |      |          |  |      |      |   |  |     |    
|                    | Employee
severance                 |   | $        | 0.4 |       |  |           |     |          |  |      | (0.2 | ) |  |     | 0.2 | 
|                    | Mothballing/
take-or-pay
contracts |   |          | 2.5 |       |  |           |     |          |  |      | (1.1 | ) |  |     | 1.4 | 
|                    |                                    |   |          |     |       |  |           |      |          |  |      |      |   |  |     |     | 
|                    |                                    |   | 2.9      |     |       |  |          |      |          |  | (1.3 | )    |   |  | 1.6 |    
|                    |                                    |   |          |     |       |  |           |      |          |  |      |      |   |  |     |     | 
|PDI                |                                    |   |          |     |       |  |           |      |          |  |      |      |   |  |     |    
|Specialty Chemicals |                                    |   |          |     |       |  |           |      |          |  |      |      |   |  |     |    
|                    | Disposal and
dismantling           |   |          | 1.3 |       |  |           | (1.0 | )        |  |      |     |   |  |     | 0.3 | 
|                    | Environmental                      |   |          | 0.7 |       |  |           |     |          |  |      | (0.1 | ) |  |     | 0.6 | 
|                    |                                    |   |          |     |       |  |           |      |          |  |      |      |   |  |     |     | 
|                    |                                    |   | 2.0      |     |       |  | (1.0      | )    |          |  | (0.1 | )    |   |  | 0.9 |    
|                    |                                    |   |          |     |       |  |           |      |          |  |      |      |   |  |     |     | 
|Wire and Cable      |                                    |   |          |     |       |  |           |      |          |  |      |      |   |  |     |    
|                    | Employee
severance                 |   |          | 0.4 |       |  |           |     |          |  |      | (0.4 | ) |  |     |    | 
|                    | Take-or-pay
contracts              |   |          | 2.0 |       |  |           |     |          |  |      | (0.9 | ) |  |     | 1.1 | 
|                    | Plant removal and
dismantling      |   |          | 0.8 |       |  |           |     |          |  |      | (0.6 | ) |  |     | 0.2 | 
|                    |                                    |   |          |     |       |  |           |      |          |  |      |      |   |  |     |     | 
|                    |                                    |   | 3.2      |     |       |  |          |      |          |  | (1.9 | )    |   |  | 1.3 |    
|                    |                                    |   |          |     |       |  |           |      |          |  |      |      |   |  |     |     | 
|                    |                                    |   | 5.2      |     |       |  | (1.0      | )    |          |  | (2.0 | )    |   |  | 2.2 |    
|                    |                                    |   |          |     |       |  |           |      |          |  |      |      |   |  |     |     | 
|                    |                                    | $ | 8.1      |     |       |  | (1.0      | )    |          |  | (3.3 | )    |   |  | 3.8 |    
|                    |                                    |   |          |     |       |  |           |      |          |  |      |      |   |  |     |     | 

PDIs Specialty Chemicals segment reassessment of $1.0 million related to
the closure of our carbon black manufacturing facility in the Philippines. At
the time of closure, there was some equipment that had been previously
purchased in conjunction with an earlier planned expansion of the Philippine
facility. When the Philippine closure was announced, an accrual was included
for this equipment reflecting our assessment that its disposition would result
in a loss of $0.9 million. This accrual was reclassified subsequently as a
deduction to property, plant and equipment. The remaining $0.1 million related
to a non-cash deduction resulting from foreign currency devaluation.

($ in millions)

|                    |                                    |   |          |     |       |  |           |      |          |  |      |      |   |  |     |     | 
|------------------- | ---------------------------------- | - | -------- | --- | ----- |  | --------- | ---- | -------- |  | ---- | ---- | - |  | --- | --- | 
|                    |                                    |   |          |     |       |  | Reassess- |      |          |  |      |      |   |  |    
|                    |                                    |   | 12/31/01 |     | ments |  | Payments  |      | 12/31/02
|                    |                                    |   |          |     |       |  |           |      |         
|PDMC               |                                    |   |          |     |       |  |           |      |          |  |      |      |   |  |     |    
|Other Mining        |                                    |   |          |     |       |  |           |      |          |  |      |      |   |  |     |    
|                    | Employee
severance                 |   | $        | 0.2 |       |  |           | (0.1 | )        |  |      | (0.1 | ) |  |     |    | 
|                    | Mothballing/
take-or-pay
contracts |   |          | 1.4 |       |  |           |     |          |  |      | (0.8 | ) |  |     | 0.6 | 
|                    |                                    |   |          |     |       |  |           |      |          |  |      |      |   |  |     |     | 
|                    |                                    |   | 1.6      |     |       |  | (0.1      | )    |          |  | (0.9 | )    |   |  | 0.6 |    
|                    |                                    |   |          |     |       |  |           |      |          |  |      |      |   |  |     |     | 
|PDI                |                                    |   |          |     |       |  |           |      |          |  |      |      |   |  |     |    
|Specialty Chemicals |                                    |   |          |     |       |  |           |      |          |  |      |      |   |  |     |    
|                    | Disposal and
dismantling           |   |          | 0.3 |       |  |           | (0.3 | )        |  |      |     |   |  |     |    | 
|                    | Environmental                      |   |          | 0.6 |       |  |           | (0.6 | )        |  |      |     |   |  |     |    | 
|                    |                                    |   |          |     |       |  |           |      |          |  |      |      |   |  |     |     | 
|                    |                                    |   | 0.9      |     |       |  | (0.9      | )    |          |  |     |      |   |  |    |    
|                    |                                    |   |          |     |       |  |           |      |          |  |      |      |   |  |     |     | 
|Wire and Cable      |                                    |   |          |     |       |  |           |      |          |  |      |      |   |  |     |    
|                    | Take-or-pay
contracts              |   |          | 1.1 |       |  |           | (0.1 | )        |  |      |     |   |  |     | 1.0 | 
|                    | Plant removal
and
dismantling      |   |          | 0.2 |       |  |           | (0.2 | )        |  |      |     |   |  |     |    | 
|                    |                                    |   |          |     |       |  |           |      |          |  |      |      |   |  |     |     | 
|                    |                                    |   | 1.3      |     |       |  | (0.3      | )    |          |  |     |      |   |  | 1.0 |    
|                    |                                    |   |          |     |       |  |           |      |          |  |      |      |   |  |     |     | 
|                    |                                    |   | 2.2      |     |       |  | (1.2      | )    |          |  |     |      |   |  | 1.0 |    
|                    |                                    |   |          |     |       |  |           |      |          |  |      |      |   |  |     |     | 
|                    |                                    | $ | 3.8      |     |       |  | (1.3      | )    |          |  | (0.9 | )    |   |  | 1.6 |    
|                    |                                    |   |          |     |       |  |           |      |          |  |      |      |   |  |     |     | 

PDMCs Other Mining segment reassessment included a $0.1 million
reclassification to long-term liabilities related to pension and other
postretirement benefits.

PDIs Specialty Chemicals segment reassessment related to a Philippine
plant for (i) a $0.3 million adjustment to disposal and dismantling charges and
(ii) a $0.6 million for environmental costs that were relieved as the property
was sold during the period.

PDIs Wire and Cable segment reassessment related to (i) a $0.1 million
adjustment related to a lease contract and (ii) a $0.2 million adjustment
related to dismantling charges at a Venezuelan plant, which included a $0.1
million non-cash deduction resulting from the devaluation of Venezuelan
currency.

Quest for ZeroOperational Improvement Program

Phelps Dodge announced in October 2001 that it was commencing Quest for
Zero, a comprehensive, lean-production program, designed to, among other
things, improve operating income by a targeted $250 million annually. Quest
for Zeroencompasses both the October 2001 program and the $150 million cost
improvement program announced in May 2001.





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The Companys goal is to achieve these combined annual operating income
improvements of $400 million by the end of 2003 when compared with the results
that were then expected for 2001.

In order to achieve the full $400 million target, PDMC chartered business
improvement teams to drive performance improvement projects and best practices.
The elimination of variance and waste are key factors in this process, coupled
with the rapid transfer of best practices to all business units. On a
quarterly basis, we document improvement successes, failures and potential
projects yet to be implemented. New project ideas are generated at internal
conferences where statistical analysis tools are utilized on current
performance data to identify improvement opportunities. Improvement projects
are prioritized and implemented accordingly.

During 2002, we achieved $211 million in improvements, bringing total
improvements since the program was announced in 2001 to $266 million. In the
fourth quarter of 2002, we achieved $62 million in improvements bringing the
annualized run rate to approximately $250 million.

Following is a reconciliation of improvement dollars:

|                        |            |   |      |     |      |  |           |     | 
|----------------------- | ---------- | - | ---- | --- | ---- |  | --------- | --- | 
|                        |            |   |      |     |      |  | Inception
|                        |            |   |      |     |      |  | Through  
|                        |            |   | 2002 |     | 2002
|                        |            |   |      |     |     
|U.S. Mining Operations* |            | $ | 134  |     |      |  | 177       |    
|South American Mines**  |            |   | 41   |     |      |  | 46        |    
|Primary Molybdenum      |            |   | 12   |     |      |  | 12        |    
|                        |            |   |      |     |      |  |           |    
|                        | Total PDMC |   |      | 187 |      |  |           | 235 | 
|                        |            |   |      |     |      |  |           |    
|Specialty Chemicals     |            |   | 9    |     |      |  | 9         |    
|Wire and Cable          |            |   | 14   |     |      |  | 14        |    
|                        |            |   |      |     |      |  |           |    
|                        | Total PDI  |   |      | 23  |      |  |           | 23  | 
|                        |            |   |      |     |      |  |           |    
|Corporate               |            |   | 1    |     |      |  | 8         |    
|                        |            |   |      |     |      |  |           |    
|Total Quest for Zero    |            | $ | 211  |     |      |  | 266       |    
|                        |            |   |      |     |      |  |           |    



|*  |  | U.S. Mining Operations combines the following segments: Morenci,
Bagdad/Sierrita, Miami/Bisbee, Chino/Cobre, Tyrone, Manufacturing and
Sales, and Other Mining.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|** |  | South American Mines combines the following segments: Candelaria, Cerro
Verde and El Abra.                                                                     

These improvements resulted from a combination of administrative and
operating staff reductions and mining operation refinements and improvements,
including reduced mining rates at Tyrone, increased residual leach production
at Morenci, incremental expansion at Cerro Verde, improved mine planning and
sequencing at Sierrita, and a reduction in acid usage and improvements in leach
recovery. Key elements of the plan going forward include six-sigma quality
programs, technology innovations, global procurement savings and improved
operating practices.

Business Divisions

Results for 2002, 2001 and 2000 can be meaningfully compared by separate
reference to our reporting divisions, PDMC and PDI. PDMC is a business
division that includes our worldwide copper operations from mining through rod
production, marketing and sales; molybdenum operations from mining through
manufacturing, marketing and sales; other mining operations and investments;
and worldwide mineral exploration and development programs. PDI includes our
Specialty Chemicals segment and our Wire and Cable segment. Significant events
and transactions have occurred within each segment which, as indicated in the
separate discussions presented below, are material to an understanding of the
particular years results and to a comparison with results of the other
periods. (Refer to Note 21, Business Segment Data, to the Consolidated
Financial Statements for further segment information.)




RESULTS OF PHELPS DODGE MINING COMPANY

PDMC is our international business division that comprises our vertically
integrated copper operations from mining through rod production, primary
molybdenum operations through conversion, marketing and sales, and worldwide
exploration. PDMC comprises 11 reportable segments.

Our copper mines comprise five reportable segments in the United States
(Morenci, Bagdad/Sierrita, Miami/Bisbee, Chino/Cobre, and Tyrone) and three
reportable segments in South America (Candelaria, Cerro Verde and El Abra).
These segments include open-pit mining, sulfide ore concentrating and
electrowinning. In addition, they produce gold and silver, and the Bagdad and
Sierrita mines also produce molybdenum and rhenium, as by-products.

The Manufacturing and Sales segment consists of conversion facilities
including our smelters, refineries and rod mills, as well as sales and
marketing. The Manufacturing and Sales segment sells copper to others
primarily as rod, cathode or concentrate, and as rod to our Wire and Cable
segment. In addition, at times it smelts and refines copper and produces
copper rod for customers on a toll basis. Toll arrangements require the
tolling customer to deliver appropriate copper-bearing material to our
facilities, which we then process into a product that is returned





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to the
customer. The customer pays PDMC for processing its material into the
specified products.

The Primary Molybdenum segment consists of the Henderson and Climax mines
and related conversion facilities. This segment is an integrated producer of
molybdenum, with mining, roasting and processing facilities producing
high-purity, molybdenum-based chemical and metallurgical products. In
addition, at times it roasts and/or processes material on a toll basis. Toll
arrangements require the tolling customer to deliver appropriate
molybdenum-bearing material to our facilities, which we then process into a
product that is returned to the customer. The customer pays PDMC for
processing its material into the specified products.

Other Mining includes our worldwide mineral exploration and development
programs, a process technology center that directs its activities at improving
existing processes and developing new cost-competitive technologies, and other
ancillary operations.

Major operating and financial results of PDMC for the years 2002, 2001 and
2000 are illustrated in the following table:

|                                                             |                                        |   |         |         |      |  |         |         |  |  |         |         | 
|------------------------------------------------------------ | -------------------------------------- | - | ------- | ------- | ---- |  | ------- | ------- |  |  | ------- | ------- | 
|($ in millions except per pound amounts)                     |                                        |   |         |         |      |  |         |         |  |  |         |        
|                                                             |                                        |   | 2002    |         | 2001 |  | 2000   
|                                                             |                                        |   |         |         |      |  |        
|Sales and other operating revenues
to unaffiliated customers |                                        | $ | 2,485.8 |         |      |  | 2,649.5 |         |  |  | 3,073.7 |        
|Operating income (loss)                                      |                                        | $ | (65.0   | )       |      |  | (83.6   | )*      |  |  | 276.0   | *      
|Copper production (thousand short tons):                     |                                        |   |         |         |      |  |         |         |  |  |         |        
|                                                             | Total production                       |   |         | 1,275.6 |      |  |         | 1,410.9 |  |  |         | 1,459.0 | 
|                                                             | Less minority participants
shares (A) |   |         | 246.8   |      |  |         | 250.8   |  |  |         | 258.7   | 
|                                                             |                                        |   |         |         |      |  |         |         |  |  |         |        
|                                                             | Net Phelps Dodge share                 |   |         | 1,028.8 |      |  |         | 1,160.1 |  |  |         | 1,200.3 | 
|                                                             |                                        |   |         |         |      |  |         |         |  |  |         |        
|Copper sales (thousand short tons):                          |                                        |   |         |         |      |  |         |         |  |  |         |        
|                                                             | Net Phelps Dodge share
from own mines  |   |         | 1,051.1 |      |  |         | 1,170.8 |  |  |         | 1,200.6 | 
|                                                             | Purchased copper                       |   |         | 443.0   |      |  |         | 461.2   |  |  |         | 495.0   | 
|                                                             |                                        |   |         |         |      |  |         |         |  |  |         |        
|                                                             | Total copper sales                     |   |         | 1,494.1 |      |  |         | 1,632.0 |  |  |         | 1,695.6 | 
|                                                             |                                        |   |         |         |      |  |         |         |  |  |         |        
|LME average spot copper price
per pound - cathodes           |                                        | $ | 0.71    |         |      |  | 0.72    |         |  |  | 0.82    |        
|COMEX average spot copper price
per pound - cathodes         |                                        | $ | 0.72    |         |      |  | 0.73    |         |  |  | 0.84    |        
|Implied full unit cost of
copper production per pound        |                                        | $ | 0.68    |         |      |  | 0.75    | *       |  |  | 0.71    |        
|Implied cash unit cost of
copper production per pound        |                                        | $ | 0.52    |         |      |  | 0.59    | *       |  |  | 0.57    |        
|Molybdenum production
(million pounds)                       |                                        |   | 45.0    |         |      |  | 55.5    |         |  |  | 51.1    |        
|Molybdenum sales (million pounds):                           |                                        |   |         |         |      |  |         |         |  |  |         |        
|                                                             | Net Phelps Dodge share
from own mines  |   |         | 46.7    |      |  |         | 55.1    |  |  |         | 58.0    | 
|                                                             | Purchased molybdenum                   |   |         | 7.4     |      |  |         | 1.6     |  |  |         |        | 
|                                                             |                                        |   |         |         |      |  |         |         |  |  |         |        
|                                                             | Total molybdenum sales                 |   |         | 54.1    |      |  |         | 56.7    |  |  |         | 58.0    | 
|                                                             |                                        |   |         |         |      |  |         |         |  |  |         |        
|Metals Week:                                                 |                                        |   |         |         |      |  |         |         |  |  |         |        
|Annual molybdenum dealer oxide
mean price per pound          |                                        | $ | 3.77    |         |      |  | 2.36    |         |  |  | 2.56    |        



|    |  | * As restated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(A) |  | Minority participant interests include (i) a 15 percent undivided
interest in Morenci, Arizona, copper mining complex held by Sumitomo Metal
Mining Arizona, Inc., (ii) a one-third partnership interest in Chino Mines
Company in New Mexico held by Heisei Minerals Corporation, (iii) a 20
percent partnership interest in Candelaria in Chile held by SMMA
Candelaria, Inc., a jointly owned indirect subsidiary of Sumitomo Metal
Mining Co., Ltd., and Sumitomo Corporation, and (iv) a 49 percent
partnership interest in the El Abra copper mining operation in Chile held
by Corporación Nacional del Cobre de Chile (CODELCO).

|                            |                           |  |       |       |      |  |       |       |  |  |       |       | 
|--------------------------- | ------------------------- |  | ----- | ----- | ---- |  | ----- | ----- |  |  | ----- | ----- | 
|(thousand short tons)       |                           |  |       |       |      |  |       |       |  |  |       |      
|                            |                           |  | 2002  |       | 2001 |  | 2000 
|                            |                           |  |       |       |      |  |      
|Excluded copper production: |                           |  |       |       |      |  |       |       |  |  |       |      
|                            | Morenci - for Sumitomo    |  |       | 61.9  |      |  |       | 58.8  |  |  |       | 62.5  | 
|                            | Chino - for Heisei        |  |       | 19.3  |      |  |       | 25.9  |  |  |       | 44.7  | 
|                            | Candelaria - for Sumitomo |  |       | 43.9  |      |  |       | 48.6  |  |  |       | 45.0  | 
|                            | El Abra - for CODELCO     |  |       | 121.7 |      |  |       | 117.5 |  |  |       | 106.5 | 
|                            |                           |  |       |       |      |  |       |       |  |  |       |       | 
|                            |                           |  | 246.8 |       |      |  | 250.8 |       |  |  | 258.7 |      
|                            |                           |  |       |       |      |  |       |       |  |  |       |       | 





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Note: Supplemental Data

Implied unit cost of copper production measures the all-in cost of
each pound of copper produced by PDMC. As the title indicates, this measure is
the cost implied by the market price of copper (i.e., London Metal Exchange
average spot) for a given period versus PDMCs operating income (loss) for the
same period.

There is no established common standard for calculating unit production
costs in the copper industry. PDMCs implied unit production costs indicator
(which is based on readily accessible, publicly disclosed data) acts as a proxy
to enable investors to follow and interpret cost trends over historical
periods.

PDMC calculates its all-in operating margin per pound of copper sold by
dividing its operating income (loss) excluding special items by the total
pounds of copper sold from its own mines for its own account (as disclosed in
the table above). This results in an all-in operating margin (i.e., inclusive
of cost of products sold; depreciation, depletion and amortization; selling and
general administrative expense; and exploration and research expense for the
divisions operations) that is compared with the market price of copper to
render an implied cost of copper production. Following is the calculation of
implied unit cost of copper production for the years 2002, 2001 and 2000:

|                                                      |                                                 |   |         |        |      |  |             |       |   |  |         |       |  
|----------------------------------------------------- | ----------------------------------------------- | - | ------- | ------ | ---- |  | ----------- | ----- | - |  | ------- | ----- | -
|($ in millions except per pound amounts)              |                                                 |   |         |        |      |  |             |      
|                                                      |                                                 |   | 2002    |        | 2001 |  | 2000       
|                                                      |                                                 |   |         |        |      |  |            
|                                                      |                                                 |   |         |        |      |  | As Restated
|                                                      |                                                 |   |         |        |      |  |            
|PDMC implied unit cost of
copper production           |                                                 |   |         |        |      |  |             |       |   |  |         |      
|                                                      | Operating income (loss)                         |   | $       | (65.0  | )    |  |             | (83.6 | ) |  |         | 276.0 |  
|                                                      | Special operating items                         |   |         | (116.9 | )    |  |             | (2.1  | ) |  |         | (5.8  | )
|                                                      |                                                 |   |         |        |      |  |             |       |   |  |         |       |  
|                                                      | Operating income (loss)
excluding special items |   | $       | 51.9   |      |  |             | (81.5 | ) |  |         | 281.8 |  
|                                                      |                                                 |   |         |        |      |  |             |       |   |  |         |       |  
|Copper sales from own mines -
million pounds          |                                                 |   | 2,102.2 |        |      |  | 2,341.7     |       |   |  | 2,401.1 |      
|Operating margin - per
pound copper sold              |                                                 | $ | 0.03    |        |      |  | (0.03       | )     |   |  | 0.11    |      
|LME average spot copper
price per pound - cathodes    |                                                 | $ | 0.71    |        |      |  | 0.72        |       |   |  | 0.82    |      
|Implied full unit cost of copper
production per pound |                                                 | $ | 0.68    |        |      |  | 0.75        |       |   |  | 0.71    |      

Note: Our measure of implied unit cost of copper production may not be
comparable to similarly titled measures reported by other companies.

Total PDMC Division  Sales

PDMCs sales and other operating revenues to unaffiliated customers
decreased by $163.7 million, or 6 percent, in 2002, compared with the
corresponding 2001 period. This decrease was primarily due to lower sales
volumes of copper (approximately $184 million), slightly lower average copper
prices (approximately $42 million), and lower sales volumes of molybdenum
(approximately $10 million); partially offset by higher molybdenum prices
(approximately $50 million).

In 2001, the decrease of $424.2 million, or 14 percent, in sales and other
operating revenues to unaffiliated customers, compared with 2000, was primarily
due to lower average copper prices (approximately $397 million) and lower
molybdenum prices (approximately $20 million).

Total PDMC Division - Operating Income
(Loss)

PDMC reported an operating loss of $65.0 million in 2002 including a
special, net pre-tax charge of $116.9 million, compared with an operating loss
of $83.6 million in 2001 including $2.1 million of special, net pre-tax
charges, and operating income of $276.0 million in 2000 including a special,
pre-tax charge of $5.8 million.

The decrease in operating loss of $18.6 million for the year ended
December 31, 2002, compared with 2001, primarily resulted from a lower implied
unit cost of copper production (approximately $145 million including higher
molybdenum earnings of approximately $20 million) and 240 million pounds of
lower produced copper sales volumes (approximately $8 million). This was
partially offset by lower average copper prices (approximately $19 million) and
special, pre-tax charges of $116.9 million, compared with special, pre-tax
charges of $2.1 million in 2001.

During the fourth quarter of 2002, PDMC recorded special, pre-tax charges
for asset impairments and closure provisions of $153.5 million at Cobre,
Hidalgo and Ajo. The Company recognized an impairment charge to write-down
Cobres assets by $115.5 million. Phelps Dodge took this action after revising
mine plans and assessing recoverability. The impairment assessment used a copper price lower than
the prior-year assumption, reflecting moving average historical copper prices
representing full economic and pricing cycles. The amount of Cobres
impairment was determined through an assessment of discounted cash flows for
remaining ore reserves.





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The Hidalgo impairment included a $12.9 million write-down of assets. As
a result of the Companys ability to use acid more efficiently and an updated
assessment of PDMCs long-term acid production and consumption balance, the
Company determined that Hidalgo would probably not be reconfigured to produce
acid as originally anticipated and that the net book value of the Hidalgo
assets would probably not be recovered. The power facilities will continue to
generate electricity when needed, and the facility will continue to be a backup
alternative as a reliable producer of acid if conditions warrant. The
remaining Hidalgo assets were written down to their estimated fair value in the
2002 fourth quarter. The Company also recognized a $7.0 million charge for the
estimated remaining costs of its closure obligation at Hidalgo.

PDMC has reclassified material previously characterized as reserves at Ajo
to mineralized material and recognized an impairment charge to write down Ajos
assets by $18.1 million. This action resulted from updating mine plans at this
prospective development property. The amount of Ajos impairment was
determined through an assessment of the fair value of its assets.

The 2001 decrease in operating income of $359.6 million compared with 2000
was primarily due to lower copper prices (approximately $251 million), higher
implied unit cost of copper production (approximately $105 million) and 59
million pounds of lower produced copper sales volumes (approximately $7
million).

Copper is an internationally traded commodity, and its price is
effectively determined by the two major metals exchanges  the New York
Commodity Exchange (COMEX) and the London Metal Exchange (LME). The prices on
these exchanges generally reflect the worldwide balance of copper supply and
demand, but also are influenced significantly from time to time by speculative
actions and by currency exchange rates.

The price of copper, our principal product, was a significant factor
influencing our results over the three-year period ended December 31, 2002. We
principally base our selling price for U.S. sales on the COMEX spot price per
pound of copper cathode, which averaged 72 cents in 2002, 73 cents in 2001 and
84 cents in 2000. Internationally, our copper selling prices are generally
based on the LME spot price for cathode. The LME spot price per pound of
copper averaged 71 cents in 2002, 72 cents in 2001 and 82 cents in 2000. The
COMEX and LME prices averaged 76 cents and 75 cents per pound, respectively,
for the first three months of 2003, and closed at 72 cents and 71 cents,
respectively, on April 9, 2003.

At December 31, 2002, we had outstanding provisionally priced sales of
25.8 million pounds. For each 1 cent per pound change in the realized copper
price, revenue and pre-tax earnings would vary (plus or minus) approximately
$0.3 million for provisionally priced pounds at December 31, 2002.

In 2002, the full and cash implied unit cost of copper production each
decreased 7 cents per pound, compared with the corresponding 2001 period. In
2002, approximately 3 cents of the cost improvement was due to lower energy
costs, and the remainder was primarily due to operational improvements
associated with the Companys Quest for Zeroprogram.

In 2001, the full and cash implied unit cost of copper production
increased 4 and 2 cents per pound, respectively, compared with the
corresponding 2000 period, primarily due to slightly higher energy costs
(approximately 1 cent). The remainder of the increase in the full implied unit
cost was primarily due to depreciation expense.

Energy, including electricity, diesel fuel and natural gas, represents a
significant portion of production costs at our operations. During the first
quarter of 2001 and much of 2000, our Arizona and New Mexico operations were
affected adversely by significantly higher costs for all three.

In response, PDMC implemented a power cost stabilization plan in March
2001 that consisted of an additional negotiated firm power contract; the
construction of a power co-generation plant in New Mexico; short-term,
alternating production curtailments at the Companys Tyrone, Sierrita, Bagdad
and Henderson operations; and a partial production curtailment at Chino.

Additionally, to mitigate PDMCs exposure to increases in diesel fuel and
natural gas prices, we implemented several price protection programs in late
2000 and early 2001 designed to protect the Company against a significant
upward movement in energy prices. The Companys diesel fuel price protection
program consisted of a combination of purchasing out-of-the-money (OTM) diesel
fuel call options and fixed-price diesel fuel swaps for our North American
operations. The OTM call options give the holder the right, but not the
obligation, to purchase a specific commodity at a pre-determined dollar cost,
or strike price. OTM call options are options with a strike price above
the prevailing market price for that commodity when purchased.

The OTM diesel fuel call options mitigated a portion of our exposure to
volatile markets by capping the cost of the commodity if prices were to rise
above





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the strike price. If the price of diesel fuel is lower than the strike
price, the Company has the flexibility to purchase diesel fuel at prices lower
than the strike price and the options expire with no value. The swaps allow us
to establish a fixed price for a specific commodity product for delivery during
a specific future period.

Our natural gas price protection program consisted of purchasing OTM call
options for our North American operations. OTM call options capped the
commodity purchase cost at the strike price while allowing the Company the
ability to purchase natural gas at a lower cost when market prices were lower
than the strike price.

As a result of the above-mentioned plans and programs, in 2002 and 2001
Phelps Dodge was able to reduce and partially mitigate the impacts of volatile
electricity markets and rising diesel fuel and natural gas prices.

Any material change in the price we receive for copper, or in PDMCs
implied unit cost of copper production, has a significant effect on our
results. Based on expected 2003 annual production of approximately 2.1 billion
pounds of copper, each 1 cent per pound change in the average annual copper
price, or in average annual implied unit cost of copper production, causes a
variation in annual operating income before taxes of approximately $21 million.

Due to the market risk arising from the volatility of copper prices, our
objective is to sell copper cathode and rod produced at our U.S. operations at
the COMEX average price in the month of shipment, and copper cathode and
concentrate produced at our international operations at the LME average price
in the month of settlement with our customers. During 2002, PDMC sold
approximately 21 percent, 22 percent and 57 percent of its copper as
concentrates, copper cathode and copper rod, respectively.

Additionally in 2002, operations outside the United States provided 27
percent of PDMCs sales (including sales through PDMCs U.S.-based sales
company), compared with 22 percent in 2001 and 18 percent in 2000. During
2002, operations outside the United States contributed a reduction of 101
percent of the divisions operating loss, compared with a reduction of 69
percent of the divisions 2001 operating loss and a contribution of 51 percent
to the divisions 2000 operating income.

From time to time, we may purchase or sell copper price protection
contracts for a portion of our expected future mine production. We do this to
limit the effects of potential decreases in copper selling prices. We did not
have any outstanding copper price protection contracts on December 31, 2002.

Note: Supplemental Data

The following table summarizes PDMCs special items for 2002, 2001 and
2000 and the resultant earnings (losses) excluding these special items. Note:
U.S. Mining Operations combines the following segments: Morenci,
Bagdad/Sierrita, Miami/Bisbee, Chino/Cobre, Tyrone, Manufacturing and Sales,
and Other Mining; and South American Mines include Candelaria, Cerro Verde and
El Abra.

|                                                         |                        |  |        |        |      |  |             |        |   |  |       |       |  
|-------------------------------------------------------- | ---------------------- |  | ------ | ------ | ---- |  | ----------- | ------ | - |  | ----- | ----- | -
|($ in millions)                                          |                        |  |        |        |      |  |             |        |   |  |       |      
|                                                         |                        |  | 2002   |        | 2001 |  | 2000       
|                                                         |                        |  |        |        |      |  |            
|                                                         |                        |  |        |        |      |  | As Restated
|                                                         |                        |  |        |        |      |  |            
|Special, pre-tax items:                                  |                        |  |        |        |      |  |             |        |   |  |       |      
|                                                         | U.S. Mining Operations |  | $      | (117.9 | )    |  |             | (1.5   | ) |  |       | (1.5  | )
|                                                         | South American Mines   |  |        |       |      |  |             |       |   |  |       |      |  
|                                                         | Primary Molybdenum     |  |        | 1.0    |      |  |             | (0.6   | ) |  |       | (4.3  | )
|                                                         |                        |  |        |        |      |  |             |        |   |  |       |       |  
|                                                         |                        |  | (116.9 | )      |      |  | (2.1        | )      |   |  | (5.8  | )    
|                                                         |                        |  |        |        |      |  |             |        |   |  |       |       |  
|Segment operating income (loss)
excluding special items: |                        |  |        |        |      |  |             |        |   |  |       |      
|                                                         | U.S. Mining Operations |  | $      | (21.1  | )    |  |             | (127.7 | ) |  |       | 146.9 |  
|                                                         | South American Mines   |  |        | 65.4   |      |  |             | 57.3   |   |  |       | 139.5 |  
|                                                         | Primary Molybdenum     |  |        | 7.6    |      |  |             | (11.1  | ) |  |       | (4.6  | )
|                                                         |                        |  |        |        |      |  |             |        |   |  |       |       |  
|                                                         |                        |  | 51.9   |        |      |  | (81.5       | )      |   |  | 281.8 |      
|                                                         |                        |  |        |        |      |  |             |        |   |  |       |       |  

Note: Our non-GAAP measure of special items may not be comparable to similarly
titled measures reported by other companies.





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##### Table of Contents



- 69 -

Note: Supplemental Data

Special, pre-tax items and provisions in operating income (loss) were as
follows:

|                                          |                                                                |  |            |        |          |  |         |   |  |  |     |   | 
|----------------------------------------- | -------------------------------------------------------------- |  | ---------- | ------ | -------- |  | ------- | - |  |  | --- | - | 
|($ in millions)                           |                                                                |  |            |        |          |  |         |   |  |  |     |  
|                                          |                                                                |  | 2002      
|                                          |                                                                |  |           
|                                          |                                                                |  | U.S.       |        | South    |  | Primary
|                                          |                                                                |  | Mining     |        | American |  | Molyb- 
|                                          |                                                                |  | Operations |        | Mines    |  | denum  
|                                          |                                                                |  |            |        |          |  |        
|December 2002 impairments and provisions: |                                                                |  |            |        |          |  |         |   |  |  |     |  
|                                          | Asset impairment
charges                                       |  | $          | (146.5 | )        |  |         |  |  |  |     |  | 
|                                          | Accrued closure
costs                                          |  |            | (7.0   | )        |  |         |  |  |  |     |  | 
|Environmental
provisions, net             |                                                                |  | (2.6       | )      |          |  |        |   |  |  | 1.0 |  
|October 2001 restructuring:               |                                                                |  |            |        |          |  |         |   |  |  |     |  
|                                          | Reassessments
of employee
activities and
take-or-pay
contracts |  |            | 5.1    |          |  |         |  |  |  |     |  | 
|                                          | Additional
retirement
benefits                                 |  |            | (6.4   | )        |  |         |  |  |  |     |  | 
|Environmental insurance
recoveries, net   |                                                                |  | 16.9       |        |          |  |        |   |  |  |    |  
|Sale of non-core
real estate              |                                                                |  | 22.6       |        |          |  |        |   |  |  |    |  
|                                          |                                                                |  |            |        |          |  |         |   |  |  |     |   | 
|Special, pre-tax
items                    |                                                                |  | (117.9     | )      |          |  |        |   |  |  | 1.0 |  
|                                          |                                                                |  |            |        |          |  |         |   |  |  |     |   | 

|                                        |                   |   |            |       |          |  |         |   |  |  |      |   | 
|--------------------------------------- | ----------------- | - | ---------- | ----- | -------- |  | ------- | - |  |  | ---- | - | 
|($ in millions)                         |                   |   |            |       |          |  |         |   |  |  |      |  
|                                        |                   |   | 2001      
|                                        |                   |   |           
|                                        |                   |   | U.S.       |       | South    |  | Primary
|                                        |                   |   | Mining     |       | American |  | Molyb- 
|                                        |                   |   | Operations |       | Mines    |  | denum  
|                                        |                   |   |            |       |          |  |        
|Environmental
provisions, net           |                   | $ | (14.9      | )     |          |  |        |   |  |  |     |  
|April 2001 operational
improvement plan |                   |   | (9.4       | )     |          |  |        |   |  |  | (0.6 | )
|October 2001 restructuring:             |                   |   |            |       |          |  |         |   |  |  |      |  
|                                        | Original programs |   |            | (17.1 | )        |  |         |  |  |  |      |  | 
|Gain on sale of Sossego                 |                   |   | 39.9       |       |          |  |        |   |  |  |     |  
|                                        |                   |   |            |       |          |  |         |   |  |  |      |  
|Special, pre-tax items                  |                   |   | (1.5       | )     |          |  |        |   |  |  | (0.6 | )
|                                        |                   |   |            |       |          |  |         |   |  |  |      |  

|                                 |  |   |            |   |          |  |         |  |  |  |      |   | 
|-------------------------------- |  | - | ---------- | - | -------- |  | ------- |  |  |  | ---- | - | 
|($ in millions)                  |  |   |            |   |          |  |         |  |  |  |      |  
|                                 |  |   | 2000      
|                                 |  |   |           
|                                 |  |   | U.S.       |   | South    |  | Primary
|                                 |  |   | Mining     |   | American |  | Molyb- 
|                                 |  |   | Operations |   | Mines    |  | denum  
|                                 |  |   |            |   |          |  |        
|June 2000 restructuring programs |  | $ | (1.5       | ) |          |  |        |  |  |  | (4.3 | )
|                                 |  |   |            |   |          |  |         |  |  |  |      |   | 
|Special, pre-tax items           |  |   | (1.5       | ) |          |  |        |  |  |  | (4.3 | )
|                                 |  |   |            |   |          |  |         |  |  |  |      |   | 





---



##### Table of Contents



- 70 -

PDMC Results By Reportable Segments

The following tables summarize, on a segment basis, the production and sales statistics and the operating income
(loss) and special items and provisions for 2002 and as restated for 2001 and 2000. (Refer to Note 22, Restatement of
Consolidated Financial Statements, to the Consolidated Financial Statements included elsewhere in the Form 10-K
for further discussion.)

PDMC RESULTS BY REPORTABLE SEGMENTS

|                                         |                                       |   |            |       |          |  |         |       |        |  |        |      |          |  |        |       |   |  |       |      |  |  |        |        |  
|---------------------------------------- | ------------------------------------- | - | ---------- | ----- | -------- |  | ------- | ----- | ------ |  | ------ | ---- | -------- |  | ------ | ----- | - |  | ----- | ---- |  |  | ------ | ------ | -
|                                         |                                       |   | U.S. Mines |       |          |  |        
|                                         |                                       |   |            |       |          |  |        
|                                         |                                       |   |            |       |          |  | Bagdad/ |       | Miami/ |  | Chino/ |      |          |  |        |       |   |  |      
|                                         |                                       |   | Morenci    |       | Sierrita |  | Bisbee  |       | Cobre  |  | Tyrone |      | Subtotal
|                                         |                                       |   |            |       |          |  |         |       |        |  |        |      |         
|2002                                     |                                       |   |            |       |          |  |         |       |        |  |        |      |          |  |        |       |   |  |       |      |  |  |        |       
|Copper production (thousand short tons): |                                       |   |            |       |          |  |         |       |        |  |        |      |          |  |        |       |   |  |       |      |  |  |        |       
|                                         | Total production                      |   |            | 412.7 |          |  |         | 160.2 |        |  |        | 10.6 |          |  |        | 53.8  |   |  |       | 69.9 |  |  |        | 707.2  |  
|                                         | Less minority participants shares    |   |            | (61.9 | )        |  |         |      |        |  |        |     |          |  |        | (17.9 | ) |  |       |     |  |  |        | (79.8  | )
|                                         |                                       |   |            |       |          |  |         |       |        |  |        |      |          |  |        |       |   |  |       |      |  |  |        |        |  
|                                         | Net Phelps Dodge share                |   |            | 350.8 |          |  |         | 160.2 |        |  |        | 10.6 |          |  |        | 35.9  |   |  |       | 69.9 |  |  |        | 627.4  |  
|                                         |                                       |   |            |       |          |  |         |       |        |  |        |      |          |  |        |       |   |  |       |      |  |  |        |        |  
|Copper sales (thousand short tons):      |                                       |   |            |       |          |  |         |       |        |  |        |      |          |  |        |       |   |  |       |      |  |  |        |       
|                                         | Net Phelps Dodge share from own mines |   |            | 350.8 |          |  |         | 176.1 |        |  |        | 15.3 |          |  |        | 35.8  |   |  |       | 69.9 |  |  |        | 647.9  |  
|                                         | Purchased copper                      |   |            |      |          |  |         |      |        |  |        |     |          |  |        |      |   |  |       |     |  |  |        |       |  
|                                         |                                       |   |            |       |          |  |         |       |        |  |        |      |          |  |        |       |   |  |       |      |  |  |        |        |  
|                                         | Total copper sales                    |   |            | 350.8 |          |  |         | 176.1 |        |  |        | 15.3 |          |  |        | 35.8  |   |  |       | 69.9 |  |  |        | 647.9  |  
|                                         |                                       |   |            |       |          |  |         |       |        |  |        |      |          |  |        |       |   |  |       |      |  |  |        |        |  
|($ in millions)                          |                                       |   |            |       |          |  |         |       |        |  |        |      |          |  |        |       |   |  |       |      |  |  |        |       
|Operating income (loss)                  |                                       | $ | 24.1       |       |          |  | 20.2    |       |        |  | (15.6  | )    |          |  | (110.4 | )     |   |  | 1.6   |      |  |  | (80.1  | )     
|Special items and provisions             |                                       | $ | (0.5       | )     |          |  | 0.3     |       |        |  | (2.3   | )    |          |  | (117.2 | )     |   |  |      |      |  |  | (119.7 | )     
|                                        
|2001                                     |                                       |   |            |       |          |  |         |       |        |  |        |      |          |  |        |       |   |  |       |      |  |  |        |       
|Copper production (thousand short tons): |                                       |   |            |       |          |  |         |       |        |  |        |      |          |  |        |       |   |  |       |      |  |  |        |       
|                                         | Total production                      |   |            | 391.6 |          |  |         | 249.5 |        |  |        | 44.3 |          |  |        | 78.2  |   |  |       | 76.4 |  |  |        | 840.0  |  
|                                         | Less minority participants shares    |   |            | (58.8 | )        |  |         |      |        |  |        |     |          |  |        | (26.1 | ) |  |       |     |  |  |        | (84.9  | )
|                                         |                                       |   |            |       |          |  |         |       |        |  |        |      |          |  |        |       |   |  |       |      |  |  |        |        |  
|                                         | Net Phelps Dodge share                |   |            | 332.8 |          |  |         | 249.5 |        |  |        | 44.3 |          |  |        | 52.1  |   |  |       | 76.4 |  |  |        | 755.1  |  
|                                         |                                       |   |            |       |          |  |         |       |        |  |        |      |          |  |        |       |   |  |       |      |  |  |        |        |  
|Copper sales (thousand short tons):      |                                       |   |            |       |          |  |         |       |        |  |        |      |          |  |        |       |   |  |       |      |  |  |        |       
|                                         | Net Phelps Dodge share from own mines |   |            | 333.0 |          |  |         | 258.0 |        |  |        | 46.9 |          |  |        | 52.1  |   |  |       | 76.4 |  |  |        | 766.4  |  
|                                         | Purchased copper                      |   |            |      |          |  |         |      |        |  |        |     |          |  |        |      |   |  |       |     |  |  |        |       |  
|                                         |                                       |   |            |       |          |  |         |       |        |  |        |      |          |  |        |       |   |  |       |      |  |  |        |        |  
|                                         | Total copper sales                    |   |            | 333.0 |          |  |         | 258.0 |        |  |        | 46.9 |          |  |        | 52.1  |   |  |       | 76.4 |  |  |        | 766.4  |  
|                                         |                                       |   |            |       |          |  |         |       |        |  |        |      |          |  |        |       |   |  |       |      |  |  |        |        |  
|($ in millions)                          |                                       |   |            |       |          |  |         |       |        |  |        |      |          |  |        |       |   |  |       |      |  |  |        |       
|Operating income (loss)                  |                                       | $ | (61.9      | )     |          |  | 11.5    |       |        |  | (5.1   | )    |          |  | (15.5  | )     |   |  | (16.3 | )    |  |  | (87.3  | )     
|Special items and provisions             |                                       | $ | (1.5       | )     |          |  | (6.9    | )     |        |  | (3.6   | )    |          |  | (3.0   | )     |   |  | (1.9  | )    |  |  | (16.9  | )     
|                                        
|2000                                     |                                       |   |            |       |          |  |         |       |        |  |        |      |          |  |        |       |   |  |       |      |  |  |        |       
|Copper production (thousand short tons): |                                       |   |            |       |          |  |         |       |        |  |        |      |          |  |        |       |   |  |       |      |  |  |        |       
|                                         | Total production                      |   |            | 417.0 |          |  |         | 245.7 |        |  |        | 59.4 |          |  |        | 135.6 |   |  |       | 79.3 |  |  |        | 937.0  |  
|                                         | Less minority participants shares    |   |            | (62.5 | )        |  |         |      |        |  |        |     |          |  |        | (45.2 | ) |  |       |     |  |  |        | (107.7 | )
|                                         |                                       |   |            |       |          |  |         |       |        |  |        |      |          |  |        |       |   |  |       |      |  |  |        |        |  
|                                         | Net Phelps Dodge share                |   |            | 354.5 |          |  |         | 245.7 |        |  |        | 59.4 |          |  |        | 90.4  |   |  |       | 79.3 |  |  |        | 829.3  |  
|                                         |                                       |   |            |       |          |  |         |       |        |  |        |      |          |  |        |       |   |  |       |      |  |  |        |        |  
|Copper sales (thousand short tons):      |                                       |   |            |       |          |  |         |       |        |  |        |      |          |  |        |       |   |  |       |      |  |  |        |       
|                                         | Net Phelps Dodge share from own mines |   |            | 354.4 |          |  |         | 245.7 |        |  |        | 59.3 |          |  |        | 90.4  |   |  |       | 79.2 |  |  |        | 829.0  |  
|                                         | Purchased copper                      |   |            |      |          |  |         |      |        |  |        |     |          |  |        |      |   |  |       |     |  |  |        |       |  
|                                         |                                       |   |            |       |          |  |         |       |        |  |        |      |          |  |        |       |   |  |       |      |  |  |        |        |  
|                                         | Total copper sales                    |   |            | 354.4 |          |  |         | 245.7 |        |  |        | 59.3 |          |  |        | 90.4  |   |  |       | 79.2 |  |  |        | 829.0  |  
|                                         |                                       |   |            |       |          |  |         |       |        |  |        |      |          |  |        |       |   |  |       |      |  |  |        |        |  
|($ in millions)                          |                                       |   |            |       |          |  |         |       |        |  |        |      |          |  |        |       |   |  |       |      |  |  |        |       
|Operating income (loss)                  |                                       | $ | 81.7       |       |          |  | 53.4    |       |        |  | 15.7   |      |          |  | 9.7    |       |   |  | 3.5   |      |  |  | 164.0  |       
|Special items and provisions             |                                       | $ |           |       |          |  |        |       |        |  | (1.5   | )    |          |  |       |       |   |  |      |      |  |  | (1.5   | )     

Refer to segment discussion on pages 74 through 82.

Revenues, operating costs and expenses of PDMCs segments include allocations that
may not be reflective of market conditions. Additionally, certain costs are not
allocated to the reportable segments. (Refer to pages 74 and 75 for further discussion.)





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##### Table of Contents



- 71 -

PDMC RESULTS BY REPORTABLE SEGMENTS

|                                         |                                       |   |                      |       |             |  |         |      |          |  |      |        |   |  |       |        |  
|---------------------------------------- | ------------------------------------- | - | -------------------- | ----- | ----------- |  | ------- | ---- | -------- |  | ---- | ------ | - |  | ----- | ------ | -
|                                         |                                       |   | South American Mines
|                                         |                                       |   |                     
|                                         |                                       |   | Candelaria           |       | Cerro Verde |  | El Abra |      | Subtotal
|                                         |                                       |   |                      |       |             |  |         |      |         
|2002                                     |                                       |   |                      |       |             |  |         |      |          |  |      |        |   |  |       |       
|Copper production (thousand short tons): |                                       |   |                      |       |             |  |         |      |          |  |      |        |   |  |       |       
|                                         | Total production                      |   |                      | 219.5 |             |  |         | 95.3 |          |  |      | 248.2  |   |  |       | 563.0  |  
|                                         | Less minority participants shares    |   |                      | (43.9 | )           |  |         |     |          |  |      | (121.7 | ) |  |       | (165.6 | )
|                                         |                                       |   |                      |       |             |  |         |      |          |  |      |        |   |  |       |        |  
|                                         | Net Phelps Dodge share                |   |                      | 175.6 |             |  |         | 95.3 |          |  |      | 126.5  |   |  |       | 397.4  |  
|                                         |                                       |   |                      |       |             |  |         |      |          |  |      |        |   |  |       |        |  
|Copper sales (thousand short tons):      |                                       |   |                      |       |             |  |         |      |          |  |      |        |   |  |       |       
|                                         | Net Phelps Dodge share from own mines |   |                      | 174.6 |             |  |         | 94.9 |          |  |      | 129.6  |   |  |       | 399.1  |  
|                                         | Purchased copper                      |   |                      | 35.8  |             |  |         |     |          |  |      | 56.5   |   |  |       | 92.3   |  
|                                         |                                       |   |                      |       |             |  |         |      |          |  |      |        |   |  |       |        |  
|                                         | Total copper sales                    |   |                      | 210.4 |             |  |         | 94.9 |          |  |      | 186.1  |   |  |       | 491.4  |  
|                                         |                                       |   |                      |       |             |  |         |      |          |  |      |        |   |  |       |        |  
|($ in millions)                          |                                       |   |                      |       |             |  |         |      |          |  |      |        |   |  |       |       
|Operating income (loss)                  |                                       | $ | 47.6                 |       |             |  | 24.8    |      |          |  | (7.0 | )      |   |  | 65.4  |       
|Special items and provisions             |                                       | $ |                     |       |             |  |        |      |          |  |     |        |   |  |      |       
|                                        
|2001                                     |                                       |   |                      |       |             |  |         |      |          |  |      |        |   |  |       |       
|Copper production (thousand short tons): |                                       |   |                      |       |             |  |         |      |          |  |      |        |   |  |       |       
|                                         | Total production                      |   |                      | 243.2 |             |  |         | 84.9 |          |  |      | 239.8  |   |  |       | 567.9  |  
|                                         | Less minority participants shares    |   |                      | (48.6 | )           |  |         |     |          |  |      | (117.5 | ) |  |       | (166.1 | )
|                                         |                                       |   |                      |       |             |  |         |      |          |  |      |        |   |  |       |        |  
|                                         | Net Phelps Dodge share                |   |                      | 194.6 |             |  |         | 84.9 |          |  |      | 122.3  |   |  |       | 401.8  |  
|                                         |                                       |   |                      |       |             |  |         |      |          |  |      |        |   |  |       |        |  
|Copper sales (thousand short tons):      |                                       |   |                      |       |             |  |         |      |          |  |      |        |   |  |       |       
|                                         | Net Phelps Dodge share from own mines |   |                      | 190.1 |             |  |         | 84.7 |          |  |      | 126.7  |   |  |       | 401.5  |  
|                                         | Purchased copper                      |   |                      | 37.0  |             |  |         |     |          |  |      | 5.8    |   |  |       | 42.8   |  
|                                         |                                       |   |                      |       |             |  |         |      |          |  |      |        |   |  |       |        |  
|                                         | Total copper sales                    |   |                      | 227.1 |             |  |         | 84.7 |          |  |      | 132.5  |   |  |       | 444.3  |  
|                                         |                                       |   |                      |       |             |  |         |      |          |  |      |        |   |  |       |        |  
|($ in millions)                          |                                       |   |                      |       |             |  |         |      |          |  |      |        |   |  |       |       
|Operating income (loss)                  |                                       | $ | 50.0                 |       |             |  | 1.8     |      |          |  | 5.5  |        |   |  | 57.3  |       
|Special items and provisions             |                                       | $ |                     |       |             |  |        |      |          |  |     |        |   |  |      |       
|                                        
|2000                                     |                                       |   |                      |       |             |  |         |      |          |  |      |        |   |  |       |       
|Copper production (thousand short tons): |                                       |   |                      |       |             |  |         |      |          |  |      |        |   |  |       |       
|                                         | Total production                      |   |                      | 224.7 |             |  |         | 78.7 |          |  |      | 217.4  |   |  |       | 520.8  |  
|                                         | Less minority participants shares    |   |                      | (45.0 | )           |  |         |     |          |  |      | (106.5 | ) |  |       | (151.5 | )
|                                         |                                       |   |                      |       |             |  |         |      |          |  |      |        |   |  |       |        |  
|                                         | Net Phelps Dodge share                |   |                      | 179.7 |             |  |         | 78.7 |          |  |      | 110.9  |   |  |       | 369.3  |  
|                                         |                                       |   |                      |       |             |  |         |      |          |  |      |        |   |  |       |        |  
|Copper sales (thousand short tons):      |                                       |   |                      |       |             |  |         |      |          |  |      |        |   |  |       |       
|                                         | Net Phelps Dodge share from own mines |   |                      | 181.5 |             |  |         | 78.8 |          |  |      | 109.5  |   |  |       | 369.8  |  
|                                         | Purchased copper                      |   |                      | 5.0   |             |  |         |     |          |  |      |       |   |  |       | 5.0    |  
|                                         |                                       |   |                      |       |             |  |         |      |          |  |      |        |   |  |       |        |  
|                                         | Total copper sales                    |   |                      | 186.5 |             |  |         | 78.8 |          |  |      | 109.5  |   |  |       | 374.8  |  
|                                         |                                       |   |                      |       |             |  |         |      |          |  |      |        |   |  |       |        |  
|($ in millions)                          |                                       |   |                      |       |             |  |         |      |          |  |      |        |   |  |       |       
|Operating income (loss)                  |                                       | $ | 78.3                 |       |             |  | 19.6    |      |          |  | 41.6 |        |   |  | 139.5 |       
|Special items and provisions             |                                       | $ |                     |       |             |  |        |      |          |  |     |        |   |  |      |       

Refer to segment discussion on pages 74 through 82.

Revenues, operating costs and expenses of PDMCs segments include allocations
that may not be reflective of market conditions. Additionally, certain costs are
not allocated to the reportable segments. (Refer to pages 74 and 75 for further discussion.)





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##### Table of Contents



- 72 -

PDMC RESULTS BY REPORTABLE SEGMENTS

|                                         |                                       |                        |       |            |        |               |      |              |   |      |       |       |   |  |        |         |        | 
|---------------------------------------- | ------------------------------------- | ---------------------- | ----- | ---------- | ------ | ------------- | ---- | ------------ | - | ---- | ----- | ----- | - |  | ------ | ------- | ------ | 
|                                         |                                       |                        |       | Primary    |        | Manufacturing |      |              |   |      |       | Total
|                                         |                                       |                        |       | Molybdenum |        | and Sales     |      | Other Mining |   | PDMC
|                                         |                                       |                        |       |            |        |               |      |              |   |     
|2002                                     |                                       |                        |       |            |        |               |      |              |   |      |       |       |   |  |        |        
|Copper production (thousand short tons): |                                       |                        |       |            |        |               |      |              |   |      |       |       |   |  |        |        
|                                         | Total production                      |                        |       |           |        |               |      | 5.4          |   |      |       |      |   |  |        | 1,275.6 |       
|                                         | Less minority participants shares    |                        |       |           |        |               |      | (1.4         | ) |      |       |      |   |  |        | (246.8  | )     
|                                         |                                       |                        |       |            |        |               |      |              |   |      |       |       |   |  |        |         |       
|                                         | Net Phelps Dodge share                |                        |       |           |        |               |      | 4.0          |   |      |       |      |   |  |        | 1,028.8 |       
|                                         |                                       |                        |       |            |        |               |      |              |   |      |       |       |   |  |        |         |       
|Copper sales (thousand short tons):      |                                       |                        |       |            |        |               |      |              |   |      |       |       |   |  |        |        
|                                         | Net Phelps Dodge share from own mines |                        |       |           |        |               |      | 4.1          |   |      |       |      |   |  |        | 1,051.1 |       
|                                         | Purchased copper                      |                        |       |           |        |               |      | 350.7        |   |      |       |      |   |  |        | 443.0   |       
|                                         |                                       |                        |       |            |        |               |      |              |   |      |       |       |   |  |        |         |       
|                                         | Total copper sales                    |                        |       |           |        |               |      | 354.8        |   |      |       |      |   |  |        | 1,494.1 |       
|                                         |                                       |                        |       |            |        |               |      |              |   |      |       |       |   |  |        |         |       
|Molybdenum production (thousand pounds): |                                       |                        |       |            |        |               |      |              |   |      |       |       |   |  |        |        
|                                         | Primary
- Henderson                   |                        |       | 20,517     |        |               |      |             |   |      |       |      |   |  |        | 20,517  |       
|                                         | By-product                            |                        |       | 24,448     |        |               |      |             |   |      |       |      |   |  |        | 24,448  |       
|                                         |                                       |                        |       |            |        |               |      |              |   |      |       |       |   |  |        |         |       
|                                         |                                       | Total production       |       |            | 44,965 |               |      |              |  |      |       |       |  |  |        |         | 44,965 | 
|                                         |                                       |                        |       |            |        |               |      |              |   |      |       |       |   |  |        |         |       
|Molybdenum sales (thousand pounds):      |                                       |                        |       |            |        |               |      |              |   |      |       |       |   |  |        |        
|                                         | Net Phelps Dodge share from own mines |                        |       | 46,665     |        |               |      |             |   |      |       |      |   |  |        | 46,665  |       
|                                         | Purchased molybdenum                  |                        |       | 7,393      |        |               |      |             |   |      |       |      |   |  |        | 7,393   |       
|                                         |                                       |                        |       |            |        |               |      |              |   |      |       |       |   |  |        |         |       
|                                         |                                       | Total molybdenum sales |       |            | 54,058 |               |      |              |  |      |       |       |  |  |        |         | 54,058 | 
|                                         |                                       |                        |       |            |        |               |      |              |   |      |       |       |   |  |        |         |       
|($ in millions)                          |                                       |                        |       |            |        |               |      |              |   |      |       |       |   |  |        |        
|Operating income (loss)                  |                                       | $                      | 8.6   |            |        |               | 5.1  |              |   |      | (64.0 | )     |   |  | (65.0  | )      
|Special items and provisions             |                                       | $                      | 1.0   |            |        |               | 0.2  |              |   |      | 1.6   |       |   |  | (116.9 | )      
|                                         |                                       |                        |       |            |        |               |      |              |   |      |       |       |   |  |        |        
|2001                                     |                                       |                        |       |            |        |               |      |              |   |      |       |       |   |  |        |        
|Copper production (thousand short tons): |                                       |                        |       |            |        |               |      |              |   |      |       |       |   |  |        |        
|                                         | Total production                      |                        |       |           |        |               |      | 3.0          |   |      |       |      |   |  |        | 1,410.9 |       
|                                         | Less minority participants shares    |                        |       |           |        |               |      | 0.2          |   |      |       |      |   |  |        | (250.8  | )     
|                                         |                                       |                        |       |            |        |               |      |              |   |      |       |       |   |  |        |         |       
|                                         | Net Phelps Dodge share                |                        |       |           |        |               |      | 3.2          |   |      |       |      |   |  |        | 1,160.1 |       
|                                         |                                       |                        |       |            |        |               |      |              |   |      |       |       |   |  |        |         |       
|Copper sales (thousand short tons):      |                                       |                        |       |            |        |               |      |              |   |      |       |       |   |  |        |        
|                                         | Net Phelps Dodge share from own mines |                        |       |           |        |               |      | 2.9          |   |      |       |      |   |  |        | 1,170.8 |       
|                                         | Purchased copper                      |                        |       |           |        |               |      | 418.4        |   |      |       |      |   |  |        | 461.2   |       
|                                         |                                       |                        |       |            |        |               |      |              |   |      |       |       |   |  |        |         |       
|                                         | Total copper sales                    |                        |       |           |        |               |      | 421.3        |   |      |       |      |   |  |        | 1,632.0 |       
|                                         |                                       |                        |       |            |        |               |      |              |   |      |       |       |   |  |        |         |       
|Molybdenum production (thousand pounds): |                                       |                        |       |            |        |               |      |              |   |      |       |       |   |  |        |        
|                                         | Primary
- Henderson                   |                        |       | 18,603     |        |               |      |             |   |      |       |      |   |  |        | 18,603  |       
|                                         | By-product                            |                        |       | 36,912     |        |               |      |             |   |      |       |      |   |  |        | 36,912  |       
|                                         |                                       |                        |       |            |        |               |      |              |   |      |       |       |   |  |        |         |       
|                                         |                                       | Total production       |       |            | 55,515 |               |      |              |  |      |       |       |  |  |        |         | 55,515 | 
|                                         |                                       |                        |       |            |        |               |      |              |   |      |       |       |   |  |        |         |       
|                                         | Less minority participants shares    |                        |       | (50        | )      |               |      |              |   |      |       |       |   |  |        | (50     | )     
|                                         |                                       |                        |       |            |        |               |      |              |   |      |       |       |   |  |        |         |       
|                                         | Net Phelps Dodge share from own mines |                        |       | 55,465     |        |               |      |             |   |      |       |      |   |  |        | 55,465  |       
|                                         |                                       |                        |       |            |        |               |      |              |   |      |       |       |   |  |        |         |       
|Molybdenum sales (thousand pounds):      |                                       |                        |       |            |        |               |      |              |   |      |       |       |   |  |        |        
|                                         | Net Phelps Dodge share from own mines |                        |       | 55,105     |        |               |      |             |   |      |       |      |   |  |        | 55,105  |       
|                                         | Purchased molybdenum                  |                        |       | 1,609      |        |               |      |             |   |      |       |      |   |  |        | 1,609   |       
|                                         |                                       |                        |       |            |        |               |      |              |   |      |       |       |   |  |        |         |       
|                                         |                                       | Total molybdenum sales |       |            | 56,714 |               |      |              |  |      |       |       |  |  |        |         | 56,714 | 
|                                         |                                       |                        |       |            |        |               |      |              |   |      |       |       |   |  |        |         |       
|($ in millions)                          |                                       |                        |       |            |        |               |      |              |   |      |       |       |   |  |        |        
|Operating income (loss)                  |                                       | $                      | (11.7 | )          |        |               | 14.2 |              |   |      | (56.1 | )     |   |  | (83.6  | )      
|Special items and provisions             |                                       | $                      | (0.6  | )          |        |               | (6.9 | )            |   |      | 22.3  |       |   |  | (2.1   | )      

Refer to segment discussion on pages 74 through 82.

Revenues, operating costs and expenses of PDMCs segments include allocations that may not be reflective
of market conditions. Additionally, certain costs are not allocated to the reportable segments.
(Refer to pages 74 and 75 for further discussion.)





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##### Table of Contents



- 73 -

PDMC RESULTS BY REPORTABLE SEGMENTS

|                                         |                                       |                        |      |            |        |               |      |              |   |      |       |       |   |  |       |         |        | 
|---------------------------------------- | ------------------------------------- | ---------------------- | ---- | ---------- | ------ | ------------- | ---- | ------------ | - | ---- | ----- | ----- | - |  | ----- | ------- | ------ | 
|                                         |                                       |                        |      | Primary    |        | Manufacturing |      |              |   |      |       | Total
|                                         |                                       |                        |      | Molybdenum |        | and Sales     |      | Other Mining |   | PDMC
|                                         |                                       |                        |      |            |        |               |      |              |   |     
|2000                                     |                                       |                        |      |            |        |               |      |              |   |      |       |       |   |  |       |        
|Copper production (thousand short tons): |                                       |                        |      |            |        |               |      |              |   |      |       |       |   |  |       |        
|                                         | Total production                      |                        |      |           |        |               |      | 1.2          |   |      |       |      |   |  |       | 1,459.0 |       
|                                         | Less minority participants shares    |                        |      |           |        |               |      | 0.5          |   |      |       |      |   |  |       | (258.7  | )     
|                                         |                                       |                        |      |            |        |               |      |              |   |      |       |       |   |  |       |         |       
|                                         | Net Phelps Dodge share                |                        |      |           |        |               |      | 1.7          |   |      |       |      |   |  |       | 1,200.3 |       
|                                         |                                       |                        |      |            |        |               |      |              |   |      |       |       |   |  |       |         |       
|Copper sales (thousand short tons):      |                                       |                        |      |            |        |               |      |              |   |      |       |       |   |  |       |        
|                                         | Net Phelps Dodge share from own mines |                        |      |           |        |               |      | 1.8          |   |      |       |      |   |  |       | 1,200.6 |       
|                                         | Purchased copper                      |                        |      |           |        |               |      | 490.0        |   |      |       |      |   |  |       | 495.0   |       
|                                         |                                       |                        |      |            |        |               |      |              |   |      |       |       |   |  |       |         |       
|                                         | Total copper sales                    |                        |      |           |        |               |      | 491.8        |   |      |       |      |   |  |       | 1,695.6 |       
|                                         |                                       |                        |      |            |        |               |      |              |   |      |       |       |   |  |       |         |       
|Molybdenum production (thousand pounds): |                                       |                        |      |            |        |               |      |              |   |      |       |       |   |  |       |        
|                                         | Primary
- Henderson                   |                        |      | 19,727     |        |               |      |             |   |      |       |      |   |  |       | 19,727  |       
|                                         | By-product                            |                        |      | 31,751     |        |               |      |             |   |      |       |      |   |  |       | 31,751  |       
|                                         |                                       |                        |      |            |        |               |      |              |   |      |       |       |   |  |       |         |       
|                                         |                                       | Total production       |      |            | 51,478 |               |      |              |  |      |       |       |  |  |       |         | 51,478 | 
|                                         |                                       |                        |      |            |        |               |      |              |   |      |       |       |   |  |       |         |       
|                                         | Less minority participants shares    |                        |      | (419       | )      |               |      |             |   |      |       |      |   |  |       | (419    | )     
|                                         |                                       |                        |      |            |        |               |      |              |   |      |       |       |   |  |       |         |       
|                                         | Net Phelps Dodge share from own mines |                        |      | 51,059     |        |               |      |             |   |      |       |      |   |  |       | 51,059  |       
|                                         |                                       |                        |      |            |        |               |      |              |   |      |       |       |   |  |       |         |       
|Molybdenum sales (thousand pounds):      |                                       |                        |      |            |        |               |      |              |   |      |       |       |   |  |       |        
|                                         | Net Phelps Dodge share from own mines |                        |      | 57,988     |        |               |      |             |   |      |       |      |   |  |       | 57,988  |       
|                                         | Purchased molybdenum                  |                        |      |           |        |               |      |             |   |      |       |      |   |  |       |        |       
|                                         |                                       |                        |      |            |        |               |      |              |   |      |       |       |   |  |       |         |       
|                                         |                                       | Total molybdenum sales |      |            | 57,988 |               |      |              |  |      |       |       |  |  |       |         | 57,988 | 
|                                         |                                       |                        |      |            |        |               |      |              |   |      |       |       |   |  |       |         |       
|($ in millions)                          |                                       |                        |      |            |        |               |      |              |   |      |       |       |   |  |       |        
|Operating income (loss)                  |                                       | $                      | (8.9 | )          |        |               | 47.8 |              |   |      | (66.4 | )     |   |  | 276.0 |        
|Special items and provisions             |                                       | $                      | (4.3 | )          |        |               |     |              |   |      |      |       |   |  | (5.8  | )      

Refer to segment discussion on pages 74 through 82.

Revenues, operating costs and expenses of PDMCs segments include allocations
that may not be reflective of market conditions. Additionally, certain costs
are not allocated to the reportable segments. (Refer to pages 74 and 75 for further discussion.)





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##### Table of Contents



- 74 -

Sales of Copper (U.S. and South America) and Molybdenum

The U.S. mines transfer their copper production to the Manufacturing and
Sales segment of PDMC. Intersegment revenues of the individual U.S. mines
represent an internal allocation based on PDMCs sales to unaffiliated
customers. Therefore, the following discussion and analysis combines the U.S.
Mines and Other Mining segments with the Manufacturing and Sales segment.
Additionally, the South American Mines sold approximately 40 to 45 percent of
their copper to the Manufacturing and Sales segment in 2002, 2001 and 2000.
Intersegment sales by the South American Mines are based upon arms-length
prices at the time of the sale. Intersegment sales of any individual mine may
not be reflective of the actual prices PDMC ultimately receives due to a
variety of factors including additional processing, timing of sales to
unaffiliated customers, and transportation premiums. These sales are reflected
in the Manufacturing and Sales segment.

|                        |                          |      |         |         |   |      |         |         |   |  |         |         |  
|----------------------- | ------------------------ | ---- | ------- | ------- | - | ---- | ------- | ------- | - |  | ------- | ------- | -
|($ in millions)         |                          | 2002 |         | 2001    |   | 2000
|                        |                          |      |         |         |   |     
|U.S. Mining Operations* |                          |      |         |         |   |      |         |         |   |  |         |        
|                        | Unaffiliated customers   |      | $       | 1,844.3 |   |      |         | 2,070.0 |   |  |         | 2,495.1 |  
|                        | Intersegment elimination |      |         | (289.8  | ) |      |         | (233.7  | ) |  |         | (264.0  | )
|                        |                          |      |         |         |   |      |         |         |   |  |         |         |  
|                        |                          |      | 1,554.5 |         |   |      | 1,836.3 |         |   |  | 2,231.1 |        
|                        |                          |      |         |         |   |      |         |         |   |  |         |         |  
|South
American Mines**  |                          |      |         |         |   |      |         |         |   |  |         |        
|                        | Unaffiliated customers   |      |         | 372.8   |   |      |         | 353.2   |   |  |         | 327.5   |  
|                        | Intersegment             |      |         | 289.8   |   |      |         | 233.7   |   |  |         | 264.0   |  
|                        |                          |      |         |         |   |      |         |         |   |  |         |         |  
|                        |                          |      | 662.6   |         |   |      | 586.9   |         |   |  | 591.5   |        
|                        |                          |      |         |         |   |      |         |         |   |  |         |         |  
|Primary Molybdenum      |                          |      |         |         |   |      |         |         |   |  |         |        
|                        | Unaffiliated customers   |      |         | 268.7   |   |      |         | 226.3   |   |  |         | 251.1   |  
|                        | Intersegment             |      |         |        |   |      |         |        |   |  |         |        |  
|                        |                          |      |         |         |   |      |         |         |   |  |         |         |  
|                        |                          |      | 268.7   |         |   |      | 226.3   |         |   |  | 251.1   |        
|                        |                          |      |         |         |   |      |         |         |   |  |         |         |  
|Total PDMC              |                          |      |         |         |   |      |         |         |   |  |         |        
|                        | Unaffiliated customers   |      | $       | 2,485.8 |   |      |         | 2,649.5 |   |  |         | 3,073.7 |  
|                        |                          |      |         |         |   |      |         |         |   |  |         |         |  



|*  |  | U.S. Mining Operations combines the following segments: Morenci,
Bagdad/Sierrita, Miami/Bisbee, Chino/Cobre, Tyrone, Manufacturing and
Sales, and Other Mining.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|** |  | South American Mines combines the following segments: Candelaria, Cerro
Verde and El Abra.                                                                     

U.S. Mines, Other Mines and Manufacturing and Sales Segments  Sales

Sales and other operating revenues to unaffiliated customers by U.S.
Mines, Other Mines and Manufacturing and Sales decreased $225.7 million, or 11
percent, in 2002, compared with 2001. This decrease was primarily due to lower
sales volumes of copper (approximately $220 million).

In 2001, the decrease of $425.1 million, or 17 percent, in sales and other
operating revenues to unaffiliated customers, compared with 2000, was primarily
due to lower average copper prices (approximately $379 million).

South
American Mines Segments - Sales

South American Mines sales and other operating revenues to unaffiliated
customers increased $19.6 million, or 6 percent, in 2002, compared with 2001.
This increase was primarily due to higher sales volumes of copper
(approximately $36 million) and higher precious metal sales (approximately $5
million), partially offset by lower copper realized prices (approximately $22
million).

In 2001,the increase of $25.7 million, or 8 percent, in sales and other
operating revenues to unaffiliated customers, compared with 2000, was primarily
due to higher sales volumes of copper (approximately $73 million), partially
offset by lower copper realized prices (approximately $34 million) and lower
precious metal sales (approximately $17 million).

Primary
Molybdenum Segment - Sales

Primary Molybdenum sales and other operating revenues to unaffiliated
customers increased $42.4 million, or 19 percent, in 2002, compared with 2001.
This increase was primarily due to higher average molybdenum prices
(approximately $50 million), partially offset by lower sales volumes of
molybdenum (approximately $10 million).

In 2001, the decrease of $24.8 million, or 10 percent, in sales and other
operating revenues, compared with 2000, to unaffiliated customers was primarily
due to lower average molybdenum prices (approximately $20 million) and lower
sales volumes of molybdenum (approximately $5 million).





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##### Table of Contents



- 75 -

Operating Income (Loss) for Copper (U.S. and South America) and Molybdenum

In addition to the allocation of revenues, management allocates certain
operating costs, expenses and capital of PDMCs segments that may not be
reflective of market conditions. We also do not allocate all costs and
expenses applicable to a mine or operation from the division or corporate
offices. Accordingly, the segment information reflects management
determinations that may not be indicative of actual financial performance of
each segment as if it was an independent entity.

|                        |            |   |        |       |      |             |        |       |   |  |       |       | 
|----------------------- | ---------- | - | ------ | ----- | ---- | ----------- | ------ | ----- | - |  | ----- | ----- | 
|                        |            |   | 2002   |       | 2001 |             | 2000  
|                        |            |   |        |       |      |             |       
|($ in millions)         |            |   |        |       |      | As Restated
|                        |            |   |        |       |      |            
|U.S. Mining Operations* |            | $ | (139.0 | )     |      |             | (129.2 | )     |   |  | 145.4 |      
|South American Mines**  |            |   | 65.4   |       |      |             | 57.3   |       |   |  | 139.5 |      
|Primary Molybdenum      |            |   | 8.6    |       |      |             | (11.7  | )     |   |  | (8.9  | )    
|                        |            |   |        |       |      |             |        |       |   |  |       |      
|                        | Total PDMC |   | $      | (65.0 | )    |             |        | (83.6 | ) |  |       | 276.0 | 
|                        |            |   |        |       |      |             |        |       |   |  |       |      



|*  |  | U.S. Mining Operations combines the following segments: Morenci,
Bagdad/Sierrita, Miami/Bisbee, Chino/Cobre, Tyrone, Manufacturing and
Sales, and Other Mining.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|** |  | South American Mines combines the following segments: Candelaria, Cerro
Verde and El Abra.                                                                     

U.S. Mining Operations  Operating Income (Loss)

U.S. Mining Operations reported an operating loss of $139.0 million
including a special, net pre-tax charge of $117.9 million in 2002, compared
with an operating loss of $129.2 million in 2001 including $1.5 million of
special, net pre-tax charges, and operating income of $145.4 million, including
a special, pre-tax charge of $1.5 million in 2000.

The increase in operating loss of $9.8 million for the year ended December
31, 2002, compared with 2001, primarily resulted from a 1 cent per pound lower
average copper price (approximately $12 million) and special, pre-tax charges
of $117.9 million compared with special, pre-tax charges of $1.5 million in
2001, mostly offset by lower cost of copper production, including exploration
expenses, (approximately $118 million) primarily due to Quest for Zero
improvements. The decrease in operating income of $274.6 million for 2001
compared with 2000 was due to an 11 cents per pound lower average copper price
(approximately $175 million), 123 million pounds of lower produced sales volume
(approximately $12 million), and higher cost of copper production, including
exploration expenses, (approximately $85 million) primarily due to higher
energy costs and higher depreciation.

Note: Supplemental Data

The following table summarizes U.S. Mining Operations special items for
2002, 2001 and 2000 and the resultant earnings (losses) excluding these special
items:

|                                                            |  |      |        |      |  |             |        |   |  |  |       |  
|----------------------------------------------------------- |  | ---- | ------ | ---- |  | ----------- | ------ | - |  |  | ----- | -
|                                                            |  | 2002 |        | 2001 |  | 2000       
|                                                            |  |      |        |      |  |            
|($ in millions)                                             |  |      |        |      |  | As Restated
|                                                            |  |      |        |      |  |            
|Special, pre-tax items                                      |  | $    | (117.9 | )    |  |             | (1.5   | ) |  |  | (1.5  | )
|Segment operating earnings
(losses) excluding special
items |  | $    | (21.1  | )    |  |             | (127.7 | ) |  |  | 146.9 |  

Note: Our non-GAAP measure of special items may not be comparable to similarly
titled measures reported by other companies.

In 2002, the special, net pre-tax charge was as follows: (i) a $115.5
million charge associated with an asset impairment at Cobre; (ii) a $19.9
million charge associated with an asset impairment at Hidalgo ($12.9 million)
and an associated accrual for closure costs ($7.0 million); (iii) an $18.1
million charge associated with an asset impairment at Ajo; (iv) a $1.6 million
charge for environmental provisions; (v) a $5.1 million pre-tax gain for the
reassessment of the October 2001 restructuring programs; (vi) a $6.4 million charge for
additional pension-related benefits for employees at our Chino, Miami, Sierrita
and Bagdad operations because these operations were expected to remain
curtailed beyond one year from their January 2002 curtailment; (vii) a $16.9
million gain, net of fees and expenses, from recoveries associated with
insurance settlements on historic environmental claims; and (viii) a $22.6
million gain on the sale of a non-core parcel of real estate in New Mexico.

In the 2001 fourth quarter, we announced a series of actions to address
the then-current economic environment, including changes in copper operations
that led to curtailment of certain facilities that would ultimately lead to the
reduction of approximately 220,000 metric tons of copper production annually
(including our partners share), approximately 14 million pounds of by-product
molybdenum annually, and the reduction of approximately 1,500 positions mostly
in January 2002, that resulted in a special, net charge of $17.1 million.
Because of the effect of production ramping down, we anticipated only 170,000
metric tons of curtailment to be realized in 2002.

The affected portions of these operations remain temporarily curtailed as
a result of the continued adverse economic environment. Overall copper
production from all operations varied in 2002 from our





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original estimates due largely to the following factors:



| |  |  | better than expected performance from the non-curtailed
portions of some of our operations; and           
| | - |  | ----------------------------------------------------------------------------------------------------------
|
| |  |  | improvements in efficiencies resulting from the Companys Quest
for Zeroprocess and mine planning actions.

Because of improvements in the portions of curtailed operations that
remained in production, and because a certain amount of ramp-down of the
curtailed production occurred during the year, actual curtailment of production
in 2002 was approximately 130,000 metric tons of copper.

We believe our curtailment plan allows us the flexibility to quickly
restart operations when copper market fundamentals experience a sustained
improvement.

During 2002, the physical curtailments that were announced in the 2001
fourth quarter were made as planned. The specific actions and resulting
production impact were as follows:



| |  |  | The Chino mining operation and smelter were temporarily
curtailed. These actions followed temporary suspension of the
concentrator operation in the second quarter of 2001. All of these
actions were taken due to continuing depressed copper market
conditions and the need to balance smelter feed and sulfuric acid
production and consumption.                                                                                                                                                                          
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |   |  | All of these facilities remained curtailed through 2002. As planned,
Chinos SX/EW operations continued producing copper through leaching of
existing stockpiles. The production from these stockpiles was expected
to decline steadily during 2002, ultimately resulting in a predicted
reduction in copper production. However, higher-than-expected leach
extraction from these stockpiles and operational improvements through
the Companys Quest for Zeroprocess resulted in higher production than
had been predicted.
|
| |  |  | The Miami mine and refinery were temporarily curtailed. These
actions were taken due to continuing depressed copper market
conditions, to balance sulfuric acid consumption, and to balance
refinery feed within PDMC.                                                                                                                                                                                                                                                                                                       
|
| |   |  | All of these facilities remained suspended throughout 2002. The Miami
SX/EW operations continued producing copper in 2002 and, by year-end,
produced approximately 10,000 tons of copper above what was anticipated
in the curtailment plan.                                                                                                                                                                                                                                                                                 
|
| |  |  | The Bagdad concentrator operation was reduced to one-half
capacity. The Bagdad mining operation was also reduced to a level
that provided adequate ore to the reduced concentrator operation.
Bagdads SX/EW operations continued normally.                                                                                                                                                                                                                                                                                  
|
| |   |  | These physical reductions continued through 2002. Concentrator
throughput was adjusted periodically during the year to balance
concentrate requirements at our Miami smelting operation, which
continued to produce normally. Production from Bagdad was unexpectedly
higher than predicted due to:                                                                                                                                                                                                                          
|
| |   |  | 1. normal variation in mine plans that resulted in higher
average ore grade; and                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |   |  | 2. Quest for Zeroimprovements that resulted in improved
milling efficiency and improved copper recovery in flotation.                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  |  | The Sierrita concentrator operation was reduced to one-half
capacity. The Sierrita mining operation also was reduced to a level
that provided adequate ore to the reduced concentrator operation.
Sierritas SX/EW operations continued normally.                                                                                                                                                                                                                                                                            
|
| |   |  | These physical reductions continued through 2002. Copper production
from Sierrita was unexpectedly higher than predicted due to:                                                                                                                                                                                                                                                                                                                                                                                             
|
| |   |  | 1. normal variation in mine plans that resulted in higher
average ore grade; and                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |   |  | 2. Quest for Zeroimprovements that resulted in improved milling
efficiency and improved copper recovery in flotation.                                                                                                                                                                                                                                                                                                                                                                                                        





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##### Table of Contents



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The following table provides curtailment rationale and other details for
temporary curtailments taken in 2001 at our U.S. copper mines:

|                                              |  |                  |  |                |                                               |                   |  |                                               |     |                                                                                                                                                                           |  |                                                                                                                              
|--------------------------------------------- |  | ---------------- |  | -------------- | --------------------------------------------- | ----------------- |  | --------------------------------------------- | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------
|                                              |  |                  |  | Approximate    |                                               |                   |  |                                               |     |                                                                                                                                                                          
|                                              |  |                  |  | Annual Copper  |                                               | Approximate       |  |                                              
|                                              |  | Date of          |  | Production     |                                               | Production        |  |                                              
|                                              |  | Announced        |  | Reduction      |                                               | Reduction in 2002 |  |                                              
|Affected Facility                             |  | Curtailment      |  | (million lbs.) |                                               | (million lbs.)    |  | Reason for Reduction                         
|                                              |  |                  |  |                |                                               |                   |  |                                              
|Chino, New Mexico
 Mine
 Smelter            |  | October 23, 2001 |  |                | 150                                           |                   |  |                                               | 45  |                                                                                                                                                                           |  |  High worldwide copper
inventory
 Balance smelter feed and
sulfuric acid
supply                                            
|                                             
|Miami, Arizona
 Mine
 Refinery              |  | October 23, 2001 |  |                | 100                                           |                   |  |                                               | 61  |                                                                                                                                                                           |  |  High worldwide copper
inventory
 Balance sulfuric acid
production andconsumption
 Balance anode production andconsumption
|                                             
|Bagdad, Arizona
 Mine
 Concentrator (50%)   |  | October 23, 2001 |  |                | 140(plus 7 million
lbs. molybdenum)           |                   |  | 89(plus 4 million
lbs. molybdenum)            |     |  High worldwide copper
inventory
 Molybdenum market conditions,
including the overall
molybdenummarket supply-demand
fundamentals,inventory levels
and published prices
|                                             
|Sierrita, Arizona
 Mine
 Concentrator (50%) |  | October 23, 2001 |  |                | 100(plus 7 million
lbs. molybdenum)           |                   |  | 88(plus 8 million
lbs. molybdenum)            |     |  High worldwide copper
inventory
 Molybdenum market conditions,
including the overall
molybdenummarket supply-demand
fundamentals,inventory levels
and published prices
|                                             
|Chino, New Mexico
 Mine
 Concentrator       |  | March 26, 2001   |  |                | 136                                           |                   |  |                                               | 150 |                                                                                                                                                                           |  |  Economic outlook, copper
price andpower
availability                                                                       
|                                             
|Tyrone,
New Mexico
 Mine                     |  | March 26, 2001   |  |                | Short-term
sequential
production
curtailments |                   |  | Short-term
sequential
production
curtailments |     |  Allocation of economic
electricalenergy across
enterprise                                                                                                              
|                                              |  |                  |  |                |                                               |                   |  |                                               |     |                                                                                                                                                                           |  |                                                                                                                              
|Bagdad, Arizona
 Mine
 Concentrator         |  | March 26, 2001   |  |                | Short-term sequential
production
curtailments |                   |  | Short-term sequential
production
curtailments |     |  Allocation of economic
electricalenergy across
enterprise                                                                                                              
|                                              |  |                  |  |                |                                               |                   |  |                                               |     |                                                                                                                                                                           |  |                                                                                                                              
|Sierrita, Arizona
 Mine
 Concentrator       |  | March 26, 2001   |  |                | Short-term sequential
production
curtailments |                   |  | Short-term sequential
production
curtailments |     |  Allocation of economic
electricalenergy across
enterprise                                                                                                              

Any decision to recommence full operations at these sites will depend on
several factors including then-prevailing copper prices, managements
assessment of copper market fundamentals and its estimates of future copper
price trends and the extent to which any such new production is necessary for
the efficient integration of the Companys other copper-producing operations at
that time. Managements assessment of copper market fundamentals will reflect
its judgment about future global economic activity and demand, and its
estimates of the likelihood and timing of curtailed or new projects of competitors being brought back into
production. While there is no single copper price threshold that would
necessarily trigger the recommencement of full operations at any of these
sites, management does not expect to recommence operations until there has been
a significant improvement in copper market fundamentals or a production
integration inefficiency that could be alleviated by such recommencement.

Additionally in 2001, Phelps Dodge announced in the second quarter a
restructuring of our professional, administrative and operations support
functions, as well as various other operational improvements that resulted in a
net charge of $9.4 million. In the fourth quarter, a $14.9 million charge was
recognized for environmental provisions for closed facilities and closed
portions of operating facilities and a $39.9 million gain from the sale of our
50 percent interest in a copper project in Brazil.

During 2000, our Miami, Arizona, copper mine reduced its mining
activities. The new mine plan temporarily suspended stripping in a higher cost
portion of the mine and has allowed the redistribution of a variety of mining
equipment, including shovels and haul





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trucks, to other PDMC operations to
reduce overall capital expenditures. The reduction of mining activities
resulted in a special, pre-tax charge of $1.5 million for severance and other
related costs.

We have approximately 760 million pounds of annual copper production
capacity (100 percent basis) that could be brought to the market with minimal
lead-time (715 million pounds in the United States and 45 million pounds
internationally). This curtailed capacity is located at eight of our mine
sites, all with existing infrastructures. Approximately 665 million pounds of
this curtailed annual capacity is located at our active mine sites and
approximately 95 million pounds is located at inactive sites (50 million at
Cobre and 45 million at Ojos del Salado).

We had previously estimated our turn-up capacity to be approximately 1
billion pounds. Due to several factors, we have reduced this estimate of
turn-up capacity to approximately 760 million pounds. These factors include:



| |  | Quest for Zeroprojects which have improved the extraction of copper
from existing leach stockpiles and from those properties operating at
reduced rate. Because this additional copper production uses a
portion of the production facilities, less net turn-up capacity is
available.                                                                                                                                                                                                                                                                                                      
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | We changed our long-term copper price assumption to 90 cents per pound
from 93 cents per pound, resulting in a revision to near-term mine
plans and marginally decreasing the ultimate production rate at some
properties.                                                                                                                                                                                                                                                                                                                                                                  
| 
| |  | A significant amount of mining equipment has recently been transferred
from curtailed properties to support our active mining operations.
Bringing the curtailed operations back into production will require
the replacement of some of this equipment. The restarted production
must justify this replacement capital expenditure. This decreases the
quantity of production that can be re-established with our current
economic criteria. Capital expenditures and associated start-up
expenses could approach $100 million depending on the timing and
configuration of the operations.

Other steps necessary to recommence operations include such actions as
assembling an appropriate labor force, preparation and set-up of idle
equipment, restocking consumables and similar activities. We believe each of
the curtailed facilities could be brought into production within a few months
to a year depending on the status of applicable environmental permitting.

The following table summarizes the approximate curtailed annual production
as of December 31, 2002, by property:

|                      |                  |                     |                               |     | 
|--------------------- | ---------------- | ------------------- | ----------------------------- | --- | 
|                      |                  |                     | Approximate Curtailed        
|                      |                  |                     | Copper Production            
|                      |                  |                     | Capacity at December 31, 2002
|Property              |                  | (in million pounds)
|                      |                  |                    
|U.S. Mines:           |                  |                     |                               |    
|Morenci               |                  |                     | 150                           |    
|Tyrone                |                  |                     | 30                            |    
|Sierrita              |                  |                     | 80                            |    
|Bagdad                |                  |                     | 100                           |    
|Chino                 |                  |                     | 195                           |    
|Miami                 |                  |                     | 110                           |    
|Cobre                 |                  |                     | 50                            |    
|                      |                  |                     |                               |    
|                      | Total U.S. Mines |                     |                               | 715 | 
|                      |                  |                     |                               |    
|South American Mines: |                  |                     |                               |    
|Ojos del Salado       |                  |                     | 45                            |    
|                      |                  |                     |                               |    
|                      | Total PDMC       |                     |                               | 760 | 
|                      |                  |                     |                               |    

We have additional sources of copper that could be developed; however,
this would require the development of greenfield projects or major brownfield
expansions that would involve much greater capital expenditures and far
longer lead-times than would be the case for facilities on
care-and-maintenance status. The capital expenditures required to develop such
additional production capacity include the costs of necessary infrastructure
and would be substantial. In addition, significant lead-time would be required
for permitting and construction.

The Company bases its decisions to curtail production on a variety of
factors. We may temporarily curtail production in response to external,
macro-level factors such as currently prevailing and projected global copper
production and demand, and the magnitude and trend of world copper inventories.
We may simply prefer to avoid depleting valuable, finite ore reserves
unnecessarily during periods of potentially low margins despite the fact that
cash flow and/or earnings may be positive at the time. The lead times involved
in curtailing and restarting open-pit copper mines are such that careful
consideration must be given to long-term planning rather than immediate
reaction to price fluctuations.

Our decisions concerning curtailment of mining operations also take into
account molybdenum market conditions at appropriate locations. This includes
the overall molybdenum market supply-demand fundamentals, inventory levels and
published prices.

We also may adjust production at various properties in response to
internal, micro-level factors





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such as the need to balance smelter feed or an
internal shortage of sulfuric acid for our leaching operations. In other
cases, facilities may be temporarily curtailed as a result of changes in
technology that may make one technology, at a given copper price, more
attractive than another technology. Unique regional issues, such as the energy
crisis in the southwestern United States in 2000 and 2001, also may result in
temporary curtailments.

The 2002 exploration program continued to place emphasis on the search for
and delineation of large-scale copper, and copper and gold deposits. Phelps
Dodge expended $20.0 million on worldwide exploration during 2002, compared
with $36.8 million in 2001 and $39.7 million in 2000. Approximately 33 percent
of the 2002 expenditures occurred in the United States and 31 percent was spent
at both our domestic and international mine sites. The balance of exploration
expenditures was spent principally in Central Africa, Chile, Mexico, Europe,
Peru and Australasia.

Morenci Segment  Operating Income (Loss)

The Morenci open-pit mine, located in southeastern Arizona, primarily
produces electrowon copper cathodes. We own an 85 percent interest in Morenci
and apply the proportional consolidation method of accounting. Copper sales in
2002 totaled 350,800 tons, compared with 333,000 and 354,400 tons in 2001 and
2000, respectively. Phelps Dodges share of copper production in 2002 totaled
350,800 tons, compared with 332,800 and 354,500 tons in 2001 and 2000,
respectively. Operating income of $24.1 million in 2002 increased $86.0
million compared with 2001, primarily due to lower cost of copper production
(approximately $87 million); partially offset by lower average copper prices
(approximately $6 million). An operating loss of $61.9 million in 2001
decreased by $143.6 million compared with 2000, primarily due to lower average
copper prices (approximately $76 million), higher cost of copper production
(approximately $56 million) and lower copper sales volumes (approximately $5
million).

Bagdad/Sierrita Segment  Operating Income (Loss)

Our wholly owned Bagdad and Sierrita open-pit mines, located in northwest
Arizona and near Green Valley, Arizona, respectively, mine copper sulfide and
oxide ores. They produce copper and molybdenum concentrates. Copper sales in
2002 totaled 176,100 tons, compared with 258,000 and 245,700 tons in 2001 and
2000, respectively. Additionally, copper production decreased in 2002 to
160,200 tons from 249,500 and 245,700 tons in 2001 and 2000, respectively. The
2002 decreases resulted from the previously mentioned curtailments. The 2002
operating income of $20.2 million in 2002 increased $8.7 million compared with
2001, primarily due to lower pre-tax special charges of $7.2 million.
Operating income of $11.5 million in 2001 decreased $41.9 million compared with
2000, primarily due to lower average copper prices (approximately $59 million)
and higher special charges of $6.9 million; partially offset by improved cost
of copper production (approximately $25 million).

Miami/Bisbee Segment  Operating Income (Loss)

Our wholly owned Miami open-pit mine, located in Miami, Arizona, produces
electrowon copper cathode. The Bisbee precipitation operation is located in
Arizona. Copper sales in 2002 totaled 15,300 tons, compared with 46,900 and
59,300 tons in 2001 and 2000, respectively. Additionally, copper production
decreased in 2002 to 10,600 tons
from 44,300 and 59,400 tons in 2001 and 2000, respectively. The 2002
decreases resulted from the previously mentioned curtailments. The 2002
operating loss of $15.6 million increased $10.5 million compared with 2001,
primarily due to higher shutdown costs (approximately $12 million). The 2001
operating loss of $5.1 million increased $20.8 million compared with 2000,
primarily due to lower average copper prices (approximately $11 million) and
higher cost of copper production (approximately $9 million).

Chino/Cobre Segment  Operating Income (Loss)

The Chino open-pit mine, located near Silver City, New Mexico, primarily
mines copper sulfide and oxide ores. We own a two-thirds partnership interest
in Chino and apply the proportional consolidation method of accounting. Our
wholly owned Cobre mine which is adjacent to the Chino mine is on
care-and-maintenance status. Copper sales in 2002 totaled 35,800 tons,
compared with 52,100 and 90,400 tons in 2001 and 2000, respectively.
Additionally, Phelps Dodges share of copper production decreased in 2002 to
35,900 tons from 52,100 and 90,400 tons in 2001 and 2000, respectively. The
2002 decreases resulted from the previously mentioned curtailments. The 2002
operating loss of $110.4 million increased $94.9 million compared with 2001,
primarily due to the net pre-tax charge of $115.5 million associated with the
previously mentioned asset impairment at Cobre; partially offset by improved
cost of copper production (approximately $22 million). The 2001 operating loss
of $15.5 million increased $25.2 million compared with 2000, primarily due to
lower average copper prices (approximately $12 million), higher cost of
copper production (approximately $11 million) and lower copper sales volumes
(approximately $6 million).





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- 80 -

Tyrone Segment  Operating Income (Loss)

Our wholly owned Tyrone open-pit mine, located near Tyrone, New Mexico,
primarily mines copper oxide ore. It produces electrowon copper cathode.
Copper sales in 2002 totaled 69,900 tons, compared with 76,400 and 79,200 tons
in 2001 and 2000, respectively. Additionally, copper production decreased in
2002 to 69,900 tons from 76,400 and 79,300 tons in 2001 and 2000, respectively.
The 2002 operating income of $1.6 million increased $17.9 million compared
with 2001, due to lower cost of copper production (approximately $15 million).
The 2001 operating loss of $16.3 million increased $19.8 million compared with
2000 operating income of $3.5 million, primarily due to lower average copper
price (approximately $17 million); partially offset by lower cost of copper
production (approximately $1 million).

South American Mines  Operating Income

South American Mines reported operating income in 2002 of $65.4 million,
compared with operating income of $57.3 million in 2001 and $139.5 million in
2000.

The increase in operating income of $8.1 million in 2002 compared with
2001, primarily resulted from a lower cost of copper production (approximately
$14 million); partially offset by a 1 cent per pound lower average copper price
(approximately $7 million).

The decrease in operating income of $82.2 million in 2001 compared with
2000, primarily resulted from a 10 cents per pound lower average copper price
(approximately $84 million).

See U.S. Mining Operations  Operating Income (Loss) for a discussion of
curtailed production, factors influencing the decision to recommence full
operations and the principal steps necessary to recommence such operations.

Candelaria Segment  Operating Income

The Candelaria open-pit mine is located near Copiapó in northern Chile and
produces copper concentrates. We own an 80 percent partnership interest in
Candelaria, a Chilean contractual mining company, and we apply the proportional
consolidation method of accounting. Copper sales in 2002 totaled 210,400 tons,
compared with 227,100 and 186,500 tons in 2001 and 2000, respectively.
Additionally, Phelps Dodges share of copper production decreased in 2002 to
175,600 tons from 194,600 and 179,700 tons in 2001 and 2000, respectively.
Operating income of $47.6 million in 2002 decreased $2.4 million compared with 2001,
primarily due to lower copper sales volumes (approximately $4 million), higher
cost of copper production (approximately $5 million); partially offset by
higher net concentrate selling prices (approximately $8 million). Operating
income of $50.0 million in 2001 decreased $28.3 million compared with 2000,
primarily due to lower average copper prices (approximately $40 million);
partially offset by lower cost of copper production (approximately $13 million)
and higher copper sales volumes (approximately $4 million).

Cerro Verde Segment  Operating Income

The Cerro Verde open-pit mine, located near Arequipa, Peru, produces
copper cathode. We own approximately 82 percent of the common stock of Cerro
Verde, which we fully consolidate and show the minority interest. Copper sales
in 2002 totaled 94,900 tons, compared with 84,700 and 78,800 tons in 2001 and
2000, respectively. Additionally, copper production increased in 2002 to
95,300 tons from 84,900 and 78,700 tons in 2001 and 2000, respectively. The
2002 operating income of $24.8 million increased $23.0 million from 2001,
primarily due to lower cost of copper production (approximately $21 million).
The 2001 operating income of $1.8 million decreased $17.8 million compared with
2000, primarily due to lower average copper prices (approximately $18 million)
and higher cost of copper production (approximately $1 million).

El Abra Segment  Operating Income (Loss)

The El Abra open-pit mine is located in northern Chile and produces copper
cathodes. We own a 51 percent partnership interest in El Abra, a Chilean
contractual mining company, and we apply the proportional consolidation method
of accounting. The remaining 49 percent interest is owned by Corporación
Nacional del Cobre de Chile (CODELCO), a Chilean state-owned company. El Abra
completed its $70 million project (including our partners share) to leach
uncrushed run-of-mine (ROM) material in December 2001, and started ROM
production in January 2002. ROM allows El Abra to maintain tank house design
capacity. During 2002, El Abra produced approximately 14 percent of its total
production from ROM, establishing a new production record. Copper sales in
2002 totaled 186,100 tons, compared with 132,500 and 109,500 tons in 2001 and
2000, respectively. Additionally, Phelps Dodges share of copper production
slightly increased in 2002 to 126,500 tons from 122,300 and 110,900 tons in
2001 and 2000, respectively. The 2002 operating loss of $7.0 million increased
$12.5 million from 2001, primarily due to higher cost of copper production
(approximately $8 million). The 2001 operating income of $5.5 million
decreased $36.1 million compared with 2000, primarily due to lower average
copper prices (approximately $26 million), higher cost of copper production
(approxi-





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- 81 -

mately $10 million); partially offset by higher copper sales volumes
(approximately $6 million).

El Abras financial performance has been hampered in recent years by low
copper prices and high debt service burden, resulting in cash shortfalls of
approximately $60 million in 2002 and $70 million in 2001 that were covered by
subordinated loans from Phelps Dodge and CODELCO. Payments of scheduled
long-term debt for 2002 totaled approximately $105 million (divided into
semi-annual payments due in May and November).

Primary Molybdenum  Operating Income (Loss)

Primary Molybdenum includes our wholly owned Henderson and Climax
molybdenum mines in Colorado and conversion facilities in the United States and
Europe. Henderson produces high-purity, chemical-grade molybdenum concentrates
which is further processed into value-added molybdenum chemical products.

Primary Molybdenum operations reported operating income in 2002 of $8.6
million including a special, net pre-tax gain of $1.0 million, compared with an
operating loss of $11.7 million in 2001 including $0.6 million of special, net
pre-tax charges, and an operating loss in 2000 of $8.9 million, including a
special, pre-tax charge of $4.3 million. The 2002 increase in operating income
of $20.3 million compared with 2001, primarily was due to higher average
molybdenum prices (approximately $50 million) and lower primary molybdenum
costs ($12 million); partially offset by higher costs of purchased molybdenum
($32 million) and lower sales volumes of molybdenum (approximately $10
million). The operating loss in 2001 increased $2.8 million compared with
2000, due to lower average molybdenum prices (approximately $20 million), lower
sales volumes of molybdenum (approximately $5 million) and higher costs of
purchased molybdenum ($6 million); partially offset by lower primary molybdenum
costs ($18 million), a lower of cost or market inventory adjustment in 2000 ($7
million) and lower special charges of $3.7 million.

Note: Supplemental Data

The following table summarizes Primary Molybdenums special items for
2002, 2001 and 2000 and the resultant earnings (losses) excluding these special
items:

|                                                            |  |      |     |      |  |             |       |   |  |  |      |  
|----------------------------------------------------------- |  | ---- | --- | ---- |  | ----------- | ----- | - |  |  | ---- | -
|                                                            |  | 2002 |     | 2001 |  | 2000       
|                                                            |  |      |     |      |  |            
|($ in millions)                                             |  |      |     |      |  | As Restated
|                                                            |  |      |     |      |  |            
|Special, pre-tax items                                      |  | $    | 1.0 |      |  |             | (0.6  | ) |  |  | (4.3 | )
|Segment operating earnings
(losses) excluding special
items |  | $    | 7.6 |      |  |             | (11.1 | ) |  |  | (4.6 | )

Note: Our non-GAAP measure of special items may not be comparable to similarly
titled measures reported by other companies.





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- 82 -

The following table provides curtailment rationale and other details for
temporary curtailments taken in 2000 at our primary molybdenum operations (see
U.S. Mining Operations  Operating Income for a discussion of by-product
molybdenum production curtailments):

|                           |  |             |  |                   |   |                   |  |                      |   |  |  |                                                                                                                                            
|-------------------------- |  | ----------- |  | ----------------- | - | ----------------- |  | -------------------- | - |  |  | -------------------------------------------------------------------------------------------------------------------------------------------
|                           |  |             |  | Approximate       |   |                   |  |                      |   | 
|                           |  |             |  | Annual Molybdenum |   | Approximate       |  |                     
|                           |  | Date of     |  | Production        |   | Production        |  |                     
|                           |  | Announced   |  | Reduction         |   | Reduction in 2002 |  |                     
|Affected Facility          |  | Curtailment |  | (million lbs.)    |   | (million lbs.)    |  | Reason for Reduction
|                           |  |             |  |                   |   |                   |  |                     
|Henderson, Colorado
 Mine |  | May 8, 2000 |  |                   | 5 |                   |  |                      | 3 |  |  |   Molybdenum market
conditions,
including the
overall molybdenum
market
supply-demand
fundamentals,
inventory levels and
published prices.

The molybdenum market is generally characterized by cyclical and volatile
prices, little product differentiation and strong competition. The Platts
Metals Weekmolybdenum technical grade (dealer oxide) mean price averaged $3.77
per pound in 2002, compared with $2.36 and $2.56 per pound in 2001 and 2000,
respectively. Prices for chemical products are generally less directly based
on the previously noted reference prices. Prices are influenced by production
costs of domestic and foreign competitors, worldwide economic conditions, world
supply/demand balances, inventory levels, the U.S. dollar exchange rate and
other factors. Molybdenum prices also are affected by the demand for end-use
products in, for example, the construction, transportation and durable goods
markets. A substantial portion of world molybdenum production is a by-product
of copper mining, which is relatively insensitive to molybdenum price levels.
China exports quantities of molybdenum that represent a significant portion of
world consumption. China also imports quantities of molybdenum but usually, we
believe, in quantities significantly less than it exports. Because of their
size, Chinas net exports can significantly affect the balance of supply and
demand, and pricing, in the world molybdenum market.

Our current annual molybdenum production is approximately 45 million
pounds (approximately 20 million pounds from primary mines and 25 million
pounds from by-product mines). Approximately 70 percent of our molybdenum
contracts are priced based on the average of the previous 30 days of published
prices (i.e., Platts Metals Week, Ryans Notes, or Metal Bulletin) for
molybdenum oxide, plus premiums. Accordingly, each $1.00 per pound change in
our average annual realized molybdenum price causes a variation in annual
operating income before taxes of approximately $32 million (subject to any
negotiated limitations in outstanding customer agreements).

PDMC - Other Matters

New Mexico Reclamation

Mining and smelting operations with leaching, tailing ponds, surface
impoundments and other discharging facilities in New Mexico are subject to
regulation under the New Mexico Water Quality Act and the Water Quality Control
Commission (WQCC) Regulations. The Chino, Cobre and Tyrone mines and the
Hidalgo smelter each have obtained multiple discharge permits for their
operations, which specify operational, monitoring and notification
requirements. These permits are issued for five-year terms and require renewal
following the end of each permit term. The WQCC Regulations authorize the New
Mexico Environment Department (NMED), which administers the discharge permit
program, to require the submission of closure plans showing how applicable
discharge permit requirements will be met following closure. Under certain
circumstances, NMED also may require submission and approval of abatement plans
to address the exceedance of applicable water quality standards.

Further, Chino, Cobre, Tyrone and Hidalgo must submit closure plans for
their operations. Hidalgo has an approved closure plan under its discharge
permit. The three mines have submitted closure plans, which have been combined
with closeout plans under the New Mexico Mining Act (NMMA), as discussed below.
The proposed closure plans currently are subject to approval by NMED as part
of separate discharge permits for closure for each of the three operations that
would supplement the existing discharge permits (hereinafter referred to as
closure permits). The proposed closure permits contain a number of permit
conditions that would modify the proposed closure plans. Chino Mines Company
and NMED reached agreement in December 2001 on proposed closure permit
conditions presented at a public hearing in February 2002. On January 23,
2003, NMEDs hearing officer issued a decision approving the closure permit as
proposed by NMED and Chino, with minor changes. NMED issued a permit
consistent





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with the hearing officers decision on February 24, 2003. An appeal
has been filed by a local environmental group. Phelps Dodge Tyrone, Inc. and
NMED were unable to reach agreement on permit terms before a public hearing
held in May 2002, and presented competing permit proposals. Other parties who
participated in the public hearing presented their own proposals. On March 7,
2003, Tyrone received the hearing officers decision on its permit, which
generally adopted NMEDs proposal. On April 2, 2003, Tyrone filed an appeal of
the hearing officers decision with the WQCC. NMED issued a permit in
accordance with the hearing officers decision on April 8, 2003, which Tyrone
also expects to appeal. Cobre Mining Company and NMED also have not reached
agreement on the terms of a closure permit. The closure permit for Cobre
Mining Company does not require a public hearing, and may be issued by NMED at
any time.

Chino, Cobre and Tyrone also are subject to permit requirements under
NMMA, which was passed in 1993. Following adoption of the New Mexico Mining
Act Rules (NMMAR) in 1994, Chino, Cobre and Tyrone received initial permits as
existing mining operations under NMMAR in 1997. These permits require
revisions to incorporate approved closeout plans, which consist of plans for
reclamation of the mining operations to achieve a self-sustaining ecosystem or
an approved post-mining land use following cessation of operations at a mine.
Existing mining operations may seek a waiver of these reclamation standards for
open pits and waste units based upon a demonstration that achieving these
standards is technically or economically infeasible or environmentally unsound,
as long as measures will be taken to meet air and water quality standards
following closure.

NMMAR originally required approval of a closeout plan for an existing
mining operation by December 31, 1999, based upon an extension granted by the
Director of the Mining and Minerals Division (MMD). NMMAR subsequently was
amended to extend the deadline for closeout plan approval until December 31,
2001, and later to October 1, 2002. NMMAR contains a requirement that NMED must
provide MMD with a determination that a closeout plan meets applicable
environmental standards, including air and water quality standards, before MMD
can approve the closeout plan. NMEDs policy is to issue this determination
after it has issued closure permits for the facility that submits the closeout
plan. In early 2001, Chino, Cobre and Tyrone submitted comprehensive
closure/closeout plans (CCPs) to both NMED and MMD intended to address the
requirements of both the WQCC Regulations and NMMAR. Approval of the CCPs
under NMMAR would require the granting of waivers by MMD as authorized under
NMMAR. The CCPs were the subject of the public hearings before NMED for Chino
and Tyrone, as discussed above.

As of October 1, 2002, NMED had not issued closure permits for Chino,
Cobre or Tyrone. Consequently, as of October 1, 2002, MMD had not approved
closeout permits for these three mines. MMD issued Notices of Violation (NOVs)
to Chino, Cobre and Tyrone because the three mines did not obtain approved
closeout plans by the October 1, 2002, deadline. The NOVs were modified by the
Mining Commission following a public hearing to set new deadlines for closeout
plan approval tied to NMED permit actions. Based on NMEDs permit actions,
closeout plan approval for Chino is now due by September 24, 2003, and the
closeout plan approval date for Tyrone should be about
April 8, 2004. The closeout plan approval deadline for Cobre will be nine
months from the date of NMEDs permit issuance, which is currently pending.

NMMAR contains specific requirements regarding financial assurance that
must be provided to MMD to assure that sufficient funds would be available to
MMD to carry out the closeout plan in the event of a default by the permittee.
NMED also may require financial assurance under the WQCC Regulations. The
financial assurance requirements are based upon the net present value of
estimated costs to carry out the requirements of the closure permit and the
approved closeout plan, assuming the state would hire a third-party contractor
to conduct the work. Actual reclamation costs may differ significantly from
the costs estimated under the permits due to advances in technology and
reclamation techniques and opportunities to prepare each site for more
efficient reclamation through careful development of the site over time.
Consequently, the estimated costs under the permits are higher than the cost
the Company would be expected to incur if the Company performed the work.

The CCPs submitted in early 2001 contained cost estimates of approximately
$100 million for Chino, $121 million for Tyrone, and $9 million for Cobre,
based upon unescalated and undiscounted capital and operating costs over a
30-year operating period. The closure permit negotiated by NMED and Chino
Mines Company and approved by the NMED hearing officer has an estimated cost of
approximately $391 million, based upon third-party unescalated and undiscounted
capital and operating costs over a 100-year operating period. This cost
estimate will be adjusted to include the cost of technical studies required
under the permit conditions after a cost estimate for those costs has been
approved by NMED. The Companys two-thirds share of NMEDs $391 million
estimate is approximately $261 million and our joint venture partners cost
share is approximately $130 million. We estimate total costs to achieve the
closure standards required by





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- 84 -

NMED to be approximately $261 million. The
Companys cost estimate to achieve the New Mexico closure standards is
approximately one-third lower than the financial assurance cost estimate as a
result of the Companys historical cost advantages, savings from the use of the
Companys own personnel and equipment versus third-party contract costs, and
opportunities to prepare the site for more efficient reclamation. The
financial assurance cost estimate includes approximately $10 million (100
percent basis) of costs the Company has recognized in environmental reserves.
The Companys two-thirds share of these costs is approximately $174 million and
our joint venture partners cost share is approximately $87 million. At
December 31, 2002 and 2001, we had accrued approximately $8 million and $5
million, respectively, (two-thirds basis) for reclamation at Chino. The NMED
cost estimate for Chino is subject to further review, and possible adjustment,
by MMD under NMMAR.

NMED estimated the cost to carry out the requirements of its proposed
closure permit for Tyrone at approximately $440 million, without discounting or
escalation, under NMEDs proposal at the May 2002 hearing; Tyrone estimated the
cost of its proposal at approximately $328 million, without discounting or
escalation over a 100-year operating period. NMED has not yet supplied its
proposed cost estimate for Cobre. The proposed terms of the closure permits
would require additional studies over the five-year term of the permits to
refine the closure plan. The plan requirements and cost estimates may increase
or decrease based upon the results of the studies and other factors, including
changes in technology, completion of some closure and reclamation work, and
inflation.

Based upon NMEDs undiscounted financial assurance cost estimates for the
Tyrone plan of approximately $440 million, and considering the same cost
advantages as indicated in the above discussion regarding Chino, we estimate
the Companys costs to achieve the closure standards under that estimate to be
approximately $288 million for Tyrone. The Company has not obtained approval
from NMED of an estimate of its cost to achieve the closure standards that
would be required by the hearing officers decision. The Companys current
cost estimate for Cobre of approximately $9 million will be updated with the
issuance of the discharge permit. At December 31, 2002 and 2001, we had
accrued closure costs of approximately $27 million and $8 million,
respectively, at Tyrone and approximately $2 million at Cobre.

Following NMEDs issuance of the closure permits, Chino, Cobre and Tyrone
are required to submit proposals for financial assurance based upon the permit
requirements and subject to NMEDs approval. Under the proposed closure permit
terms, the amount of financial assurance may be based upon the net present
value of the estimated cost for a third-party to implement the plan, using
discount and escalation rates specified in the permit. These amounts are
expected to be substantially lower than the undiscounted and unescalated cost
estimates. For example, based upon the cost estimate approved by the hearing
officer, the financial assurance amount for Chino could be approximately $189
million. This amount is based on annual escalation rates of approximately 3.2
percent for long-term water treatment costs and approximately 3.6 percent for
other costs and discount rates of 5 percent for years one through 12 of the
plan and 8 percent for years 13 through 100.

NMMAR requires that financial assurance for a closeout plan be approved
and put in place before MMD can approve the closeout plan. Currently, under
interim financial assurance required under the terms of their NMED closure
permits, Chino and Tyrone have provided approximately $56 million and $58
million of financial assurance, respectively, which is held by NMED. Cobre
also has approximately $2 million of financial assurance in place held jointly
by NMED and MMD. Following NMEDs issuance of the closure permits, and prior
to MMDs approval of the closeout plans, Chino, Tyrone and Cobre will be
required to provide substantial amounts of additional financial assurance to
cover the amounts of the approved cost estimates and may involve material cost
depending on the form of financial assurance provided. Hidalgo currently has
provided financial assurance in the amount of approximately $11 million under
its discharge permit.





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##### Table of Contents



- 85 -




RESULTS OF PHELPS DODGE INDUSTRIES

PDI, our manufacturing division, produces engineered products principally
for the global energy, telecommunications, transportation and specialty
chemicals sectors. Its operations are characterized by products with
significant market share, internationally competitive cost and quality, and
specialized engineering capabilities. The manufacturing division includes our
Specialty Chemicals segment and our Wire and Cable segment. Our Specialty
Chemicals segment includes Columbian Chemicals Company and its subsidiaries
(Columbian Chemicals or Columbian). Our Wire and Cable segment consists of
three worldwide product line businesses including magnet wire, energy and
telecommunication cables, and specialty conductors. In December 2000, Phelps
Dodge announced its intention to explore strategic alternatives, including
restructuring, selective asset sales, commercial arrangements (including joint
ventures) and mergers, for PDI. In May 2001, we terminated the sales process,
noting that the then current economic environment was not delivering
transactions that offered appropriate value for our shareholders.

|                                                             |                     |      |         |       |   |      |         |       |  |  |         |       |  
|------------------------------------------------------------ | ------------------- | ---- | ------- | ----- | - | ---- | ------- | ----- |  |  | ------- | ----- | -
|($ in millions)                                              |                     | 2002 |         | 2001  |   | 2000
|                                                             |                     |      |         |       |   |     
|Sales and other operating revenues -
unaffiliated customers: |                     |      |         |       |   |      |         |       |  |  |         |      
|                                                             | Specialty Chemicals |      | $       | 548.8 |   |      |         | 582.0 |  |  |         | 598.4 |  
|                                                             | Wire and Cable      |      |         | 687.4 |   |      |         | 770.9 |  |  |         | 853.0 |  
|                                                             |                     |      |         |       |   |      |         |       |  |  |         |       |  
|                                                             |                     | $    | 1,236.2 |       |   |      | 1,352.9 |       |  |  | 1,451.4 |      
|                                                             |                     |      |         |       |   |      |         |       |  |  |         |       |  
|Operating income (loss):                                     |                     |      |         |       |   |      |         |       |  |  |         |      
|                                                             | Specialty Chemicals |      | $       | 48.1  |   |      |         | 61.8  |  |  |         | 88.1  |  
|                                                             | Wire and Cable      |      |         | (17.5 | ) |      |         | 12.2  |  |  |         | (17.8 | )
|                                                             |                     |      |         |       |   |      |         |       |  |  |         |       |  
|                                                             |                     | $    | 30.6    |       |   |      | 74.0    |       |  |  | 70.3    |      
|                                                             |                     |      |         |       |   |      |         |       |  |  |         |       |  

PDI - Sales

PDI reported sales to unaffiliated customers of $1,236.2 million in 2002,
compared with $1,352.9 million in 2001 and $1,451.4 million in 2000. The
decrease of $116.7 million in 2002 compared with 2001 was primarily due to (i)
lower specialty chemicals sales volumes in the United States (approximately $38
million) and (ii) lower wire and cable sales resulting primarily from lower
sales volumes due to continued economic weakness in the United States
(approximately $67 million), reduced sales in Central and South America due to
lower demand (approximately $27 million); partially offset by higher sales
volumes in Thailand (approximately $10 million).

The decrease in 2001 compared with 2000 principally reflected lower sales
volumes due to continued economic weakness principally in North America.

PDI - Operating Income

PDI reported operating income of $30.6 million in 2002 including a
special, net pre-tax loss of $22.0 million, compared with operating income of
$74.0 million in 2001 including a special, pre-tax loss of $4.7 million, and
$70.3 million in 2000 including a special, pre-tax loss of $51.6 million.
(Refer to the separate discussion of PDIs Specialty Chemicals and Wire and
Cable segments below for further detail).

In 2002, operations outside the United States provided 60 percent of PDIs
sales, compared with 64 percent in 2001 and 63 percent in 2000. During the
year, operations outside the United States contributed 183 percent of PDIs
operating income as a result of the special, pre-tax charges recorded in 2002
for its United States operations, compared with 67 percent in 2001 and 48
percent in 2000.

Note: Supplemental Data

The following table summarizes the PDIs special items for 2002, 2001 and
2000 and the resultant earnings (losses) excluding these special items:

|                                      |  |      |       |      |  |      |      |   |  |  |       |  
|------------------------------------- |  | ---- | ----- | ---- |  | ---- | ---- | - |  |  | ----- | -
|($ in millions)                       |  | 2002 |       | 2001 |  | 2000
|                                      |  |      |       |      |  |     
|Operating income                      |  | $    | 30.6  |      |  |      | 74.0 |   |  |  | 70.3  |  
|Special, pre-tax items                |  |      | (22.0 | )    |  |      | (4.7 | ) |  |  | (51.6 | )
|                                      |  |      |       |      |  |      |      |   |  |  |       |  
|Operating income before
special items |  | $    | 52.6  |      |  |      | 78.7 |   |  |  | 121.9 |  
|                                      |  |      |       |      |  |      |      |   |  |  |       |  

Note: Our non-GAAP measure of special items may not be comparable to similarly
titled measures reported by other companies.





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- 86 -

Note: Supplemental Data

Special items and provisions in operating income were as follows:

|                                      |                                                                  |      |       |      |  |      |      |      |   |  |       |      |  
|------------------------------------- | ---------------------------------------------------------------- | ---- | ----- | ---- |  | ---- | ---- | ---- | - |  | ----- | ---- | -
|($ in millions)                       |                                                                  | 2002 |       | 2001 |  | 2000
|                                      |                                                                  |      |       |      |  |     
|September 2002 restructuring
programs |                                                                  | $    | (23.6 | )    |  |      |     |      |   |  |      |     
|Environmental provisions, net         |                                                                  |      | 0.3   |      |  |      |     |      |   |  |      |     
|October 2001 restructuring:           |                                                                  |      |       |      |  |      |      |      |   |  |       |     
|                                      | Original programs                                                |      |       |     |  |      |      | (1.4 | ) |  |       |     |  
|                                      | Reassessment of employee
activities and disposal
and dismantling |      |       | 0.4  |  |      |      |     |   |  |       |     |  
|Hopkinsville facility write-down      |                                                                  |      |      |      |  |      | (3.3 | )    |   |  |      |     
|Wire and cable closures/impairments   |                                                                  |      |      |      |  |      |     |      |   |  | (38.7 | )   
|Reassessment of 2000 closure          |                                                                  |      | 0.5   |      |  |      |     |      |   |  |      |     
|June 1999 restructuring:              |                                                                  |      |       |      |  |      |      |      |   |  |       |     
|                                      | Additional plant removal
and dismantling                         |      |       |     |  |      |      |     |   |  |       | (7.3 | )
|                                      | Reassessment of disposal
and dismantling                         |      |       | 0.4  |  |      |      |     |   |  |       |     |  
|                                      |                                                                  |      |       |      |  |      |      |      |   |  |       |     
|                                      |                                                                  |      | (22.0 | )    |  |      | (4.7 | )    |   |  | (46.0 | )   
|                                      |                                                                  |      |       |      |  |      |      |      |   |  |       |     
|Cost of product sold:                 |                                                                  |      |       |      |  |      |      |      |   |  |       |     
|                                      | Wire and cable working
capital write-downs                       |      |       |     |  |      |      |     |   |  |       | (5.6 | )
|                                      |                                                                  |      |       |      |  |      |      |      |   |  |       |     
|Special, pre-tax items                |                                                                  | $    | (22.0 | )    |  |      | (4.7 | )    |   |  | (51.6 | )   
|                                      |                                                                  |      |       |      |  |      |      |      |   |  |       |     

Specialty
Chemicals - Operating Income

Specialty Chemicals reported operating income of $48.1 million including a
special, net pre-tax gain of $1.1 million in 2002, compared with operating
income of $61.8 million in 2001, including a special, pre-tax charge of $1.4
million, and operating income of $88.1 million in 2000.

The 2002 decrease in operating income of $13.7 million compared with 2001
was primarily due to lower sales volumes in North America (approximately $18
million) as a result of reduced demand, partially offset by the absence of
goodwill amortization ($4 million) and a special, pre-tax gain of $1.1 million
in 2002. In addition, 2001 included a special, pre-tax charge of $1.4 million
associated with temporary closure of its El Dorado, Arkansas, facility.

The 2001 decrease in operating income of $26.3 million compared with 2000
was primarily due to the impact of the downturn in the U.S. economy, the
deterioration of the Brazilian real to the U.S. dollar and lower sales volumes.

In the second quarter of 2000, we acquired the remaining 40 percent share
in the carbon black manufacturing business of Columbian Tiszai Carbon Ltd. in
Hungary for $19.0 million, bringing our total interest to 100 percent.

Note: Supplemental Data

The following table summarizes Specialty Chemicals special items for
2002, 2001 and 2000 and the resultant earnings (losses) excluding these special
items:

|                                                   |  |      |      |      |  |      |      |   |  |  |      | 
|-------------------------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | 
|($ in millions)                                    |  | 2002 |      | 2001 |  | 2000
|                                                   |  |      |      |      |  |     
|Special, pre-tax items                             |  | $    | 1.1  |      |  |      | (1.4 | ) |  |  |     | 
|Segment operating earnings
excluding special items |  | $    | 47.0 |      |  |      | 63.2 |   |  |  | 88.1 | 

Note: Our non-GAAP measure of special items may not be comparable to similarly
titled measures reported by other companies.

Special items and provisions in operating income were as follows:

In 2002, the special, net pre-tax gain of $1.1 million was due to a $0.5
million pre-tax reassessment of prior restructuring programs and a $0.6 million
pre-tax adjustment for environmental provisions.

In the fourth quarter of 2001, Phelps Dodge announced a series of actions
to address the then current economic environment. This resulted in the
temporary closure of Columbian Chemicals El Dorado, Arkansas, facility and a
special, pre-tax loss of $1.4 million. The restructuring plan included the
reduction of approximately 100 positions and charges associated with employee
severance-related costs of $0.8 million and disposal and dismantling charges of
$0.6 million.

Wire and
Cable - Operating Income (Loss)

Wire and Cable reported an operating loss of $17.5 million including a
special, net pre-tax charge of $23.1 million in 2002, compared with operating
income of $12.2 million in 2001 including a special, pre-tax charge of $3.3
million, and an operating loss of $17.8 million in 2000 including a special,
pre-tax charge of $51.6 million.

The 2002 decrease in operating income of $29.7 million compared with 2001
was primarily due to the recording of a $23.6 million special, pre-tax charge
associated with the temporary closure of the Laurinburg, North Carolina, magnet
wire plant, the temporary closure of the West Caldwell, New Jersey, High
Performance Conductors facility, and restructuring and consolidation of certain
administrative functions announced in the 2002 third quarter. The decrease
also included lower sales volumes in North America result-





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- 87 -

ing from continued
softness in key markets such as aerospace, consumer durables and industrial
goods (approximately $22 million) and lower sales volumes in Central and South
America (approximately $8 million); partially offset by higher sales volumes in
Thailand (approximately $4 million), lower operating expenses generated by
Quest for Zeroand other operating improvements (approximately $14 million) and
the cessation of goodwill amortization (approximately $3 million) resulting
from the adoption of SFAS No. 142 on January 1, 2002. In addition, 2001
included a special, pre-tax charge of $3.3 million for the write-down of the
closed Hopkinsville, Kentucky, magnet wire facility.

The 2001 increase of $30.0 million in operating income compared with 2000
was due to the absence of a special, net pre-tax loss of $51.6 million
associated with plant closures and asset impairments, partially offset by the
slowdown in the U.S. economy affecting the aerospace market segment and lower
sales volumes due to a decline in consumer durables, and automotive and
industrial goods.

In January 2001, Alcoa Aluminio, S.A. exercised a put option that required
Phelps Dodge or a designee company to acquire the 40 percent minority interest
in Phelps Dodge and Alcoa Fios e Cabos Electricos, S.A., a Phelps Dodge wire
and cable facility in Brazil, in which we had a 60 percent interest (prior to
acquiring the 40 percent minority interest). The transaction closed in March
2001 for $44.8 million in cash.

Note: Supplemental Data

The following table summarizes Wire and Cables special items for 2002,
2001 and 2000 and the resultant earnings (losses) excluding these special
items:

|                                                            |  |      |       |      |  |      |      |   |  |  |       |  
|----------------------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ---- | - |  |  | ----- | -
|($ in millions)                                             |  | 2002 |       | 2001 |  | 2000
|                                                            |  |      |       |      |  |     
|Special, pre-tax items                                      |  | $    | (23.1 | )    |  |      | (3.3 | ) |  |  | (51.6 | )
|Segment operating earnings (losses)
excluding special items |  | $    | 5.6   |      |  |      | 15.5 |   |  |  | 33.8  |  

Note: Our non-GAAP measure of special items may not be comparable to similarly
titled measures reported by other companies.

On September 10, 2002, we announced the temporary closure of two U.S. wire
and cable plants and other actions to improve efficiencies and consolidate
certain wire and cable operations. These temporary closures and internal
changes are expected to reduce our costs and align our business with
current market conditions. The actions include: (i) the temporary closure of
the Laurinburg, North Carolina, magnet wire plant at the end of 2002, with
production being shifted to the El Paso, Texas, and Fort Wayne, Indiana,
facilities; (ii) the temporary closure of the West Caldwell, New Jersey, High
Performance Conductors facility pending recovery of markets served by this
location, with production of certain products relocated to our Inman, South
Carolina, facility; (iii) operational and production support at other High
Performance Conductors facilities being streamlined in order to reduce costs
and increase operating efficiencies; and (iv) the restructuring and
consolidation of certain administrative functions. These actions resulted in
special, pre-tax charges of $23.0 million ($22.2 million after-tax) in the 2002
third quarter and $0.6 million ($0.8 million after-tax) in the 2002 fourth
quarter. Of these amounts, $16.9 million (before and after taxes) was
recognized as asset impairments and $6.7 million ($6.1 million after-tax) was
recognized for severance-related and relocation expenses associated with the
restructuring and temporary closures. The amount of the asset impairment was
determined through an assessment of fair market value, which was based on
independent appraisals of the existing assets at the wire and cable plants. We
also performed an event-driven impairment test on the goodwill at our wire and
cable plants through a comparison of the carrying value to the respective fair
value (using an estimate of discounted cash flows) and determined that an
additional impairment loss was not required. The restructuring plan included
the reduction of approximately 300 positions and charges associated with
employee severance and relocation ($3.9 million, of which $0.7 million and $1.9
million was paid in the 2002 third and fourth quarters, respectively) and
pension and other postretirement obligations ($2.8 million).

Also during 2002, a special, net pre-tax gain of $0.5 million was
recognized reflecting a $0.8 million pre-tax gain for the reassessment of prior
restructuring programs partially offset by a $0.3 million charge for
environmental provisions.

In 2001, a $3.3 million pre-tax charge was taken to write down the closed
Hopkinsville, Kentucky, magnet wire facility to its net realized value.

On June 27, 2000, we announced a plan to reduce operating costs and
restructure operations at our Miami/Bisbee, Primary Molybdenum and Wire and
Cable segments. This plan resulted in the following actions for the Wire and
Cable segment during 2000:



| |                                                                                                                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) Production ceased at two wire and cable plants in Venezuela in
the second quarter of 2000 due to low forecast plant utilization levels as
a result of significantly reduced infrastructure spending in the Latin
America region. These plant closures resulted in a total special, pre-tax
loss of $26.1 million, consisting of an





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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | impairment in the carrying value
of property, plant and equipment and other assets of $19.5 million; an
impairment of goodwill of $1.7 million; and a restructuring accrual of
$4.9 million associated with severance-related costs ($2.2 million) and
plant dismantling costs ($2.7 million). In addition, working capital
write-downs of $3.4 million were recorded to cost of products sold as a
result of the decision to close the plants.





| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (ii) The closure of a telephone cable operation in El Salvador in the
fourth quarter of 2000 was due to low plant utilization levels as a result
of heightened global competition for telecommunication cable. The plant
closure resulted in a special, pre-tax loss of $5.5 million, including
$4.5 million relating to the impairment of the carrying value of property,
plant and equipment and other assets and a restructuring accrual of $1.0
million associated with plant dismantling costs. In addition, working
capital write-downs of $2.2 million were recorded to cost of products sold
as a result of the decision to close the plant.
|
| | (iii) A special, pre-tax charge of $5.8 million was recognized for
our wire and cable operations in Austria as a result of the long-term
impact of continuing extremely competitive pricing conditions in Europe.
The continuing competitive pricing environment led to a determination that
we should assess the recoverability of our Austrian wire and cable asset
values. Our assessment of the carrying value of the property, plant and
equipment of $4.2 million and the goodwill balance of $2.8 million
indicated impairments of $3.0 million and $2.8 million, respectively.                                                              

In addition to the above items, during 2000, we recognized net additional
costs of $8.6 million in conjunction with the June 30, 1999, restructuring
programs.




OTHER MATTERS RELATING TO THE STATEMENT OF CONSOLIDATED OPERATIONS

Depreciation, Depletion and Amortization
Expense

As discussed in Note 1 and Note 22 to the Consolidated Financial
Statements, the Company changed its longstanding units-of-production
depreciation rate methodology for certain mining, smelting and refining assets
to a method that excludes estimates of future capital as well as any material
other than proven and probable ore reserves, and to depreciate short-lived
assets on a straight-line basis over their estimated useful lives, less salvage
value.

Depreciation, depletion and amortization expense was $410.2 million in
2002, compared with $439.9 million in 2001 and $440.3 million in 2000. The
2002 decrease of $29.7 million primarily was due to temporary shutdowns, net
production curtailments, a net depreciation rate decrease at PDMC
(approximately $24 million) and the reduction of goodwill amortization expense
at PDI resulting from the adoption of SFAS No. 142 (approximately $7 million).
The 2001 depreciation, depletion and amortization expense remained essentially
constant with the 2000 expense.

Selling and General Administrative Expense

Selling and general administrative expense was $123.9 million in 2002,
compared with $116.5 million in 2001 and $136.0 million in 2000. The $7.4
million increase in 2002 primarily related to higher accruals for a
Company-wide annual incentive compensation plan in comparison with 2001 when
the incentive compensation program was cancelled due to economic conditions.
The 2001 decrease primarily resulted from restructuring programs that reduced
selling and general administrative employees and associated costs, including
the cancellation of 2001 company-wide annual incentive compensation payments
(approximately $10 million).

Exploration and Research Expense

Our net exploration and research expense was $40.3 million in 2002,
compared with $56.3 million in 2001 and $56.8 million in 2000. The $16 million
decrease in 2002 primarily resulted from lower exploration spending at most of
our mining locations (approximately $9 million) and the absence of exploration
expenditures at the Sossego joint venture in Brazil (approximately $8 million
spent in 2001), which was sold in October 2001, partially offset by slightly
higher research expense for PDMC and PDI (approximately $1 million).

Interest Expense

We reported net interest expense in 2002 of $187.0 million, compared with
$225.9 million in 2001 and $213.3 million in 2000. The 2002 decrease of $38.9
million was attributable to reductions related to the payoff in 2002 of
approximately $773 million of long-term debt and project financing, and the low
interest cost from our fixed-to-floating interest rate swap programs.

Net interest expense increased by $12.6 million in 2001 primarily due to
higher average interest





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rates reflecting the Companys issuance of $900 million
in 10-year and 30-year Notes and the absence of the commercial paper program at
lower rates.

Interest paid by the Company in 2002 was $223.6 million, compared with
$233.1 million in 2001 and $200.6 million in 2000.

Miscellaneous Income and Expense, Net

Miscellaneous income and expense, net was $2.6 million in 2002, compared
with $8.1 million in 2001 and $30.0 million in 2000. The 2002 decrease of $5.5
million was primarily due to lower interest income ($7.5 million), higher
foreign currency exchange losses ($1.8 million), higher non-operating expenses
($4.1 million), lower royalty and rental income ($1.6 million) and the absence
of interest on tax refunds ($4.3 million), partially offset by lower investment
impairments ($11.7 million).

The 2001 decrease of $21.9 million was primarily due to benefit plan
investment mark-to-market adjustments ($3.1 million), higher non-operating
expenses ($4.1 million), absence of the gain on the sale of Australian iron ore
royalties ($4.7 million), absence of a gold guaranty income fee ($1.7 million),
higher investment impairments ($5.7 million), lower interest on a tax
settlement ($1.5 million), and lower insurance settlements ($3.0 million),
partially offset by lower interest income ($3.8 million).

Benefit (Provision) for Taxes on Income

The effective tax rate changed from a 25.8 percent expense in 2000 to a
31.5 percent expense in 2001 and to a 28 percent benefit in 2002. The tax
benefit in 2002 resulted principally from the passage of the Job Creation and
Worker Assistance Act of 2002, which extended the loss carryback period from
two years to five years for net operating losses originating in 2001 and 2002.
This resulted in a benefit to the Company of $129.8 million which was partially
offset by taxes on earnings at international operations. The effective tax
rate in 2001 resulted principally from the recognition of a $57.9 million
valuation allowance for deferred tax assets at El Abra as well as from taxes on
earnings at international operations that could not be offset by losses at
domestic operations.

In December of 1999, we received and accepted Notices of Tax Due for the
years 1992 and 1993. In addition, we received a refund in 1999 associated with
the audit by the Internal Revenue Service for the year 1994. Issues settled in
the years 1992 through 1994 also impacted the years 1990 and 1991 and enabled
us to enter a closing agreement with the Internal Revenue Service for the years
1990 and 1991. As a result of these settlements, we recorded a $6 million
reduction of our tax provision in 2000.

During the year 2000, we reached an agreement with the Internal Revenue
Service for the Cyprus Amax tax years 1994 through 1996 and paid the final
assessments applicable to those years. In March 2001, we reached agreement
with the Internal Revenue Service for the Phelps Dodge tax years 1995 through
1997 and paid the final assessments applicable to those years.

The Cyprus Amax federal income tax returns for the years 1997 through 1999
and the Phelps Dodge federal income tax returns for the years 1998 and 1999 are
currently under examination by the Internal Revenue Service. Our management
believes that it has made adequate provision so that resolution of any issues
raised, including application of those determinations to subsequent open years,
will not have an adverse effect on our consolidated financial condition or
results of operations.

Cumulative Effect of Accounting Change

Effective January 1, 2001, the Company adopted SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities, (as amended by SFAS No.
137) and SFAS No. 138, Accounting for Certain Derivative Instruments and
Certain Hedging Activities. These Statements require recognition of all
derivatives as either assets or liabilities on the balance sheet and
measurement of those instruments at fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other comprehensive
income (loss) (OCI). Appropriate accounting for changes in the fair value of
derivatives held is dependent on whether the derivative transaction qualifies
as an accounting hedge and on the classification of the hedge transaction. The
implementation resulted in a cumulative effect charge of $2.0 million (before
and after taxes), or 3 cents per share, and a cumulative reduction to OCI of
$7.1 million (before and after taxes).

Effective January 1, 2002, the Company adopted SFAS No. 142, Goodwill and
Other Intangible Assets. Under SFAS No. 142, goodwill and intangible assets
that have indefinite useful lives will not be amortized but rather will be
tested at least annually for impairment. Intangible assets that have finite
useful lives will continue to be amortized over their useful lives. As of
December 31, 2001, the Company had goodwill of $115.2 million less accumulated
amortization of $26.7 million associated with the Specialty Chemicals segment
and goodwill of $70.8 million less accumulated amortization of $16.2 million
associated with the Wire and Cable segment, for a total of $143.1





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million, net.
There have been no changes in the carrying amount of goodwill for the year
ended December 31, 2002, except for the transitional impairment charge and the
impact of changes in foreign currency exchange on goodwill denominated in
currencies other than U.S. dollars.

Under the transitional provisions of SFAS No. 142, we identified and
evaluated our reporting units for goodwill impairment using a present value
technique with industry average multiples and third-party valuations used as a
benchmark. Upon completion of the transitional impairment tests, the net book
value of three of the Companys international wire and cable reporting units
was determined to be less than the related carrying amount. The resulting
impairment loss recognized upon adoption of SFAS No. 142 was $33.0 million,
pre-tax ($22.9 million, after-tax), and has been recognized as a cumulative
effect of a change in accounting principle. The pro formaeffect of not
amortizing goodwill in 2001 and 2000 would have reduced goodwill amortization
expense by $7.3 million and $8.1 million, reduced net loss by $6.1 million in
2001 and increased net income by $6.6 million in 2000, and reduced loss per
share by 8 cents in 2001 and increased net income per share by 8 cents in 2000.

Discount
Rate - Pensions and Other Postretirement Benefits and Expected Long-Term Rate of Return

We have trusteed, non-contributory pension plans covering substantially
all our U.S. employees and some employees of international subsidiaries. We
also have postretirement plans that provide medical insurance benefits for many
employees retiring from active service. The coverage is provided on a
non-contributory basis for certain groups of employees and on a contributory
basis for other groups. The majority of these benefits are paid by the
Company. We also provide life insurance benefits to our U.S. employees who
retire from active service and to some of our international employees. Life
insurance benefits also are available pursuant to the terms of certain
collective bargaining agreements. The majority of the costs of such benefits
were paid out of a previously established fund maintained by an insurance
company.

Under current financial accounting standards, any significant year-to-year
movement in the rate of interest on long-term, high-quality corporate bonds
necessitates a change in the discount rate used to calculate the actuarial
present value of our accumulated pension and other postretirement benefit
obligations. The discount rate we used was 6.75 percent at December 31, 2002,
compared with 7.25 percent at December 31, 2001 and 7.75 percent at December
31, 2000. Changes in this assumption are reflected in our benefit obligation,
and therefore, in our liabilities and income or expense we record.

Our expected long-term rate of return on plan assets is updated at least
annually, taking into consideration our asset allocation, historical returns on
the types of assets held in the Master Trust, and the current economic
environment. Based on these factors, we expect our pension assets will earn an
average of 8.75 percent per annum over the 20 years beginning December 1, 2002,
with a standard deviation of 10.6 percent. The expected long-term rate of
return on plan assets for the 20 years beginning December 1, 2001, was 9.0
percent, and it was 9.5 percent for the 20 years beginning December 1, 2000.
The fair value of all plan assets ($830 million at year-end 2002 and $940
million at year-end 2001) is impacted by general market conditions. If actual
returns on plan assets vary from the expected returns, actual results could
differ. See Critical Accounting Policies for a discussion on the assumptions
and factors affecting pension and postretirement costs.

Our pension expense in 2002 was $14.3 million, compared with a credit of
$8.5 million in 2001 and a credit of $0.8 million in 2000. The 2002 increase
in pension expense was primarily due to the lower expected return on plan
assets ($6.3 million), the effect of a 50 basis-point reduction in the discount
rate ($1.5 million), a decrease in recognized actuarial gain ($5.6 million) and
an increase in special retirement benefits including recognition of prior
service cost ($8.2 million). The 2001 decrease in pension expense primarily
was due to higher expected return on plan assets ($4.7 million), lower service
costs ($3.5 million) and higher recognized actuarial gain ($2.9 million),
partially offset by special retirement benefits ($3.9 million).

Our postretirement benefit expense in 2002 was $29.6 million, compared
with $26.4 million in 2001 and $26.2 million in 2000. The 2002 increase in
postretirement expense was primarily due to an increase in special retirement benefits
($2.9 million).




CHANGES IN FINANCIAL CONDITION; CAPITALIZATION

Cash and Cash Equivalents

Cash and cash equivalents at the end of 2002 were $349.8 million, compared
with $386.9 million at the beginning of the year. Operating activities
provided $348.0 million of cash during the year. Cash provided by operating
activities together with proceeds from asset dispositions of $33.3 million and
the equity offering of $592.0 million (net of fees) were used to fund capital
outlays ($130.4 million), investments in subsidiaries ($2.8 million) and other
investing activities ($40.4 million), a net decrease in debt ($797.6 million),
dividend





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payments on preferred shares ($5.7 million) and other financing ($35.1
million primarily due to $511.2 million to repurchase $480.7 million of debt).

|                                                     |                       |                                      |                             |        |        |      |       |       |        |      |      |        |        |       | 
|---------------------------------------------------- | --------------------- | ------------------------------------ | --------------------------- | ------ | ------ | ---- | ----- | ----- | ------ | ---- | ---- | ------ | ------ | ----- | 
|($ in millions)                                      |                       | 2002                                 |                             | 2001   |        | 2000
|                                                     |                       |                                      |                             |        |        |     
|Cash provided by (used in):                          |                       |                                      |                             |        |        |      |       |       |        |      |      |       
|                                                     | Operating activities  |                                      | $                           | 348.0  |        |      |       | 302.7 |        |      |      | 511.2  |       
|                                                     | Investing activities: |                                      |                             |        |        |      |       |       |        |      |      |        |       
|                                                     |                       | Capital expenditures and
investments |                             |        | (133.2 | )    |       |       | (311.0 | )    |      |        | (422.3 | )    
|                                                     |                       | Proceeds:                            |                             |        |        |      |       |       |        |      |      |        |        |      
|                                                     |                       |                                      | Dawson Ranch sale           |        |        | 22.6 |       |       |        |     |      |        |        |      | 
|                                                     |                       |                                      | Sossego project sale        |        |        |     |       |       |        | 42.5 |      |        |        |      | 
|                                                     |                       |                                      | Cyprus Australian
coal sale |        |        |     |       |       |        |     |      |        |        | 150.0 | 
|                                                     |                       | Other investing activities*          |                             |        | (29.7  | )    |       |       | 1.7    |      |      |        | (1.9   | )    
|                                                     | Financing activities  |                                      |                             | (244.8 | )      |      |       | 101.0 |        |      |      | (221.2 | )     
|                                                     |                       |                                      |                             |        |        |      |       |       |        |      |      |        |       
|Net
increase (decrease) in cash and
cash equivalents |                       | $                                    | (37.1                       | )      |        |      | 136.9 |       |        |      | 15.8 |       
|                                                     |                       |                                      |                             |        |        |      |       |       |        |      |      |        |       



|* |  | Includes $29.4 million in 2002 from funding CODELCOs share of
subordinated loans provided to El Abra.
|- |  | ------------------------------------------------------------------------------------------------------

Working Capital

During 2002, net working capital balances (excluding cash and cash
equivalents and debt) decreased by $24.2 million. This net decrease resulted
primarily from:



| |  | a $55.5 million decrease in mill and leach stockpiles, inventories and supplies
primarily due to a $44.6 million decrease
in copper, gold and molybdenum inventories at mining operations;
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | a $7.7 million decrease in accounts receivable primarily due to reduced sales volumes; and                                                                                                
| 
| |  | a $7.0 million decrease in prepaid expenses primarily due to amortization of major planned smelter maintenance costs that
benefited future periods; partially offset by                   
| 
| |  | a $43.0 million decrease in accounts payable and accrued expenses primarily due to temporary shutdowns and production
curtailments and timing of payments.                                

Investing Activities

Capital expenditures and investments in subsidiaries for 2002 totaled
$133.2 million including $93.7 million for PDMC, $33.4 million for PDI and $6.1
million for other corporate-related activities.

Capital expenditures and investments for 2001 totaled $311.0 million
including $200.6 million for PDMC, $86.5 million for PDI (including $44.8
million for the acquisition of the remaining 40 percent share of the Companys
wire and cable manufacturing operation in Brazil) and $23.9 million for other
corporate-related activities.

Capital expenditures and investments for 2003 are expected to be
approximately $190 million including $115 million for PDMC, approximately $65
million for PDI and $10 million for other corporate-related activities. These
capital expenditures and investments are expected to be funded primarily from
operating cash flow and cash reserves.

Financing Activities and Liquidity

The Companys total debt at December 31, 2002, was $2,110.6 million,
compared with 2,871.6 million at year-end 2001. The $761.0 million decrease was
attributable to the repurchase of $480.7 million of our long-term debt on the
open market, a scheduled payment of $150.9 million representing 100 percent of
the remaining principal balance due on our 10.125 percent notes, and a
combination of regular amortization payments and pre-payments on the principal
balances of our South American mine project financings totaling $106 million.
The Companys ratio of debt to total capitalization was 42.3 percent at
December 31, 2002, compared with 50.7 percent at December 31, 2001.

The funds used in our debt repurchase program were made available through
the issuance of equity instruments. In June 2002, we issued 10 million of the
Companys common shares and 2 million of our mandatory convertible preferred
shares in a block trade with J.P. Morgan. Net proceeds from this trade were
approximately $592 million. The mandatory convertible preferred shares have an
annual dividend of $6.75 per share, a 20 percent conversion premium (for an
equivalent conversion price of $48 per common share), and will mandatorily
convert into Phelps
Dodge common shares on August 15, 2005. The common and mandatory
convertible preferred shares were issued under the Companys $750 million
universal shelf registration statement filed with the SEC in August 2001. The
amount available under that shelf registration was reduced to approximately
$150 million after the June equity issuance. Under the registration statement,
debt and equity securities may be sold from time to time in one or more
offerings on terms and conditions to be determined in light of the
circumstances. Authorized securities include common and preferred equity,
senior debt and junior subordinated debt, share purchase contracts, share
purchase units and warrants. The registration statement also provides





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for the
issuance of trust preferred securities guaranteed by the Company. The Company
expects, at appropriate times and as circumstances warrant, to use proceeds
from any new shelf offerings to reduce and/or restructure its existing debt
portfolio and to better coordinate debt maturities with potential growth
opportunities.

In July 2002, we used $511.2 million of proceeds from the June equity
issuance to repurchase $480.7 million of our long-term debt. This resulted in
a pre-tax extraordinary loss of $31.3 million ($26.6 million after-tax)
including issuance costs and other book adjustments ($0.8 million). We
estimate the debt repurchases will reduce our annual interest expense by
approximately $40 million before taxes. The face value of debt repurchased and
estimated annual interest savings comprised the following:

|                           |  |       |       |          |  |           |      | 
|-------------------------- |  | ----- | ----- | -------- |  | --------- | ---- | 
|                           |  |       |       |          |  | Estimated
|                           |  |       |       |          |  | Annual   
|                           |  | Face  |       | Interest
|($ in millions)            |  | Value |       | Savings 
|                           |  |       |       |         
|6.375% Notes due 2004      |  | $     | 15.0  |          |  |           | 0.9  | 
|6.625% Notes due 2005      |  |       | 32.0  |          |  |           | 2.1  | 
|7.375% Notes due 2007      |  |       | 74.5  |          |  |           | 5.5  | 
|8.75% Notes due 2011       |  |       | 240.7 |          |  |           | 21.1 | 
|8.375% Debentures due 2023 |  |       | 2.2   |          |  |           | 0.2  | 
|7.125% Debentures due 2027 |  |       | 35.0  |          |  |           | 2.5  | 
|9.50% Notes due 2031       |  |       | 81.3  |          |  |           | 7.7  | 
|                           |  |       |       |          |  |           |      | 
|                           |  | $     | 480.7 |          |  |           | 40.0 | 
|                           |  |       |       |          |  |           |      | 

Our July debt repurchase program included $74.5 million of our 7.375
percent notes maturing in 2007. We had previously swapped $200 million, of a
total principal balance of $250 million of this fixed-rate debt, to floating
interest rates. After the repurchase, we unwound $25 million of these swaps in
order to maintain a notional level of swaps not in excess of the remaining
principal balance of $175 million. We also had swap arrangements in place to
convert $200 million of our 6.625 percent notes maturing in 2005 to floating
interest rates. We did not reduce the principal balance of these notes below
the amount swapped and, therefore, we did not unwind any of the swaps.

At December 31, 2002, the Company had no borrowings under its revolving
credit facility. This facility, which became effective in May 2000, permits
borrowings for general corporate purposes of up to $1 billion from time to time
until its scheduled maturity on May 10, 2005. The agreement requires the
Company to maintain minimum consolidated tangible net worth of $1.5 billion and
limits indebtedness to 60 percent of total consolidated capitalization.

The Company established a commercial paper program on August 15, 1997,
under a private placement agency agreement between two placement agents and us.
The agreement permits us to issue up to $1 billion of short-term promissory
notes (generally known as commercial paper) at any time. Commercial paper may
bear interest or be sold at a discount, as mutually agreed upon by the
placement agents and us at the time of each issuance. Our commercial paper
program requires that issuances of commercial paper be supported by an undrawn
line of credit; the revolving credit agreement described above provides such
support. At our current short-term credit ratings (A-3 by Standard and Poors
and P-3 by Moodys), market demand for our commercial paper is extremely
limited. There were no borrowings under our commercial paper program at either
December 31, 2002, or December 31, 2001.

Short-term debt was $35.2 million, all by our international operations, at
December 31, 2002, compared with $59.3 million at December 31, 2001. The $24.1 million decrease primarily was due to net payments on short-term borrowings at our El Abra mine ($14.3 million), a net decrease in short-term
borrowings resulting from repayments at our Specialty Chemicals segment ($7.3 million), and a net decrease in short-term borrowings at our wire and cable
plant in Chile ($3.5 million). These decreases were partially offset by the
effects of foreign currency translation adjustments of approximately $1 million.

The current portion of our long-term debt at year-end 2002 (i.e.,
long-term debt scheduled for payment in 2003) was $127.0 million, including
$109.4 million for project financing at our international mining operations,
$15.5 million for our international manufacturing operations and $2.1 million
for corporate debt repayments.

Due to economic conditions and continuing unsatisfactory copper prices,
the Company reduced the quarterly dividend on its common shares by 75 percent
beginning in the second quarter 2001 and eliminated the dividend in the fourth
quarter of 2001. Accordingly, there were no dividends declared or paid on
common shares in 2002, compared with dividend payments of $59.1 million in 2001
and $157.5 million in 2000.

The Company declared dividends of $4.5563 per mandatory convertible
preferred share in 2002, amounting to $9.1 million.





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Contractual
Obligations, Commercial Commitments and Other Items that May Affect Liquidity

The following tables summarize Phelps Dodges contractual obligations and
commercial commitments at December 31, 2002, and the effect such obligations
are expected to have on its liquidity and cash flow in future periods. For a
discussion of environmental and closure obligations, refer to Environmental
Matters in Managements Discussion and Analysis.

Contractual Obligations:

|                                  |       |   |         |  |           |  |       |  |  |  |       | 
|--------------------------------- | ----- | - | ------- |  | --------- |  | ----- |  |  |  | ----- | 
|                                  |       |   |         |  |           |  |       |  |  | 
|                                  |       |   |         |  | Less Than |  |       |  | 
|($ in millions)                   | Total |   | 1 Year  |  | 1-3 Years
|                                  |       |   |         |  |           | 
|Short-term debt                   |       | $ | 35.2    |  |           |  | 35.2  |  |  |  |      | 
|Long-term debt                    |       |   | 2,075.4 |  |           |  | 127.0 |  |  |  | 561.5 | 
|Take-or-pay contracts             |       |   | 614.2   |  |           |  | 164.9 |  |  |  | 202.3 | 
|Operating lease obligations       |       |   | 105.3   |  |           |  | 15.7  |  |  |  | 27.5  | 
|Mineral royalty obligations       |       |   | 23.3    |  |           |  | 1.3   |  |  |  | 2.6   | 
|                                  |       |   |         |  |           |  |       |  |  |  |       | 
|Total contractual cash obligation |       | $ | 2,853.4 |  |           |  | 344.1 |  |  |  | 793.9 | 
|                                  |       |   |         |  |           |  |       |  |  |  |       | 

|                                  |  |           |       |         |  |       |         | 
|--------------------------------- |  | --------- | ----- | ------- |  | ----- | ------- | 
|                                  |  |           |       |         |  | After
|                                  |  | 4-5 Years |       | 5 Years
|                                  |  |           |       |        
|Short-term debt                   |  | $         |      |         |  |       |        | 
|Long-term debt                    |  |           | 325.8 |         |  |       | 1,061.1 | 
|Take-or-pay contracts             |  |           | 120.8 |         |  |       | 126.2   | 
|Operating lease obligations       |  |           | 23.3  |         |  |       | 38.8    | 
|Mineral royalty obligations       |  |           | 2.6   |         |  |       | 16.8    | 
|                                  |  |           |       |         |  |       |         | 
|Total contractual cash obligation |  | $         | 472.5 |         |  |       | 1,242.9 | 
|                                  |  |           |       |         |  |       |         | 

Our take-or-pay contracts primarily include contracts for electricity
($322 million), contracts for petroleum-based feedstock for conversion into
carbon black ($179 million), and transportation and port fee commitments ($48
million). Approximately 81 percent of our take-or-pay electricity obligations
are through PD Energy Services, the legal entity used to manage power for PDMC
at generally fixed-priced arrangements. PD Energy Services has the right and
the ability to resell the electricity as circumstances warrant. Obligations
for petroleum-based feedstock for conversion into carbon black are for specific
quantities, and ultimately will be purchased based upon prevailing market
prices at the time. These petroleum-based products may be re-sold to others if
circumstances warrant. Transportation obligations total $35 million for
exporting cathode produced at El Abra and copper in concentrate at Candelaria
and for importing sulfuric acid to El Abra. Our carbon black facility in the
United Kingdom has port fee commitments of $13 million.

Office leases comprise approximately 88 percent of our operating lease
commitments (excluding sublease receipts). The Company has subleased certain
office space for which it expects to receive sublease payments of approximately
$20 million. The balance of our operating lease commitments is for vehicles,
equipment and other facilities.

Commercial Commitments:

|                             |  |       |       |        |  |           |       |  |  |  |      | 
|---------------------------- |  | ----- | ----- | ------ |  | --------- | ----- |  |  |  | ---- | 
|                             |  |       |       |        |  |           |       |  |  |  |      | 
|                             |  |       |       |        |  | Less Than |       |  |  | 
|($ in millions)              |  | Total |       | 1 Year |  | 1-3 Years
|                             |  |       |       |        |  |          
|Standby letters of credit    |  | $     | 102.9 |        |  |           | 101.9 |  |  |  | 1.0  | 
|Parent guarantees            |  |       | 46.4  |        |  |           | 10.3  |  |  |  | 20.6 | 
|Performance guarantees       |  |       | 31.6  |        |  |           | 25.8  |  |  |  | 4.9  | 
|Surety bonds                 |  |       | 232.6 |        |  |           | 0.4   |  |  |  | 0.2  | 
|Asset pledges                |  |       | 24.0  |        |  |           |      |  |  |  |     | 
|                             |  |       |       |        |  |           |       |  |  |  |      | 
|Total commercial commitments |  | $     | 437.5 |        |  |           | 138.4 |  |  |  | 26.7 | 
|                             |  |       |       |        |  |           |       |  |  |  |      | 

|                             |  |           |      |         |  |       |       | 
|---------------------------- |  | --------- | ---- | ------- |  | ----- | ----- | 
|                             |  |           |      |         |  | After
|                             |  | 4-5 Years |      | 5 Years
|                             |  |           |      |        
|Standby letters of credit    |  | $         |     |         |  |       |      | 
|Parent guarantees            |  |           | 15.5 |         |  |       |      | 
|Performance guarantees       |  |           | 0.9  |         |  |       |      | 
|Surety bonds                 |  |           |     |         |  |       | 232.0 | 
|Asset pledges                |  |           | 24.0 |         |  |       |      | 
|                             |  |           |      |         |  |       |       | 
|Total commercial commitments |  | $         | 40.4 |         |  |       | 232.0 | 
|                             |  |           |      |         |  |       |       | 

Standby letters of credit primarily were issued in support of commitments
or obligations. Approximately 31 percent related to insurance programs, 26
percent were issued in support of the Candelaria project, 16 percent related to
collateral for reclamation surety bonds, 12 percent related to environmental
remediation obligations and 15 percent related to purchase commitments.
Essentially all standby letters of credit outstanding at December 31, 2002,
will expire within one year.

Our wholly owned subsidiary, Cyprus Amax, guaranteed El Abras Tranche B
debt, including CODELCOs 49 percent share totaling $46.4 million at year-end
2002. Phelps Dodge had surety bonds of $232.6 million at December 31, 2002,
primarily related to reclamation performance bonds ($210.8 million) and
self-insurance and workers compensation bonds ($21.0 million). It is likely
that Phelps Dodge will substantially reduce its use of reclamation performance
bonds in 2003 due to commercial constraints and cost considerations. We have
pledged land to support a $24 million mortgage (expires December 1, 2006) by
its 50 percent-owned joint venture, Port Carteret, which is accounted for on an
equity basis.





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Generally, Phelps Dodge does not have any debt rating triggers that would
accelerate the maturity dates of its debt. In the event of a rating decline
occurring within 90 days (subject to extension under limited circumstances) of
certain designated events (which, to the extent beyond our control, generally
involve a change of or contest for control), each holder of a note for our
6.625 percent Notes due in 2005 and our 8.375 percent Debentures due in 2023
may require the Company to redeem the holders notes, in whole or in part, at
100 percent of the principal plus accrued interest to the date of redemption.
Ratings declines that occur at any other time do not trigger an obligation to
redeem any such notes.

Phelps Dodges credit rating could adversely affect its ability to renew
existing or obtain access to new credit facilities in the future and could
increase the cost of such facilities. The Company has the ability, provided it
continues to be in compliance with the covenant requirements, to draw upon its
$1.0 billion revolving credit facility prior to its commitment termination on
May 10, 2005. Changes in credit ratings may affect the revolving credit
facility fee and the costs of borrowings under that facility, but credit
ratings do not impact the availability of the facility.

Other Items that May Affect Liquidity

Mined-land reclamation and closure laws in New Mexico and Colorado require
financial assurance covering reclamation costs. In contrast, Arizonas Mine
Land Reclamation Act and APP program allow a company to satisfy financial
assurance requirements by demonstrating it has financial strength to fund
reclamation and closure costs identified in approved plans. An investment
grade bond rating is one of the financial strength tests under the Arizona
regulations. Phelps Dodge presently has a credit rating one level above
non-investment grade; however, it remains on Negative Outlook. If a
downgrade occurs, the Company will need to provide financial assurance of
approximately $115 million in Arizona.

The cost of surety bonds, the traditional source of financial assurance,
has increased significantly during the past year and many surety companies are
now requiring an increased level of collateral supporting the bonds such that
they no longer are economically prudent. The terms and conditions presently
available from our principal surety bond provider for reclamation and other
types of long-lived surety bonds have made this type of financial assurance
economically impractical. We are working with the impacted state and federal
agencies to put in place acceptable alternative forms of financial assurance in
a timely fashion.

Our earnings and cash flows primarily are determined by the results of our
copper mining business. Based on expected 2003 annual production of
approximately 2.1 billion pounds of copper, each 1 cent per pound change in the
average annual copper price, or in the average annual implied unit cost of
copper production, causes a variation in annual operating income before taxes
of approximately $21 million. The effect of such changes in copper prices or
costs similarly affects our pre-tax cash flows. Through our Quest for Zero
program and other actions, we have taken steps intended to improve our costs
and improve operating income. Higher copper prices are generally expected to
occur when there is an improved worldwide balance of copper supply and demand,
and copper warehouse stocks begin to reduce.

Several copper producers announced and implemented planned curtailments of
copper production in 2001 and 2002. These reductions are expected to improve
the worldwide supply imbalance, but it is not assured that such cutbacks can or
will be sustained to achieve market balance. Further, consumption of copper is
dependent on general economic conditions and expectations. Although copper
consumption is expected to improve and grow, it is not assured that underlying
drivers of consumption will improve in 2003. Should copper prices and costs
approximate 2002 realizations, the Company would project losses in 2003 of a
similar magnitude to those realized in 2002. In this circumstance, 2003 cash
flow from operations, existing cash balances and other sources of cash would be
expected to generally meet current projected 2003 capital expenditures and
investments, and debt payment obligations. (Refer to risk factors in
Mangements Discussion and Analysis on page 51.)



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Hedging Programs

We do not purchase, hold or sell derivative financial contracts unless we
have an existing asset or obligation or we anticipate a future activity that is
likely to occur that will result in exposing us to market risk. Derivative
financial instruments are used to manage well-defined commodity price, energy,
foreign exchange and interest rate risks from our primary business activities.
The market sensitivity analyses shown in our derivative programs are calculated
based on either valuations provided by third parties or on market closing
prices at year-end. Effective January 1, 2001, we adopted SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, (as amended by
SFAS No. 137) and SFAS No. 138, Accounting for Certain Derivative Instruments
and Certain Hedging Activities. These Statements require recognition of all
derivatives as either assets or liabilities on the balance sheet and
measurement of those instruments at fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other comprehensive
income (loss).

From time to time, Phelps Dodge may enter into copper derivative contracts
to hedge its price exposure on fixed-price customer copper sales contracts.
Our copper hedging program consists primarily of copper swaps and futures
contracts. This program is designed to hedge our exposure on fixed-price sales
contracts in a manner that will allow us to realize the COMEX average price in
the month of shipment or receipt while our customers receive the fixed price
they requested. We accomplish this by liquidating the copper futures contracts
and settling the copper swap contracts during the month of shipment or receipt,
which generally results in the realization of the COMEX average price. During
2002, 2001 and 2000, we had hedge programs in place for approximately 369
million, 487 million and 575 million pounds of copper sales, respectively. All
realized gains or losses from hedge transactions were substantially offset by a
similar amount of loss or gain on the related customer sales contracts at
maturity. At December 31, 2002, we had copper futures and swaps contracts
outstanding for approximately 54 million pounds of copper sales maturing
through October 2004.

At December 31, 2002, we prepared an analysis to determine the sensitivity
of our copper futures contracts to changes in copper prices. If copper prices
had dropped a hypothetical 10 percent at the end of 2002, we would have had a
net loss from our copper futures contracts of approximately $3.8 million. All
realized losses would substantially be offset by a similar amount of gain on
the related customer sales contracts at maturity.

We may purchase or sell copper options to hedge a portion of our expected
future mine production in order to limit the effects of potential decreases in
copper selling prices. We did not have any copper price protection contracts
in place during 2002 or 2001. For 2000 production, we had a total of 110
million pounds of copper cathode production protected through contracts that
effectively ensured minimum (approximately 72 cents) and maximum (approximately
95 cents) prices per pound. The minimum and maximum prices were based upon
average LME prices for the protection period. These contracts expired without
payment on December 31, 2000.

We may purchase copper scrap as a raw material to be processed into rod
for sale to customers. The copper scrap is purchased from third parties at a
copper content price different than the sales price contracted with eventual
rod customers. The Company hedges the price risk difference between the
purchase and sales price and delivery months of the copper. The hedge program
involves the sale of over-the-counter swaps priced at the same basis and for
the same delivery month as the scrap purchase. In the month the copper rod
associated with the scrap purchase is sold, the swap is liquidated at the COMEX
average price. We did not enter into nor did we have any outstanding copper
hedge contracts during 2002 or 2001. At year-end 2000, we had swap contracts
for approximately 3 million pounds of scrap copper with a net hedge and total
face value of approximately $2 million.

Our South American wire and cable operations may enter into aluminum swap
contracts to hedge our aluminum raw material purchase price exposure on
fixed-price sales contracts to allow us to lock in the cost of aluminum ingot
used in fixed-price aluminum cable sold to customers. These swap contracts
generally are settled during the month of shipment or receipt of metal, which
results in a net LME price consistent with that agreed to with our customers.
During 2002, 2001 and 2000, we had aluminum hedge programs in place for
approximately 16 million, 17 million and 5 million pounds, respectively. At
December 31, 2002, we had outstanding swaps of 14 million pounds of aluminum
sales maturing through August 2003.

At December 31, 2002, we prepared an analysis to determine the sensitivity
of our aluminum swap contracts to changes in aluminum prices. If aluminum
prices had dropped a hypothetical 10 percent at the end of 2002, we would have
had a net loss from our aluminum swap contracts of approximately $0.8 million.
All losses on these hedge transactions would have been substantially offset by
a similar amount of gain on the underlying aluminum purchases.



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We purchase significant quantities of diesel fuel and natural gas to
operate our mine sites as an input to the manufacturing process (diesel fuel)
and as an input to electricity generation and copper refining (natural gas).
To reduce the Companys exposure to price increases in these energy products,
the Company enters into energy price protection programs for our North American
operations. Our diesel fuel price protection program consists of purchasing a
combination of out-of-the-money (OTM) diesel fuel call option contracts and
diesel fuel swaps. Our natural gas price protection program consists of OTM
natural gas call option contracts. The OTM call option contracts give the
holder the right, but not the obligation, to purchase a specific commodity
(diesel fuel or natural gas) at a pre-determined price, or strike price. OTM
call options are options that have a strike price above the current market
price for that commodity. Call options allow the Company to cap the commodity
purchase cost at the strike price of the option while allowing the Company the
ability to purchase the commodity at a lower cost when market prices are lower
than the strike price. Swaps allow us to establish a fixed commodity purchase
price for delivery during a specific future period.

Our diesel fuel price protection program, which started in 2000, had 36
million and 37 million gallons of diesel fuel hedged in 2002 and 2001,
respectively. Gains and losses on these hedge transactions were substantially
offset by a similar amount of loss or gain on the underlying energy purchases.
At December 31, 2002, we had outstanding diesel fuel option contracts in place
to hedge approximately 24 million gallons of diesel fuel consumption maturing
through December 2003.

Our natural gas price protection program, which started in 2001 for our
North American operations, had 5.2 million and 7 million decatherms of natural
gas hedged in 2002 and 2001, respectively. Gains and losses on these hedge
transactions were substantially offset by a similar amount of loss or gain on
the underlying energy purchases. At December 31, 2002, we had outstanding
natural gas option contracts in place to hedge approximately 3.7 million
decatherms of natural gas maturing through October 2003.

We purchase significant quantities of feedstock oil (a derivative of
petroleum) which is the primary raw material used in the manufacture of carbon
black. Feedstock oil typically exceeds 50 percent of the total manufacturing
costs for our Specialty Chemicals segment. The objective of the feedstock oil
price protection program is to protect against a significant upward movement in
feedstock oil prices while retaining the flexibility to participate in downward
price movements. To reduce our exposure to feedstock oil price risk, we
purchase OTM call options that allow the Company to cap the commodity purchase
cost at the strike price of the option while allowing the Company the ability
to purchase the commodity at a lower cost when market prices are lower than the
strike price.

During 2002, we entered into OTM feedstock oil call options to protect
approximately 1.1 million barrels of feedstock. Gains and losses on these
hedge transactions were substantially offset by a similar amount of gain or
loss on the underlying feedstock purchases. At December 31, 2002, we did not
have any outstanding feedstock oil option contracts.

Our interest rate hedge programs consist of both fixed-to-floating and
floating-to-fixed interest rate swaps. The purpose of these hedges is to both
protect against significant fluctuations in the fair value of our debt, as well
as to reduce the variability in interest payments. At December 31, 2002, we
had hedge programs in place to convert $375 million of our fixed-rate,
corporate debt to floating and $274 million of our floating-rate, project debt
to fixed. Our interest rate swaps were considered to be fully effective with
any resulting gains or losses on the derivative offset by a similar amount on
the underlying interest payments or fair value of the debt. These interest
rate swaps have maturity dates through May 2007 and December 2008,
respectively. As a result of the repurchase of debt in the third quarter of
2002, we terminated a like portion of the interest rate swap ($25 million),
which resulted in the recognition of a gain of $1.3 million. Additionally,
during August 2001, we unwound interest rate swaps against $900 million in
fixed-rate debt. This resulted in positive cash flows of $23.2 million of
which $4.7 million related to reduced interest expense. The remaining $18.5
million is being amortized into earnings over the remaining life of the
respective debt.

At December 31, 2002, we prepared an analysis to determine the sensitivity
of our interest rate swap contracts to changes in interest rates. A
hypothetical interest rate movement of 1 percent (or 100 basis points) would
have resulted in a potential gain or loss of approximately $13.7 million for
the fixed-to-floating swaps and $4.6 million for the floating-to-fixed swaps
over the term of the respective arrangements.

As a global company, we transact business in many countries and in many
currencies. Foreign currency transactions of our international subsidiaries
increase our risks because exchange rates can change between the time
agreements are made and the time foreign currency transactions are settled. We
manage these exposures by entering into forward exchange contracts in the same
currency as the transaction to lock in or minimize the effects of changes in
exchange rates. With regard to foreign currency transactions, we



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may hedge or protect the functional currencies of our international
subsidiaries transactions for which we have a firm legal obligation or when
anticipated transactions are likely to occur. Our foreign currency hedges
consist of forward exchange contracts to protect the functional currencies of
our international subsidiaries, which included exposures to the British pound,
Euro and U.S. dollar. At year-end 2002, we had outstanding forward exchange
contracts in place for $15.7 million maturing through June 2003.

At December 31, 2002, we prepared an analysis to determine the sensitivity
of our forward foreign exchange contracts to changes in exchange rates. A
hypothetical exchange rate movement of 10 percent would have resulted in a
potential gain or loss of approximately $1.7 million. The loss would have been
virtually offset by a gain on the related underlying transactions.

Environmental Matters

Phelps Dodge is subject to various federal, state and local environmental
laws and regulations that govern emissions of air pollutants; discharges of
water pollutants; and generation, handling, storage and disposal of hazardous
substances, hazardous wastes and other toxic materials. The Company is also
subject to potential liabilities arising under CERCLA or similar state laws
that impose responsibility on persons who arranged for the disposal of
hazardous substances, and on current and previous owners and operators of a
facility for the cleanup of hazardous substances released from the facility
into the environment. In addition, the Company is subject to potential
liabilities under the Resource Conservation and Recovery Act (RCRA) and
analogous state laws that require responsible parties to remediate releases of
hazardous or solid waste constituents into the environment associated with past
or present activities.

Phelps Dodge or its subsidiaries have been advised by the U.S.
Environmental Protection Agency (EPA), the U.S. Forest Service and several
state agencies that they may be liable under CERCLA or similar state laws and
regulations for costs of responding to environmental conditions at a number of
sites that have been or are being investigated by EPA, the U.S. Forest Service
or states to determine whether releases of hazardous substances have occurred
and, if so, to develop and implement remedial actions.

Phelps Dodge has provided reserves for potential environmental obligations
that management considers probable and for which reasonable estimates can be
made. For closed facilities and closed portions of operating facilities with
closure obligations, an environmental liability is considered probable and is
accrued when a closure determination is made and approved by management.
Environmental liabilities attributed to CERCLA or analogous state programs are
considered probable when a claim is asserted, or is probable of assertion, and
we have been associated with the site. Other environmental remediation
liabilities are considered probable based upon specific facts and
circumstances. Liability estimates are based on an evaluation of, among other
factors, currently available facts, existing technology, presently enacted laws
and regulations, Phelps Dodges experience in remediation, other companies
remediation experience, Phelps Dodges status as a potentially responsible
party (PRP), and the ability of other PRPs to pay their allocated portions.
Accordingly, total environmental reserves of $305.9 million and $311.2 million
were recorded as of December 31, 2002 and 2001, respectively. The long-term
portion of these reserves is included in other liabilities and deferred credits
on the consolidated balance sheet and amounted to $261.7 million and $264.3
million at December 31, 2002 and 2001, respectively.

The sites for which we have received a liability claim, a notice of
potential liability or an information request that currently are considered to
be the most significant are the Pinal Creek site near Miami, Arizona; the
Laurel Hill site at Maspeth, New York; the former American Zinc and Chemical
site in Langeloth, Pennsylvania; and the Cyprus Tohono site near Casa Grande,
Arizona.

Pinal Creek Site

The Pinal Creek site was listed under the Arizona Department of
Environmental Quality (ADEQ) Water Quality Assurance Revolving Fund program in
1989 for contamination in the shallow alluvial aquifers within the Pinal Creek
drainage near Miami, Arizona. Since that time, environmental remediation has
been performed by the members of the Pinal Creek Group (PCG), comprising Phelps
Dodge Miami, Inc. (a wholly owned subsidiary of the Company) and two other
companies. In 1998, the District Court approved a Consent Decree between the
PCG members and the state of Arizona resolving all matters related to an
enforcement action contemplated by the state of Arizona against the PCG members
with respect to the groundwater matter. The Consent Decree committed Phelps
Dodge Miami, Inc. and the other PCG members to complete the remediation work
outlined in the Consent Decree. That work continues at this time pursuant to
the Consent Decree and consistent with the National Contingency Plan prepared
by EPA under CERCLA.

Phelps Dodge Miami, Inc. and the other members of the PCG are pursuing
contribution litigation against three other parties involved with the site. At



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least two of the three defendants now have admitted direct liability as
responsible parties. The case is expected to be assigned a trial date in 2004.
Phelps Dodge Miami, Inc. also asserted claims against certain past insurance
carriers. As of November 2002, all of the carriers have settled or had their
liability adjudicated. One carrier has appealed the judgment against it.

In addition, a dispute between one dissenting PCG member and Phelps Dodge
Miami, Inc. and the other PCG member was filed in Superior Court in 2002. The
litigation seeks a declaratory judgment on the dissenting members contract
liability under the PCG agreement. Trial for this matter is scheduled for
early 2004.

While significant recoveries may be achieved in the contribution
litigation, the Company cannot reasonably estimate the amount and, therefore,
has not taken potential recoveries into consideration in the recorded reserve.

Phelps Dodge Miami, Inc.s share of the planned remediation work has a
cost range for reasonably expected outcomes estimated to be from $117 million
to $219 million, and, as no point within that range is more likely than any
other, the lower end of the range has been reserved as required by generally
accepted accounting principles. Approximately $117 million remained in the
Companys Pinal Creek remediation reserve at December 31, 2002.

Laurel Hill Site

Phelps Dodge Refining Corporation, a subsidiary of the Company, owns the
Laurel Hill property in Maspeth, New York, that formerly was used for
metal-related smelting, refining and manufacturing. All industrial operations
at the Laurel Hill site ceased in 1984. In June 1999, the Company entered into
an Order on Consent with the New York State Department of Environmental
Conservation (NYSDEC) that required the Company to perform, among other things,
a remedial investigation and feasibility study relating to environmental
conditions and remedial options at the Laurel Hill site.

The Companys final feasibility study, which was submitted to NYSDEC in
May 2002, recommended that the Laurel Hill site be remediated by removing
certain hot spots of contaminated soils, capping most of the surface of the
site, installing and operating a groundwater extraction, containment and
treatment system, long-term groundwater monitoring, and implementing
institutional controls concerning future land uses. In June 2002, NYSDEC
issued a Proposed Remedial Action Plan (PRAP) adopting Phelps Dodges remedial
recommendation. NYSDEC has held public meetings concerning its PRAP and issued
a final remedial decision in January 2003 in the form of a Record of Decision.
Phelps Dodge expects to commence implementation of the remedy sometime during
the second or third quarter of 2003. While the Laurel Hill site is under a
contract for sale for $34 million, and the contract vendee has assumed the
obligation of capping the site at a cost of about $5 million, implementing the
remainder of the remedy is expected to cost the Company as much as $16 million.
The Company has reserved the entire estimated cost of $21 million.

In July 2002, Phelps Dodge entered into another Order on Consent with
NYSDEC requiring the Company to conduct a remedial investigation and
feasibility study relating to sediments in Newtown and Maspeth Creeks, which
are located contiguous to the Laurel Hill site. The Company expects to
commence the remedial investigation in mid to late 2003. It cannot be
determined what, if any, remedial action will be required by NYSDEC concerning
the Newtown and Maspeth Creek sediments until the remedial investigation and
feasibility studies are complete.

American Zinc and Chemical Site

In June 1999, Cyprus Amax, now a subsidiary of Phelps Dodge, received an
information request from the Pennsylvania Department of Environmental
Protection (PADEP) regarding the former American Zinc and Chemical (AZC) site
in Langeloth, Pennsylvania. For PADEP, the AZC site consists of a former zinc
smelter facility operated until 1947 by the former American Zinc and Chemical
Company and a contiguous, currently operating molybdenum refinery formerly
owned by the Climax Molybdenum Company, a Cyprus Amax subsidiary. The American
Zinc and Chemical Company, which was dissolved in 1951, also was a subsidiary
of a corporate predecessor to Cyprus Amax.

In discussions with Cyprus Amax in 2001 and early 2002, PADEP informally
indicated that it expects Cyprus Amax to investigate and remediate
environmental conditions at the AZC site, which predominates at and about the
former zinc smelter facility. Preliminary evaluations of the nature and extent
of environmental conditions at and about the zinc smelter facility indicate
that remediation of the AZC site may range in cost from $18 million to $52
million. While the Company has reserved $20 million for possible remediation
work at the AZC site, which represents the most likely point within the range
of estimates, Cyprus Amax has indicated to PADEP that the Company is not liable
for the actions of its former subsidiary, American Zinc and Chemical Company,
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environmental laws. To date, PADEP has not responded to Cyprus Amaxs
assertion of non-liability.

Cyprus Tohono Site

Cyprus Tohono Corporation (Cyprus Tohono), a wholly owned subsidiary of
Cyprus Amax, holds three leases for lands on the Tohono Oodham Indian Nation.
The leased lands include the site of a mining operation, currently on
care-and-maintenance status, comprising an open pit, underground mine workings,
leach and non-leach rock stockpiles, tailing and evaporation ponds and solution
extraction/electrowinning (SX/EW) operations, and ancillary facilities.

EPA has started a Preliminary Assessment and Site Investigation of Cyprus
Tohono to evaluate the need to conduct remedial actions under CERCLA. We are
unable to project the remedial action measures, if any, that may be required as
a result of these investigations; however, based upon our best estimate of
remedial actions that Cyprus Tohono may undertake, the Company reserved $11
million for Cyprus Tohono for the CERCLA matter.

Other

In 2002, the Company recognized charges of $14.0 million for environmental
remediation primarily for the Laurel Hill site ($13.5 million) and the
remainder at closed sites, none of which increased or decreased individually
more than $2 million.

At December 31, 2002, the cost range for reasonably possible outcomes for
all reservable environmental remediation sites other than Pinal Creek, Laurel
Hill, AZC and Cyprus Tohono was estimated to be from $119 million to $219
million of which $137 million has been reserved. Work on these sites is
expected to be substantially completed in the next several years, subject to
inherent delays involved in the remediation process.

Phelps Dodge believes certain insurance policies partially cover the
foregoing environmental liabilities; however, some of the insurance carriers
have denied coverage. We presently are negotiating with the carriers over some
of these disputes. Further, Phelps Dodge believes it has other potential
claims for recovery from other third parties, including the United States
Government and other PRPs. Neither insurance recoveries nor other claims or
offsets are recognized unless such offsets are considered probable of
realization. In 2002 and 2001, the Company recognized proceeds from
settlements reached with several insurance companies on historic environmental
liability claims of $34.3 million and $61.8 million, net of fees and expenses,
respectively.

Phelps Dodge has a number of sites that are not the subject of an
environmental reserve because it is not probable that a successful claim will
be made against the Company for those sites, but for which there is a
reasonably possible likelihood of an environmental remediation liability. At
December 31, 2002, the cost range for reasonably possible outcomes for all such
sites was estimated to be from $4 million to $37 million. The liabilities
arising from potential environmental obligations that have not been reserved at
this time may be material to the results of any single quarter or year in the
future. Management, however, believes the liability arising from potential
environmental obligations is not likely to have a material adverse effect on
the Companys liquidity or financial position as such obligations could be
satisfied over a period of years.

The following table summarizes environmental reserve activities for the
years ended December 31:

|                           |                                           |   |       |       |      |  |       |       |   |  |       |       |  
|-------------------------- | ----------------------------------------- | - | ----- | ----- | ---- |  | ----- | ----- | - |  | ----- | ----- | -
|                           |                                           |   | 2002  |       | 2001 |  | 2000 
|                           |                                           |   |       |       |      |  |      
|Balance, beginning of year |                                           | $ | 311.2 |       |      |  | 307.1 |       |   |  | 336.1 |      
|                           | Additions to reserves                     |   |       | 18.3  |      |  |       | 37.1  |   |  |       | 15.7  |  
|                           | Reductions in reserve
estimate            |   |       | (4.3  | )    |  |       | (6.0  | ) |  |       | (15.7 | )
|                           | Spending against reserves                 |   |       | (19.3 | )    |  |       | (27.0 | ) |  |       | (31.8 | )
|                           | Liabilities assumed in
Cyprus acquisition |   |       |      |      |  |       |      |   |  |       | 2.8   |  
|                           |                                           |   |       |       |      |  |       |       |   |  |       |      
|Balance, end of year       |                                           | $ | 305.9 |       |      |  | 311.2 |       |   |  | 307.1 |      
|                           |                                           |   |       |       |      |  |       |       |   |  |       |      

Closure and Reclamation

The following table summarizes closure and reclamation reserve activities
for the years ended December 31:

|                           |                       |   |       |      |      |  |              |      |   |  |      |      |  
|-------------------------- | --------------------- | - | ----- | ---- | ---- |  | ------------ | ---- | - |  | ---- | ---- | -
|                           |                       |   | 2002  |      | 2001 |  | 2000        
|                           |                       |   |       |      |      |  |             
|                           |                       |   |       |      |      |  | As Restated*
|                           |                       |   |       |      |      |  |             
|Balance, beginning of year |                       | $ | 100.6 |      |      |  | 98.6         |      |   |  | 94.7 |     
|                           | Additions to reserves |   |       | 33.1 |      |  |              | 10.1 |   |  |      | 5.6  |  
|                           | Accretion             |   |       | 6.7  |      |  |              | 6.4  |   |  |      | 5.0  |  
|                           | Payments              |   |       | (1.8 | )    |  |              | (9.6 | ) |  |      | (6.7 | )
|                           | Deductions            |   |       |     |      |  |              | (4.9 | ) |  |      |     |  
|                           |                       |   |       |      |      |  |              |      |   |  |      |     
|Balance, end of year       |                       | $ | 138.6 |      |      |  | 100.6        |      |   |  | 98.6 |     
|                           |                       |   |       |      |      |  |              |      |   |  |      |     



|* |  | Refer to Note 22, Restatement of Consolidated Financial Statements, for
further discussion.
|- |  | -------------------------------------------------------------------------------------------

The Company recognizes estimated final reclamation costs over the life of
active mining properties on a units-of-production basis. Non-operating sites
currently on care-and-maintenance status suspend



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accrual of mine closure costs until the site resumes production. When
management determines a mine should be permanently closed, any unrecognized
closure obligation is recognized. The Companys cost estimates consider mining
and operating plans, use of Company resources, and other factors necessary to
achieve compliance with laws and regulations for reclamation and closure. The
Companys cost estimates for reclamation and closure may differ from financial
assurance cost estimate requirements due to a variety of factors including
historical cost advantages, savings from use of the Companys own personnel and
equipment versus third-party contractor costs, and opportunities to prepare
each site for more efficient reclamation through careful development of the
site over time.

We have estimated that total reclamation and closure costs for the year
ended December 31, 2002, aggregated approximately $660 million, leaving
approximately $521 million remaining to be accrued. In late December 2001, the
Company and the state of New Mexico reached a stipulated agreement on the Chino
closure plan as more fully described below. In the 2002 first quarter, the
Company reviewed its targeted closure accrual estimates. Based on that review,
the Companys aggregate closure accrual estimate was increased to approximately
$660 million, principally reflecting adjustments for the Companys cost
estimates associated with Chino (two-thirds basis) and Tyrone. These aggregate
closure costs may increase or decrease materially in the future as a result of
changes in regulations, technology, mine plans or other factors. In addition,
closure activities and expenditures are generally made over a number of years
or potentially greater periods commencing near the end of the mine life.

Significant Arizona Closure and Reclamation Programs

ADEQ has adopted regulations for its aquifer protection permit (APP)
program that replaced the previous Arizona groundwater quality protection
permit regulations. Several of our properties continue to operate pursuant to
the transition provisions for existing facilities under the APP regulations.
The APP regulations require permits for certain facilities, activities and
structures for mining, concentrating and smelting. The APP requires compliance
with aquifer water quality standards at an applicable point of compliance well
or location. The APP also may require mitigation and discharge reduction or
elimination of some discharges. An application for an APP requires a
description of a closure strategy to meet applicable groundwater protection
requirements following cessation of operations and a cost estimate to implement
the closure strategy. An APP may specify closure requirements, which may
include postclosure monitoring and maintenance requirements. A more detailed
closure plan must be submitted within 90 days after a permittee notifies ADEQ
of its intent to cease operations. A permit applicant must demonstrate its
financial capability to meet the costs required under the APP, including
closure costs.

Portions of the Companys Arizona mining operations that operated after
January 1, 1986, also are subject to the Arizona Mined Land Reclamation Act
(AMLRA). AMLRA requires reclamation to achieve stability and safety consistent
with post-mining land use objectives specified in a reclamation plan.
Reclamation plans require approval by the State Mine Inspector and must include
a cost estimate to perform the reclamation measures specified in the plan.
Financial assurance must be provided under AMLRA covering the estimated cost of
performing the reclamation plan.

Under both APP regulations and AMLRA, a publicly traded company may
satisfy the financial assurance requirements by showing that its unsecured debt
rating is investment grade and that it meets certain requirements regarding
assets in relation to the estimated closure and post-closure cost and
reclamation cost estimates. If this test is not met, the permittee must
provide an alternative form of financial assurance that meets the requirements
of the applicable regulations or that is approved by ADEQ or the State Mine
Inspector, as applicable. The Companys Arizona operations have met the
applicable financial assurance requirements by supplying a demonstration of the
Companys investment-grade bond rating.

At December 31, 2002 and 2001, we had accrued closure costs of
approximately $43 million and $38 million, respectively, for our Arizona
operations. The amount of financial assurance currently provided under both
regulatory programs is approximately $115 million. If the Companys bond
rating falls below investment-grade, the Arizona mining operations would be
required to supply financial assurance in another form.

Significant New Mexico Closure and Reclamation Programs

Mining and smelting operations with leaching, tailing ponds, surface
impoundments and other discharging facilities in New Mexico are subject to
regulation under the New Mexico Water Quality Act and the Water Quality Control
Commission (WQCC) Regulations. The Chino, Cobre and Tyrone mines and the
Hidalgo smelter each have obtained multiple discharge permits for their
operations, which specify operational, monitoring and notification
requirements. These permits are issued for five-year terms and require renewal



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following the end of each permit term. The WQCC Regulations authorize the
New Mexico Environment Department (NMED), which administers the discharge
permit program, to require the submission of closure plans showing how
applicable discharge permit requirements will be met following closure. Under
certain circumstances, NMED also may require submission and approval of
abatement plans to address the exceedance of applicable water quality
standards.

Further, Chino, Cobre, Tyrone and Hidalgo must submit closure plans for
their operations. Hidalgo has an approved closure plan under its discharge
permit. The three mines have submitted closure plans, which have been combined
with closeout plans under the New Mexico Mining Act (NMMA), as discussed below.
The proposed closure plans currently are subject to approval by NMED as part
of separate discharge permits for closure for each of the three operations that
would supplement the existing discharge permits (hereinafter referred to as
closure permits). The proposed closure permits contain a number of permit
conditions that would modify the proposed closure plans. Chino Mines Company
and NMED reached agreement in December 2001 on proposed closure permit
conditions presented at a public hearing in February 2002. On January 23,
2003, NMEDs hearing officer issued a decision approving the closure permit as
proposed by NMED and Chino, with minor changes. NMED issued a permit
consistent with the hearing officers decision on February 24, 2003. An appeal
has been filed by a local environmental group. Phelps Dodge Tyrone, Inc. and
NMED were unable to reach agreement on permit terms before a public hearing
held in May 2002, and presented competing permit proposals. Other parties who
participated in the public hearing presented their own proposals. On March 7,
2003, Tyrone received the hearing officers decision on its permit, which
generally adopted NMEDs proposal. On April 2, 2003, Tyrone filed an appeal of
the hearing officers decision with the WQCC. NMED issued a permit in
accordance with the hearing officers decision on April 8, 2003, which Tyrone
also expects to appeal. Cobre Mining Company and NMED also have not reached
agreement on the terms of a closure permit. The closure permit for Cobre
Mining Company does not require a public hearing, and may be issued by NMED at
any time.

Chino, Cobre and Tyrone also are subject to permit requirements under
NMMA, which was passed in 1993. Following adoption of the New Mexico Mining
Act Rules (NMMAR) in 1994, Chino, Cobre and Tyrone received initial permits as
existing mining operations under NMMAR in 1997. These permits require
revisions to incorporate approved closeout plans, which consist of plans for
reclamation of the mining operations to achieve a self-sustaining ecosystem or
an approved post-mining land use following cessation of operations at a mine.
Existing mining operations may seek a waiver of these reclamation standards for
open pits and waste units based upon a demonstration that achieving these
standards is technically or economically infeasible or environmentally unsound,
as long as measures will be taken to meet air and water quality standards
following closure.

NMMAR originally required approval of a closeout plan for an existing
mining operation by December 31, 1999, based upon an extension granted by the
Director of the Mining and Minerals Division (MMD). NMMAR subsequently was
amended to extend the deadline for closeout plan approval until December 31,
2001, and later to October 1, 2002. NMMAR contains a requirement that NMED must
provide MMD with a determination that a closeout plan meets applicable
environmental standards, including air and water quality standards, before MMD
can approve the closeout plan. NMEDs policy is to issue this determination
after it has issued closure permits for the facility that submits the closeout
plan. In early 2001, Chino, Cobre and Tyrone submitted comprehensive
closure/closeout plans (CCPs) to both NMED and MMD intended to address the
requirements of both the WQCC Regulations and NMMAR. Approval of the CCPs
under NMMAR would require the granting of waivers by MMD as authorized under
NMMAR. The CCPs were the subject of the public hearings before NMED for Chino
and Tyrone, as discussed above.

As of October 1, 2002, NMED had not issued closure permits for Chino,
Cobre or Tyrone. Consequently, as of October 1, 2002, MMD had not approved
closeout permits for these three mines. MMD issued Notices of Violation (NOVs)
to Chino, Cobre and Tyrone because the three mines did not obtain approved
closeout plans by the October 1, 2002, deadline. The NOVs were modified by the
Mining Commission following a public hearing to set new deadlines for closeout
plan approval tied to NMED permit actions. Based on NMEDs permit actions,
closeout plan approval for Chino is now due by September 24, 2003, and the
closeout plan approval date for Tyrone should be about April 8, 2004. The
closeout plan approval deadline for Cobre will be nine months from the date of
NMEDs permit issuance, which is currently pending.

NMMAR contains specific requirements regarding financial assurance that
must be provided to MMD to assure that sufficient funds would be available to
MMD to carry out the closeout plan in the event of a default by the permittee.
NMED also may require financial assurance under the WQCC Regulations. The
financial assurance requirements are based upon the net present value of
estimated costs to carry out the requirements of the closure permit and the
approved



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closeout plan, assuming the state would hire a third-party contractor to
conduct the work. Actual reclamation costs may differ significantly from the
costs estimated under the permits due to advances in technology and reclamation
techniques and opportunities to prepare each site for more efficient
reclamation through careful development of the site over time. Consequently,
the estimated costs under the permits are higher than the cost the Company
would be expected to incur if the Company performed the work.

The CCPs submitted in early 2001 contained cost estimates of approximately
$100 million for Chino, $121 million for Tyrone, and $9 million for Cobre,
based upon unescalated and undiscounted capital and operating costs over a
30-year operating period. The closure permit negotiated by NMED and Chino
Mines Company and approved by the NMED hearing officer has an estimated cost of
approximately $391 million, based upon third-party unescalated and undiscounted
capital and operating costs over a 100-year operating period. This cost
estimate will be adjusted to include the cost of technical studies required
under the permit conditions after a cost estimate for those costs has been
approved by NMED. The Companys two-thirds share of NMEDs $391 million
estimate is approximately $261 million and our joint venture partners cost
share is approximately $130 million. We estimate total costs to achieve the
closure standards required by NMED to be approximately $261 million. The
Companys cost estimate to achieve the New Mexico closure standards is
approximately one-third lower than the financial assurance cost estimate as a
result of the Companys historical cost advantages, savings from the use of the
Companys own personnel and equipment versus third-party contract costs, and
opportunities to prepare the site for more efficient reclamation. The
financial assurance cost estimate includes approximately $10 million (100
percent basis) of costs the Company has recognized in environmental reserves.
The Companys two-thirds share of these costs is approximately $174 million and
our joint venture partners cost share is approximately $87 million. At
December 31, 2002 and 2001, we had accrued approximately $8 million and $5
million, respectively, (two-thirds basis) for reclamation at Chino. The NMED
cost estimate for Chino is subject to further review, and possible adjustment,
by MMD under NMMAR.

NMED estimated the cost to carry out the requirements of its proposed
closure permit for Tyrone at approximately $440 million, without discounting or
escalation, under NMEDs proposal at the May 2002 hearing; Tyrone estimated the
cost of its proposal at approximately $328 million, without discounting or
escalation over a 100-year operating period. NMED has not yet supplied its
proposed cost estimate for Cobre. The proposed terms of the closure permits
would require additional studies over the five-year term of the permits to
refine the closure plan. The plan requirements and cost estimates may increase
or decrease based upon the results of the studies and other factors, including
changes in technology, completion of some closure and reclamation work, and
inflation.

Based upon NMEDs undiscounted financial assurance cost estimates for the
Tyrone plan of approximately $440 million, and considering the same cost
advantages as indicated in the above discussion regarding Chino, we estimate
the Companys costs to achieve the closure standards under that estimate to be
approximately $288 million for Tyrone. The Company has not obtained approval
from NMED of an estimate of its cost to achieve the closure standards that
would be required by the hearing officers decision. The Companys current
cost estimate for Cobre of approximately $9 million will be updated with the
issuance of the discharge permit. At December 31, 2002 and 2001, we had
accrued closure costs of approximately $27 million and $8 million,
respectively, at Tyrone and approximately $2 million at Cobre.

Following NMEDs issuance of the closure permits, Chino, Cobre and Tyrone
are required to submit proposals for financial assurance based upon the permit
requirements and subject to NMEDs approval. Under the proposed closure permit
terms, the amount of financial assurance may be based upon the net present
value of the estimated cost for a third-party to implement the plan, using
discount and escalation rates specified in the permit. These amounts are
expected to be substantially lower than the undiscounted and unescalated cost
estimates. For example, based upon the cost estimate approved by the hearing
officer, the financial assurance amount for Chino could be approximately $189
million. This amount is based on annual escalation rates of approximately 3.2
percent for long-term water treatment costs and approximately 3.6 percent for
other costs and discount rates of 5 percent for years one through 12 of the
plan and 8 percent for years 13 through 100.

NMMAR requires that financial assurance for a closeout plan be approved
and put in place before MMD can approve the closeout plan. Currently, under
interim financial assurance required under the terms of their NMED closure
permits, Chino and Tyrone have provided approximately $56 million and $58
million of financial assurance, respectively, which is held by NMED. Cobre
also has approximately $2 million of financial assurance in place held jointly
by NMED and MMD. Following NMEDs issuance of the closure permits, and prior
to MMDs approval of the closeout plans, Chino, Tyrone and Cobre will be
required to provide substantial amounts of additional financial assurance to
cover the amounts of the approved cost



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estimates and may involve material cost
depending on the form of financial assurance provided. Hidalgo currently has
provided financial assurance in the amount of approximately $11 million under
its discharge permit.

Significant Colorado Reclamation Program

Our Climax and Henderson mines in Colorado are subject to permitting
requirements under the Colorado Mined Land Reclamation Act, which requires
approval of reclamation plans and provisions for financial assurance. These
mines have had approved mined land reclamation plans for several years and have
provided the required financial assurance to the state of Colorado in the
amount of $52.4 million and $10.1 million, for Climax and Henderson,
respectively. As a result of adjustments to the approved cost estimates for
various reasons, the amount of financial assurance requirements can increase or
decrease over time. At December 31, 2002 and 2001, we had accrued closure
costs of approximately $19 million and $18 million, respectively, for our
Colorado operations.

Other

Some portions of our mining operations located on public lands are subject
to mine plans of operation approved by the federal Bureau of Land Management
(BLM). BLMs regulations include financial assurance requirements for
reclamation plans required as part of the approved plans of operation. As a
result of recent changes to BLMs regulations, including more stringent
financial assurance requirements, increases in existing financial assurance
amounts held by BLM could be required. Currently, financial assurance for the
Companys operations held by BLM totals $2.7 million.

The Company is investigating available options to provide additional
financial assurance and, in some instances, to replace existing financial
assurance. The cost of surety bonds, the traditional source of financial
assurance, has increased significantly over the past year, and many surety
companies are now requiring an increased level of collateral supporting the
bonds such that they no longer are economically prudent. Some surety companies
that issued surety bonds to the Company are seeking to exit the market for
reclamation bonds. The terms and conditions presently available from our
principal surety bond provider for reclamation and other types of long-lived
surety bonds have made this type of financial assurance economically
impracticable. We are working with the impacted state and federal agencies to
put in place acceptable alternative forms of financial assurance in a timely
fashion.

Congress passed the General Mining Law in 1872 to govern access to federal
lands. In 2002, legislation was introduced in the U.S. House of
Representatives to amend the General Mining Law. Similar legislation has been
introduced in Congress during the 1990s. None of these bills has been enacted
into law. Concepts in the legislation over the years have included the payment
of royalties on minerals extracted from federal lands, payment of fair market
value for patenting federal lands and reversion of patented lands used for
non-mining purposes to the federal government. Several of these same concepts
and others likely will continue to be pursued legislatively in the future.

Refer to discussion of Contractual Obligations, Commercial Commitments and
Other Items that May Affect Liquidity for related financial assurance issues.

We also are subject to federal and state laws and regulations pertaining
to plant and mine safety and health conditions. These laws include the
Occupational Safety and Health Act of 1970 and the Mine Safety and Health Act
of 1977. Present and proposed regulations govern worker exposure to a number
of substances and conditions present in work environments. These include dust,
mist, fumes, heat and noise. We are making and will continue to make
expenditures to comply with health and safety laws and regulations.

We estimate that our share of capital expenditures for programs to comply
with applicable environmental laws and regulations that affect our operations
will total approximately $29 million in 2003 and approximately $30 million in
2004; approximately $16 million was spent on such programs in 2002. We also
anticipate making significant capital and other expenditures beyond 2004 for
continued compliance with such laws and regulations. In light of the
frequent changes in the laws and regulations and the uncertainty inherent in this area, we
are unable to reasonably estimate the total amount of such expenditures over
the longer term, but it may be material.

We do not expect that additional capital and operating costs associated
with achieving compliance with the many environmental, health and safety laws
and regulations will have a material adverse affect on our competitive position
relative to other U.S. copper producers. These domestic copper producers are
subject to comparable requirements. However, because copper is an
internationally traded commodity, these costs could significantly affect us in
our efforts to compete globally with those foreign producers not subject to
such stringent requirements.



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Other Matters

New Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 143, Accounting for Asset Retirement Obligations. With the adoption of
this Statement, retirement obligations will be recognized when they are
incurred and displayed as liabilities and the initial measurement will be at
fair value. In addition, the asset retirement cost will be capitalized as part
of the assets carrying value and subsequently allocated to expense over the
assets useful life. This Statement is required to be adopted by the Company
on or before January 1, 2003. Upon adoption of this Statement, we expect to
record an increase to our closure and reclamation reserve of
approximately $8
million, an increase to our mining properties assets ranging from $16 to $36
million and a cumulative effect ranging from $0 to $35 million in income.
Final resolution of this matter is pending guidance from FASB regarding
application of a change in policy for our acquired properties.

In April 2002, FASB issued SFAS No. 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. Under SFAS No. 4, all gains and losses from extinguishment of
debt were required to be aggregated and, if material, classified as an
extraordinary item, net of related income tax effect. This Statement
eliminates SFAS No. 4 and, thus, the exception to applying Accounting
Principles Board (APB) Opinion No. 30 to all gains and losses related to
extinguishments of debt. As a result, gains and losses from extinguishment of
debt should be classified as extraordinary items only if they meet the criteria
in APB No. 30. Applying the provisions of APB No. 30 will distinguish
transactions that are part of an entitys recurring operations from those that
are unusual or infrequent or that meet the criteria for classification as an
extraordinary item. Under SFAS No. 13, the required accounting treatment of
certain lease modifications that have economic effects similar to
sale-leaseback transactions was inconsistent with the required accounting
treatment for sale-leaseback transactions. This Statement amends SFAS No. 13
to require that those lease modifications be accounted for in the same manner
as sale-leaseback transactions. This Statement was adopted by the Company in
the 2003 first quarter.

In June 2002, FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. This Statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including Certain Costs Incurred in a Restructuring). The
principal difference between this Statement and EITF 94-3 relates to its
requirements for recognition of a liability for a cost associated with an exit
or disposal activity. This Statement requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability
is incurred. Under EITF 94-3, a liability was recognized at the date of an
entitys commitment to an exit plan. This Statement is effective for exit or
disposal activities that are initiated after December 31, 2002.

In November 2002, FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others (FIN 45). FIN 45 requires that upon
issuance of certain guarantees, a guarantor must recognize a liability for the
fair value of an obligation assumed under the guarantee. FIN 45 also requires
significant new disclosures by guarantors, in both interim and annual financial
statements, about obligations associated with guarantees issued. FIN 45
disclosure requirements are effective for our year ended December 31, 2002, and
the initial recognition and measurement provisions are applicable on a
prospective basis to guarantees issued or modified after December 31, 2002.

In December 2002, FASB issued SFAS No. 148, Accounting for Stock Based
Compensation  Transition and Disclosure  an Amendment of SFAS No. 123. The
Statement amends SFAS No. 123, Accounting for Stock-Based Compensation, and
provides alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. This
Statement also amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial statements about the
method of stock-based employee compensation and the effect of the method used on reported results. This Statement was effective
for fiscal years ending after December 15, 2002. The Company adopted this Statement
in regards to disclosure provisions for the year ended December 31, 2002.

In January 2003, FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, an Interpretation of ARB No. 51 (FIN 46) to
clarify when a company should consolidate in its financial statements the
assets, liabilities and activities of a variable interest entity. FIN 46
provides general guidance as to the definition of a variable interest entity
and requires a variable interest entity to be consolidated if a company absorbs
the majority of the variable interest entitys expected losses, or is entitled
to receive a majority of the variable interest entitys residual returns, or
both.



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FIN 46 is effective immediately for all new variable interest entities
created after January 31, 2003. For variable interest entities created before
February 1, 2003, the consolidation provisions of FIN 46 must be applied for
the first interim or annual reporting period beginning after June 15, 2003.
The disclosure provisions of FIN 46 apply to financial statements issued after
January 31, 2003, regardless of when the variable interest entity was
established. The Company does not believe that the adoption of FIN 46 will
materially impact our financial reporting and disclosures.

In August 2001, FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. This Statement supersedes SFAS No. 121 and
the accounting and reporting provisions of APB Opinion No. 30, and also amends
Accounting Research Bulletin (ARB) No. 51. This Statement requires that one
accounting model be used for long-lived assets to be disposed of by sale,
whether previously held and used or newly acquired, and will broaden the
presentation of discontinued operations to include more disposal transactions.
This Statement was adopted by the Company on January 1, 2002, and was utilized
in the determination of our Wire and Cable segments asset impairment charge in
the 2002 third quarter and PDMCs impairment charge in the 2002 fourth quarter.

During 2001, we adopted SFAS No. 140, Accounting for the Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities. The
Statement provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings.




CAPITAL OUTLAYS

Capital outlays in the following table exclude capitalized interest and
the minority joint-venture interest portions of the expenditures at Morenci,
Chino, El Abra and Candelaria.

($ in millions)

|                    |                         |   |       |      |      |  |       |       |  |  |       |       | 
|------------------- | ----------------------- | - | ----- | ---- | ---- |  | ----- | ----- |  |  | ----- | ----- | 
|                    |                         |   | 2002  |      | 2001 |  | 2000 
|                    |                         |   |       |      |      |  |      
|PDMC:               |                         |   |       |      |      |  |       |       |  |  |       |      
|                    | Copper  United States  |   | $     | 68.1 |      |  |       | 129.6 |  |  |       | 272.8 | 
|                    | Copper  South American |   |       | 15.8 |      |  |       | 61.9  |  |  |       | 29.9  | 
|                    | Primary Molybdenum      |   |       | 9.8  |      |  |       | 8.7   |  |  |       | 8.9   | 
|                    |                         |   |       |      |      |  |       |       |  |  |       |       | 
|                    |                         |   | 93.7  |      |      |  | 200.2 |       |  |  | 311.6 |      
|                    |                         |   |       |      |      |  |       |       |  |  |       |       | 
|PDI:                |                         |   |       |      |      |  |       |       |  |  |       |      
|                    | Specialty Chemicals     |   |       | 24.1 |      |  |       | 28.9  |  |  |       | 55.7  | 
|                    | Wire and Cable          |   |       | 9.3  |      |  |       | 12.8  |  |  |       | 16.9  | 
|                    |                         |   |       |      |      |  |       |       |  |  |       |       | 
|                    |                         |   | 33.4  |      |      |  | 41.7  |       |  |  | 72.6  |      
|                    |                         |   |       |      |      |  |       |       |  |  |       |       | 
|Corporate and other |                         |   | 3.3   |      |      |  | 21.0  |       |  |  | 13.0  |      
|                    |                         |   |       |      |      |  |       |       |  |  |       |       | 
|                    |                         | $ | 130.4 |      |      |  | 262.9 |       |  |  | 397.2 |      
|                    |                         |   |       |      |      |  |       |       |  |  |       |       | 

Capital outlays exclude investments in subsidiaries.




INFLATION

The principal impact of general inflation upon our financial results has
been on implied unit cost of copper production, especially supply costs, at our
mining and industrial operations. It is important to note, however, that there
is generally no correlation between the selling price of our principal product,
copper, and the rate of inflation or deflation.




DIVIDENDS AND MARKET PRICE RANGES

The principal market for our common stock is the New York Stock Exchange.
At April 9, 2003, there were 27,404 holders of record of our common shares.
Due to economic conditions and continuing unsatisfactory copper prices, the
Company reduced the quarterly dividend on its common shares by 75 percent
beginning in the second quarter 2001 and eliminated the dividend on its common
shares in the fourth quarter of 2001. Accordingly, there were no dividends
declared or paid on common shares in 2002, compared with dividend payments of
$59.1 million in 2001.

The Company declared dividends of $4.5563 per mandatory convertible
preferred share in 2002, amounting to $9.1 million. Additional information
required for this item is provided in the Quarterly Financial Data table.



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- 106 -




QUARTERLY FINANCIAL DATA
($ in millions except per common share amounts)

The following is a summary of selected unaudited quarterly financial data, as restated for the quarters ending March 31, 2002, June 30, 2002, September 30, 2002, and all quarters in 2001. (Refer to Note 22, Restatement of
Consolidated Financial Statements, to the Consolidated Financial Statements included elsewhere in this Form 10-K for further discussion.)

|                                                                                                             |       |   |               |       |                |  |             |     |               |   |             |       |          |  |       |       |             |  |      |     |  |   |       |       | 
|------------------------------------------------------------------------------------------------------------ | ----- | - | ------------- | ----- | -------------- |  | ----------- | --- | ------------- | - | ----------- | ----- | -------- |  | ----- | ----- | ----------- |  | ---- | --- |  | - | ----- | ----- | 
|                                                                                                             |       |   | First Quarter |       | Second Quarter
|                                                                                                             |       |   |               |       |               
|                                                                                                             |       |   |               |       |                |  | (1) (2) (3) |     |               |   |             |       |          |  |       |       | (1) (2) (3) |  |      |     | 
|                                                                                                             |       |   | As Previously |       | (4) (6)        |  | As          |     | As Previously |   | (4) (6) (7) |       | As      
|                                                                                                             |       |   | Reported      |       | Adjustments    |  | Restated    |     | Reported      |   | Adjustments |       | Restated
|                                                                                                             |       |   |               |       |                |  |             |     |               |   |             |       |         
|2002                                                                                                         |       |   |               |       |                |  |             |     |               |   |             |       |          |  |       |       |             |  |      |     |  |   |       |      
|Sales and other operating revenues                                                                           |       | $ | 918.5         |       |                |  |            |     |               | $ | 918.5       |       |          |  | 966.8 |       |             |  |     |     |  | $ | 966.8 |      
|Operating income (loss)                                                                                      |       |   | 7.0           |       |                |  | 5.7         |     |               |   | 12.7        |       |          |  | (15.8 | )     |             |  | 5.6  |     |  |   | (10.2 | )    
|Loss before extraordinary item and
cumulative effect of accounting
change                                    |       |   | (4.8          | )     |                |  | 2.9         |     |               |   | (1.9        | )     |          |  | (36.4 | )     |             |  | 2.1  |     |  |   | (34.3 | )    
|Net loss                                                                                                     |       |   | (27.7         | )     |                |  | 2.9         |     |               |   | (24.8       | )     |          |  | (36.4 | )     |             |  | 2.1  |     |  |   | (34.3 | )    
|Basic and diluted loss per common share
before extraordinary item and
cumulative effect of accounting
change |       |   | (0.06         | )     |                |  | 0.03        |     |               |   | (0.03       | )     |          |  | (0.48 | )     |             |  | 0.02 |     |  |   | (0.46 | )    
|Basic and diluted loss per common
share                                                                      |       |   | (0.35         | )     |                |  | 0.03        |     |               |   | (0.32       | )     |          |  | (0.48 | )     |             |  | 0.02 |     |  |   | (0.46 | )    
|Stock prices *                                                                                               |       |   |               |       |                |  |             |     |               |   |             |       |          |  |       |       |             |  |      |     |  |   |       |      
|                                                                                                             | High  |   |               | 42.51 |                |  |             | N/A |               |   |             | 42.51 |          |  |       | 42.10 |             |  |      | N/A |  |   |       | 42.10 | 
|                                                                                                             | Low   |   |               | 30.50 |                |  |             | N/A |               |   |             | 30.50 |          |  |       | 33.50 |             |  |      | N/A |  |   |       | 33.50 | 
|                                                                                                             | Close |   |               | 42.10 |                |  |             | N/A |               |   |             | 42.10 |          |  |       | 41.20 |             |  |      | N/A |  |   |       | 41.20 | 

|                                                                                                             |       |   |               |       |                |  |             |     |  |   |       |       |  |  |  |  |          |  |  |  |  |  |        |       | 
|------------------------------------------------------------------------------------------------------------ | ----- | - | ------------- | ----- | -------------- |  | ----------- | --- |  | - | ----- | ----- |  |  |  |  | -------- |  |  |  |  |  | ------ | ----- | 
|                                                                                                             |       |   | Third Quarter |       | Fourth Quarter
|                                                                                                             |       |   |               |       |               
|                                                                                                             |       |   |               |       |                |  | (1) (2) (3) |     |  |   |       |       |  |  |  |  |          |  |  |  |  |  |       
|                                                                                                             |       |   | As Previously |       | (4) (6) (7)    |  | As          |     |  |   |       |       |  |  |  |  |          |  | 
|                                                                                                             |       |   | Reported      |       | Adjustments    |  | Restated    |     |  |   |       |       |  |  |  |  | Reported
|                                                                                                             |       |   |               |       |                |  |             |     |  |   |       |       |  |  |  |  |         
|2002                                                                                                         |       |   |               |       |                |  |             |     |  |   |       |       |  |  |  |  |          |  |  |  |  |  |        |      
|Sales and other operating revenues                                                                           |       | $ | 941.2         |       |                |  |            |     |  | $ | 941.2 |       |  |  |  |  |          |  |  |  |  |  | 895.5  |      
|Operating income (loss)                                                                                      |       |   | (18.9         | )     |                |  | 6.9         |     |  |   | (12.0 | )     |  |  |  |  |          |  |  |  |  |  | (199.8 | )    
|Loss before extraordinary item and
cumulative effect of accounting
change                                    |       |   | (29.3         | )     |                |  | 2.2         |     |  |   | (27.1 | )     |  |  |  |  |          |  |  |  |  |  | (225.3 | )    
|Net loss                                                                                                     |       |   | (55.9         | )     |                |  | 2.2         |     |  |   | (53.7 | )     |  |  |  |  |          |  |  |  |  |  | (225.3 | )    
|Basic and diluted loss per common share
before extraordinary item and
cumulative effect of accounting
change |       |   | (0.37         | )     |                |  | 0.03        |     |  |   | (0.34 | )     |  |  |  |  |          |  |  |  |  |  | (2.58  | )    
|Basic and diluted loss per common share                                                                      |       |   | (0.67         | )     |                |  | 0.03        |     |  |   | (0.64 | )     |  |  |  |  |          |  |  |  |  |  | (2.58  | )    
|Stock prices *                                                                                               |       |   |               |       |                |  |             |     |  |   |       |       |  |  |  |  |          |  |  |  |  |  |        |      
|                                                                                                             | High  |   |               | 42.00 |                |  |             | N/A |  |   |       | 42.00 |  |  |  |  |          |  |  |  |  |  |        | 33.85 | 
|                                                                                                             | Low   |   |               | 24.67 |                |  |             | N/A |  |   |       | 24.67 |  |  |  |  |          |  |  |  |  |  |        | 22.90 | 
|                                                                                                             | Close |   |               | 25.63 |                |  |             | N/A |  |   |       | 25.63 |  |  |  |  |          |  |  |  |  |  |        | 31.65 | 



|* |  | As reported in the Wall Street Journal.
|- |  | ---------------------------------------

Refer to quarterly explanations on pages 108 and 109.



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- 107 -

QUARTERLY FINANCIAL DATA
($ in millions except per common share amounts)

|                                                                                                 |       |   |               |       |                |  |          |     |               |   |             |       |          |  |         |       |             |  |      |     |  |   |         |       | 
|------------------------------------------------------------------------------------------------ | ----- | - | ------------- | ----- | -------------- |  | -------- | --- | ------------- | - | ----------- | ----- | -------- |  | ------- | ----- | ----------- |  | ---- | --- |  | - | ------- | ----- | 
|                                                                                                 |       |   | First Quarter |       | Second Quarter
|                                                                                                 |       |   |               |       |               
|                                                                                                 |       |   |               |       |                |  | (1) (2)  |     |               |   |             |       |          |  |         |       | (1) (2) (3) |  |      |     | 
|                                                                                                 |       |   | As Previously |       | (4) (7)        |  | As       |     | As Previously |   | (4) (7)     |       | As      
|                                                                                                 |       |   | Reported      |       | Adjustments    |  | Restated |     | Reported      |   | Adjustments |       | Restated
|                                                                                                 |       |   |               |       |                |  |          |     |               |   |             |       |         
|2001                                                                                             |       |   |               |       |                |  |          |     |               |   |             |       |          |  |         |       |             |  |      |     |  |   |         |      
|Sales and other operating revenues                                                               |       | $ | 1,100.7       |       |                |  |         |     |               | $ | 1,100.7     |       |          |  | 1,063.5 |       |             |  |     |     |  | $ | 1,063.5 |      
|Operating income (loss)                                                                          |       |   | 34.4          |       |                |  | 9.0      |     |               |   | 43.4        |       |          |  | (17.2   | )     |             |  | 5.6  |     |  |   | (11.6   | )    
|Income (loss) before cumulative effect
of accounting change                                      |       |   | 16.2          |       |                |  | (11.1    | )   |               |   | 5.1         |       |          |  | (110.5  | )     |             |  | 17.4 |     |  |   | (93.1   | )    
|Net income (loss)                                                                                |       |   | 14.2          |       |                |  | (11.1    | )   |               |   | 3.1         |       |          |  | (110.5  | )     |             |  | 17.4 |     |  |   | (93.1   | )    
|Basic and diluted earnings (loss) per
common share before cumulative
effect of accounting change |       |   | 0.21          |       |                |  | (0.14    | )   |               |   | 0.07        |       |          |  | (1.41   | )     |             |  | 0.22 |     |  |   | (1.19   | )    
|Basic and diluted earnings (loss) per
common share                                               |       |   | 0.18          |       |                |  | (0.14    | )   |               |   | 0.04        |       |          |  | (1.41   | )     |             |  | 0.22 |     |  |   | (1.19   | )    
|Stock prices *                                                                                   |       |   |               |       |                |  |          |     |               |   |             |       |          |  |         |       |             |  |      |     |  |   |         |      
|                                                                                                 | High  |   |               | 55.69 |                |  |          | N/A |               |   |             | 55.69 |          |  |         | 51.00 |             |  |      | N/A |  |   |         | 51.00 | 
|                                                                                                 | Low   |   |               | 39.55 |                |  |          | N/A |               |   |             | 39.55 |          |  |         | 37.82 |             |  |      | N/A |  |   |         | 37.82 | 
|                                                                                                 | Close |   |               | 40.18 |                |  |          | N/A |               |   |             | 40.18 |          |  |         | 41.50 |             |  |      | N/A |  |   |         | 41.50 | 

|                                                                                                 |       |   |               |       |                |  |             |     |               |   |             |       |          |  |       |       |              |  |       |     |  |   |        |       | 
|------------------------------------------------------------------------------------------------ | ----- | - | ------------- | ----- | -------------- |  | ----------- | --- | ------------- | - | ----------- | ----- | -------- |  | ----- | ----- | ------------ |  | ----- | --- |  | - | ------ | ----- | 
|                                                                                                 |       |   | Third Quarter |       | Fourth Quarter
|                                                                                                 |       |   |               |       |               
|                                                                                                 |       |   |               |       |                |  | (1) (2) (3) |     |               |   |             |       |          |  |       |       | (1)(2)(3)(4) |  |       |     | 
|                                                                                                 |       |   | As Previously |       | (4) (7)        |  | As          |     | As Previously |   | (5)(6)(7)   |       | As      
|                                                                                                 |       |   | Reported      |       | Adjustments    |  | Restated    |     | Reported      |   | Adjustments |       | Restated
|                                                                                                 |       |   |               |       |                |  |             |     |               |   |             |       |         
|2001                                                                                             |       |   |               |       |                |  |             |     |               |   |             |       |          |  |       |       |              |  |       |     |  |   |        |      
|Sales and other operating revenues                                                               |       | $ | 937.0         |       |                |  |            |     |               | $ | 937.0       |       |          |  | 901.2 |       |              |  |      |     |  | $ | 901.2  |      
|Operating income (loss)                                                                          |       |   | (52.9         | )     |                |  | (7.0        | )   |               |   | (59.9       | )     |          |  | (9.2  | )     |              |  | 8.5   |     |  |   | (0.7   | )    
|Income (loss) before cumulative effect
of accounting change                                      |       |   | (100.4        | )     |                |  | (2.4        | )   |               |   | (102.8      | )     |          |  | (78.3 | )     |              |  | (60.4 | )   |  |   | (138.7 | )    
|Net income (loss)                                                                                |       |   | (100.4        | )     |                |  | (2.4        | )   |               |   | (102.8      | )     |          |  | (78.3 | )     |              |  | (60.4 | )   |  |   | (138.7 | )    
|Basic and diluted earnings (loss) per
common share before cumulative
effect of accounting change |       |   | (1.28         | )     |                |  | (0.03       | )   |               |   | (1.31       | )     |          |  | (1.00 | )     |              |  | (0.77 | )   |  |   | (1.77  | )    
|Basic and diluted earnings (loss) per
common share                                               |       |   | (1.28         | )     |                |  | (0.03       | )   |               |   | (1.31       | )     |          |  | (1.00 | )     |              |  | (0.77 | )   |  |   | (1.77  | )    
|Stock prices *                                                                                   |       |   |               |       |                |  |             |     |               |   |             |       |          |  |       |       |              |  |       |     |  |   |        |      
|                                                                                                 | High  |   |               | 41.84 |                |  |             | N/A |               |   |             | 41.84 |          |  |       | 37.25 |              |  |       | N/A |  |   |        | 37.25 | 
|                                                                                                 | Low   |   |               | 25.74 |                |  |             | N/A |               |   |             | 25.74 |          |  |       | 26.30 |              |  |       | N/A |  |   |        | 26.30 | 
|                                                                                                 | Close |   |               | 27.50 |                |  |             | N/A |               |   |             | 27.50 |          |  |       | 32.40 |              |  |       | N/A |  |   |        | 32.40 | 



|* |  | As reported in the Wall Street Journal.
|- |  | ---------------------------------------

Refer to quarterly explanations on pages 108 and 109.



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- 108 -

In the fourth quarter of 2002, the Company identified certain accounting
matters that require restatement to our financial statements for the quarterly
periods ending March 31, 2001, through September 30, 2002, as follows:



| | (1) |  | To adjust the units-of-production rate calculation for PDMCs
mining, smelting and refining operations. This change reduced our
depreciation and amortization expense and increased our operating
income by $7.3 million, $6.9 million, $4.1 million, $7.1 million,
$2.7 million, $3.0 million and $3.3 million beginning with the first
quarter of 2001 through the third quarter of 2002, respectively.
Additionally, this change increased our net income by $5.7 million,
or 7 cents per common share; $5.2 million, or 7 cents per common
share; $2.8 million, or 4 cents per common share; $4.9 million, or 5
cents per common share; $2.2 million, or 3 cents per common share;
$2.4 million, or 3 cents per common share; and $2.6 million, or 3
cents per common share, beginning with the first quarter of 2001
through the third quarter of 2002, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2) |  | To adjust the acquired reclamation obligations assumed in the
Cyprus Amax Minerals Company acquisition. This change increased our
cost of products sold and decreased our operating income or increased
our operating loss (where applicable) by $0.6 million, $0.7 million,
$0.8 million, $0.4 million, $0.9 million, $0.9 million and $0.9
million beginning with the first quarter of 2001 through the third
quarter of 2002, respectively. Additionally, this change either
decreased our net income or increased our net loss (where applicable)
by $0.5 million, or 1 cent per common share; $0.5 million, or 1 cent
per common share; $0.7 million, or 1 cent per common share; $0.3
million, $0.8 million, or 1 cent per common share; $0.7 million, or 1
cent per common share; and $0.7 million, or 1 cent per common share,
beginning with the first quarter of 2001 through the third quarter of
2002, respectively.                                                                                                                                                                                                                                                                                                                                                          
|
| | (3) |  | To adjust the estimated reclamation obligation at our Tyrone
mine in 2001 based upon updated cost information, and in 2002 to
exclude mineralized material from the determination of the unit
accrual rate. This change increased our cost of products sold and
decreased our operating income or increased our operating loss (where
applicable) and decreased our net income or increased our net loss
(where applicable) by $1.4 million, or 2 cents per common share; $1.4
million, or 2 cents per common share; $1.5 million, or 2 cents per
common share; $2.1 million, or 3 cents per common share; $2.1
million, or 3 cents per common share; and $2.4 million, or 3 cents
per common share, beginning with the second quarter of 2001 through
the third quarter of 2002, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| | (4) |  | To capitalize costs associated with material in mill and leach
stockpiles and the consequent in-process material being converted to
salable copper products, all of which were reviewed for lower of cost
or market values. This change decreased (increased) our cost of
products sold and increased (decreased) our operating income or
decreased (increased) our operating loss (where applicable) by $2.3
million, $0.8 million, $(8.9) million, $(5.7) million, $6.0 million,
$5.6 million and $6.9 million beginning with the first quarter of
2001 through the third quarter of 2002, respectively. Additionally,
this change either increased (decreased) our net income or decreased
(increased) our net loss by $1.2 million, or 2 cents per common
share; $(0.8) million, or (1) cent per common share; $(7.6) million,
or (10) cents per common share; $(5.6) million, or (7) cents per
common share; $5.6 million, or 7 cents per common share; $5.1
million, or 7 cents per common share and $6.2 million, or 7 cents per
common share, beginning with the first quarter of 2001 through the
third quarter of 2002, respectively. The 2001 third quarter amounts
included an $8.7 million pre-tax change to lower certain leach
stockpile and in-process material to market.
|
| | (5) |  | To reverse a loss contingency reserve associated with legal
matters. This change increased our special items and provisions net,
(credit) and reduced our operating loss and net loss by $9.0 million,
or 11 cents per common share, in the fourth quarter of 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | (6) |  | To establish a deferred tax asset valuation allowance
associated with our El Abra copper mine in Chile. This change
decreased our provision for taxes on income and increased our net
loss by $57.9 million, or 74 cents per common share, in the fourth
quarter of 2001 associated with amounts recognized prior to 2001
coupled with an increase in our net loss of $7.1 million, or 8 cents
per common share, in the fourth quarter of 2001 associated with the
adjustment of the deferred tax asset previously recognized during the
first three quarters of 2001. Additionally, the adjustment to the
deferred tax asset caused an increase to our net loss by $2.0
million, or 3 cents per common share; $2.2 million, or 3 cents per
common share; $3.9 million, or 4 cents per common share, beginning
with the first quarter through the third quarter of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                  



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- 109 -



| | (7) |  | The overall effect of the aforementioned adjustments resulted
in an incremental income tax expense that decreased (increased) our
net income and increased (decreased) our net loss (where applicable)
by $17.5 million, or 22 cents per common share; $(14.9) million, or
(19) cents per common share; $(4.5) million, or (6) cents per common
share; and $1.9 million, or 2 cents per common share, beginning with
the first quarter of 2001 through the fourth quarter of 2001,
respectively. Additionally, this adjustment increased our net loss
by $0.4 million, or 1 cent per common share, in the second quarter of
2002 and decreased our net loss by $0.4 million, or 1 cent per common
share, in the third quarter of 2002.
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The first quarter 2002 net loss included after-tax, net special gains of
$16.2 million, or 21 cents per common share, related primarily to the
recognition of tax benefits associated with a net operating loss carryback
prior to 2002, resulting from new U.S. tax legislation. Special gains
recognized for tax benefits were offset by a charge associated with the
cumulative effect of an accounting change associated with the adoption of SFAS
No. 142, Goodwill and Other Intangible Assets.

The second quarter 2002 net loss included after-tax, net special charges
of $12.7 million, or 16 cents per common share, primarily related to losses
associated with an award made in a binding arbitration proceeding and charges
for the settlement of certain historic Cyprus Amax lawsuits. Special charges
were partially offset by gains associated with the sale of a non-core parcel of
real estate and a tax benefit related to the release of taxes previously
provided for.

The third quarter 2002 net loss included after-tax, net special and
extraordinary charges totaling $24.0 million, or 27 cents per common share.
Extraordinary charges related to the July 2002 early extinguishment of debt;
special charges primarily related to losses associated with the temporary
closure of two wire and cable facilities and the restructuring and
consolidation of certain Wire and Cable segment administrative functions that
resulted in asset impairments and severance-related expenses. Special charges
were partially offset by a tax benefit associated with net operating loss
carryback prior to 2002 resulting from new U.S. tax legislation.

The fourth quarter 2002 net loss included after-tax, net special charges
of $188.4 million, or $2.13 per common share, primarily related to asset
impairments recognized at the Cobre, Hidalgo and Ajo mines, as well as charges
recognized for the settlement of certain historic Cyprus Amax lawsuits and
legal matters.

First quarter 2001 net income included after-tax, net special gains of
$28.9 million, or 37 cents per common share, related to recoveries associated
with settlements reached with several insurance companies on historic
environmental liability claims.

The second quarter 2001 net loss included after-tax, net special charges
of $7.5 million, or 10 cents per common share, primarily related to
restructuring charges associated with employee severance and benefit costs.
Restructuring charges were partially offset by net special gains associated
with additional recoveries related to settlements reached with several
insurance companies on historic environmental liability claims.

The third quarter 2001 net loss included after-tax, special gains of $0.2
million associated with the settlement of historic environmental liability
claims.

The fourth quarter 2001 net loss included after-tax, net special charges
of $48.0 million, or 61 cents per common share, primarily related to an
increase in the deferred tax asset valuation allowance, employee severance and
benefit costs and environmental reserves related to facility closures, as well
as a charge to recognize impairment losses on investments recorded in
miscellaneous income and expense. Partially offsetting these charges were
gains from the sale of our 50 percent interest in the Sossego exploration
project, settlements reached with several insurance companies on historic
environmental liability claims, and settlement with one insurance carrier
associated with potential future legal matters.






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##### Table of Contents



- 110 -

PHELPS DODGE CORPORATION AND CONSOLIDATED SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

The consolidated balance sheet at December 31, 2002 and 2001, and the
related consolidated statements of operations, of cash flows and of
shareholders equity for each of the three years in the period ended December
31, 2002, and notes thereto, together with the report thereon of
PricewaterhouseCoopers LLP dated April 3, 2003, appear on pages 111 to 173 of
this report. The financial statement schedule which appears on page 178 should
be read in conjunction with these financial statements. Schedules not included
have been omitted because they are not applicable or the required information
is shown in the financial statements or notes thereto. The individual
financial statements of the Company have been omitted because the Company is
primarily an operating company and all subsidiaries included in the
consolidated financial statements, in the aggregate, do not have minority
equity interests and/or indebtedness to any person other than the Company or
its consolidated subsidiaries in amounts which together exceed 5 percent of
total consolidated assets at December 31, 2002. Separate financial statements
of subsidiaries not consolidated and investments accounted for by the equity
method, other than those for which summarized financial information is provided
in Note 4 to the consolidated financial statements, have been omitted because,
if considered in the aggregate, such subsidiaries and investments would not
constitute a significant subsidiary.

ADDITIONAL FINANCIAL DATA

Financial statement schedule for the years ended December 31, 2002, 2001 and
2000.



| |  | II - Valuation and qualifying accounts and reserves on page 178.
| |  | ----------------------------------------------------------------




REPORT OF MANAGEMENT

Our management is responsible for the preparation, integrity and
objectivity of the consolidated financial statements presented in this annual
report. The financial statements have been prepared in accordance with
accounting principles generally accepted in the United States and include
amounts that are based on managements best estimates and judgments.
Management also accepts responsibility for the preparation of other financial
information included in this document.

Management maintains a system of internal controls to provide reasonable
assurance that assets are safe guarded and that transactions are properly
recorded and executed in accordance with managements authorization. The
system includes formal policies and procedures that are communicated to
employees with significant roles in the financial reporting process and updated
as necessary. The system also includes the careful selection and training of
qualified personnel, an organization that provides a segregation of
responsibilities and a program of internal audits that independently evaluates
the effectiveness of internal controls and recommends possible improvements.

The Audit Committee, currently consisting of six non-employee directors,
meets at least three times a year to review, among other matters, internal
control conditions and internal and external audit plans and results. It meets
periodically with senior officers, internal auditors and independent
accountants to review the adequacy and reliability of our accounting, financial
reporting and internal controls.

PricewaterhouseCoopers LLP, our independent accountants, have audited the
annual financial statements in accordance with auditing standards generally
accepted in the United States. The independent accountants report expresses
an informed judgment as to the fair presentation of our reported operating
results, financial position and cash flows. This judgment is based on the
results of auditing procedures performed and such other tests that they deemed
necessary, including consideration of our internal controls.

Our management also recognizes its responsibility for fostering a strong
ethical climate so that our affairs are conducted according to the highest
standards of personal and corporate conduct. This responsibility is
characterized and reflected in our code of Business Ethics and Policies, which
is distributed throughout the Company. The code of conduct addresses:



| |  |  | the necessity of ensuring open communication within the
Company;         
| | - |  | -------------------------------------------------------------------------
|
| |  |  | potential conflicts of interest;                                         
|
| |  |  | compliance with all applicable laws (including financial
disclosure); and
|
| |  |  | the confidentiality of proprietary information.                          

We maintain a systematic program to assess compliance with these policies.






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##### Table of Contents



- 111 -

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of Phelps Dodge Corporation

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of cash flows and of shareholders
equity, present fairly, in all material respects, the financial position of
Phelps Dodge Corporation and its subsidiaries at December 31, 2002 and 2001,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Companys management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

As described in Note 1 to the consolidated financial statements, the Company
restated its consolidated financial statements for the years ended December 31,
2001 and 2000. As also described in Note 1, the Company changed its method of
accounting for goodwill and other intangible assets effective January 1, 2002
and its method of accounting for derivative instruments and hedging activities
effective January 1, 2001.

/s/ PricewaterhouseCoopers LLP

Phoenix, Arizona
April 3, 2003




REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE

To the Board of Directors and Shareholders of Phelps Dodge Corporation

Our audits of the consolidated financial statements referred to in our report
dated April 3, 2003, appearing in this Annual Report on Form 10-K of Phelps
Dodge Corporation also included an audit of the financial statement schedule
listed in Item 15 (a)(2) of this Form 10-K. In our opinion, this financial
statement schedule presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements.

/s/ PricewaterhouseCoopers LLP

Phoenix, Arizona
April 3, 2003



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##### Table of Contents






-112-

PHELPS DODGE CORPORATION
STATEMENT OF CONSOLIDATED OPERATIONS
(in millions except per share data)

|                                                                                                                                                                       |                                                                                                 |   |                                  |         |      |  |              |         |   |  |         |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------- | - | -------------------------------- | ------- | ---- |  | ------------ | ------- | - |  | ------- | ------- | -
|                                                                                                                                                                       |                                                                                                 |   | For the years ended December 31,
|                                                                                                                                                                       |                                                                                                 |   |                                 
|                                                                                                                                                                       |                                                                                                 |   | 2002                             |         | 2001 |  | 2000        
|                                                                                                                                                                       |                                                                                                 |   |                                  |         |      |  |             
|                                                                                                                                                                       |                                                                                                 |   |                                  |         |      |  | As Restated*
|                                                                                                                                                                       |                                                                                                 |   |                                  |         |      |  |             
|Sales and other operating revenues                                                                                                                                     |                                                                                                 | $ | 3,722.0                          |         |      |  | 4,002.4      |         |   |  | 4,525.1 |        
|                                                                                                                                                                       |                                                                                                 |   |                                  |         |      |  |              |         |   |  |         |        
|Operating costs and expenses                                                                                                                                           |                                                                                                 |   |                                  |         |      |  |              |         |   |  |         |        
|                                                                                                                                                                       | Cost of products sold (exclusive of items shown separately below)                               |   |                                  | 3,120.5 |      |  |              | 3,459.1 |   |  |         | 3,572.0 |  
|                                                                                                                                                                       | Depreciation, depletion and amortization                                                        |   |                                  | 410.2   |      |  |              | 439.9   |   |  |         | 440.3   |  
|                                                                                                                                                                       | Selling and general administrative expense                                                      |   |                                  | 123.9   |      |  |              | 116.5   |   |  |         | 136.0   |  
|                                                                                                                                                                       | Exploration and research expense                                                                |   |                                  | 40.3    |      |  |              | 56.3    |   |  |         | 56.8    |  
|                                                                                                                                                                       | Special items and provisions, net (see Note 3)                                                  |   |                                  | 236.4   |      |  |              | (40.6   | ) |  |         | 51.8    |  
|                                                                                                                                                                       |                                                                                                 |   |                                  |         |      |  |              |         |   |  |         |        
|                                                                                                                                                                       |                                                                                                 |   | 3,931.3                          |         |      |  | 4,031.2      |         |   |  | 4,256.9 |        
|                                                                                                                                                                       |                                                                                                 |   |                                  |         |      |  |              |         |   |  |         |        
|Operating income (loss)                                                                                                                                                |                                                                                                 |   | (209.3                           | )       |      |  | (28.8        | )       |   |  | 268.2   |        
|                                                                                                                                                                       | Interest expense                                                                                |   |                                  | (187.0  | )    |  |              | (227.5  | ) |  |         | (217.8  | )
|                                                                                                                                                                       | Capitalized interest                                                                            |   |                                  |        |      |  |              | 1.6     |   |  |         | 4.5     |  
|                                                                                                                                                                       | Miscellaneous income and expense, net                                                           |   |                                  | 2.6     |      |  |              | 8.1     |   |  |         | 30.0    |  
|                                                                                                                                                                       |                                                                                                 |   |                                  |         |      |  |              |         |   |  |         |        
|Income (loss) before taxes, minority interests, equity in net earnings
(losses) of affiliated companies, extraordinary item and cumulative
effect of accounting change |                                                                                                 |   | (393.7                           | )       |      |  | (246.6       | )       |   |  | 84.9    |        
|                                                                                                                                                                       | Benefit (provision) for taxes on income                                                         |   |                                  | 110.2   |      |  |              | (77.8   | ) |  |         | (21.9   | )
|                                                                                                                                                                       | Minority interests in consolidated subsidiaries                                                 |   |                                  | (7.8    | )    |  |              | (4.8    | ) |  |         | (8.2    | )
|                                                                                                                                                                       | Equity in net earnings (losses) of affiliated companies                                         |   |                                  | 2.7     |      |  |              | (0.3    | ) |  |         | 1.5     |  
|                                                                                                                                                                       |                                                                                                 |   |                                  |         |      |  |              |         |   |  |         |        
|Income (loss) before extraordinary item and cumulative effect of
accounting change                                                                                     |                                                                                                 |   | (288.6                           | )       |      |  | (329.5       | )       |   |  | 56.3    |        
|                                                                                                                                                                       | Extraordinary item (net of tax $4.7)                                                            |   |                                  | (26.6   | )    |  |              |        |   |  |         |        |  
|                                                                                                                                                                       | Cumulative effect of accounting change (net of tax $10.1 and $0 in 2002
and 2001, respectively) |   |                                  | (22.9   | )    |  |              | (2.0    | ) |  |         |        |  
|                                                                                                                                                                       |                                                                                                 |   |                                  |         |      |  |              |         |   |  |         |        
|Net income (loss)                                                                                                                                                      |                                                                                                 |   | (338.1                           | )       |      |  | (331.5       | )       |   |  | 56.3    |        
|                                                                                                                                                                       | Preferred stock dividends                                                                       |   |                                  | (9.1    | )    |  |              |        |   |  |         |        |  
|                                                                                                                                                                       |                                                                                                 |   |                                  |         |      |  |              |         |   |  |         |        
|Net income (loss) applicable to common shares                                                                                                                          |                                                                                                 | $ | (347.2                           | )       |      |  | (331.5       | )       |   |  | 56.3    |        
|                                                                                                                                                                       |                                                                                                 |   |                                  |         |      |  |              |         |   |  |         |        
|Average number of common shares outstanding - basic                                                                                                                    |                                                                                                 |   | 84.1                             |         |      |  | 78.5         |         |   |  | 78.4    |        
|Basic earnings (loss) per common share before extraordinary item
and cumulative effect of accounting change                                                            |                                                                                                 | $ | (3.54                            | )       |      |  | (4.19        | )       |   |  | 0.72    |        
|                                                                                                                                                                       | Extraordinary item                                                                              |   |                                  | (0.32   | )    |  |              |        |   |  |         |        |  
|                                                                                                                                                                       | Cumulative effect of accounting change                                                          |   |                                  | (0.27   | )    |  |              | (0.03   | ) |  |         |        |  
|                                                                                                                                                                       |                                                                                                 |   |                                  |         |      |  |              |         |   |  |         |        
|Basic earnings (loss) per common share                                                                                                                                 |                                                                                                 | $ | (4.13                            | )       |      |  | (4.22        | )       |   |  | 0.72    |        
|                                                                                                                                                                       |                                                                                                 |   |                                  |         |      |  |              |         |   |  |         |        
|Average number of common shares outstanding - diluted **                                                                                                               |                                                                                                 |   | 84.1                             |         |      |  | 78.5         |         |   |  | 78.8    |        
|Diluted earnings (loss) per common share before extraordinary item
and cumulative effect of accounting change                                                          |                                                                                                 | $ | (3.54                            | )       |      |  | (4.19        | )       |   |  | 0.72    |        
|                                                                                                                                                                       | Extraordinary item                                                                              |   |                                  | (0.32   | )    |  |              |        |   |  |         |        |  
|                                                                                                                                                                       | Cumulative effect of accounting change                                                          |   |                                  | (0.27   | )    |  |              | (0.03   | ) |  |         |        |  
|                                                                                                                                                                       |                                                                                                 |   |                                  |         |      |  |              |         |   |  |         |        
|Diluted earnings (loss) per common share                                                                                                                               |                                                                                                 | $ | (4.13                            | )       |      |  | (4.22        | )       |   |  | 0.72    |        
|                                                                                                                                                                       |                                                                                                 |   |                                  |         |      |  |              |         |   |  |         |        



|*  |  | Refer to Note 22, Restatement of Consolidated Financial Statements.                                                                                                                                                                                                              
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|** |  | Diluted earnings (loss) per common share would have been anti-dilutive for the years ended December 31, 2002 and 2001, if
based on fully diluted shares adjusted to reflect the conversion of mandatory convertible preferred shares to common shares
and stock option exercises.

See Notes to Consolidated Financial Statements



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##### Table of Contents






- 113 -

PHELPS DODGE CORPORATION
CONSOLIDATED BALANCE SHEET
(in millions except per share prices)

|                                                           |                                                                                                                                                      |                                                                                        |                     |         |              |         |              |         |              |         | 
|---------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------- | ------------------- | ------- | ------------ | ------- | ------------ | ------- | ------------ | ------- | 
|                                                           |                                                                                                                                                      |                                                                                        |                     |         | December 31, |         | December 31,
|                                                           |                                                                                                                                                      |                                                                                        |                     |         | 2002         |         | 2001        
|                                                           |                                                                                                                                                      |                                                                                        |                     |         |              |         |             
|                                                           |                                                                                                                                                      |                                                                                        |                     |         |              |         |              |         | As Restated*
|Assets                                                     |                                                                                                                                                      |                                                                                        |                     |         |              |         |              |        
|                                                           | Current assets:                                                                                                                                      |                                                                                        |                     |         |              |         |              |         |             
|                                                           |                                                                                                                                                      | Cash and cash equivalents                                                              |                     | $       | 349.8        |         |              |         | 386.9        |        
|                                                           |                                                                                                                                                      | Accounts receivable, less allowance for doubtful
accounts (2002 - $14.1; 2001 - $14.2) |                     |         | 391.1        |         |              |         | 398.8        |        
|                                                           |                                                                                                                                                      | Mill and leach stockpiles                                                              |                     |         | 48.9         |         |              |         | 51.0         |        
|                                                           |                                                                                                                                                      | Inventories                                                                            |                     |         | 398.5        |         |              |         | 444.4        |        
|                                                           |                                                                                                                                                      | Supplies                                                                               |                     |         | 142.8        |         |              |         | 150.3        |        
|                                                           |                                                                                                                                                      | Prepaid expenses and other current assets                                              |                     |         | 26.5         |         |              |         | 27.0         |        
|                                                           |                                                                                                                                                      | Deferred income taxes                                                                  |                     |         | 70.6         |         |              |         | 72.8         |        
|                                                           |                                                                                                                                                      |                                                                                        |                     |         |              |         |              |         |              |        
|                                                           |                                                                                                                                                      |                                                                                        | Current assets      |         |              | 1,428.2 |              |         |              | 1,531.2 | 
|                                                           | Investments and long-term receivables                                                                                                                |                                                                                        |                     | 132.3   |              |         |              | 105.3   |             
|                                                           | Property, plant and equipment, net                                                                                                                   |                                                                                        |                     | 5,159.6 |              |         |              | 5,614.0 |             
|                                                           | Long-term mill and leach stockpiles                                                                                                                  |                                                                                        |                     | 64.3    |              |         |              | 42.6    |             
|                                                           | Deferred income taxes                                                                                                                                |                                                                                        |                     | 11.0    |              |         |              | 3.8     |             
|                                                           | Other assets and deferred charges                                                                                                                    |                                                                                        |                     | 233.6   |              |         |              | 287.4   |             
|                                                           |                                                                                                                                                      |                                                                                        |                     |         |              |         |              |         |              |        
|                                                           |                                                                                                                                                      | $                                                                                      | 7,029.0             |         |              |         | 7,584.3      |        
|                                                           |                                                                                                                                                      |                                                                                        |                     |         |              |         |              |         |              |        
|Liabilities                                                |                                                                                                                                                      |                                                                                        |                     |         |              |         |              |        
|                                                           | Current liabilities:                                                                                                                                 |                                                                                        |                     |         |              |         |              |         |             
|                                                           |                                                                                                                                                      | Short-term debt                                                                        |                     | $       | 35.2         |         |              |         | 59.3         |        
|                                                           |                                                                                                                                                      | Current portion of long-term debt                                                      |                     |         | 127.0        |         |              |         | 274.0        |        
|                                                           |                                                                                                                                                      | Accounts payable and accrued expenses                                                  |                     |         | 609.1        |         |              |         | 652.1        |        
|                                                           |                                                                                                                                                      | Dividends payable                                                                      |                     |         | 3.4          |         |              |         |             |        
|                                                           |                                                                                                                                                      | Accrued income taxes                                                                   |                     |         | 9.4          |         |              |         | 11.5         |        
|                                                           |                                                                                                                                                      |                                                                                        |                     |         |              |         |              |         |              |        
|                                                           |                                                                                                                                                      |                                                                                        | Current liabilities |         |              | 784.1   |              |         |              | 996.9   | 
|                                                           | Long-term debt                                                                                                                                       |                                                                                        |                     | 1,948.4 |              |         |              | 2,538.3 |             
|                                                           | Deferred income taxes                                                                                                                                |                                                                                        |                     | 430.8   |              |         |              | 442.6   |             
|                                                           | Other liabilities and deferred credits                                                                                                               |                                                                                        |                     | 986.8   |              |         |              | 815.1   |             
|                                                           |                                                                                                                                                      |                                                                                        |                     |         |              |         |              |         |              |        
|                                                           |                                                                                                                                                      |                                                                                        | 4,150.1             |         |              |         | 4,792.9      |        
|                                                           |                                                                                                                                                      |                                                                                        |                     |         |              |         |              |         |              |        
|Commitments and contingencies (see Notes 6, 17, 18 and 19) |                                                                                                                                                      |                                                                                        |                     |         |              |         |              |        
|Minority interests in consolidated subsidiaries            |                                                                                                                                                      |                                                                                        | 65.3                |         |              |         | 61.3         |        
|                                                           |                                                                                                                                                      |                                                                                        |                     |         |              |         |              |         |              |        
|Shareholders equity                                       |                                                                                                                                                      |                                                                                        |                     |         |              |         |              |        
|                                                           | Common shares, par value $6.25; 200.0 shares authorized;
88.9 outstanding (2001 - 78.7) after deducting 17.1 shares
(2002 and 2001) held in treasury |                                                                                        |                     | 555.6   |              |         |              | 491.9   |             
|                                                           | Cumulative preferred shares, par value $1.00; 6.0 shares authorized;
2.0 outstanding in 2002                                                         |                                                                                        |                     | 2.0     |              |         |              |        |             
|                                                           | Capital in excess of par value                                                                                                                       |                                                                                        |                     | 1,552.1 |              |         |              | 1,016.8 |             
|                                                           | Retained earnings                                                                                                                                    |                                                                                        |                     | 1,173.3 |              |         |              | 1,520.5 |             
|                                                           | Accumulated other comprehensive loss                                                                                                                 |                                                                                        |                     | (458.5  | )            |         |              | (292.7  | )           
|                                                           | Other                                                                                                                                                |                                                                                        |                     | (10.9   | )            |         |              | (6.4    | )           
|                                                           |                                                                                                                                                      |                                                                                        |                     |         |              |         |              |         |              |        
|                                                           |                                                                                                                                                      |                                                                                        | 2,813.6             |         |              |         | 2,730.1      |        
|                                                           |                                                                                                                                                      |                                                                                        |                     |         |              |         |              |         |              |        
|                                                           |                                                                                                                                                      | $                                                                                      | 7,029.0             |         |              |         | 7,584.3      |        
|                                                           |                                                                                                                                                      |                                                                                        |                     |         |              |         |              |         |              |        



|* |  | Refer to Note 22, Restatement of Consolidated Financial Statements.
|- |  | -------------------------------------------------------------------

See Notes to Consolidated Financial Statements



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##### Table of Contents



- 114 -

PHELPS DODGE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS(in millions)

|                                                 |                                                                                          |                                                     |                        |                                                     |  |  |                                  |        |       |       |        |          |       |              |        |      |  |  |       |        |       |      |        |  
|------------------------------------------------ | ---------------------------------------------------------------------------------------- | --------------------------------------------------- | ---------------------- | --------------------------------------------------- |  |  | -------------------------------- | ------ | ----- | ----- | ------ | -------- | ----- | ------------ | ------ | ---- |  |  | ----- | ------ | ----- | ---- | ------ | -
|                                                 |                                                                                          |                                                     |                        |                                                     |  |  | For the years ended December 31, |       
|                                                 |                                                                                          |                                                     |                        |                                                     |  |  |                                  |        |       |       |       
|                                                 |                                                                                          |                                                     |                        |                                                     |  |  |                                  | 2002   |       |       | 2001   |          |       |              |        | 2000 | 
|                                                 |                                                                                          |                                                     |                        |                                                     |  |  |                                  |        |       |       |        |          |       |             
|                                                 |                                                                                          |                                                     |                        |                                                     |  |  |                                  |        |       |       |        |          |       | As Restated* |        |     
|                                                 |                                                                                          |                                                     |                        |                                                     |  |  |                                  |        |       |       |        |          |       |              |       
|Operating activities                             |                                                                                          |                                                     |                        |                                                     |  |  |                                  |        |       |       |        |          |       |              |        |      |  |  |       |       
|                                                 | Net income (loss)                                                                        |                                                     | $                      |                                                     |  |  |                                  | (338.1 | )     |       |        | (331.5   | )     |              |        |      |  |  |       | 56.3   |      
|                                                 | Adjustments to reconcile net income (loss) to net cash
provided by operating activities: |                                                     |                        |                                                     |  |  |                                  |        |       |       |        |          |       |              |        |      |  |  |       |        |      
|                                                 |                                                                                          | Depreciation, depletion and amortization            |                        |                                                     |  |  |                                  |        | 410.2 |       |        |          | 439.9 |              |        |      |  |  |       |        | 440.3 |     
|                                                 |                                                                                          | Deferred income taxes                               |                        |                                                     |  |  |                                  |        | (9.0  | )     |        |          | 63.7  |              |        |      |  |  |       |        | 15.5  |     
|                                                 |                                                                                          | Equity earnings (losses), net of dividends received |                        |                                                     |  |  |                                  |        | 1.6   |       |        |          | 1.7   |              |        |      |  |  |       |        | 0.9   |     
|                                                 |                                                                                          | Special items and provisions                        |                        |                                                     |  |  |                                  |        | 237.6 |       |        |          | (33.5 | )            |        |      |  |  |       |        | 54.3  |     
|                                                 |                                                                                          | Extraordinary loss on early extinguishment of debt  |                        |                                                     |  |  |                                  |        | 31.3  |       |        |          |      |              |        |      |  |  |       |        |      |     
|                                                 |                                                                                          | Cumulative effect of accounting change              |                        |                                                     |  |  |                                  |        | 33.0  |       |        |          | 2.0   |              |        |      |  |  |       |        |      |     
|                                                 |                                                                                          | Changes in current assets and liabilities:          |                        |                                                     |  |  |                                  |        |       |       |        |          |       |              |        |      |  |  |       |        |       |     
|                                                 |                                                                                          |                                                     |                        | Accounts receivable                                 |  |  |                                  |        |       |       | 17.0   |          |       |              | 34.5   |      |  |  |       |        |       |      | 9.7    |  
|                                                 |                                                                                          |                                                     |                        | Proceeds from sale of accounts receivable           |  |  |                                  |        |       |       | (11.6  | )        |       |              | 79.7   |      |  |  |       |        |       |      |       |  
|                                                 |                                                                                          |                                                     |                        | Mill and leach stockpiles                           |  |  |                                  |        |       |       | 2.1    |          |       |              | 17.7   |      |  |  |       |        |       |      | 9.1    |  
|                                                 |                                                                                          |                                                     |                        | Inventories                                         |  |  |                                  |        |       |       | 46.4   |          |       |              | (10.7  | )    |  |  |       |        |       |      | 41.9   |  
|                                                 |                                                                                          |                                                     |                        | Supplies                                            |  |  |                                  |        |       |       | 4.6    |          |       |              |       |      |  |  |       |        |       |      | (5.3   | )
|                                                 |                                                                                          |                                                     |                        | Prepaid expenses                                    |  |  |                                  |        |       |       | 6.2    |          |       |              | 9.8    |      |  |  |       |        |       |      | 2.3    |  
|                                                 |                                                                                          |                                                     |                        | Deferred income taxes                               |  |  |                                  |        |       |       |       |          |       |              |       |      |  |  |       |        |       |      | (0.3   | )
|                                                 |                                                                                          |                                                     |                        | Interest payable                                    |  |  |                                  |        |       |       | (12.8  | )        |       |              |       |      |  |  |       |        |       |      | (16.3  | )
|                                                 |                                                                                          |                                                     |                        | Other accounts payable                              |  |  |                                  |        |       |       | (35.1  | )        |       |              | 24.5   |      |  |  |       |        |       |      | (12.4  | )
|                                                 |                                                                                          |                                                     |                        | Accrued income taxes                                |  |  |                                  |        |       |       | (1.5   | )        |       |              | (12.0  | )    |  |  |       |        |       |      | (24.9  | )
|                                                 |                                                                                          |                                                     |                        | Other accrued expenses                              |  |  |                                  |        |       |       | 19.0   |          |       |              | (0.9   | )    |  |  |       |        |       |      | (71.1  | )
|                                                 |                                                                                          |                                                     | Other adjustments, net |                                                     |  |  |                                  |        |       | (52.9 | )      |          |       | 17.8         |        |      |  |  |       |        |       | 11.2 |       
|                                                 |                                                                                          |                                                     |                        |                                                     |  |  |                                  |        |       |       |        |          |       |              |        |      |  |  |       |       
|                                                 |                                                                                          |                                                     |                        | Net cash provided by operating activities           |  |  |                                  |        |       |       | 348.0  |          |       |              | 302.7  |      |  |  |       |        |       |      | 511.2  |  
|                                                 |                                                                                          |                                                     |                        |                                                     |  |  |                                  |        |       |       |        |          |       |              |        |      |  |  |       |       
|Investing activities                             |                                                                                          |                                                     |                        |                                                     |  |  |                                  |        |       |       |        |          |       |              |        |      |  |  |       |       
|                                                 | Capital outlays                                                                          |                                                     |                        |                                                     |  |  |                                  | (130.4 | )     |       |        | (262.9   | )     |              |        |      |  |  |       | (397.2 | )    
|                                                 | Capitalized interest                                                                     |                                                     |                        |                                                     |  |  |                                  |       |       |       |        | (1.6     | )     |              |        |      |  |  |       | (4.5   | )    
|                                                 | Investment in subsidiaries, net of cash received                                         |                                                     |                        |                                                     |  |  |                                  | (2.8   | )     |       |        | (48.1    | )     |              |        |      |  |  |       | (25.1  | )    
|                                                 | Proceeds from asset dispositions                                                         |                                                     |                        |                                                     |  |  |                                  | 33.3   |       |       |        | 51.5     |       |              |        |      |  |  |       | 159.4  |      
|                                                 | Other investing                                                                          |                                                     |                        |                                                     |  |  |                                  | (40.4  | )     |       |        | (5.7     | )     |              |        |      |  |  |       | (6.8   | )    
|                                                 |                                                                                          |                                                     |                        |                                                     |  |  |                                  |        |       |       |        |          |       |              |        |      |  |  |       |       
|                                                 |                                                                                          |                                                     |                        | Net cash used in investing activities               |  |  |                                  |        |       |       | (140.3 | )        |       |              | (266.8 | )    |  |  |       |        |       |      | (274.2 | )
|                                                 |                                                                                          |                                                     |                        |                                                     |  |  |                                  |        |       |       |        |          |       |              |        |      |  |  |       |       
|Financing activities                             |                                                                                          |                                                     |                        |                                                     |  |  |                                  |        |       |       |        |          |       |              |        |      |  |  |       |       
|                                                 | Proceeds from issuance of debt                                                           |                                                     |                        |                                                     |  |  |                                  | 21.8   |       |       |        | 1,203.3  |       |              |        |      |  |  |       | 114.6  |      
|                                                 | Payment of debt                                                                          |                                                     |                        |                                                     |  |  |                                  | (338.7 | )     |       |        | (1,053.9 | )     |              |        |      |  |  |       | (178.3 | )    
|                                                 | Repurchase of debt                                                                       |                                                     |                        |                                                     |  |  |                                  | (480.7 | )     |       |        |         |       |              |        |      |  |  |       |       |      
|                                                 | Common dividends                                                                         |                                                     |                        |                                                     |  |  |                                  |       |       |       |        | (59.1    | )     |              |        |      |  |  |       | (157.5 | )    
|                                                 | Preferred dividends                                                                      |                                                     |                        |                                                     |  |  |                                  | (5.7   | )     |       |        |         |       |              |        |      |  |  |       |       |      
|                                                 | Issuance of shares                                                                       |                                                     |                        |                                                     |  |  |                                  | 593.6  |       |       |        | 0.4      |       |              |        |      |  |  |       | 0.3    |      
|                                                 | Debt issue costs                                                                         |                                                     |                        |                                                     |  |  |                                  |       |       |       |        | (7.3     | )     |              |        |      |  |  |       |       |      
|                                                 | Other, net                                                                               |                                                     |                        |                                                     |  |  |                                  | (35.1  | )     |       |        | 17.6     |       |              |        |      |  |  |       | (0.3   | )    
|                                                 |                                                                                          |                                                     |                        |                                                     |  |  |                                  |        |       |       |        |          |       |              |        |      |  |  |       |       
|                                                 |                                                                                          |                                                     |                        | Net cash provided by (used in) financing activities |  |  |                                  |        |       |       | (244.8 | )        |       |              | 101.0  |      |  |  |       |        |       |      | (221.2 | )
|                                                 |                                                                                          |                                                     |                        |                                                     |  |  |                                  |        |       |       |        |          |       |              |        |      |  |  |       |       
|(Decrease) increase in cash and cash equivalents |                                                                                          |                                                     |                        |                                                     |  |  | (37.1                            | )      |       |       | 136.9  |          |       |              |        |      |  |  | 15.8  |       
|Cash and cash equivalents at beginning of year   |                                                                                          |                                                     |                        |                                                     |  |  | 386.9                            |        |       |       | 250.0  |          |       |              |        |      |  |  | 234.2 |       
|                                                 |                                                                                          |                                                     |                        |                                                     |  |  |                                  |        |       |       |        |          |       |              |        |      |  |  |       |       
|Cash and cash equivalents at end of year         |                                                                                          | $                                                   |                        |                                                     |  |  | 349.8                            |        |       |       | 386.9  |          |       |              |        |      |  |  | 250.0 |       
|                                                 |                                                                                          |                                                     |                        |                                                     |  |  |                                  |        |       |       |        |          |       |              |        |      |  |  |       |       



|*                                              |  | Refer to Note 22, Restatement of Consolidated Financial Statements.
|---------------------------------------------- |  | -------------------------------------------------------------------
|                                              
|See Notes to Consolidated Financial Statements



---



##### Table of Contents



- 115 -

PHELPS DODGE CORPORATION




CONSOLIDATED STATEMENT OF
SHAREHOLDERS EQUITY
(in millions)




|                                            |                                                               |                                                |                                                |                                        |  |               |       |                  |  |        |     |        |  |            |     |          |  |           |  |          |  |   |         |       |   |   |         |        |        |        |   | 
|------------------------------------------- | ------------------------------------------------------------- | ---------------------------------------------- | ---------------------------------------------- | -------------------------------------- |  | ------------- | ----- | ---------------- |  | ------ | --- | ------ |  | ---------- | --- | -------- |  | --------- |  | -------- |  | - | ------- | ----- | - | - | ------- | ------ | ------ | ------ | - | 
|                                            |                                                               |                                                |                                                |                                        |  |               |       |                  |  |        |     |        |  |            |     |          |  |           |  |          |  |   |         |       |   |   |         |       
|                                            |                                                               |                                                |                                                |                                        |  | Common Shares |       | Preferred Shares |  |        |     |        |  |            |     |          |  |          
|                                            |                                                               |                                                |                                                |                                        |  |               |       |                  |  |        |     |        |  | Capital in |     |          |  |          
|                                            |                                                               |                                                |                                                |                                        |  | Number        |       | At Par           |  | Number |     | At Par |  |            |     |          |  | Excess of |  | Retained
|                                            |                                                               | of Shares                                      |                                                | Value                                  |  | of Shares     |       | Value            |  |        |     |        |  | Par Value  |     | Earnings
|                                            |                                                               |                                                |                                                |                                        |  |               |       |                  |  |        |     |        |  |            |     |          |  |           |  |         
|Balance at December 31, 1999                |                                                               |                                                | 78.7                                           |                                        |  | $             | 491.6 |                  |  |        |    |        |  | $          |    |          |  |           |  |          |  | $ | 1,016.4 |       |   | $ | 1,959.8 |       
|                                            | Cumulative effect for restatements
adjustments (see Note 22)* |                                                |                                                |                                        |  |               |       |                  |  |        |     |        |  |            |     |          |  |           |  |          |  |   |         |       |   |   |         | 52.1   |       
|                                            |                                                               |                                                |                                                |                                        |  |               |       |                  |  |        |     |        |  |            |     |          |  |           |  |          |  |   |         |       |   |   |         |       
|Restated Balance at January 1, 2000*        |                                                               |                                                | 78.7                                           |                                        |  |               | 491.6 |                  |  |        |    |        |  |            |    |          |  |           |  |          |  |   | 1,016.4 |       |   |   | 2,011.9 |       
|                                            | Stock options exercised                                       |                                                |                                                |                                        |  |               |       | 0.2              |  |        |     |        |  |            |     |          |  |           |  |          |  |   |         | 1.4   |   |   |         |        |       
|                                            | Tax benefit from stock options                                |                                                |                                                |                                        |  |               |       |                  |  |        |     |        |  |            |     |          |  |           |  |          |  |   |         |       |   |   |         | 0.4    |       
|                                            | Restricted shares issued/cancelled, net                       |                                                |                                                |                                        |  |               |       | 0.1              |  |        |     |        |  |            |     |          |  |           |  |          |  |   |         | 0.5   |   |   |         |        |       
|                                            | Other investment adjustments                                  |                                                |                                                |                                        |  |               |       |                  |  |        |     |        |  |            |     |          |  |           |  |          |  |   |         | (0.6  | ) |   |         |        |       
|                                            | Dividends on common shares                                    |                                                |                                                |                                        |  |               |       |                  |  |        |     |        |  |            |     |          |  |           |  |          |  |   |         |       |   |   |         | (157.5 | )     
|                                            | Comprehensive income (loss):                                  |                                                |                                                |                                        |  |               |       |                  |  |        |     |        |  |            |     |          |  |           |  |          |  |   |         |       |   |   |         |        |       
|                                            |                                                               | Net income (as restated)*                      |                                                |                                        |  |               |       |                  |  |        |     |        |  |            |     |          |  |           |  |          |  |   |         |       |   |   |         |        | 56.3   |       
|                                            |                                                               | Other comprehensive income (loss), net of tax: |                                                |                                        |  |               |       |                  |  |        |     |        |  |            |     |          |  |           |  |          |  |   |         |       |   |   |         |        |        |       
|                                            |                                                               |                                                |                                                | Translation adjustment                 |  |               |       |                  |  |        |     |        |  |            |     |          |  |           |  |          |  |   |         |       |   |   |         |        |        |        |   | 
|                                            |                                                               |                                                |                                                | Unrealized gains on securities         |  |               |       |                  |  |        |     |        |  |            |     |          |  |           |  |          |  |   |         |       |   |   |         |        |        |        |   | 
|                                            |                                                               |                                                |                                                | Minimum pension liability              |  |               |       |                  |  |        |     |        |  |            |     |          |  |           |  |          |  |   |         |       |   |   |         |        |        |        |   | 
|                                            |                                                               |                                                |                                                |                                        |  |               |       |                  |  |        |     |        |  |            |     |          |  |           |  |          |  |   |         |       |   |   |         |       
|                                            |                                                               |                                                |                                                | Other comprehensive loss               |  |               |       |                  |  |        |     |        |  |            |     |          |  |           |  |          |  |   |         |       |   |   |         |        |        |        |   | 
|                                            |                                                               |                                                |                                                |                                        |  |               |       |                  |  |        |     |        |  |            |     |          |  |           |  |          |  |   |         |       |   |   |         |       
|                                            |                                                               | Comprehensive loss (as restated)*              |                                                |                                        |  |               |       |                  |  |        |     |        |  |            |     |          |  |           |  |          |  |   |         |       |   |   |         |        |        |       
|                                            |                                                               |                                                |                                                |                                        |  |               |       |                  |  |        |     |        |  |            |     |          |  |           |  |          |  |   |         |       |   |   |         |       
|Balance at December 31, 2000 (as restated)* |                                                               |                                                | 78.7                                           |                                        |  |               | 491.9 |                  |  |        |    |        |  |            |    |          |  |           |  |          |  |   | 1,017.7 |       |   |   | 1,911.1 |       
|                                            | Stock options exercised                                       |                                                |                                                |                                        |  |               |       |                  |  |        |     |        |  |            |     |          |  |           |  |          |  |   |         | 0.5   |   |   |         |        |       
|                                            | Restricted shares issued/cancelled, net                       |                                                |                                                |                                        |  |               |       |                  |  |        |     |        |  |            |     |          |  |           |  |          |  |   |         | (1.4  | ) |   |         |        |       
|                                            | Dividends on common shares                                    |                                                |                                                |                                        |  |               |       |                  |  |        |     |        |  |            |     |          |  |           |  |          |  |   |         |       |   |   |         | (59.1  | )     
|                                            | Comprehensive income (loss):                                  |                                                |                                                |                                        |  |               |       |                  |  |        |     |        |  |            |     |          |  |           |  |          |  |   |         |       |   |   |         |        |       
|                                            |                                                               |                                                | Net loss (as restated)*                        |                                        |  |               |       |                  |  |        |     |        |  |            |     |          |  |           |  |          |  |   |         |       |   |   |         |        |        | (331.5 | )
|                                            |                                                               |                                                | Other comprehensive income (loss), net of tax: |                                        |  |               |       |                  |  |        |     |        |  |            |     |          |  |           |  |          |  |   |         |       |   |   |         |        |        |        |  
|                                            |                                                               |                                                |                                                | Translation adjustment                 |  |               |       |                  |  |        |     |        |  |            |     |          |  |           |  |          |  |   |         |       |   |   |         |        |        |        |   | 
|                                            |                                                               |                                                |                                                | Cumulative effect of accounting change |  |               |       |                  |  |        |     |        |  |            |     |          |  |           |  |          |  |   |         |       |   |   |         |        |        |        |   | 
|                                            |                                                               |                                                |                                                | Net loss on derivative instruments     |  |               |       |                  |  |        |     |        |  |            |     |          |  |           |  |          |  |   |         |       |   |   |         |        |        |        |   | 
|                                            |                                                               |                                                |                                                | Unrealized gains on securities         |  |               |       |                  |  |        |     |        |  |            |     |          |  |           |  |          |  |   |         |       |   |   |         |        |        |        |   | 
|                                            |                                                               |                                                |                                                | Minimum pension liability              |  |               |       |                  |  |        |     |        |  |            |     |          |  |           |  |          |  |   |         |       |   |   |         |        |        |        |   | 
|                                            |                                                               |                                                |                                                |                                        |  |               |       |                  |  |        |     |        |  |            |     |          |  |           |  |          |  |   |         |       |   |   |         |       
|                                            |                                                               |                                                |                                                | Other comprehensive loss               |  |               |       |                  |  |        |     |        |  |            |     |          |  |           |  |          |  |   |         |       |   |   |         |        |        |        |   | 
|                                            |                                                               |                                                |                                                |                                        |  |               |       |                  |  |        |     |        |  |            |     |          |  |           |  |          |  |   |         |       |   |   |         |       
|                                            |                                                               | Comprehensive loss (as restated)*              |                                                |                                        |  |               |       |                  |  |        |     |        |  |            |     |          |  |           |  |          |  |   |         |       |   |   |         |        |        |       
|                                            |                                                               |                                                |                                                |                                        |  |               |       |                  |  |        |     |        |  |            |     |          |  |           |  |          |  |   |         |       |   |   |         |       
|Balance at December 31, 2001 (as restated)* |                                                               |                                                | 78.7                                           |                                        |  |               | 491.9 |                  |  |        |    |        |  |            |    |          |  |           |  |          |  |   | 1,016.8 |       |   |   | 1,520.5 |       
|                                            | Stock options exercised                                       |                                                |                                                |                                        |  |               |       |                  |  |        |     |        |  |            |     |          |  |           |  |          |  |   |         | 0.2   |   |   |         |        |       
|                                            | Restricted shares issued/cancelled, net                       |                                                |                                                | 0.2                                    |  |               |       | 1.2              |  |        |     |        |  |            |     |          |  |           |  |          |  |   |         | 6.1   |   |   |         |        |       
|                                            | Issuance of shares                                            |                                                |                                                | 10.0                                   |  |               |       | 62.5             |  |        |     | 2.0    |  |            |     | 2.0      |  |           |  |          |  |   |         | 529.1 |   |   |         |        |       
|                                            | Common shares purchased                                       |                                                |                                                |                                        |  |               |       |                  |  |        |     |        |  |            |     |          |  |           |  |          |  |   |         | (0.1  | ) |   |         |        |       
|                                            | Dividends on preferred shares                                 |                                                |                                                |                                        |  |               |       |                  |  |        |     |        |  |            |     |          |  |           |  |          |  |   |         |       |   |   |         | (9.1   | )     
|                                            | Comprehensive income (loss):                                  |                                                |                                                |                                        |  |               |       |                  |  |        |     |        |  |            |     |          |  |           |  |          |  |   |         |       |   |   |         |        |       
|                                            |                                                               | Net loss                                       |                                                |                                        |  |               |       |                  |  |        |     |        |  |            |     |          |  |           |  |          |  |   |         |       |   |   |         |        | (338.1 | )     
|                                            |                                                               | Other comprehensive income (loss), net of tax: |                                                |                                        |  |               |       |                  |  |        |     |        |  |            |     |          |  |           |  |          |  |   |         |       |   |   |         |        |        |       
|                                            |                                                               |                                                |                                                | Translation adjustment                 |  |               |       |                  |  |        |     |        |  |            |     |          |  |           |  |          |  |   |         |       |   |   |         |        |        |        |   | 
|                                            |                                                               |                                                |                                                | Net gain on derivative instruments     |  |               |       |                  |  |        |     |        |  |            |     |          |  |           |  |          |  |   |         |       |   |   |         |        |        |        |   | 
|                                            |                                                               |                                                |                                                | Other investment adjustments           |  |               |       |                  |  |        |     |        |  |            |     |          |  |           |  |          |  |   |         |       |   |   |         |        |        |        |   | 
|                                            |                                                               |                                                |                                                | Unrealized loss on securities          |  |               |       |                  |  |        |     |        |  |            |     |          |  |           |  |          |  |   |         |       |   |   |         |        |        |        |   | 
|                                            |                                                               |                                                |                                                | Minimum pension liability              |  |               |       |                  |  |        |     |        |  |            |     |          |  |           |  |          |  |   |         |       |   |   |         |        |        |        |   | 
|                                            |                                                               |                                                |                                                |                                        |  |               |       |                  |  |        |     |        |  |            |     |          |  |           |  |          |  |   |         |       |   |   |         |       
|                                            |                                                               |                                                |                                                | Other comprehensive loss               |  |               |       |                  |  |        |     |        |  |            |     |          |  |           |  |          |  |   |         |       |   |   |         |        |        |        |   | 
|                                            |                                                               |                                                |                                                |                                        |  |               |       |                  |  |        |     |        |  |            |     |          |  |           |  |          |  |   |         |       |   |   |         |       
|                                            |                                                               | Comprehensive loss                             |                                                |                                        |  |               |       |                  |  |        |     |        |  |            |     |          |  |           |  |          |  |   |         |       |   |   |         |        |        |       
|                                            |                                                               |                                                |                                                |                                        |  |               |       |                  |  |        |     |        |  |            |     |          |  |           |  |          |  |   |         |       |   |   |         |       
|Balance at December 31, 2002                |                                                               |                                                | 88.9                                           |                                        |  | $             | 555.6 |                  |  |        | 2.0 |        |  | $          | 2.0 |          |  |           |  |          |  | $ | 1,552.1 |       |   | $ | 1,173.3 |       
|                                            |                                                               |                                                |                                                |                                        |  |               |       |                  |  |        |     |        |  |            |     |          |  |           |  |          |  |   |         |       |   |   |         |       

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                            |                                                               |                                                |                                                |                                        |  |               |        |       |   |        |         |               |        |        |        |  
|------------------------------------------- | ------------------------------------------------------------- | ---------------------------------------------- | ---------------------------------------------- | -------------------------------------- |  | ------------- | ------ | ----- | - | ------ | ------- | ------------- | ------ | ------ | ------ | -
|                                            |                                                               |                                                |                                                |                                        |  |               |        |       |   |        |         |              
|                                            |                                                               |                                                |                                                |                                        |  | Accumulated   |        |       |   |        |         |               |        |       
|                                            |                                                               |                                                |                                                |                                        |  | Other         |        |       |   |        |         |               |        |       
|                                            |                                                               |                                                |                                                |                                        |  | Comprehensive |        |       |   |        |         | Shareholders
|                                            |                                                               |                                                |                                                |                                        |  | Income (loss) |        | Other |   | Equity
|                                            |                                                               |                                                |                                                |                                        |  |               |        |       |   |       
|Balance at December 31, 1999                |                                                               | $                                              | (180.3                                         | )                                      |  | $             | (10.7  | )     |   | $      | 3,276.8 |              
|                                            | Cumulative effect for restatements
adjustments (see Note 22)* |                                                |                                                |                                        |  |               |        |       |   |        |         | 52.1          |       
|                                            |                                                               |                                                |                                                |                                        |  |               |        |       |   |        |         |              
|Restated Balance at January 1, 2000*        |                                                               |                                                | (180.3                                         | )                                      |  |               | (10.7  | )     |   |        | 3,328.9 |              
|                                            | Stock options exercised                                       |                                                |                                                |                                        |  |               |        |       |   |        |         | 1.6           |       
|                                            | Tax benefit from stock options                                |                                                |                                                |                                        |  |               |        |       |   |        |         | 0.4           |       
|                                            | Restricted shares issued/cancelled, net                       |                                                |                                                |                                        |  |               |        | 0.8   |   |        |         | 1.4           |       
|                                            | Other investment adjustments                                  |                                                |                                                |                                        |  |               |        |       |   |        |         | (0.6          | )     
|                                            | Dividends on common shares                                    |                                                |                                                |                                        |  |               |        |       |   |        |         | (157.5        | )     
|                                            | Comprehensive income (loss):                                  |                                                |                                                |                                        |  |               |        |       |   |        |         |               |       
|                                            |                                                               | Net income (as restated)*                      |                                                |                                        |  |               |        |       |   |        |         |               | 56.3   |       
|                                            |                                                               | Other comprehensive income (loss), net of tax: |                                                |                                        |  |               |        |       |   |        |         |               |        |       
|                                            |                                                               |                                                |                                                | Translation adjustment                 |  |               | (45.9  | )     |   |        |         |               |        |        | (45.9  | )
|                                            |                                                               |                                                |                                                | Unrealized gains on securities         |  |               | 0.8    |       |   |        |         |               |        |        | 0.8    |  
|                                            |                                                               |                                                |                                                | Minimum pension liability              |  |               | (1.0   | )     |   |        |         |               |        |        | (1.0   | )
|                                            |                                                               |                                                |                                                |                                        |  |               |        |       |   |        |         |              
|                                            |                                                               |                                                |                                                | Other comprehensive loss               |  |               | (46.1  | )     |   |        |         |               |        |        | (46.1  | )
|                                            |                                                               |                                                |                                                |                                        |  |               |        |       |   |        |         |              
|                                            |                                                               | Comprehensive loss (as restated)*              |                                                |                                        |  |               |        |       |   |        |         |               | 10.2   |       
|                                            |                                                               |                                                |                                                |                                        |  |               |        |       |   |        |         |              
|Balance at December 31, 2000 (as restated)* |                                                               |                                                | (226.4                                         | )                                      |  |               | (9.9   | )     |   |        | 3,184.4 |              
|                                            | Stock options exercised                                       |                                                |                                                |                                        |  |               |        |       |   |        |         | 0.5           |       
|                                            | Restricted shares issued/cancelled, net                       |                                                |                                                |                                        |  |               |        | 3.5   |   |        |         | 2.1           |       
|                                            | Dividends on common shares                                    |                                                |                                                |                                        |  |               |        |       |   |        |         | (59.1         | )     
|                                            | Comprehensive income (loss):                                  |                                                |                                                |                                        |  |               |        |       |   |        |         |               |       
|                                            |                                                               |                                                | Net loss (as restated)*                        |                                        |  |               |        |       |   |        |         |               |        | (331.5 | )     
|                                            |                                                               |                                                | Other comprehensive income (loss), net of tax: |                                        |  |               |        |       |   |        |         |               |        |        |       
|                                            |                                                               |                                                |                                                | Translation adjustment                 |  |               | (42.9  | )     |   |        |         |               |        |        | (42.9  | )
|                                            |                                                               |                                                |                                                | Cumulative effect of accounting change |  |               | (7.1   | )     |   |        |         |               |        |        | (7.1   | )
|                                            |                                                               |                                                |                                                | Net loss on derivative instruments     |  |               | (13.6  | )     |   |        |         |               |        |        | (13.6  | )
|                                            |                                                               |                                                |                                                | Unrealized gains on securities         |  |               | 0.3    |       |   |        |         |               |        |        | 0.3    |  
|                                            |                                                               |                                                |                                                | Minimum pension liability              |  |               | (3.0   | )     |   |        |         |               |        |        | (3.0   | )
|                                            |                                                               |                                                |                                                |                                        |  |               |        |       |   |        |         |              
|                                            |                                                               |                                                |                                                | Other comprehensive loss               |  |               | (66.3  | )     |   |        |         |               |        |        | (66.3  | )
|                                            |                                                               |                                                |                                                |                                        |  |               |        |       |   |        |         |              
|                                            |                                                               | Comprehensive loss (as restated)*              |                                                |                                        |  |               |        |       |   |        |         |               | (397.8 | )     
|                                            |                                                               |                                                |                                                |                                        |  |               |        |       |   |        |         |              
|Balance at December 31, 2001 (as restated)* |                                                               |                                                | (292.7                                         | )                                      |  |               | (6.4   | )     |   |        | 2,730.1 |              
|                                            | Stock options exercised                                       |                                                |                                                |                                        |  |               |        |       |   |        |         | 0.2           |       
|                                            | Restricted shares issued/cancelled, net                       |                                                |                                                |                                        |  |               |        | (4.5  | ) |        |         | 2.8           |       
|                                            | Issuance of shares                                            |                                                |                                                |                                        |  |               |        |       |   |        |         | 593.6         |       
|                                            | Common shares purchased                                       |                                                |                                                |                                        |  |               |        |       |   |        |         | (0.1          | )     
|                                            | Dividends on preferred shares                                 |                                                |                                                |                                        |  |               |        |       |   |        |         | (9.1          | )     
|                                            | Comprehensive income (loss):                                  |                                                |                                                |                                        |  |               |        |       |   |        |         |               |       
|                                            |                                                               | Net loss                                       |                                                |                                        |  |               |        |       |   |        |         |               | (338.1 | )     
|                                            |                                                               | Other comprehensive income (loss), net of tax: |                                                |                                        |  |               |        |       |   |        |         |               |        |       
|                                            |                                                               |                                                |                                                | Translation adjustment                 |  |               | (26.7  | )     |   |        |         |               |        |        | (26.7  | )
|                                            |                                                               |                                                |                                                | Net gain on derivative instruments     |  |               | 1.1    |       |   |        |         |               |        |        | 1.1    |  
|                                            |                                                               |                                                |                                                | Other investment adjustments           |  |               | (0.7   | )     |   |        |         |               |        |        | (0.7   | )
|                                            |                                                               |                                                |                                                | Unrealized loss on securities          |  |               | (0.2   | )     |   |        |         |               |        |        | (0.2   | )
|                                            |                                                               |                                                |                                                | Minimum pension liability              |  |               | (139.3 | )     |   |        |         |               |        |        | (139.3 | )
|                                            |                                                               |                                                |                                                |                                        |  |               |        |       |   |        |         |              
|                                            |                                                               |                                                |                                                | Other comprehensive loss               |  |               | (165.8 | )     |   |        |         |               |        |        | (165.8 | )
|                                            |                                                               |                                                |                                                |                                        |  |               |        |       |   |        |         |              
|                                            |                                                               | Comprehensive loss                             |                                                |                                        |  |               |        |       |   |        |         |               | (503.9 | )     
|                                            |                                                               |                                                |                                                |                                        |  |               |        |       |   |        |         |              
|Balance at December 31, 2002                |                                                               | $                                              | (458.5                                         | )                                      |  | $             | (10.9  | )     |   | $      | 2,813.6 |              
|                                            |                                                               |                                                |                                                |                                        |  |               |        |       |   |        |         |              



| |  | Refer to Note 22, Restatement of
Consolidated Financial Statements.
|- |  | -------------------------------------------------------------------

See Notes to Consolidated Financial Statements





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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in tables stated in millions except as noted)

1.   Summary of Significant Accounting Policies

Basis of Consolidation. The consolidated financial statements include the
accounts of Phelps Dodge Corporation (the Company, which may be referred to as
Phelps Dodge, PD, we, us or ours), and its majority-owned subsidiaries. Our
business consists of two divisions, Phelps Dodge Mining Company (PDMC) and
Phelps Dodge Industries (PDI). Investments in undivided interests and
unincorporated mining joint ventures that are limited to the extraction of
minerals are accounted for using the proportional consolidation method. These
investments include the Morenci mine, located in Arizona, in which we hold an
85 percent undivided interest; the Chino mine, located in New Mexico, in which
we hold a two-thirds partnership interest; and the Candelaria and El Abra
mines, located in Chile, in which we hold 80 percent and 51 percent partnership
interests, respectively. Interests in other majority-owned subsidiaries are
reported using the full consolidation method; the consolidated financial
statements include 100 percent of the assets and liabilities of these
subsidiaries and the ownership interests of minority participants are recorded
as Minority interests in consolidated subsidiaries. All material
intercompany balances and transactions are eliminated.

Investments in unconsolidated companies owned 20 percent or more are
recorded on an equity basis. Investments in companies less than 20 percent
owned, and for which we do not exercise significant influence, are carried at
cost.

Restatements.As further discussed in Note 22 to the Consolidated Financial
Statements, we identified certain accounting matters relating to our December
31, 2001 and 2000, Consolidated Financial Statements that require restatement.
The after-tax effect of these items increased retained earnings by $52.1
million at January 1, 2000, increased net income for the year ended December
31, 2000, by $27.3 million, or 35 cents per share, and increased the net loss
for the year ended December 31, 2001, by $56.5 million, or 72 cents per share.
The cumulative adjustments increased retained earnings by $22.9 million at
December 31, 2001. These adjustments were necessary (i) to change the
Companys units-of-production depreciation rate methodology for mining,
smelting and refining assets to exclude estimates of future capital as well as
any material other than proven and probable ore reserves, and to depreciate
short-lived mining assets on a straight-line basis over their estimated useful
lives, less salvage value; (ii) to adjust the fair value estimates of acquired
reclamation obligations and to recognize the related annual accretion expense,
and to revise certain reclamation cost estimates and associated charges for
information obtained in 2001; (iii) to capitalize as inventory copper contained
in low-grade mill and leach stockpiles, and consequent in-process materials
being converted to salable products; (iv) to reverse a loss contingency reserve
associated with legal matters; and (v) to increase the valuation allowance for
deferred tax assets. Additionally, as discussed in Note 21, Business Segment
Data, our presentation of reportable segment information for PDMC for 2001 and
2000 has been revised to reflect additional segments.

Managements Estimates and Assumptions.The preparation of financial
statements in conformity with generally accepted accounting principles in the
United States (GAAP) requires our management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. The
more significant areas requiring the use of management estimates and
assumptions relate to mineral reserves that are the basis for future cash flow
estimates and units-of-production depreciation and amortization calculations;
environmental, reclamation and closure obligations; estimates of
recoverable copper in mill and leach stockpiles; asset impairments
(including estimates of future cash flows); postemployment, postretirement and
other employee benefit liabilities; bad debts; restructuring reserves;
valuation allowances for deferred tax assets; reserves for contingencies and
litigation; and fair value of financial instruments. Management bases its
estimates on the Companys historical experience and on various other
assumptions that are believed to be reasonable under the circumstances. Actual
results may differ from these estimates under different assumptions or
conditions.

Foreign Currency Translation.Except as noted below, the assets and
liabilities of foreign subsidiaries are translated at current exchange rates,
while revenues and expenses are translated at average rates in effect for the
period. The related translation gains and losses are included in accumulated
other comprehensive income (loss) within shareholders equity. For the
translation of the financial statements of certain foreign subsidiaries dealing
predominantly in U.S. dollars, and for those affiliates operating in highly
inflationary economies, assets and liabilities receivable or payable in cash
are translated at current exchange rates, and inventories and other
non-monetary assets and liabilities are translated at historical rates.
Gains and losses resulting from translation of such financial statements



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are included in operating results, as are gains and losses
incurred on foreign currency transactions.

Statement of Cash Flows.For the purpose of preparing the Consolidated
Statement of Cash Flows, we consider all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.

Mill Stockpiles, Leach Stockpiles, Inventories and Supplies.For PDMC, mill
stockpiles, leach stockpiles, inventories and supplies are stated at the lower
of cost or market. For mined copper and other metal inventories, cost is
determined by the last-in, first-out (LIFO) method, and includes all costs
incurred to the applicable stage of processing. Costs include labor and
benefits, supplies, energy, depreciation and amortization, and other necessary
costs associated with the extraction and processing of ore, including,
depending on the process, mining, haulage, milling, concentrating, smelting,
leaching, solution extraction and refining. General and administrative costs
for division and corporate offices are not included in inventory values.

For molybdenum inventory, cost also is determined using the LIFO method.
Costs include labor and benefits, supplies, energy, depreciation and
amortization, and other necessary costs associated with the extraction and
processing of ore, including, depending on the process, mining, haulage,
milling, concentrating, roasting and chemical processing. General and
administrative costs for corporate offices are not included in inventory
values.

For PDI, we use the LIFO method to value metal inventories. We use the
first-in, first-out (FIFO) or moving average cost methods to determine costs
for substantially all other PDI inventories. Costs include raw materials,
direct and indirect production costs and depreciation. General and
administrative costs for division and corporate offices are not included in
inventory values.

Substantially all supplies are purchased for PDMC and PDI, and cost is
determined using a moving average method.

Major classifications for PDMC are described below.

Mill stockpiles

Mill stockpiles contain low-grade ore that has been extracted from the
mine and is available for processing to recover the contained copper by
milling, concentrating, smelting and refining. Mill stockpiles that are
expected to be processed in the future are valued based on mining and haulage
costs incurred to deliver ore to the stockpiles, including associated
depreciation, amortization and overhead costs.

Because the determination of copper contained in mill stockpiles by
physical count is impracticable, reasonable estimation methods are employed.
The quantity of material delivered to the stockpiles is based on surveyed
volumes of mined material and daily production records. Sampling and assaying
of blast-hole cuttings determine the estimated amount of copper contained in
the material delivered to the mill stockpiles.

Expected copper recovery rates are determined by metallurgical testing.
The recoverable copper in mill stockpiles can be extracted into copper
concentrate almost immediately upon processing. Estimates of copper contained
in mill stockpiles are reduced as material is removed and fed to the mill.

Leach stockpiles

Leach stockpiles contain low-grade ore that has been extracted from the
mine and is available for processing to recover the contained copper through a
leaching process. Leach stockpiles are exposed to acidic solutions that
dissolve contained copper into solution for subsequent extraction processing.
Leach stockpiles that are expected to be processed in the future are valued
based on mining and haulage costs incurred to deliver ore to the stockpiles,
including associated depreciation, amortization and overhead costs.

Because the determination of copper contained in leach stockpiles by
physical count is impracticable, reasonable estimation methods are employed.
The quantity of material is based on surveyed volumes of mined material and
daily production records. Sampling and assaying of blast-hole cuttings
determine the estimated amount of copper contained in material delivered to the
leach stockpiles.

Expected copper recovery rates are determined using small-scale laboratory
tests, medium-scale column testing (which simulates the production-scale
process), historical trends, and other factors, including mineralogy of the ore
and rock type.

Ultimate recovery of copper contained in leach stockpiles can vary from a
very low percentage to over 90 percent depending on several variables including
type of processing, mineralogy and particle size of the rock. Although as much
as 70 percent of the copper ultimately recoverable may be extracted during the
first year of processing, recovery of the remaining copper may take several
years.



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Our processes and recovery rates are monitored continuously. We adjust
our recovery rate estimates periodically as we learn more about the long-term
leaching process and as the related technology changes. Estimates of copper
contained in leach stockpiles are reduced as copper is recovered from the
stockpile.

Work-in-process

Work-in-process inventories represent materials that are in the process of
being converted into a salable product. Conversion processes vary depending on
the nature of the copper ore and the specific mining operation. For sulfide
ores, processing includes milling and concentrating and results in the
production of copper concentrates. For oxide ores, processing includes
solution extraction and electrowinning and results in the production of copper
cathodes. In-process material is measured based on assays of the material
included in these processes and projected recoveries. In-process inventories
are valued based on the cost of the source material plus in-process conversion
costs incurred to various points in the process, including depreciation
relating to the associated process facilities. Molybdenum in-process inventory
includes the cost of molybdenum concentrates and the costs incurred to convert
those concentrates into various high-purity molybdenum chemicals or
metallurgical products.

Finished goods

Finished goods include salable products (e.g., copper concentrates, copper
anodes, copper cathodes, copper rod, high-purity molybdenum chemicals and other
metallurgical products). Finished goods are valued based on the cost of the
source material plus applicable conversion costs, including depreciation
relating to the associated process facilities.

Major classifications for PDI are described below.

Raw materials

Raw material includes purchased copper, aluminum, coating and insulating
materials, and feedstock oil. PDMC generally supplies copper to our U.S. wire
and cable business locations on a consignment basis.

Work-in-process

Work-in-process inventories represent wire and cable that is in the
process of being converted into a salable product. In-process inventories are
valued based on the cost of raw materials (copper, aluminum, and coating and
insulating materials) plus in-process conversion costs incurred to various
points in the process, including depreciation relating to the associated
process facilities.

Finished goods

Finished goods include salable products, primarily copper and aluminum
wire and cable, and carbon black. Carbon black is produced instantaneously
from feedstock oil (a raw material). Finished goods are valued based on the
cost of the source material plus applicable conversion costs, including
depreciation relating to the associated process facilities, and packaging.

Property, Plant and Equipment.Property, plant and equipment are carried at
cost. Cost of significant assets includes capitalized interest incurred during
the construction and development period. Expenditures for replacements and
betterments are capitalized; maintenance and repair expenditures are charged to
operations as incurred except for planned major maintenance activities at our
copper smelters and molybdenum roasters as described below.

The principal depreciation method used for mining, smelting and refining
operations is the units-of-production method applied on a group basis.

Depreciation rates for each mines production are based on the ratio of
depreciable life-of-mine assets over the associated projected life-of-mine of
proven and probable ore reserves. Depreciable life-of-mine assets exclude
non-mining land (which is not depreciated or depleted), mining land (which is
depleted separately), short-lived assets (which are depreciated on a
straight-line basis over their estimated useful lives less estimated salvage
value) and undeveloped ore body values.

Depreciation rates for smelter and refinery production are based on the
ratio of total estimated life-of-facility depreciable assets over projected
life-of-facility production. Depreciable facility assets exclude
non-depreciable assets (such as land values) and short-lived assets (which are
depreciated on a straight-line basis over their estimated useful lives less
estimated salvage value).

Buildings, machinery and equipment for our other operations are
depreciated using the straight-line method over estimated lives of three to 40
years, or the estimated life of the operation if shorter.

Upon disposal of assets depreciated on a group basis, cost less salvage is
charged to accumulated depreciation.



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Values for mining properties represent mainly acquisition costs.
Depletion of mines is computed on the basis of an overall unit rate applied to
the pounds of principal products sold from mine production.

Mine exploration costs and stripping costs to maintain production of
operating mines are charged to operations as incurred. Mine development
expenditures at new mines, and major development expenditures at operating
mines outside existing pit limits that are expected to benefit future
production beyond a minimum of one year, are capitalized and amortized on the
units-of-production method. Major development expenditures at operating mines
include the cost to remove overburden to prepare unique and identifiable areas
outside the current mining area for such future production. Capitalized major
development is amortized on a units-of-production method over associated proven
and probable ore reserves.

Our policy for repair and maintenance costs incurred in connection with
periodic, planned, major maintenance activities that benefit future periods at
our continuously operating copper smelters and molybdenum roasters is to defer
such costs when incurred and charge them to operations equally during the
subsequent periods benefited. These operations require shutdowns of the entire
facility to perform planned major repair and maintenance activities on
furnaces, acid plants, anode vessels, oxygen plants and other ancillary
facilities. The frequency of such repair and maintenance activities is
predictable and scheduled, and typically ranges from 12 months to 36 months,
depending on the facility and area involved.

Environmental Expenditures. Environmental expenditures are expensed or
capitalized depending upon their future economic benefits. Liabilities for
such expenditures are recorded when it is probable that obligations have been
incurred and the costs can be reasonably estimated. For closed facilities and
closed portions of operating facilities with closure obligations, an
environmental liability is accrued when a closure determination is made and
approved by management, and when the environmental liability is considered to
be probable. Environmental liabilities attributed to the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA) or analogous
state programs are considered probable when a claim is asserted, or is probable
of assertion, and we have been associated with the site. Other environmental
remediation liabilities are considered probable based on the specific facts and
circumstances. Our estimates of these costs are based upon available facts,
existing technology and current laws and regulations, and are recorded on an
undiscounted basis. Where the available information is sufficient to estimate
the amount of liability, that estimate has been used. Where the information is
only sufficient to establish a range of probable liability and no point within
the range is more likely than any other, the lower end of the range has been
used. The possibility of recovery of some of these costs from insurance
companies or other parties exists; however, we do not recognize these
recoveries in our financial statements until they become probable. We
recognize insurance receivables for environmental remediation when a settlement
is reached with the insurance carrier.

Mine Closure Costs.Reclamation is an ongoing activity and we generally
recognize estimated final reclamation costs over the life of active mining
properties on a units-of-production basis. Non-operating sites that are
currently on care-and-maintenance status suspend accrual of mine closure costs
until the site resumes production. When management determines a mine should be
permanently closed, any unrecognized closure obligation is recognized. For
acquired mining properties, the portion of the reclamation obligation that has been
incurred as of the acquisition date is recognized as an obligation in the
opening balance sheet on a fair value basis. In subsequent periods, the
acquired closure liability is accreted on a quarterly basis. The remaining
estimated final reclamation costs for future disturbances at acquired
properties are recognized on a units-of-production basis over the remaining
life of the mining property. Phelps Dodge assesses mine closure costs at least
annually or when facts and circumstances change. (Refer to further discussion
in this note under New Accounting Standards  Statement of Financial Accounting
Standards (SFAS) No. 143.)

Goodwill. Included in Other assets and deferred charges are costs in excess
of the net assets of businesses acquired. These amounts have indefinite useful
lives and are not amortized but rather tested at least annually for impairment.
Under the transitional provisions of SFAS No. 142, we identified and evaluated
our reporting units for goodwill impairment using a present value technique
with industry average multiples and third-party valuations used as a benchmark.
In 2001 and 2000, goodwill was amortized on a straight-line basis over periods
of 15 to 30 years. (Refer to further discussion in this note under New
Accounting Standards  SFAS No. 142.)

Impairments.We evaluate our long-term assets to be held and used for
impairment when events or changes in economic circumstances indicate the
carrying amount of such assets may not be recoverable. Goodwill and our
identifiable intangible assets are evaluated at least annually for impairment.
We use an estimate of the future undiscounted net cash flows of the related
asset or asset grouping over the remaining life to measure whether the assets
are recoverable and



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measure any impairment by reference to fair value. Fair
value is generally estimated using the Companys expectation of discounted net
cash flows. Long-term assets to be disposed of are carried at the lower of
cost or fair value less the costs of disposal. (Refer to further discussion in
this note under New Accounting Standards  SFAS Nos. 141, 142 and 144.)

Revenue Recognition.The Company sells its products pursuant to sales
contracts entered into with its customers. Revenue for all our products is
recognized when title and risk of loss pass to the customer and when
collectibility is reasonably assured. The passing of title and risk of loss to
the customer is based on terms of the sales contract, generally upon shipment
of product. Product pricing is based upon quoted commodity prices plus
applicable premiums.

Certain of our sales agreements provide for provisional pricing based on
either the New York Commodity Exchange (COMEX) or London Metal Exchange (LME)
(as specified in the contract) when shipped. Final settlement is based on the
average applicable price for a specified future period, generally from one to
three months after arrival at the customers facility. The Companys
provisionally priced sales contain an embedded derivative that, because it is
unrelated to the commodity sale, is required to be accounted for separately
from the contract. The contract is the sale of the concentrates at the current
spot LME price. The embedded derivative, which is the final settlement price
based on a future price, does not qualify for hedge accounting and accordingly
is marked-to-market through earnings each period with reference to the
appropriate commodity and exchange forward curve. At December 31, 2002, we had
outstanding provisionally priced sales of 25.8 million pounds. For each 1 cent
per pound change in the realized copper price, revenue and pre-tax income would
vary (plus or minus) approximately $0.3 million for provisionally priced pounds
at December 31, 2002.

Shipping and Handling Fees and Costs.Amounts billed to customers for shipping
and handling are classified as sales and other operating revenues. Amounts
incurred for shipping and handling are included in costs of products sold.

Hedging Programs.We do not purchase, hold or sell derivative financial
contracts unless we have an existing asset or obligation or we anticipate a
future activity that is likely to occur that will result in exposing us to
market risk. Derivative financial instruments are used to manage well-defined
commodity price, energy, foreign exchange and interest rate risks from our
primary business activities. For a discussion on why we use derivative
financial contracts, our year-end derivative positions and related financial
results, refer to Note 20.

We recognize all derivative financial instruments as assets and
liabilities and measure them at fair value. For derivative instruments that
are designated and qualify as cash flow hedges (specifically, aluminum swap
contracts, floating-to-fixed interest rate swaps, diesel fuel swaps and call
options, and natural gas call options and collars), the effective portions of
changes in fair value of the derivative are recorded in other comprehensive
income (loss), and are recognized in the statement of operations when the
hedged item affects earnings. Ineffective portions of changes in the fair
value of cash flow hedges are recognized currently in earnings. For derivative
instruments that are designated and qualify as fair value hedges (specifically,
fixed-price copper swap and futures contracts, currency forward exchange
contracts, and fixed-to-floating interest rate swaps), gains or losses
resulting from changes in their fair value are recognized currently in earnings. In addition, the gain or loss
resulting from changes in the fair value of the hedged item attributable to the
hedged risk is adjusted and recognized currently in earnings. Therefore, any
ineffectiveness would be recognized currently in earnings.

Effectiveness testing for qualified hedge programs (with the exception of
interest rate swaps) utilizes an intrinsic valuation methodology. This
methodology excludes the time value of money component, which is recognized
immediately in earnings. Our interest rate swaps meet the criteria to assume no
hedge ineffectiveness.

Changes in the fair value of derivatives that do not qualify for hedge
treatment (specifically, copper rod swap and futures contracts and certain
currency swaps) are recognized currently in earnings.

Stock Compensation.At December 31, 2002, the Company had four stock-based
option plans, which are described more fully in Note 14. We account for our
stock option plans by measuring compensation cost using the intrinsic value
based method presented by Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations. No
compensation cost is reflected in consolidated net income (loss), as all
options granted under the plans had an exercise price equal to the market value
of the underlying common stock on the date of the grant. The following table
presents the effect on net income (loss) and earnings (loss) per share as if we
had applied the fair value recognition provisions of SFAS No. 123, Accounting
for Stock-Based Compensation to compensation cost.



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|                              |                                                                                             |   |        |       |      |  |              |       |   |  |      |       |  
|----------------------------- | ------------------------------------------------------------------------------------------- | - | ------ | ----- | ---- |  | ------------ | ----- | - |  | ---- | ----- | -
|                              |                                                                                             |   | 2002   |       | 2001 |  | 2000        
|                              |                                                                                             |   |        |       |      |  |             
|                              |                                                                                             |   |        |       |      |  | As Restated*
|                              |                                                                                             |   |        |       |      |  |             
|Net income (loss) as reported |                                                                                             | $ | (338.1 | )     |      |  | (331.5       | )     |   |  | 56.3 |      
|Deduct:                       |                                                                                             |   |        |       |      |  |              |       |   |  |      |      
|                              | Total compensation cost
determined under fair value
based method for all awards,
net of tax |   |        | (13.8 | )    |  |              | (12.0 | ) |  |      | (12.5 | )
|                              |                                                                                             |   |        |       |      |  |              |       |   |  |      |      
|Pro forma net income (loss)   |                                                                                             | $ | (351.9 | )     |      |  | (343.5       | )     |   |  | 43.8 |      
|                              |                                                                                             |   |        |       |      |  |              |       |   |  |      |      
|Earnings (loss) per share     |                                                                                             |   |        |       |      |  |              |       |   |  |      |      
|                              | Basic  as reported                                                                         |   | $      | (4.13 | )    |  |              | (4.22 | ) |  |      | 0.72  |  
|                              | Basic  pro forma                                                                           |   | $      | (4.29 | )    |  |              | (4.38 | ) |  |      | 0.56  |  
|Earnings (loss) per share     |                                                                                             |   |        |       |      |  |              |       |   |  |      |      
|                              | Diluted  as reported                                                                       |   | $      | (4.13 | )    |  |              | (4.22 | ) |  |      | 0.72  |  
|                              | Diluted  pro forma                                                                         |   | $      | (4.29 | )    |  |              | (4.38 | ) |  |      | 0.56  |  



|* |  | Refer to Note 22, Restatement of Consolidated Financial Statements, for
further discussion.
|- |  | -------------------------------------------------------------------------------------------

Income Taxes.In addition to charging income for taxes actually paid or
payable, the provision for taxes reflects deferred income taxes resulting from
changes in temporary differences between the tax bases of assets and
liabilities and their reported amounts in the financial statements. A
valuation allowance is provided for any deferred tax assets for which
realization is not assured. The effect on deferred income taxes of a change in
tax rates and laws is recognized in income in the period that such changes are
enacted. Deferred income taxes have not been provided on the Companys share
of undistributed earnings of certain foreign subsidiaries and unconsolidated
affiliates because we consider those earnings to be reinvested indefinitely.

Pension Plans.We have trusteed, non-contributory pension plans covering
substantially all of our U.S. employees and some employees of international
subsidiaries. The benefits are based on, in the case of certain plans, final
average monthly compensation and years of service and, in the case of other
plans, a fixed amount for each year of service. Our funding policy provides
that payments to the pension trusts shall be at least equal to the minimum
funding requirements of the Employee Retirement Income Security Act of 1974, as
amended, for U.S. plans or, in the case of international subsidiaries, the minimum legal requirements in that particular
country. Additional payments also may be made from time to time.

Postretirement Benefits Other Than Pensions.We have postretirement health
care and life insurance benefit plans covering most of our U.S. employees and,
in some cases, employees of international subsidiaries. Postretirement
benefits vary among plans and many plans require contributions from employees.
We account for these benefits on an accrual basis. Our funding policy provides
that payments shall be at least equal to our cash basis obligation, plus
additional amounts that may be approved by us from time to time.

Postemployment Benefits.We have certain postemployment benefit plans covering
most of our U.S. employees and, in some cases, employees of international
subsidiaries. The benefit plans may provide severance, long-term disability
income, health care, life insurance, continuation of health and life insurance
coverage for disabled employees or other welfare benefits. We account for
these benefits on an accrual basis. Our funding policy provides that payments
shall be at least equal to our cash basis obligation. Additional amounts may
also be provided from time to time.

Earnings Per Share.Basic earnings per share are computed by dividing income
(loss) available to common shareholders by the weighted average number of common
shares outstanding for the period. Diluted earnings per share are similar to
basic earnings per share except that the denominator is increased to include
the number of additional common shares that would have been outstanding if the
potentially dilutive common shares had been issued and the numerator excludes
dividends. Restricted stock is unvested; accordingly, these unvested shares of
restricted stock are only included in the computation of diluted earnings per
share as they are only contingent upon vesting.



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|                                              |                                             |                                                         |   |       |        |      |  |              |        |   |  |      |      | 
|--------------------------------------------- | ------------------------------------------- | ------------------------------------------------------- | - | ----- | ------ | ---- |  | ------------ | ------ | - |  | ---- | ---- | 
|                                              |                                             |                                                         |   | 2002  |        | 2001 |  | 2000        
|                                              |                                             |                                                         |   |       |        |      |  |             
|                                              |                                             |                                                         |   |       |        |      |  | As Restated*
|                                              |                                             |                                                         |   |       |        |      |  |             
|Basic Earnings (Loss) Per Share
Computation   |                                             |                                                         |   |       |        |      |  |              |        |   |  |     
|                                              | Numerator:                                  |                                                         |   |       |        |      |  |              |        |   |  |      |     
|                                              |                                             | Net income (loss)                                       |   | $     | (338.1 | )    |  |              | (331.5 | ) |  |      | 56.3 | 
|                                              |                                             | Preferred stock dividends                               |   |       | (9.1   | )    |  |              |       |   |  |      |     | 
|                                              |                                             |                                                         |   |       |        |      |  |              |        |   |  |      |      | 
|                                              |                                             | Net income (loss) applicable
to common shares           |   |       | (347.2 | )    |  |              | (331.5 | ) |  |      | 56.3 | 
|                                              | Denominator:                                |                                                         |   |       |        |      |  |              |        |   |  |      |     
|                                              |                                             | Weighted average common
shares outstanding              |   |       | 84.1   |      |  |              | 78.5   |   |  |      | 78.4 | 
|                                              |                                             |                                                         |   |       |        |      |  |              |        |   |  |      |      | 
|                                              | Basic earnings (loss) per
common share      |                                                         | $ | (4.13 | )      |      |  | (4.22        | )      |   |  | 0.72 |     
|                                              |                                             |                                                         |   |       |        |      |  |              |        |   |  |      |      | 
|Diluted Earnings (Loss) Per Share
Computation |                                             |                                                         |   |       |        |      |  |              |        |   |  |     
|                                              | Numerator:                                  |                                                         |   |       |        |      |  |              |        |   |  |      |     
|                                              |                                             | Net income (loss)                                       |   | $     | (338.1 | )    |  |              | (331.5 | ) |  |      | 56.3 | 
|                                              | Denominator:                                |                                                         |   |       |        |      |  |              |        |   |  |      |     
|                                              |                                             | Weighted average common
shares outstanding              |   |       | 84.1   |      |  |              | 78.5   |   |  |      | 78.4 | 
|                                              |                                             | Weighted average employee
stock options**               |   |       |       |      |  |              |       |   |  |      | 0.1  | 
|                                              |                                             | Weighted average
restricted stock issued
to employees** |   |       |       |      |  |              |       |   |  |      | 0.3  | 
|                                              |                                             |                                                         |   |       |        |      |  |              |        |   |  |      |      | 
|                                              |                                             | Total weighted average
common shares
outstanding        |   |       | 84.1   |      |  |              | 78.5   |   |  |      | 78.8 | 
|                                              |                                             |                                                         |   |       |        |      |  |              |        |   |  |      |      | 
|                                              | Diluted earnings (loss) per
common share*** |                                                         | $ | (4.13 | )      |      |  | (4.22        | )      |   |  | 0.72 |     
|                                              |                                             |                                                         |   |       |        |      |  |              |        |   |  |      |      | 



|*   |  | Refer to Note 22, Restatement of Consolidated Financial Statements, for
further discussion.                                                                                                                                           
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|**  |  | Additional common shares of 0.3 million and 0.2 million in 2002 and 2001,
respectively, were anti-dilutive.                                                                                                                           
|   
|*** |  | Diluted earnings (loss) per common share would have been anti-dilutive
($3.88) for the year ended December 31, 2002, if the conversion of
mandatory convertible preferred shares to common shares of 2.8 million
shares was reflected.

Stock options excluded from the computation of diluted earnings per share
because option exercise prices exceeded the per share market value of our
common stock were as follows:

|                              |  |      |       |      |  |      |       |  |  |  |       | 
|----------------------------- |  | ---- | ----- | ---- |  | ---- | ----- |  |  |  | ----- | 
|                              |  | 2002 |       | 2001 |  | 2000
|                              |  |      |       |      |  |     
|Outstanding options           |  |      | 8.9   |      |  |      | 7.7   |  |  |  | 6.5   | 
|Average option exercise price |  | $    | 56.67 |      |  |      | 61.91 |  |  |  | 64.81 | 

New Accounting Standards.In June 2001, the Financial Accounting Standards
Board (FASB) issued SFAS No. 143, Accounting for Asset Retirement
Obligations. With the adoption of this Statement, retirement obligations will
be recognized when they are incurred and displayed as liabilities and the
initial measurement will be at fair value. The liability will be accreted to
its full value over time through charges to income. In addition, the asset
retirement cost will be capitalized as part of the assets carrying value and
subsequently allocated to expense over the assets useful life. This Statement
is required to be adopted by the Company on or before January 1, 2003. Upon
adoption of this Statement, we expect to record an increase to our closure and
reclamation reserve of approximately $8 million, an increase to our mining
properties ranging from $16 to $36 million and a cumulative effect ranging from
$0 to $35 million credit to income. Final determination of the cumulative effect of this accounting change
is pending guidance from FASB regarding application of SFAS No. 143 for our
acquired properties.

In April 2002, FASB issued SFAS No. 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. Under SFAS No. 4, all gains and losses from extinguishment of
debt were required to be aggregated and, if material, classified as an
extraordinary item, net of related income tax effect. This Statement
eliminates SFAS No. 4 and, thus, the exception to applying APB No. 30 to all
gains and losses related to extinguishments of debt. As a result, gains and
losses from extinguishment of debt should be classified as extraordinary items
only if they meet the criteria in APB No. 30. Applying the provisions of APB
No. 30 will distinguish transactions that are part of an entitys recurring
operations from those that are unusual or infrequent or that meet the criteria
for classification as an extraordinary item. Under SFAS No. 13, the required
accounting treatment of certain lease modifications that have economic effects
similar to sale-leaseback transactions was inconsistent with the required
accounting treatment for sale-leaseback transactions. This Statement amends
SFAS No. 13 to require that those lease modifications be accounted for in the
same manner as sale-leaseback transactions. This Statement was adopted by the
Company in the 2003 first quarter.

In June 2002, FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. This Statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including Certain Costs Incurred in a Restructuring). The
principal difference between this Statement and EITF 94-3 relates to its
requirements for recognition of a liability for a cost associated with an exit
or disposal activity. This Statement requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability
is incurred. Under EITF 94-3, a liability was recognized at the date of an
entitys commitment to an exit plan. This Statement is effective for exit or
disposal activities that are initiated after December 31, 2002.





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In November 2002, FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others (FIN 45). FIN 45 requires that upon
issuance of certain guarantees, a guarantor must recognize a liability for the
fair value of an obligation assumed under the guarantee. FIN 45 also requires
significant new disclosures by guarantors, in both interim and annual financial
statements, about obligations associated with guarantees issued. FIN 45
disclosure requirements are effective for our year ended December 31, 2002, and
the initial recognition and measurement provisions are applicable on a
prospective basis to guarantees issued or modified after December 31, 2002.
(Refer to Note 18, Guarantees, for further discussion.)

In December 2002, FASB issued SFAS No. 148, Accounting for Stock Based
Compensation  Transition and Disclosure  an Amendment of SFAS No. 123. This
Statement amends SFAS No. 123, Accounting for Stock-Based Compensation, and
provides alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. This
Statement also amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial statements about the
method of stock-based employee compensation and the effect of the method used
on reported results. This Statement was effective for fiscal years ending
after December 15, 2002. The Company adopted this Statement in regards to
disclosure provisions for the year ended December 31, 2002. (Refer to this
note under Stock Compensation for further discussion.)

In January 2003, FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, an Interpretation of ARB No. 51 (FIN 46) to
clarify when a company should consolidate in its financial statements the
assets, liabilities and activities of a variable interest entity. FIN 46
provides general guidance as to the definition of a variable interest entity
and requires a variable interest entity to be consolidated if a company absorbs
the majority of the variable interest entitys expected losses, or is entitled
to receive a majority of the variable interest entitys residual
returns, or both. FIN 46 is effective immediately for all new variable
interest entities created after January 31, 2003. For variable interest
entities created before February 1, 2003, the consolidation provisions of FIN
46 must be applied for the first interim or annual reporting period beginning
after June 15, 2003. The disclosure provisions of FIN 46 apply to financial
statements issued after January 31, 2003, regardless of when the variable
interest entity was established. The Company does not believe that the
adoption of FIN 46 will materially impact our financial reporting and
disclosures.

In August 2001, FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. This Statement supersedes SFAS No. 121 and
the accounting and reporting provisions of APB Opinion No. 30, and also amends
Accounting Research Bulletin (ARB) No. 51. This Statement requires that one
accounting model be used for long-lived assets to be disposed of by sale,
whether previously held and used or newly acquired, and will broaden the
presentation of discontinued operations to include more disposal transactions.
This Statement was adopted by the Company on January 1, 2002, and was applied
in the determination of our Wire and Cable segments asset impairment charge in
the 2002 third quarter and PDMCs impairment charge in the 2002 fourth quarter.

Effective January 1, 2002, the Company adopted SFAS No. 142, Goodwill and
Other Intangible Assets. Under SFAS No. 142, goodwill and intangible assets
that have indefinite useful lives will not be amortized but rather will be
tested at least annually for impairment. Intangible assets that have finite
useful lives will continue to be amortized over their useful lives. As of
December 31, 2001, the Company had goodwill of $115.2 million less accumulated
amortization of $26.7 million associated with the Specialty Chemicals segment
and goodwill of $70.8 million less accumulated amortization of $16.2 million
associated with the Wire and Cable segment, for a total of $143.1 million, net.
There have been no changes in the carrying amount of goodwill for the year
ended December 31, 2002, except for the transitional impairment charge and the
impact of changes in foreign currency exchange rates on goodwill denominated in
currencies other than U.S. dollars.

Under the transitional provisions of SFAS No. 142, we identified and
evaluated our reporting units for goodwill impairment using a present value
technique with industry average multiples and third-party valuations used as a
benchmark. Upon completion of the transitional impairment tests, the net book
value of three of the Companys international wire and cable reporting units
was determined to be less than the related carrying amount. The resulting
impairment loss recognized upon adoption of SFAS No. 142 was $33.0 million,
pre-tax ($22.9 million, after-tax), and has been recognized as a cumulative
effect of a change in accounting principle. The pro formaeffect of not
amortizing goodwill in 2001 and 2000 would have reduced goodwill amortization
expense by $7.3 million and $8.1 million, reduced net loss by $6.1 million in
2001 and increased net income by $6.6 million in 2000, and reduced loss per
share by 8 cents in 2001 and increased net income per share by 8 cents in 2000.





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During 2001, we adopted SFAS No. 140, Accounting for the Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities. This
Statement provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings.

In November 2001, the Company entered into an agreement (the Receivables
Facility) whereby it sells on a continuous basis an undivided interest in all
eligible trade accounts receivable. Pursuant to the Receivables Facility, the
Company formed PD Receivables LLC (PD Receivables), a wholly owned, special
purpose, bankruptcy-remote subsidiary. PD Receivables was formed for the sole
purpose of buying and selling receivables generated by the Company, and is
consolidated with the operations of the Company. Under the Receivables
Facility, the Company transfers certain of its trade receivables to PD
Receivables. PD Receivables, in turn, has sold and, subject to certain
conditions, may from time to time sell an undivided interest in these
receivables, and is permitted to receive advances of up to $85.0 million for
the sale of such undivided interest. The agreement expired in November 2002, and was
extended for the first of two successive one-year periods, subject to mutual
agreement.

The transactions are accounted for as a sale of receivables under the
provisions of SFAS No. 140. At December 31, 2002 and 2001, there was $68.1
million and $79.7 million, respectively, advanced under the Receivables
Facility. Costs associated with the sales of receivables, primarily related to
funding and service costs charged by the finance group, were $2.3 million and
$0.3 million during 2002 and 2001, respectively, and are included in cost of
products sold in the statement of consolidated operations.

Effective January 1, 2001, the Company adopted SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities, (as amended by SFAS No.
137) and SFAS No. 138, Accounting for Certain Derivative Instruments and
Certain Hedging Activities. These Statements require recognition of all
derivatives as either assets or liabilities on the balance sheet and
measurement of those instruments at fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other comprehensive
income (loss) (OCI). Appropriate accounting for changes in the fair value of
derivatives held is dependent on whether the derivative transaction qualifies
as an accounting hedge and on the classification of the hedge transaction. The
implementation resulted in a cumulative effect charge of $2.0 million (before
and after taxes), or 3 cents per share, and a cumulative reduction to OCI of
$7.1 million (before and after taxes).

Reclassification. For comparative purposes, certain prior year amounts have
been reclassified to conform with the current year presentation.

2. Acquisitions and Divestitures

Dawson Ranch Divestiture.In May 2002, we sold the Dawson Ranch, approximately
50,000 acres, in Colfax County, New Mexico, to Colfax Land & Cattle Company,
LLC. The sale resulted in a pre-tax gain of $22.6 million (before and after
taxes). Under the terms of the sales agreement, we received total proceeds of
$24.0 million less $1.4 million for sales related expenses for net proceeds of
$22.6 million.

Sossego Divestiture.In October 2001, Phelps Dodge and Companhia Vale do Rio
Doce (CVRD) entered into an agreement in which Phelps Dodge sold to CVRD,
through CVRDs subsidiary, Itabira Rio Doce Company Limited (ITACO), its 50
percent stake in the joint-venture company, Mineração Serra do Sossego S.A.,
for $42.5 million in cash. The joint venture had conducted exploration and
feasibility studies for the potential development of the Sossego copper-gold
deposit in the Carajás region of Brazil. In connection with the sale, the
Company recognized a gain of $39.9 million (before and after taxes).

Cyprus Amax Coal Company Divestiture.In March 2000, we sold Cyprus Australia
Coal Company, acquired in the Cyprus Amax acquisition, to Glencore Coal
Australia Pty. Ltd., a subsidiary of Switzerland-based Glencore International
AG, for approximately $150 million in cash with no gain or loss being realized.

Alcoa Fios e Cabos Electricos Acquisition.In December 1997, we acquired a 60
percent interest in the Brazilian copper and aluminum wire and cable
manufacturing business (the Business) of Alcoa Aluminio, S.A. (Aluminio) for
$72 million. At that time, the fair value of the Business was approximately
$120 million. As part of the purchase agreement, Aluminio was given an
optional exit mechanism to sell to the Company all, but not less than all, of
its remaining shares in the Business. The agreement stipulated that Aluminio
could exercise its option between December 31, 2000, and January 1, 2006.
Under the terms of the agreement, the exit price would be the greater of (a)
the sum of (i) the aggregate amount of cash paid in by Aluminio to subscribe to
capital increases, plus (ii) $48 million, or (b) the value of shareholders
equity represented by Aluminios shares. In January 2001, Aluminio gave the
Company notice of its intent to exercise the option. As a result of other
commitments by Aluminio under the purchase agreement, the exit
price was renegotiated and the transaction to acquire Aluminios remaining 40
percent interest in the Business closed in March 2001 for $44.8 million. The
final settlement price of $44.8





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million was allocated to goodwill ($13.0
million), fixed assets ($3.2 million), other net assets ($1.3 million) and
minority interests in consolidated subsidiaries ($27.3 million).

Columbian Hungary Acquisition.In the second quarter of 2000, we acquired the
remaining 40 percent share in the carbon black manufacturing business of
Columbian Tiszai Carbon Ltd. in Hungary, bringing our total interest to 100
percent. The final settlement price of $19.0 million was allocated to minority
interests in consolidated subsidiaries ($11.4 million) and other assets and
liabilities ($7.6 million), which was primarily fixed assets.

3. Special Items and Provisions

Special items and provisions are unpredictable and atypical of the
Companys operations in a given period. This supplemental information is not a
substitute for any U.S. GAAP measure and should be evaluated within the context
of our U.S. GAAP results.

Note: Supplemental Data

The following table summarizes special items and provisions for the year
ended December 31, 2002:

|                                         |                                                         |                                              |                                                               |                          |       |           |        |      |       |      |        |      |       |       |       |  
|---------------------------------------- | ------------------------------------------------------- | -------------------------------------------- | ------------------------------------------------------------- | ------------------------ | ----- | --------- | ------ | ---- | ----- | ---- | ------ | ---- | ----- | ----- | ----- | -
|Statement of Consolidated                |                                                         | Pre-tax                                      |                                                               | After-tax                |       | $/Share  
|Operations Line Item                     |                                                         | Earnings                                     |                                                               | Earnings                 |       | After-tax
|                                         |                                                         |                                              |                                                               |                          |       |          
|Special items and provisions, net:*      |                                                         |                                              |                                                               |                          |       |           |        |      |       |      |        |     
|                                         | PDMC -                                                  |                                              |                                                               |                          |       |           |        |      |       |      |        |      |      
|                                         |                                                         | December 2002 impairments
and provisions:    |                                                               |                          |       |           |        |      |       |      |        |      |       |      
|                                         |                                                         |                                              |                                                               | Asset impairment
charges |       | $         | (146.5 | )    |       |      | (146.5 | )    |       |       | (1.74 | )
|                                         |                                                         |                                              |                                                               | Accrued closure costs    |       |           | (7.0   | )    |       |      | (7.0   | )    |       |       | (0.08 | )
|                                         |                                                         | Environmental provisions,
net                |                                                               |                          | (1.6  | )         |        |      | (1.6  | )    |        |      | (0.02 | )    
|                                         |                                                         | October 2001 restructuring:                  |                                                               |                          |       |           |        |      |       |      |        |      |       |      
|                                         |                                                         |                                              | Reassessment of employee
activities and take-or-pay
contracts |                          |       | 5.1       |        |      |       | 5.1  |        |      |       | 0.06  |      
|                                         |                                                         |                                              | Additional retirement
benefits                                |                          |       | (6.4      | )      |      |       | (6.4 | )      |      |       | (0.08 | )    
|                                         |                                                         | Environmental insurance
recoveries, net      |                                                               |                          | 16.9  |           |        |      | 14.3  |      |        |      | 0.17  |      
|                                         |                                                         | Sale of non-core real estate                 |                                                               |                          | 22.6  |           |        |      | 22.6  |      |        |      | 0.27  |      
|                                         |                                                         |                                              |                                                               |                          |       |           |        |      |       |      |        |      |       |       |       |  
|                                         |                                                         |                                              | (116.9                                                        | )                        |       |           | (119.5 | )    |       |      | (1.42  | )   
|                                         |                                                         |                                              |                                                               |                          |       |           |        |      |       |      |        |      |       |       |       |  
|                                         | PDI -                                                   |                                              |                                                               |                          |       |           |        |      |       |      |        |      |      
|                                         |                                                         | September 2002 restructuring
programs        |                                                               |                          | (23.6 | )         |        |      | (23.0 | )    |        |      | (0.27 | )    
|                                         |                                                         | Environmental provisions,
net                |                                                               |                          | 0.3   |           |        |      | 0.3   |      |        |      |      |      
|                                         |                                                         | Reassessment of prior
restructuring programs |                                                               |                          | 1.3   |           |        |      | 1.3   |      |        |      | 0.02  |      
|                                         |                                                         |                                              |                                                               |                          |       |           |        |      |       |      |        |      |       |       |       |  
|                                         |                                                         |                                              | (22.0                                                         | )                        |       |           | (21.4  | )    |       |      | (0.25  | )   
|                                         |                                                         |                                              |                                                               |                          |       |           |        |      |       |      |        |      |       |       |       |  
|                                         | Corporate and Other -                                   |                                              |                                                               |                          |       |           |        |      |       |      |        |      |      
|                                         |                                                         | Environmental provisions,
net                |                                                               |                          | (12.7 | )         |        |      | (12.7 | )    |        |      | (0.15 | )    
|                                         |                                                         | Environmental insurance
recoveries, net      |                                                               |                          | 17.4  |           |        |      | 14.8  |      |        |      | 0.18  |      
|                                         |                                                         | Historic Cyprus Amax
lawsuit settlements     |                                                               |                          | (54.7 | )         |        |      | (53.0 | )    |        |      | (0.63 | )    
|                                         |                                                         | Historic Cyprus Amax
arbitration award       |                                                               |                          | (46.5 | )         |        |      | (45.0 | )    |        |      | (0.54 | )    
|                                         |                                                         | Legal loss contingency                       |                                                               |                          | (1.0  | )         |        |      | (1.0  | )    |        |      | (0.01 | )    
|                                         |                                                         |                                              |                                                               |                          |       |           |        |      |       |      |        |      |       |       |       |  
|                                         |                                                         |                                              | (97.5                                                         | )                        |       |           | (96.9  | )    |       |      | (1.15  | )   
|                                         |                                                         |                                              |                                                               |                          |       |           |        |      |       |      |        |      |       |       |       |  
|                                         |                                                         |                                              | (236.4                                                        | )                        |       |           | (237.8 | )    |       |      | (2.82  | )   
|                                         |                                                         |                                              |                                                               |                          |       |           |        |      |       |      |        |      |       |       |       |  
|Miscellaneous income and
expense, net:   |                                                         |                                              |                                                               |                          |       |           |        |      |       |      |        |     
|                                         |                                                         | Cost investment
write-downs                  |                                                               |                          | (1.2  | )         |        |      | (1.2  | )    |        |      | (0.01 | )    
|                                         |                                                         |                                              |                                                               |                          |       |           |        |      |       |      |        |      |       |       |       |  
|Taxes:                                   |                                                         |                                              |                                                               |                          |       |           |        |      |       |      |        |     
|                                         | Release of taxes provided with
regard to Plateau Mining |                                              |                                                               |                         |       |           |        | 13.0 |       |      |        | 0.15 |      
|                                         | Tax benefit for 2001 net
operating loss carryback       |                                              |                                                               |                         |       |           |        | 66.6 |       |      |        | 0.79 |      
|                                         |                                                         |                                              |                                                               |                          |       |           |        |      |       |      |        |      |       |       |       |  
|                                         |                                                         |                                              |                                                              |                          |       |           | 79.6   |      |       |      | 0.94   |     
|                                         |                                                         |                                              |                                                               |                          |       |           |        |      |       |      |        |      |       |       |       |  
|Extraordinary loss - debt
extinguishment |                                                         |                                              | (31.3                                                         | )                        |       |           | (26.6  | )    |       |      | (0.32  | )   
|                                         |                                                         |                                              |                                                               |                          |       |           |        |      |       |      |        |      |       |       |       |  
|Cumulative effect of
accounting change   |                                                         |                                              | (33.0                                                         | )                        |       |           | (22.9  | )    |       |      | (0.27  | )   
|                                         |                                                         |                                              |                                                               |                          |       |           |        |      |       |      |        |      |       |       |       |  
|                                         |                                                         | $                                            | (301.9                                                        | )                        |       |           | (208.9 | )    |       |      | (2.48  | )   
|                                         |                                                         |                                              |                                                               |                          |       |           |        |      |       |      |        |      |       |       |       |  



|* |  | Refer to Note 21, Business Segment Data, for special items and provisions
by segment.
|- |  | -------------------------------------------------------------------------------------

In December 2002, PDMC recorded special, pre-tax charges for asset
impairments and closure provisions of $153.5 million (before and after taxes)
at Cobre, Hidalgo and Ajo. The Company recognized an impairment charge to
write-down Cobres assets by $115.5 million (before and after taxes). We took
this action after revising mine plans and assessing recoverability. The
impairment assessment used a copper price lower than the prior-year assumption,
reflecting moving average historical copper prices representing full economic
and pricing cycles. The amount of Cobres impairment was determined through an
assessment of the discounted cash flows of the remaining ore reserves. The
Hidalgo impairment included a $12.9 million (before and after taxes) write-down
of assets. As a result of the Companys ability to use acid more





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efficiently
and an updated assessment of PDMCs long-term acid production and consumption
balance, the Company determined that Hidalgo will probably not be reconfigured
to produce acid as originally anticipated and that the net book value of
Hidalgo assets would probably not be recovered. Hidalgos power facilities
will continue to generate electricity when needed, and the facility will
continue to be a backup alternative as a reliable producer of acid if
conditions warrant. The remaining Hidalgo assets were written down to their
estimated fair value. The Company also recognized a $7.0 million (before and after taxes) charge
for the estimated remaining costs of its closure obligation at Hidalgo. Phelps
Dodge has reclassified material previously characterized as reserves at Ajo to
mineralized material and, as a result, recognized an impairment charge to write
down Ajos assets by $18.1 million (before and after taxes). This action
resulted from updating mine plans at this prospective development property.
The amount of Ajos impairment was determined through an assessment of the fair
value of its assets.

On September 10, 2002, we announced the temporary closure of two U.S. wire
and cable plants and other actions to improve efficiencies and consolidate
certain wire and cable operations. These temporary closures and internal
changes are expected to reduce our costs and align our business with current
market conditions. The actions included: (i) the temporary closure of the
Laurinburg, North Carolina, magnet wire plant at the end of 2002, with
production being shifted to the El Paso, Texas, and Fort Wayne, Indiana,
facilities; (ii) the temporary closure of the West Caldwell, New Jersey, High
Performance Conductors facility pending recovery of markets served by this
location, with production of certain products relocated to our Inman, South
Carolina, facility; (iii) operational and production support at other High
Performance Conductors facilities being streamlined in order to reduce costs
and increase operating efficiencies; and (iv) the restructuring and
consolidation of certain administrative functions. These actions resulted in
special, pre-tax charges of $23.6 million ($23.0 million after-tax). Of these
amounts, $16.9 million (before and after taxes) was recognized as asset
impairments and $6.7 million ($6.1 million after-tax) was recognized for
severance-related and relocation expenses associated with the restructuring and
temporary closures. The amount of the asset impairment was determined through
an assessment of fair market value, which was based on independent appraisals,
of the existing assets at the wire and cable plants. We also performed an
event-driven impairment test on the goodwill at our wire and cable plants
through a comparison of the carrying value to the respective fair value (using
an estimate of discounted cash flows) and determined that an additional
impairment loss was not required. The restructuring plan includes the
reduction of approximately 300 positions and charges associated with employee
severance and relocation ($3.9 million) and pension and other postretirement
obligations ($2.8 million).

A net charge for environmental provisions of $14.0 million (before and
after taxes) was recognized for closed facilities and closed portions of
operating facilities. (Refer to Note 19, Contingencies, for further discussion
of environmental matters.)

The net effect of the reassessment of prior restructuring programs was
zero (before and after taxes). PDMC recorded a $5.1 million (before and after
taxes) gain for the reassessment of the October 2001 restructuring programs and
a $6.4 million (before and after taxes) charge for additional pension-related
benefits for employees at our Chino, Miami, Sierrita and Bagdad operations
since these operations will remain curtailed beyond one year from their January
2002 curtailment. PDI recorded a $1.3 million (before and after taxes) gain
for the reassessment of prior restructuring programs associated with its
Specialty Chemicals segment ($0.5 million before and after taxes) and its Wire
and Cable segment ($0.8 million before and after taxes).

A gain of $22.6 million (before and after taxes) was recognized for the
sale of the Dawson Ranch property in New Mexico. (Refer to Note 2,
Acquisitions and Divestitures, for further discussion.)

Net insurance recoveries of $34.3 million ($29.1 million after-tax) were
received from settlements reached with several insurance companies on historic
environmental liability claims.

A $54.7 million pre-tax ($53.0 million after-tax) charge was recognized
for settlement of lawsuits related to Cyprus Amax Minerals Company (Cyprus
Amax), which was acquired in October 1999. This included an $11.2 million
pre-tax ($9.5 million after-tax) charge for the settlement of a lawsuit related
to Amax Oil & Gas, and a $43.5 million (before and after taxes) charge for the
settlement of a lawsuit with RAG American Coal Company (RAG). In addition,
there was a $46.5 million ($45.0 million after-tax) charge associated with an
award made in a
binding arbitration proceeding filed against Cyprus Amax by Plateau Mining
Corporation (a former subsidiary of Cyprus Amax).

A net $1.0 million (before and after taxes) charge was recognized for the
settlement of legal matters.





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- 127 -

A $1.2 million (before and after taxes) charge was recognized for the
write-off of two cost basis investments.

A $31.3 million extraordinary ($26.6 million after-tax) charge was
recognized for early extinguishment of debt. (Refer to Note 12, Debt and Other
Financing, for further discussion.)

A $33.0 million ($22.9 after-tax) charge was recorded for the cumulative
effect of an accounting change due to the adoption of SFAS No. 142. (Refer to
Note 1, Summary of Significant Accounting Policies, under New Accounting
Standards for further discussion.)

In 2002, the tax benefit included the release of deferred taxes previously
provided with regard to Plateau Mining Corporation ($13.0 million) and a tax
benefit of $66.6 million for net operating loss carryback prior to 2002
resulting from recent U.S. tax legislation. (Refer to Note 6, Income Taxes,
for further discussion.)

The following table presents a roll-forward of the liabilities incurred in
connection with the September 2002 restructuring program, which were reflected
as current liabilities in our consolidated balance sheet:

|               |                                     |  |            |     |           |  |          |     |          |  |  |      |   |  |  |     | 
|-------------- | ----------------------------------- |  | ---------- | --- | --------- |  | -------- | --- | -------- |  |  | ---- | - |  |  | --- | 
|               |                                     |  | 2002       |     |           |  |          |     |          |  |  |      |   |  | 
|               |                                     |  | Provision* |     | Additions |  | Payments |     | 12/31/02
|               |                                     |  |            |     |           |  |          |     |         
|PDI           |                                     |  |            |     |           |  |          |     |          |  |  |      |   |  |  |    
|Wire and Cable |                                     |  |            |     |           |  |          |     |          |  |  |      |   |  |  |    
|               | Employee
severance and
relocation** |  | $          | 3.3 |           |  |          | 0.6 |          |  |  | (2.6 | ) |  |  | 1.3 | 
|               |                                     |  |            |     |           |  |          |     |          |  |  |      |   |  |  |     | 



|*  |  | Provision excluded $2.8 million of pension and other postretirement
charges included in long-term liabilities.
|-- |  | --------------------------------------------------------------------------------------------------------------
|  
|** |  | Relocation costs were charged to expense as incurred.                                                         

Note: Supplemental Data

The following table summarizes special items and provisions for the year
ended December 31, 2001 (as restated, refer to Note 22, Restatement of
Consolidated Financial Statements, for further discussion):

|                                       |                                                |                                                 |      |           |       |           |       |       |       |   |       |       |       |  
|-------------------------------------- | ---------------------------------------------- | ----------------------------------------------- | ---- | --------- | ----- | --------- | ----- | ----- | ----- | - | ----- | ----- | ----- | -
|Statement of Consolidated              |                                                | Pre-tax                                         |      | After-tax |       | $/Share  
|Operations Line Item                   |                                                | Earnings                                        |      | Earnings  |       | After-tax
|                                       |                                                |                                                 |      |           |       |          
|Special items and provisions, net:*    |                                                |                                                 |      |           |       |           |       |       |       |   |       |      
|                                       | PDMC -                                         |                                                 |      |           |       |           |       |       |       |   |       |       |      
|                                       |                                                | Restructuring programs                          |      | $         | (27.1 | )         |       |       | (27.1 | ) |       |       | (0.35 | )
|                                       |                                                | Environmental provisions                        |      |           | (14.9 | )         |       |       | (14.9 | ) |       |       | (0.19 | )
|                                       |                                                | Gain on sale of Sossego                         |      |           | 39.9  |           |       |       | 39.9  |   |       |       | 0.51  |  
|                                       |                                                |                                                 |      |           |       |           |       |       |       |   |       |       |       |  
|                                       |                                                |                                                 | (2.1 | )         |       |           | (2.1  | )     |       |   | (0.03 | )    
|                                       |                                                |                                                 |      |           |       |           |       |       |       |   |       |       |       |  
|                                       | PDI -                                          |                                                 |      |           |       |           |       |       |       |   |       |       |      
|                                       |                                                | Restructuring programs                          |      |           | (1.4  | )         |       |       | (1.4  | ) |       |       | (0.02 | )
|                                       |                                                | Hopkinsville facility
write-down                |      |           | (3.3  | )         |       |       | (3.3  | ) |       |       | (0.04 | )
|                                       |                                                |                                                 |      |           |       |           |       |       |       |   |       |       |       |  
|                                       |                                                |                                                 | (4.7 | )         |       |           | (4.7  | )     |       |   | (0.06 | )    
|                                       |                                                |                                                 |      |           |       |           |       |       |       |   |       |       |       |  
|                                       | Corporate and Other -                          |                                                 |      |           |       |           |       |       |       |   |       |       |      
|                                       |                                                | Environmental provisions                        |      |           | (16.2 | )         |       |       | (16.2 | ) |       |       | (0.21 | )
|                                       |                                                | Environmental insurance
recoveries, net         |      |           | 61.8  |           |       |       | 61.8  |   |       |       | 0.79  |  
|                                       |                                                | Insurance settlement for
legal loss contingency |      |           | 9.0   |           |       |       | 9.0   |   |       |       | 0.11  |  
|                                       |                                                | Restructuring programs                          |      |           | (1.3  | )         |       |       | (1.3  | ) |       |       | (0.01 | )
|                                       |                                                | Other                                           |      |           | (5.9  | )         |       |       | (5.9  | ) |       |       | (0.07 | )
|                                       |                                                |                                                 |      |           |       |           |       |       |       |   |       |       |       |  
|                                       |                                                |                                                 | 47.4 |           |       |           | 47.4  |       |       |   | 0.61  |      
|                                       |                                                |                                                 |      |           |       |           |       |       |       |   |       |       |       |  
|                                       |                                                |                                                 | 40.6 |           |       |           | 40.6  |       |       |   | 0.52  |      
|                                       |                                                |                                                 |      |           |       |           |       |       |       |   |       |       |       |  
|Miscellaneous income and
expense, net: |                                                |                                                 |      |           |       |           |       |       |       |   |       |      
|                                       | Impairment loss on investments                 |                                                 |      | (12.9     | )     |           |       | (12.9 | )     |   |       | (0.16 | )    
|                                       | Interest on prior years tax
refunds           |                                                 |      | 4.3       |       |           |       | 4.3   |       |   |       | 0.05  |      
|                                       | Other                                          |                                                 |      | 1.5       |       |           |       | 1.5   |       |   |       | 0.02  |      
|                                       |                                                |                                                 |      |           |       |           |       |       |       |   |       |       |       |  
|                                       |                                                |                                                 | (7.1 | )         |       |           | (7.1  | )     |       |   | (0.09 | )    
|                                       |                                                |                                                 |      |           |       |           |       |       |       |   |       |       |       |  
|Taxes:                                 |                                                |                                                 |      |           |       |           |       |       |       |   |       |      
|                                       | El Abra deferred tax asset
valuation allowance |                                                 |      |          |       |           |       | (57.9 | )     |   |       | (0.74 | )    
|                                       |                                                |                                                 |      |           |       |           |       |       |       |   |       |       |       |  
|Cumulative effect of
accounting change |                                                |                                                 | (2.0 | )         |       |           | (2.0  | )     |       |   | (0.03 | )    
|                                       |                                                |                                                 |      |           |       |           |       |       |       |   |       |       |       |  
|                                       |                                                | $                                               | 31.5 |           |       |           | (26.4 | )     |       |   | (0.34 | )    
|                                       |                                                |                                                 |      |           |       |           |       |       |       |   |       |       |       |  



|* |  | Refer to Note 21, Business Segment Data, for special items and provisions
by segment.
|- |  | -------------------------------------------------------------------------------------

During 2001, we recorded charges of $29.8 million (before and after taxes)
for restructuring programs comprising $27.1 million (before and after taxes) at
PDMC, $1.4 million (before and after taxes) at PDI and $1.3 million (before and
after taxes) at Corporate. In the second quarter of 2001, we announced a
restructuring of our professional, administrative and operational support
functions, as well as various other operational improvement initiatives, which
led to a re-





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- 128 -

duction of approximately 500 positions. This resulted in an $11.3
million (before and after taxes) charge primarily for employee severance and
benefit costs. In the fourth quarter of 2001, we announced a series of actions
to address the then current economic environment, including changes in copper
operations that led us to curtail approximately 220,000 metric tons of
copper production annually (including our partners share) and to curtail
54,000 metric tons of North American carbon black production annually in 2002.
These actions resulted in the layoff of approximately 1,600 employees mostly in
January 2002. The Chino and Miami mines were temporarily closed, the Bagdad
and Sierrita mines are operating at approximately one-half capacity, the Chino
smelter and the Miami refinery were temporarily closed (approximately 1,500
positions), and Columbian Chemicals Company temporarily closed its El Dorado,
Arkansas, facility (approximately 100 positions). This plan resulted in an
$18.5 million (before and after taxes) net charge for employee reductions and
facility closures associated with the announced production curtailments.

A net charge for environmental provisions of $31.1 million (before and
after taxes) was recognized for closed facilities and closed portions of
operating facilities. (Refer to Note 19, Contingencies, for further discussion
of environmental matters.)

A gain of $39.9 million (before and after taxes) gain was recognized from
the sale of our 50 percent interest in the Sossego project. (Refer to Note 2,
Acquisitions and Divestitures, for further discussion.)

A $3.3 million (before and after taxes) charge was taken to write down the
closed Hopkinsville, Kentucky, magnet wire facility to its net realizable value
due to detrimental market conditions.

Net insurance recoveries of $61.8 million (before and after taxes) were
received from settlements reached with several insurance companies on historic
environmental liability claims. In addition, there was a $5.9 million (before
and after taxes) charge related to other net special items recognized in 2001.

A $9.0 million (before and after taxes) gain was recognized from the
settlement reached with one of our insurance carriers associated with potential
future legal matters.

Special charges in miscellaneous income and expense in 2001 included a
$12.9 million (before and after taxes) charge to recognize the impairment of
our investment in Compañia San Ignacio de Morococha S.A. (SIMSA) ($9.1
million), a Peruvian zinc mine, and Equatorial Mining ($3.8 million) in
Australia. Additionally, a $5.8 million (before and after taxes) gain was
recognized for other net special items, which was primarily $4.3 million
(before and after taxes) of interest income on prior years tax refunds.

A $2.0 million (before and after taxes) charge was recorded for the
cumulative effect of accounting change arising from the implementation of SFAS
Nos. 133 and 138. (Refer to Note 1, Summary of Significant Accounting
Policies, under New Accounting Standards for further discussion.)

In 2001, a deferred tax asset valuation allowance of $57.9 million was
established for our 51 percent interest in the El Abra copper mine in Chile. (Refer to
Note 6, Income Taxes, for further discussion.)

The following tables present a roll-forward of the liabilities incurred in
connection with the 2001 restructuring programs, which were reflected as
current liabilities in our consolidated balance sheet:

|           |                 |                                     |      |            |     |           |   |          |   |          |      |   |      |   |      |  |     | 
|---------- | --------------- | ----------------------------------- | ---- | ---------- | --- | --------- | - | -------- | - | -------- | ---- | - | ---- | - | ---- |  | --- | 
|           |                 |                                     |      | 2001       |     | Reassess- |   |          |   |          |      |   |      |  
|           |                 |                                     |      | Provision* |     | ments     |   | Payments |   | 12/31/01
|           |                 |                                     |      |            |     |           |   |          |   |         
|PDMC      |                 |                                     |      |            |     |           |   |          |   |          |      |   |      |   |      | 
|U.S. Mines |                 |                                     |      |            |     |           |   |          |   |          |      |   |      |   |      | 
|           | Morenci         |                                     |      |            |     |           |   |          |   |          |      |   |      |   |      |  |    
|           |                 | Employee
severance and
relocation** |      | $          | 1.7 |           |   |          |  |          |      |   | (1.4 | ) |      |  | 0.3 | 
|           |                 |                                     |      |            |     |           |   |          |   |          |      |   |      |   |      |  |     | 
|           | Bagdad/Sierrita |                                     |      |            |     |           |   |          |   |          |      |   |      |   |      |  |    
|           |                 | Employee
severance and
relocation** |      |            | 3.6 |           |   |          |  |          |      |   | (0.1 | ) |      |  | 3.5 | 
|           |                 | Mothballing/take-or-pay
contracts   |      |            | 3.1 |           |   |          |  |          |      |   |     |   |      |  | 3.1 | 
|           |                 |                                     |      |            |     |           |   |          |   |          |      |   |      |   |      |  |     | 
|           |                 |                                     | 6.7  |            |     |           |  |          |   |          | (0.1 | ) |      |   | 6.6  | 
|           |                 |                                     |      |            |     |           |   |          |   |          |      |   |      |   |      |  |     | 
|           | Miami/Bisbee    |                                     |      |            |     |           |   |          |   |          |      |   |      |   |      |  |    
|           |                 | Employee
severance and
relocation** |      |            | 2.0 |           |   |          |  |          |      |   | (0.2 | ) |      |  | 1.8 | 
|           |                 | Mothballing/take-or-pay
contracts   |      |            | 1.0 |           |   |          |  |          |      |   |     |   |      |  | 1.0 | 
|           |                 |                                     |      |            |     |           |   |          |   |          |      |   |      |   |      |  |     | 
|           |                 |                                     | 3.0  |            |     |           |  |          |   |          | (0.2 | ) |      |   | 2.8  | 
|           |                 |                                     |      |            |     |           |   |          |   |          |      |   |      |   |      |  |     | 
|           | Chino/Cobre     |                                     |      |            |     |           |   |          |   |          |      |   |      |   |      |  |    
|           |                 | Employee
severance and
relocation** |      |            | 1.8 |           |   |          |  |          |      |   | (0.6 | ) |      |  | 1.2 | 
|           |                 | Mothballing/take-or-pay
contracts   |      |            | 0.2 |           |   |          |  |          |      |   |     |   |      |  | 0.2 | 
|           |                 |                                     |      |            |     |           |   |          |   |          |      |   |      |   |      |  |     | 
|           |                 |                                     | 2.0  |            |     |           |  |          |   |          | (0.6 | ) |      |   | 1.4  | 
|           |                 |                                     |      |            |     |           |   |          |   |          |      |   |      |   |      |  |     | 
|           | Tyrone          |                                     |      |            |     |           |   |          |   |          |      |   |      |   |      |  |    
|           |                 | Employee
severance and
relocation** |      |            | 0.5 |           |   |          |  |          |      |   | (0.3 | ) |      |  | 0.2 | 
|           |                 |                                     |      |            |     |           |   |          |   |          |      |   |      |   |      |  |     | 
|           |                 |                                     | 13.9 |            |     |           |  |          |   |          | (2.6 | ) |      |   | 11.3 | 
|           |                 |                                     |      |            |     |           |   |          |   |          |      |   |      |   |      |  |     | 





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|                        |                                     |   |            |     |           |  |          |   |          |  |      |      |   |  |      |     | 
|----------------------- | ----------------------------------- | - | ---------- | --- | --------- |  | -------- | - | -------- |  | ---- | ---- | - |  | ---- | --- | 
|                        |                                     |   | 2001       |     | Reassess- |  |          |   |          |  |      |      |  
|                        |                                     |   | Provision* |     | ments     |  | Payments |   | 12/31/01
|                        |                                     |   |            |     |           |  |          |   |         
|Manufacturing and Sales |                                     |   |            |     |           |  |          |   |          |  |      |      |   |  |      |    
|                        | Employee
severance and
relocation** |   |            | 1.7 |           |  |          |  |          |  |      | (0.3 | ) |  |      | 1.4 | 
|                        | Mothballing/take-or-pay
contracts   |   |            | 4.4 |           |  |          |  |          |  |      | (0.3 | ) |  |      | 4.1 | 
|                        |                                     |   |            |     |           |  |          |   |          |  |      |      |   |  |      |     | 
|                        |                                     |   | 6.1        |     |           |  |         |   |          |  | (0.6 | )    |   |  | 5.5  |    
|                        |                                     |   |            |     |           |  |          |   |          |  |      |      |   |  |      |     | 
|Primary Molybdenum      |                                     |   |            |     |           |  |          |   |          |  |      |      |   |  |      |    
|                        | Employee
severance and
relocation** |   |            | 0.3 |           |  |          |  |          |  |      | (0.2 | ) |  |      | 0.1 | 
|                        |                                     |   |            |     |           |  |          |   |          |  |      |      |   |  |      |     | 
|Other Mining            |                                     |   |            |     |           |  |          |   |          |  |      |      |   |  |      |    
|                        | Employee
severance and
relocation** |   |            | 1.7 |           |  |          |  |          |  |      | (0.9 | ) |  |      | 0.8 | 
|                        |                                     |   |            |     |           |  |          |   |          |  |      |      |   |  |      |     | 
|                        |                                     |   | 22.0       |     |           |  |         |   |          |  | (4.3 | )    |   |  | 17.7 |    
|                        |                                     |   |            |     |           |  |          |   |          |  |      |      |   |  |      |     | 
|PDI                    |                                     |   |            |     |           |  |          |   |          |  |      |      |   |  |      |    
|Specialty Chemicals     |                                     |   |            |     |           |  |          |   |          |  |      |      |   |  |      |    
|                        | Disposal and
dismantling            |   |            | 0.6 |           |  |          |  |          |  |      | (0.1 | ) |  |      | 0.5 | 
|                        | Employee
severance and
relocation** |   |            | 0.8 |           |  |          |  |          |  |      |     |   |  |      | 0.8 | 
|                        |                                     |   |            |     |           |  |          |   |          |  |      |      |   |  |      |     | 
|                        |                                     |   | 1.4        |     |           |  |         |   |          |  | (0.1 | )    |   |  | 1.3  |    
|                        |                                     |   |            |     |           |  |          |   |          |  |      |      |   |  |      |     | 
|Corporate and Other    |                                     |   |            |     |           |  |          |   |          |  |      |      |   |  |      |    
|                        | Employee
severance and
relocation** |   |            | 0.9 |           |  |          |  |          |  |      | (0.9 | ) |  |      |    | 
|                        |                                     |   |            |     |           |  |          |   |          |  |      |      |   |  |      |     | 
|                        |                                     | $ | 24.3       |     |           |  |         |   |          |  | (5.3 | )    |   |  | 19.0 |    
|                        |                                     |   |            |     |           |  |          |   |          |  |      |      |   |  |      |     | 



|*  |  | Provision excluded $6.3 million of pension and other postretirement
charges for the second quarter 2001 restructuring, included in long-term
liabilities.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|** |  | Relocation costs were charged to expense as incurred.                                                                                                    

|                        |                                   |                                   |      |          |     |       |      |           |      |          |       |      |      |   |     |     |     | 
|----------------------- | --------------------------------- | --------------------------------- | ---- | -------- | --- | ----- | ---- | --------- | ---- | -------- | ----- | ---- | ---- | - | --- | --- | --- | 
|                        |                                   |                                   |      |          |     |       |      | Reassess- |      |          |       |      |      |   |     |    
|                        |                                   |                                   |      | 12/31/01 |     | ments |      | Payments  |      | 12/31/02
|                        |                                   |                                   |      |          |     |       |      |           |      |         
|PDMC                   |                                   |                                   |      |          |     |       |      |           |      |          |       |      |      |   |     |    
|U.S. Mines              |                                   |                                   |      |          |     |       |      |           |      |          |       |      |      |   |     |    
|                        | Morenci                           |                                   |      |          |     |       |      |           |      |          |       |      |      |   |     |     |    
|                        |                                   | Employee
severance                |      | $        | 0.3 |       |      |           | 0.1  |          |       |      | (0.3 | ) |     |     | 0.1 | 
|                        |                                   |                                   |      |          |     |       |      |           |      |          |       |      |      |   |     |     |     | 
|                        | Bagdad/Sierrita                   |                                   |      |          |     |       |      |           |      |          |       |      |      |   |     |     |    
|                        |                                   | Employee
severance                |      |          | 3.5 |       |      |           | (1.1 | )        |       |      | (2.4 | ) |     |     |    | 
|                        |                                   | Mothballing/take-or-pay
contracts |      |          | 3.1 |       |      |           | (0.8 | )        |       |      | (2.1 | ) |     |     | 0.2 | 
|                        |                                   |                                   |      |          |     |       |      |           |      |          |       |      |      |   |     |     |     | 
|                        |                                   |                                   | 6.6  |          |     |       | (1.9 | )         |      |          | (4.5  | )    |      |   | 0.2 |    
|                        |                                   |                                   |      |          |     |       |      |           |      |          |       |      |      |   |     |     |     | 
|                        | Miami/Bisbee                      |                                   |      |          |     |       |      |           |      |          |       |      |      |   |     |     |    
|                        |                                   | Employee
severance                |      |          | 1.8 |       |      |           | (0.5 | )        |       |      | (1.3 | ) |     |     |    | 
|                        |                                   | Mothballing/take-or-pay
contracts |      |          | 1.0 |       |      |           | (0.4 | )        |       |      | (0.5 | ) |     |     | 0.1 | 
|                        |                                   |                                   |      |          |     |       |      |           |      |          |       |      |      |   |     |     |     | 
|                        |                                   |                                   | 2.8  |          |     |       | (0.9 | )         |      |          | (1.8  | )    |      |   | 0.1 |    
|                        |                                   |                                   |      |          |     |       |      |           |      |          |       |      |      |   |     |     |     | 
|                        | Chino/Cobre                       |                                   |      |          |     |       |      |           |      |          |       |      |      |   |     |     |    
|                        |                                   | Employee
severance                |      |          | 1.2 |       |      |           | (0.7 | )        |       |      | (0.4 | ) |     |     | 0.1 | 
|                        |                                   | Mothballing/take-or-pay
contracts |      |          | 0.2 |       |      |           | (0.1 | )        |       |      | (0.1 | ) |     |     |    | 
|                        |                                   |                                   |      |          |     |       |      |           |      |          |       |      |      |   |     |     |     | 
|                        |                                   |                                   | 1.4  |          |     |       | (0.8 | )         |      |          | (0.5  | )    |      |   | 0.1 |    
|                        |                                   |                                   |      |          |     |       |      |           |      |          |       |      |      |   |     |     |     | 
|                        | Tyrone                            |                                   |      |          |     |       |      |           |      |          |       |      |      |   |     |     |    
|                        |                                   | Employee
severance                |      |          | 0.2 |       |      |           |     |          |       |      | (0.2 | ) |     |     |    | 
|                        |                                   |                                   |      |          |     |       |      |           |      |          |       |      |      |   |     |     |     | 
|                        |                                   |                                   | 11.3 |          |     |       | (3.5 | )         |      |          | (7.3  | )    |      |   | 0.5 |    
|                        |                                   |                                   |      |          |     |       |      |           |      |          |       |      |      |   |     |     |     | 
|Manufacturing and Sales |                                   |                                   |      |          |     |       |      |           |      |          |       |      |      |   |     |    
|                        | Employee
severance                |                                   |      | 1.4      |     |       |      | (0.2      | )    |          |       | (1.1 | )    |   |     | 0.1 |    
|                        | Mothballing/take-or-pay
contracts |                                   |      | 4.1      |     |       |      | (1.2      | )    |          |       | (2.9 | )    |   |     |    |    
|                        |                                   |                                   |      |          |     |       |      |           |      |          |       |      |      |   |     |     |     | 
|                        |                                   |                                   | 5.5  |          |     |       | (1.4 | )         |      |          | (4.0  | )    |      |   | 0.1 |    
|                        |                                   |                                   |      |          |     |       |      |           |      |          |       |      |      |   |     |     |     | 
|Primary Molybdenum      |                                   |                                   |      |          |     |       |      |           |      |          |       |      |      |   |     |    
|                        | Employee
severance                |                                   |      | 0.1      |     |       |      |          |      |          |       | (0.1 | )    |   |     |    |    
|                        |                                   |                                   |      |          |     |       |      |           |      |          |       |      |      |   |     |     |     | 
|Other Mining            |                                   |                                   |      |          |     |       |      |           |      |          |       |      |      |   |     |    
|                        | Employee
severance                |                                   |      | 0.8      |     |       |      | (0.2      | )    |          |       | (0.6 | )    |   |     |    |    
|                        |                                   |                                   |      |          |     |       |      |           |      |          |       |      |      |   |     |     |     | 
|                        |                                   |                                   | 17.7 |          |     |       | (5.1 | )         |      |          | (12.0 | )    |      |   | 0.6 |    
|                        |                                   |                                   |      |          |     |       |      |           |      |          |       |      |      |   |     |     |     | 





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|                    |                          |   |          |     |       |  |           |      |          |  |       |      |   |  |     |   | 
|------------------- | ------------------------ | - | -------- | --- | ----- |  | --------- | ---- | -------- |  | ----- | ---- | - |  | --- | - | 
|                    |                          |   |          |     |       |  | Reassess- |      |          |  |       |      |   |  |    
|                    |                          |   | 12/31/01 |     | ments |  | Payments  |      | 12/31/02
|                    |                          |   |          |     |       |  |           |      |         
|PDI                |                          |   |          |     |       |  |           |      |          |  |       |      |   |  |     |  
|Specialty Chemicals |                          |   |          |     |       |  |           |      |          |  |       |      |   |  |     |  
|                    | Disposal and
dismantling |   |          | 0.5 |       |  |           | (0.4 | )        |  |       | (0.1 | ) |  |     |  | 
|                    | Employee
severance       |   |          | 0.8 |       |  |           | (0.1 | )        |  |       | (0.7 | ) |  |     |  | 
|                    |                          |   |          |     |       |  |           |      |          |  |       |      |   |  |     |   | 
|                    |                          |   | 1.3      |     |       |  | (0.5      | )    |          |  | (0.8  | )    |   |  |    |  
|                    |                          |   |          |     |       |  |           |      |          |  |       |      |   |  |     |   | 
|                    |                          | $ | 19.0     |     |       |  | (5.6      | )    |          |  | (12.8 | )    |   |  | 0.6 |  
|                    |                          |   |          |     |       |  |           |      |          |  |       |      |   |  |     |   | 

A reassessment of $2.6 million for employee termination benefits at PDMCs
segments was made because subsequently, as the plan was being implemented, it
was determined that certain employees identified in the restructuring plan
would be retained to fill open positions or would not be eligible for
supplemental unemployment as originally anticipated. In addition, there was
reassessment of $2.5 million related to savings from renegotiated contracts or
from reduced penalties on demand contracts. Further, a $6.4 million charge was
recognized for additional pension-related benefits, which are included in
long-term liabilities, for employees at our Chino, Miami, Sierrita and Bagdad
operations because these operations were expected to remain curtailed beyond
one year from their January 2002 curtailment.

PDIs Specialty Chemicals segment reassessment related to (i) $0.4 million
for an adjustment to disposal and dismantling charges for the El Dorado plant
facility and (ii) a reclassification of $0.1 million to long-term pension
benefits.

Note: Supplemental Data

The following table summarizes special items and provisions for the year
ended December 31, 2000:

|                                    |                                        |                                             |       |           |       |           |       |   |       |   |       |   |       |  
|----------------------------------- | -------------------------------------- | ------------------------------------------- | ----- | --------- | ----- | --------- | ----- | - | ----- | - | ----- | - | ----- | -
|Statement of Consolidated           |                                        | Pre-tax                                     |       | After-tax |       | $/Share  
|Operations Line Item                |                                        | Earnings                                    |       | Earnings  |       | After-tax
|                                    |                                        |                                             |       |           |       |          
|Special items and provisions, net:* |                                        |                                             |       |           |       |           |       |   |       |   |       |  
|                                    | PDMC -                                 |                                             |       |           |       |           |       |   |       |   |       |   |      
|                                    |                                        | Mining curtailments                         |       | $         | (5.8  | )         |       |   | (3.8  | ) |       |   | (0.05 | )
|                                    |                                        |                                             |       |           |       |           |       |   |       |   |       |   |       |  
|                                    | PDI -                                  |                                             |       |           |       |           |       |   |       |   |       |   |      
|                                    |                                        | Wire and cable
closure/impairments          |       |           | (38.7 | )         |       |   | (35.3 | ) |       |   | (0.45 | )
|                                    |                                        | Restructuring programs                      |       |           | (7.3  | )         |       |   | (4.5  | ) |       |   | (0.06 | )
|                                    |                                        |                                             |       |           |       |           |       |   |       |   |       |   |       |  
|                                    |                                        |                                             | (46.0 | )         |       |           | (39.8 | ) |       |   | (0.51 | )
|                                    |                                        |                                             |       |           |       |           |       |   |       |   |       |   |       |  
|                                    |                                        |                                             | (51.8 | )         |       |           | (43.6 | ) |       |   | (0.56 | )
|                                    |                                        |                                             |       |           |       |           |       |   |       |   |       |   |       |  
|Cost of products sold:              |                                        |                                             |       |           |       |           |       |   |       |   |       |  
|                                    | PDI -                                  |                                             |       |           |       |           |       |   |       |   |       |   |      
|                                    |                                        | Wire and cable working
capital write-downs  |       |           | (5.6  | )         |       |   | (5.6  | ) |       |   | (0.07 | )
|                                    |                                        |                                             |       |           |       |           |       |   |       |   |       |   |       |  
|                                    | Miscellaneous income and
expense, net: |                                             |       |           |       |           |       |   |       |   |       |   |      
|                                    |                                        | Philippines investment
impairment           |       |           | (7.2  | )         |       |   | (7.2  | ) |       |   | (0.09 | )
|                                    |                                        | Interest income on prior years
tax refunds |       |           | 5.8   |           |       |   | 3.6   |   |       |   | 0.05  |  
|                                    |                                        | Settlement of insurance claim               |       |           | 4.5   |           |       |   | 3.0   |   |       |   | 0.04  |  
|                                    |                                        |                                             |       |           |       |           |       |   |       |   |       |   |       |  
|                                    |                                        |                                             | 3.1   |           |       |           | (0.6  | ) |       |   |      |  
|                                    |                                        |                                             |       |           |       |           |       |   |       |   |       |   |       |  
|                                    | Taxes:                                 |                                             |       |           |       |           |       |   |       |   |       |   |      
|                                    |                                        | Income tax refund                           |       |           |      |           |       |   | 6.5   |   |       |   | 0.08  |  
|                                    |                                        |                                             |       |           |       |           |       |   |       |   |       |   |       |  
|                                    |                                        | $                                           | (54.3 | )         |       |           | (43.3 | ) |       |   | (0.55 | )
|                                    |                                        |                                             |       |           |       |           |       |   |       |   |       |   |       |  



|* |  | Refer to Note 21, Business Segment Data, for special items and provisions
by segment.
|- |  | -------------------------------------------------------------------------------------

In the second quarter of 2000, we announced a plan to reduce operating
costs and restructure operations at our Miami/Bisbee, Primary Molybdenum and
Wire and Cable segments. This restructuring plan resulted in the Company
recognizing a special, pre-tax charge of $57.4 million ($49.2 million
after-tax) during 2000. This plan comprised the following actions:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) High-cost production was curtailed at the Miami copper mine in
Arizona and production was reduced at the Henderson mine in Colorado.
Molybdenum production at the Henderson mine was curtailed by
approximately 20 percent, and its workforce was reduced by approximately
130 workers. The curtailment of production resulted in a special,
pre-tax charge of $4.3 million for severance-related costs.
Additionally, our Miami copper mine reduced its mining activities. The
new





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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | mine plan temporarily suspended stripping in a higher cost portion of
the mine and has allowed the redistribution of a variety of mining
equipment, including shovels and haul trucks, to other PDMC operations to
reduce overall capital expenditures. The reduction of mining activities
resulted in a special, pre-tax charge of $1.5 million for severance and
other related costs.                                                                                                                                                                                                                                                                                                                                                                                                
|
| | (ii) Production ceased at two wire and cable plants in Venezuela in
the second quarter of 2000 due to low forecast plant utilization levels
as a result of significantly reduced infrastructure spending in the Latin
America region. These plant closures resulted in a total special,
pre-tax loss of $26.1 million, consisting of an impairment in the
carrying value of property, plant and equipment and other assets of $19.5
million; an impairment of goodwill of $1.7 million; and a restructuring
accrual of $4.9 million associated with severance-related costs ($2.2
million) and plant dismantling costs ($2.7 million). In addition,
working capital write-downs of $3.4 million were recorded to cost of
products sold as a result of the decision to close the plants.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (iii) The closure of a telephone cable operation in El Salvador in
the fourth quarter of 2000 was due to low plant utilization levels as a
result of heightened global competition for telecommunication cable. The
plant closure resulted in a special, pre-tax loss of $5.5 million,
including $4.5 million relating to the impairment of the carrying value
of property, plant and equipment and other assets and a restructuring
accrual of $1.0 million associated with plant dismantling costs. In
addition, working capital write-downs of $2.2 million were recorded to
cost of products sold as a result of the decision to close the plant.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (iv) A special, pre-tax charge of $5.8 million was recognized for
our wire and cable operations in Austria as a result of the long-term
impact of continuing extremely competitive pricing conditions in Europe.
The continuing competitive pricing environment led to a determination
that we should assess the recoverability of our Austrian wire and cable
asset values. Our assessment of the carrying value of the property,
plant and equipment of $4.2 million and the goodwill balance of $2.8
million indicated impairments of $3.0 million and $2.8 million,
respectively.

In addition to the above items, during 2000, we recognized net additional
costs of $8.6 million at our wire and cable plants in conjunction with the June
30, 1999, restructuring programs.

We received a tax refund of $6.5 million and related pre-tax interest
income of $5.8 million ($3.6 million after-tax) resulting from the settlement
of the Companys 1990 and 1991 income tax audits. Additionally, we recognized
a $7.2 million (before and after taxes) impairment charge related to our wire
and cable operations in the Philippines.

A pre-tax $4.5 million ($3.0 million after-tax) settlement of a business
interruption insurance claim by a former Cyprus Amax property was recognized as
miscellaneous income.

The following tables present a roll-forward of the liabilities incurred in
connection with the 2000 restructuring programs, which were reflected as
current liabilities in our consolidated balance sheet:

|                   |                                |                       |      |           |     |           |     |          |     |          |      |      |      |   |     |     |     | 
|------------------ | ------------------------------ | --------------------- | ---- | --------- | --- | --------- | --- | -------- | --- | -------- | ---- | ---- | ---- | - | --- | --- | --- | 
|                   |                                |                       |      | 2000      |     |           |     |          |     |          |      |      |      |   |     |    
|                   |                                |                       |      | Provision |     | Additions |     | Payments |     | 12/31/00
|                   |                                |                       |      |           |     |           |     |          |     |         
|PDMC              |                                |                       |      |           |     |           |     |          |     |          |      |      |      |   |     |    
|U.S. Mines         |                                |                       |      |           |     |           |     |          |     |          |      |      |      |   |     |    
|                   | Miami/Bisbee                   |                       |      |           |     |           |     |          |     |          |      |      |      |   |     |     |    
|                   |                                | Employee
severance    |      | $         | 0.9 |           |     |          |    |          |      |      | (0.2 | ) |     |     | 0.7 | 
|                   |                                | Equipment
relocation* |      |           |    |           |     |          | 0.6 |          |      |      | (0.6 | ) |     |     |    | 
|                   |                                |                       |      |           |     |           |     |          |     |          |      |      |      |   |     |     |     | 
|                   |                                |                       | 0.9  |           |     |           | 0.6 |          |     |          | (0.8 | )    |      |   | 0.7 |    
|                   |                                |                       |      |           |     |           |     |          |     |          |      |      |      |   |     |     |     | 
|Primary Molybdenum |                                |                       |      |           |     |           |     |          |     |          |      |      |      |   |     |    
|                   | Employee
severance             |                       |      | 4.3       |     |           |     |         |     |          |      | (3.4 | )    |   |     | 0.9 |    
|                   |                                |                       |      |           |     |           |     |          |     |          |      |      |      |   |     |     |     | 
|                   |                                |                       | 5.2  |           |     |           | 0.6 |          |     |          | (4.2 | )    |      |   | 1.6 |    
|                   |                                |                       |      |           |     |           |     |          |     |          |      |      |      |   |     |     |     | 
|PDI               |                                |                       |      |           |     |           |     |          |     |          |      |      |      |   |     |    
|Wire and Cable     |                                |                       |      |           |     |           |     |          |     |          |      |      |      |   |     |    
|                   | Employee
severance             |                       |      | 2.2       |     |           |     |         |     |          |      | (2.2 | )    |   |     |    |    
|                   | Plant removal and
dismantling* |                       |      | 2.8       |     |           |     | 0.9      |     |          |      | (0.7 | )    |   |     | 3.0 |    
|                   |                                |                       |      |           |     |           |     |          |     |          |      |      |      |   |     |     |     | 
|                   |                                |                       | 5.0  |           |     |           | 0.9 |          |     |          | (2.9 | )    |      |   | 3.0 |    
|                   |                                |                       |      |           |     |           |     |          |     |          |      |      |      |   |     |     |     | 
|                   |                                | $                     | 10.2 |           |     |           | 1.5 |          |     |          | (7.1 | )    |      |   | 4.6 |    
|                   |                                |                       |      |           |     |           |     |          |     |          |      |      |      |   |     |     |     | 



|* |  | Relocation costs were charged to expense as incurred.
|- |  | -----------------------------------------------------





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##### Table of Contents



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|                   |                               |                    |     |          |     |       |      |           |      |          |      |      |   |  |     |     |   | 
|------------------ | ----------------------------- | ------------------ | --- | -------- | --- | ----- | ---- | --------- | ---- | -------- | ---- | ---- | - |  | --- | --- | - | 
|                   |                               |                    |     |          |     |       |      | Reassess- |      |          |      |      |   |  |     |    
|                   |                               |                    |     | 12/31/00 |     | ments |      | Payments  |      | 12/31/01
|                   |                               |                    |     |          |     |       |      |           |      |         
|PDMC              |                               |                    |     |          |     |       |      |           |      |          |      |      |   |  |     |    
|U.S. Mines         |                               |                    |     |          |     |       |      |           |      |          |      |      |   |  |     |    
|                   | Miami/Bisbee                  |                    |     |          |     |       |      |           |      |          |      |      |   |  |     |     |  
|                   |                               | Employee
severance |     | $        | 0.7 |       |      |           | (0.7 | )        |      |      |  |  |     |     |  | 
|                   |                               |                    |     |          |     |       |      |           |      |          |      |      |   |  |     |     |   | 
|Primary Molybdenum |                               |                    |     |          |     |       |      |           |      |          |      |      |   |  |     |    
|                   | Employee
severance            |                    |     | 0.9      |     |       |      | (0.6      | )    |          |      | (0.3 | ) |  |     |    |  
|                   |                               |                    |     |          |     |       |      |           |      |          |      |      |   |  |     |     |   | 
|                   |                               |                    | 1.6 |          |     |       | (1.3 | )         |      |          | (0.3 | )    |   |  |    |    
|                   |                               |                    |     |          |     |       |      |           |      |          |      |      |   |  |     |     |   | 
|PDI               |                               |                    |     |          |     |       |      |           |      |          |      |      |   |  |     |    
|Wire and Cable     |                               |                    |     |          |     |       |      |           |      |          |      |      |   |  |     |    
|                   | Plant removal and
dismantling |                    |     | 3.0      |     |       |      |          |      |          |      | (1.1 | ) |  |     | 1.9 |  
|                   |                               |                    |     |          |     |       |      |           |      |          |      |      |   |  |     |     |   | 
|                   |                               | $                  | 4.6 |          |     |       | (1.3 | )         |      |          | (1.4 | )    |   |  | 1.9 |    
|                   |                               |                    |     |          |     |       |      |           |      |          |      |      |   |  |     |     |   | 

A reassessment of $1.3 million for employee termination benefits at PDMCs
segments was made because subsequently, as the plan was being implemented, it
was determined that certain employees identified in the restructuring plan
would be retained after all and moved to positions being filled by contractors.

|               |                               |  |          |     |       |  |           |      |          |  |  |      |   |  |  |     | 
|-------------- | ----------------------------- |  | -------- | --- | ----- |  | --------- | ---- | -------- |  |  | ---- | - |  |  | --- | 
|               |                               |  |          |     |       |  | Reassess- |      |          |  |  |      |   |  | 
|               |                               |  | 12/31/01 |     | ments |  | Payments  |      | 12/31/02
|               |                               |  |          |     |       |  |           |      |         
|PDI           |                               |  |          |     |       |  |           |      |          |  |  |      |   |  |  |    
|Wire and Cable |                               |  |          |     |       |  |           |      |          |  |  |      |   |  |  |    
|               | Plant removal and
dismantling |  | $        | 1.9 |       |  |           | (1.3 | )        |  |  | (0.1 | ) |  |  | 0.5 | 
|               |                               |  |          |     |       |  |           |      |          | 

PDIs Wire and Cable segment reassessment related to (i) a $0.5 million
adjustment to plant dismantling charges related to the wire and cable plant
closures in Venezuela and (ii) a $0.8 million non-cash deduction related to the
devaluation of Venezuelan currency.

In the second quarter of 1999, we announced a plan to reduce operating
costs and improve operating performance at our Manufacturing and Sales, Other
Mining, Specialty Chemicals and Wire and Cable segments by (i) curtailing
higher cost copper production by temporarily closing our Hidalgo smelter in New
Mexico and Morencis Metcalf concentrator, as well as curtailing production by
50 percent at our copper refinery in El Paso, Texas; (ii) selling a non-core
South African fluorspar mining unit; (iii) restructuring certain wire and cable
assets to respond to changing market conditions; and (iv) suspending operations
at Columbian Chemicals carbon black plant in the Philippines.

The following tables present a roll-forward from December 31, 1999, of the
liabilities incurred in connection with the June 1999 restructuring program,
which were reflected as current liabilities in our consolidated balance sheet:

|                        |                                   |   |          |     |           |  |          |     |          |  |       |      |   |  |     |     | 
|----------------------- | --------------------------------- | - | -------- | --- | --------- |  | -------- | --- | -------- |  | ----- | ---- | - |  | --- | --- | 
|                        |                                   |   | 12/31/99 |     | Additions |  | Payments |     | 12/31/00
|                        |                                   |   |          |     |           |  |          |     |         
|PDMC                   |                                   |   |          |     |           |  |          |     |          |  |       |      |   |  |     |    
|Manufacturing and Sales |                                   |   |          |     |           |  |          |     |          |  |       |      |   |  |     |    
|                        | Employee
severance                |   | $        | 0.8 |           |  |          |    |          |  |       | (0.8 | ) |  |     |    | 
|                        |                                   |   |          |     |           |  |          |     |          |  |       |      |   |  |     |     | 
|Other Mining            |                                   |   |          |     |           |  |          |     |          |  |       |      |   |  |     |    
|                        | Employee
severance                |   |          | 0.6 |           |  |          |    |          |  |       | (0.2 | ) |  |     | 0.4 | 
|                        | Mothballing/take-or-pay
contracts |   |          | 3.5 |           |  |          |    |          |  |       | (1.0 | ) |  |     | 2.5 | 
|                        | Environmental
clean-up            |   |          | 5.9 |           |  |          |    |          |  |       | (5.9 | ) |  |     |    | 
|                        |                                   |   |          |     |           |  |          |     |          |  |       |      |   |  |     |     | 
|                        |                                   |   | 10.0     |     |           |  |         |     |          |  | (7.1  | )    |   |  | 2.9 |    
|                        |                                   |   |          |     |           |  |          |     |          |  |       |      |   |  |     |     | 
|                        |                                   |   | 10.8     |     |           |  |         |     |          |  | (7.9  | )    |   |  | 2.9 |    
|                        |                                   |   |          |     |           |  |          |     |          |  |       |      |   |  |     |     | 
|PDI                    |                                   |   |          |     |           |  |          |     |          |  |       |      |   |  |     |    
|Specialty Chemicals     |                                   |   |          |     |           |  |          |     |          |  |       |      |   |  |     |    
|                        | Employee
severance                |   |          | 0.3 |           |  |          |    |          |  |       | (0.3 | ) |  |     |    | 
|                        | Disposal and
dismantling          |   |          | 1.8 |           |  |          |    |          |  |       | (0.5 | ) |  |     | 1.3 | 
|                        | Environmental                     |   |          | 0.8 |           |  |          |    |          |  |       | (0.1 | ) |  |     | 0.7 | 
|                        |                                   |   |          |     |           |  |          |     |          |  |       |      |   |  |     |     | 
|                        |                                   |   | 2.9      |     |           |  |         |     |          |  | (0.9  | )    |   |  | 2.0 |    
|                        |                                   |   |          |     |           |  |          |     |          |  |       |      |   |  |     |     | 
|Wire and Cable          |                                   |   |          |     |           |  |          |     |          |  |       |      |   |  |     |    
|                        | Employee
severance                |   |          | 3.2 |           |  |          |    |          |  |       | (2.8 | ) |  |     | 0.4 | 
|                        | Take-or-pay
contracts             |   |          | 2.0 |           |  |          | 1.1 |          |  |       | (1.1 | ) |  |     | 2.0 | 
|                        | Plant removal and
dismantling*    |   |          | 1.0 |           |  |          | 9.4 |          |  |       | (9.6 | ) |  |     | 0.8 | 
|                        |                                   |   |          |     |           |  |          |     |          |  |       |      |   |  |     |     | 
|                        |                                   |   | 6.2      |     |           |  | 10.5     |     |          |  | (13.5 | )    |   |  | 3.2 |    
|                        |                                   |   |          |     |           |  |          |     |          |  |       |      |   |  |     |     | 
|                        |                                   |   | 9.1      |     |           |  | 10.5     |     |          |  | (14.4 | )    |   |  | 5.2 |    
|                        |                                   |   |          |     |           |  |          |     |          |  |       |      |   |  |     |     | 
|                        |                                   | $ | 19.9     |     |           |  | 10.5     |     |          |  | (22.3 | )    |   |  | 8.1 |    
|                        |                                   |   |          |     |           |  |          |     |          |  |       |      |   |  |     |     | 



|* |  | Relocation costs were charged to expense as incurred.
|- |  | -----------------------------------------------------





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##### Table of Contents



- 133 -

|                    |                                   |   |          |     |       |  |           |      |          |  |      |      |   |  |     |     | 
|------------------- | --------------------------------- | - | -------- | --- | ----- |  | --------- | ---- | -------- |  | ---- | ---- | - |  | --- | --- | 
|                    |                                   |   |          |     |       |  | Reassess- |      |          |  |      |      |   |  |    
|                    |                                   |   | 12/31/00 |     | ments |  | Payments  |      | 12/31/01
|                    |                                   |   |          |     |       |  |           |      |         
|PDMC               |                                   |   |          |     |       |  |           |      |          |  |      |      |   |  |     |    
|Other Mining        |                                   |   |          |     |       |  |           |      |          |  |      |      |   |  |     |    
|                    | Employee
severance                |   | $        | 0.4 |       |  |           |     |          |  |      | (0.2 | ) |  |     | 0.2 | 
|                    | Mothballing/take-or-pay
contracts |   |          | 2.5 |       |  |           |     |          |  |      | (1.1 | ) |  |     | 1.4 | 
|                    |                                   |   |          |     |       |  |           |      |          |  |      |      |   |  |     |     | 
|                    |                                   |   | 2.9      |     |       |  |          |      |          |  | (1.3 | )    |   |  | 1.6 |    
|                    |                                   |   |          |     |       |  |           |      |          |  |      |      |   |  |     |     | 
|PDI                |                                   |   |          |     |       |  |           |      |          |  |      |      |   |  |     |    
|Specialty Chemicals |                                   |   |          |     |       |  |           |      |          |  |      |      |   |  |     |    
|                    | Disposal and
dismantling          |   |          | 1.3 |       |  |           | (1.0 | )        |  |      |     |   |  |     | 0.3 | 
|                    | Environmental                     |   |          | 0.7 |       |  |           |     |          |  |      | (0.1 | ) |  |     | 0.6 | 
|                    |                                   |   |          |     |       |  |           |      |          |  |      |      |   |  |     |     | 
|                    |                                   |   | 2.0      |     |       |  | (1.0      | )    |          |  | (0.1 | )    |   |  | 0.9 |    
|                    |                                   |   |          |     |       |  |           |      |          |  |      |      |   |  |     |     | 
|Wire and Cable      |                                   |   |          |     |       |  |           |      |          |  |      |      |   |  |     |    
|                    | Employee
severance                |   |          | 0.4 |       |  |           |     |          |  |      | (0.4 | ) |  |     |    | 
|                    | Take-or-pay
contracts             |   |          | 2.0 |       |  |           |     |          |  |      | (0.9 | ) |  |     | 1.1 | 
|                    | Plant removal and
dismantling     |   |          | 0.8 |       |  |           |     |          |  |      | (0.6 | ) |  |     | 0.2 | 
|                    |                                   |   |          |     |       |  |           |      |          |  |      |      |   |  |     |     | 
|                    |                                   |   | 3.2      |     |       |  |          |      |          |  | (1.9 | )    |   |  | 1.3 |    
|                    |                                   |   |          |     |       |  |           |      |          |  |      |      |   |  |     |     | 
|                    |                                   |   | 5.2      |     |       |  | (1.0      | )    |          |  | (2.0 | )    |   |  | 2.2 |    
|                    |                                   |   |          |     |       |  |           |      |          |  |      |      |   |  |     |     | 
|                    |                                   | $ | 8.1      |     |       |  | (1.0      | )    |          |  | (3.3 | )    |   |  | 3.8 |    
|                    |                                   |   |          |     |       |  |           |      |          |  |      |      |   |  |     |     | 

PDIs Specialty Chemicals segment reassessment of $1.0 million related to
the closure of our carbon black manufacturing facility in the Philippines. At
the time of closure, there was some equipment that had been purchased
previously in conjunction with an earlier planned expansion of the Philippine
facility. When the Philippine closure was announced, an accrual was included
for this equipment reflecting our assessment that its disposition would result
in a loss of $0.9 million. This accrual was reclassified subsequently as a
deduction to property, plant and equipment. The remaining $0.1 million related
to a non-cash deduction resulting from foreign currency devaluation.

|                    |                                   |   |          |     |       |  |           |      |          |  |      |      |   |  |     |     | 
|------------------- | --------------------------------- | - | -------- | --- | ----- |  | --------- | ---- | -------- |  | ---- | ---- | - |  | --- | --- | 
|                    |                                   |   |          |     |       |  | Reassess- |      |          |  |      |      |   |  |    
|                    |                                   |   | 12/31/01 |     | ments |  | Payments  |      | 12/31/02
|                    |                                   |   |          |     |       |  |           |      |         
|PDMC               |                                   |   |          |     |       |  |           |      |          |  |      |      |   |  |     |    
|Other Mining        |                                   |   |          |     |       |  |           |      |          |  |      |      |   |  |     |    
|                    | Employee
severance                |   | $        | 0.2 |       |  |           | (0.1 | )        |  |      | (0.1 | ) |  |     |    | 
|                    | Mothballing/take-or-pay
contracts |   |          | 1.4 |       |  |           |     |          |  |      | (0.8 | ) |  |     | 0.6 | 
|                    |                                   |   |          |     |       |  |           |      |          |  |      |      |   |  |     |     | 
|                    |                                   |   | 1.6      |     |       |  | (0.1      | )    |          |  | (0.9 | )    |   |  | 0.6 |    
|                    |                                   |   |          |     |       |  |           |      |          |  |      |      |   |  |     |     | 
|PDI                |                                   |   |          |     |       |  |           |      |          |  |      |      |   |  |     |    
|Specialty Chemicals |                                   |   |          |     |       |  |           |      |          |  |      |      |   |  |     |    
|                    | Disposal and
dismantling          |   |          | 0.3 |       |  |           | (0.3 | )        |  |      |     |   |  |     |    | 
|                    | Environmental                     |   |          | 0.6 |       |  |           | (0.6 | )        |  |      |     |   |  |     |    | 
|                    |                                   |   |          |     |       |  |           |      |          |  |      |      |   |  |     |     | 
|                    |                                   |   | 0.9      |     |       |  | (0.9      | )    |          |  |     |      |   |  |    |    
|                    |                                   |   |          |     |       |  |           |      |          |  |      |      |   |  |     |     | 
|Wire and Cable      |                                   |   |          |     |       |  |           |      |          |  |      |      |   |  |     |    
|                    | Take-or-pay
contracts             |   |          | 1.1 |       |  |           | (0.1 | )        |  |      |     |   |  |     | 1.0 | 
|                    | Plant removal and
dismantling     |   |          | 0.2 |       |  |           | (0.2 | )        |  |      |     |   |  |     |    | 
|                    |                                   |   |          |     |       |  |           |      |          |  |      |      |   |  |     |     | 
|                    |                                   |   | 1.3      |     |       |  | (0.3      | )    |          |  |     |      |   |  | 1.0 |    
|                    |                                   |   |          |     |       |  |           |      |          |  |      |      |   |  |     |     | 
|                    |                                   |   | 2.2      |     |       |  | (1.2      | )    |          |  |     |      |   |  | 1.0 |    
|                    |                                   |   |          |     |       |  |           |      |          |  |      |      |   |  |     |     | 
|                    |                                   | $ | 3.8      |     |       |  | (1.3      | )    |          |  | (0.9 | )    |   |  | 1.6 |    
|                    |                                   |   |          |     |       |  |           |      |          |  |      |      |   |  |     |     | 

PDMCs Other Mining segment reassessment included a $0.1 million
reclassification to long-term liabilities related to pension and other
postretirement benefits.

PDIs Specialty Chemicals segment reassessment related to a Philippine
plant for (i) a $0.3 million adjustment to disposal and dismantling charges and
(ii) a $0.6 million for environmental costs that were relieved as the property
was sold during the period.

PDIs Wire and Cable segment reassessment related to (i) a $0.1 million
adjustment related to a lease contract and (ii) a $0.2 million adjustment
related to dismantling charges at a Venezuelan plant, which included a $0.1
million non-cash deduction resulting from the devaluation of Venezuelan
currency.





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- 134 -

4. Investments and Long-Term Receivables

Investments and long-term receivables at December 31 were as follows:

|                                 |                                            |   |       |      |      |  |       |      | 
|-------------------------------- | ------------------------------------------ | - | ----- | ---- | ---- |  | ----- | ---- | 
|                                 |                                            |   | 2002  |      | 2001
|                                 |                                            |   |       |      |     
|Equity basis:                    |                                            |   |       |      |      |  |       |     
|                                 | International wire and cable manufacturers |   | $     | 5.2  |      |  |       | 4.9  | 
|                                 | Port Carteret (50%)                        |   |       | 20.9 |      |  |       | 23.0 | 
|                                 | Other                                      |   |       | 5.7  |      |  |       | 6.2  | 
|Cost basis and notes receivable: |                                            |   |       |      |      |  |       |     
|                                 | Southern Peru Copper Corporation (14%)     |   |       | 13.2 |      |  |       | 13.2 | 
|                                 | Long-term bond investments                 |   |       | 31.7 |      |  |       | 20.7 | 
|                                 | Other cost basis investments               |   |       | 16.7 |      |  |       | 21.0 | 
|                                 | Notes receivable and other*                |   |       | 38.9 |      |  |       | 16.3 | 
|                                 |                                            |   |       |      |      |  |       |      | 
|                                 |                                            | $ | 132.3 |      |      |  | 105.3 |     
|                                 |                                            |   |       |      |      |  |       |      | 



|* |  | Includes $29.4 million in 2002 due from El Abra for funding CODELCOs 49
percent share of El Abra subordinated loans.
|- |  | ---------------------------------------------------------------------------------------------------------------------

Equity
earnings (losses) were as follows (in millions): 2002 - $2.7; 2001
- ($0.3); 2000 - $1.5.

Dividends from equity basis investments were received as follows (in
millions): 2002 - $4.3; 2001 - $1.4; 2000 - $2.5.

Our retained earnings include undistributed earnings of equity basis
investments of (in millions): 2002 - $63.6; 2001 - $65.2; 2000 - $66.9.

Condensed financial information for our equity basis investments at
December 31 was as follows:

|                  |  |      |      |      |  |      |       |  |  |  |       |  
|----------------- |  | ---- | ---- | ---- |  | ---- | ----- |  |  |  | ----- | -
|                  |  | 2002 |      | 2001 |  | 2000
|                  |  |      |      |      |  |     
|Sales             |  | $    | 87.0 |      |  |      | 109.7 |  |  |  | 119.2 |  
|Net income (loss) |  | $    | 7.1  |      |  |      | 3.1   |  |  |  | (7.8  | )

|                                   |  |      |       |      |  |      |      |   |  |  |       |  
|---------------------------------- |  | ---- | ----- | ---- |  | ---- | ---- | - |  |  | ----- | -
|                                   |  | 2002 |       | 2001 |  | 2000
|                                   |  |      |       |      |  |     
|Net current assets                 |  | $    | 10.8  |      |  |      | 14.8 |   |  |  | 3.2   |  
|Property, plant and equipment, net |  |      | 73.0  |      |  |      | 62.9 |   |  |  | 90.5  |  
|Long-term debt                     |  |      | (27.6 | )    |  |      | (7.3 | ) |  |  | (11.6 | )
|Other assets and liabilities, net  |  |      | 3.1   |      |  |      | (1.0 | ) |  |  | 21.8  |  
|                                   |  |      |       |      |  |      |      |   |  |  |       |  
|Net assets                         |  | $    | 59.3  |      |  |      | 69.4 |   |  |  | 103.9 |  
|                                   |  |      |       |      |  |      |      |   |  |  |       |  

5. Miscellaneous Income and Expense, Net

Miscellaneous income and expense, net for the years ended December 31 was
as follows:

|                                                                  |  |      |       |      |  |      |       |   |  |  |      |  
|----------------------------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- | - |  |  | ---- | -
|                                                                  |  | 2002 |       | 2001 |  | 2000
|                                                                  |  |      |       |      |  |     
|Interest income                                                   |  | $    | 15.8  |      |  |      | 23.3  |   |  |  | 19.5 |  
|Investment impairments*                                           |  |      | (1.2  | )    |  |      | (12.9 | ) |  |  | (7.2 | )
|Southern Peru Copper Corporation
dividend (14% minority interest) |  |      | 4.0   |      |  |      | 4.0   |   |  |  | 3.8  |  
|Interest on IRS refund                                            |  |      |      |      |  |      | 4.3   |   |  |  | 5.8  |  
|Gain on sale of Australian
iron ore royalties                     |  |      |      |      |  |      |      |   |  |  | 4.7  |  
|Willow Creek insurance settlement                                 |  |      |      |      |  |      | 1.5   |   |  |  | 4.5  |  
|Foreign currency exchange loss                                    |  |      | (3.0  | )    |  |      | (1.2  | ) |  |  | (1.5 | )
|Non-qualified trust asset
mark-to-market                          |  |      | (2.7  | )    |  |      | (3.3  | ) |  |  | (0.2 | )
|Miscellaneous non-operating
expenses                              |  |      | (11.8 | )    |  |      | (7.7  | ) |  |  | (3.6 | )
|Royalties and rental income                                       |  |      | 1.1   |      |  |      | 2.7   |   |  |  | 1.3  |  
|Other                                                             |  |      | 0.4   |      |  |      | (2.6  | ) |  |  | 2.9  |  
|                                                                  |  |      |       |      |  |      |       |   |  |  |      |  
|                                                                  |  | $    | 2.6   |      |  |      | 8.1   |   |  |  | 30.0 |  
|                                                                  |  |      |       |      |  |      |       |   |  |  |      |  



|* |  | Write-down of cost investments ($1.2 million) during 2002; impairment of
investment in SIMSA ($9.1 million) and Equatorial Mining ($3.8 million)
during 2001, and PD Philippines ($7.2 million) during 2000.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

6. Income Taxes

Geographic sources of income (loss) before taxes, minority interests,
equity in net earnings (losses) of affiliated companies, extraordinary item and
cumulative effect of accounting change for the years ended December 31 were as
follows:

|              |  |      |        |      |  |               |        |   |  |  |      | 
|------------- |  | ---- | ------ | ---- |  | ------------- | ------ | - |  |  | ---- | 
|              |  | 2002 |        | 2001 |  | 2000         
|              |  |      |        |      |  |              
|              |  |      |        |      |  | As Restated *
|              |  |      |        |      |  |              
|United States |  | $    | (466.7 | )    |  |               | (320.6 | ) |  |  | 29.8 | 
|Foreign       |  |      | 73.0   |      |  |               | 74.0   |   |  |  | 55.1 | 
|              |  |      |        |      |  |               |        |   |  |  |      | 
|              |  | $    | (393.7 | )    |  |               | (246.6 | ) |  |  | 84.9 | 
|              |  |      |        |      |  |               |        |   |  |  |      | 



|* |  | Refer to Note 22, Restatement of Consolidated Financial Statements, for
further discussion.
|- |  | -------------------------------------------------------------------------------------------





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- 135 -

The (provision) benefit for income taxes for the years ended December 31
was as follows:

|          |  |      |       |      |  |               |       |   |  |  |       |  
|--------- |  | ---- | ----- | ---- |  | ------------- | ----- | - |  |  | ----- | -
|          |  | 2002 |       | 2001 |  | 2000         
|          |  |      |       |      |  |              
|          |  |      |       |      |  | As Restated *
|          |  |      |       |      |  |              
|Current:  |  |      |       |      |  |               |       |   |  |  |       |  
|Federal   |  | $    | 128.8 |      |  |               | (6.0  | ) |  |  | 12.8  |  
|State     |  |      | 1.2   |      |  |               | 6.2   |   |  |  | (2.3  | )
|Foreign   |  |      | (18.7 | )    |  |               | (14.3 | ) |  |  | (16.9 | )
|          |  |      |       |      |  |               |       |   |  |  |       |  
|          |  |      | 111.3 |      |  |               | (14.1 | ) |  |  | (6.4  | )
|          |  |      |       |      |  |               |       |   |  |  |       |  
|Deferred: |  |      |       |      |  |               |       |   |  |  |       |  
|Federal   |  |      | 18.4  |      |  |               | 13.4  |   |  |  | 4.4   |  
|State     |  |      | (5.7  | )    |  |               | 1.2   |   |  |  | 1.6   |  
|Foreign   |  |      | (13.8 | )    |  |               | (78.3 | ) |  |  | (21.5 | )
|          |  |      |       |      |  |               |       |   |  |  |       |  
|          |  |      | (1.1  | )    |  |               | (63.7 | ) |  |  | (15.5 | )
|          |  |      |       |      |  |               |       |   |  |  |       |  
|          |  | $    | 110.2 |      |  |               | (77.8 | ) |  |  | (21.9 | )
|          |  |      |       |      |  |               |       |   |  |  |       |  



|* |  | Refer to Note 22, Restatement of Consolidated Financial Statements, for
further discussion.
|- |  | -------------------------------------------------------------------------------------------

A reconciliation of the U.S. statutory tax rate to our effective tax rate
was as follows:

|                                 |  |      |       |      |  |              |       |   |  |  |       |  
|-------------------------------- |  | ---- | ----- | ---- |  | ------------ | ----- | - |  |  | ----- | -
|Expense
(benefit)               
|                                 |  | 2002 |       | 2001 |  | 2000        
|                                 |  |      |       |      |  |             
|                                 |  |      |       |      |  | As Restated*
|                                 |  |      |       |      |  |             
|Statutory tax rate               |  |      | (35.0 | )%   |  |              | (35.0 | ) |  |  | 35.0  |  
|Depletion                        |  |      | (2.7  | )    |  |              | (1.9  | ) |  |  | (30.6 | )
|State and local income taxes     |  |      | 1.2   |      |  |              | (2.8  | ) |  |  | 0.8   |  
|Effective international tax rate |  |      | 5.8   |      |  |              | 4.3   |   |  |  | 11.4  |  
|Adjustments to prior years       |  |      |      |      |  |              | (3.0  | ) |  |  | (18.3 | )
|Valuation allowance              |  |      | 6.8   |      |  |              | 70.7  |   |  |  | 22.8  |  
|Other items, net                 |  |      | (4.1  | )    |  |              | (0.8  | ) |  |  | 4.7   |  
|                                 |  |      |       |      |  |              |       |   |  |  |       |  
|Effective tax rate               |  |      | (28.0 | )%   |  |              | 31.5  |   |  |  | 25.8  |  
|                                 |  |      |       |      |  |              |       |   |  |  |       |  



|* |  | Refer to Note 22, Restatement of Consolidated Financial Statements, for
further discussion.
|- |  | -------------------------------------------------------------------------------------------

We paid federal, state, local and foreign income taxes of approximately
$25 million in 2002, compared with approximately $43 million in 2001 and $75
million in 2000. U.S. losses cannot offset income in foreign jurisdictions,
resulting in payment of foreign taxes. We received refunds of federal, state,
local and foreign income taxes of approximately $66 million in 2002, compared
with approximately $36 million in 2001 and approximately $78 million in 2000.

At December 31, 2002, we had alternative minimum tax credits of
approximately $338 million available for carryforward for U.S. federal income
tax purposes. These credits can be carried forward indefinitely, but may only
be used to the extent the regular tax exceeds the alternative minimum tax in
any given year.

The Company has alternative minimum tax foreign tax credit carryforwards
for federal income tax purposes of approximately $9 million expiring in 2003
and 2004, and regular tax foreign tax credits of approximately $15 million
expiring in 2003.

The Company has U.S. net operating loss carryforwards for regular tax
purposes of approximately $930 million expiring from 2003 to 2022; Venezuelan
net operating loss carryforwards of approximately $6 million expiring from 2003
to 2005; and Chilean net operating loss carryforwards of approximately $373
million that do not expire. The Company also has Peruvian net operating loss
carryforwards of approximately $18 million that may be utilized in the first
year the Companys Peruvian subsidiary has taxable income as well as the
subsequent three years. The U.S. carryforwards include approximately $377
million of Cyprus Amax net operating loss carryforwards that are subject to
annual limitations on their usage of approximately $98 million. Unused annual
limitation amounts can be carried forward and added to the limitation for each
succeeding year until such losses are either utilized or expire during 2003 to
2018. The Company also has U.S. alternative minimum tax net operating loss
carryforwards of approximately $440 million expiring from 2019 to 2022.

The Company has approximately $120 million of U.S. capital loss
carryforwards for regular tax purposes expiring from 2005 to 2008 and
approximately $247 million of U.S. capital loss carryforwards for alternative
minimum tax purposes expiring from 2004 to 2008. Capital loss carryforwards
may only be used to offset capital gains in the carryforward periods. These
carryforwards include approximately $71 million of Cyprus Amax capital loss
carryforwards for alternative minimum tax purposes that are subject to annual
limitations on their usage.

On the basis of currently available information, we have provided
valuation allowances for certain of our deferred tax assets where we believe it
is likely that the related tax benefits will not be realized. Our valuation
allowances, which totaled $508.4 million and $550.4 million at December 31,
2002 and 2001, respectively, relate to all or a portion of our U.S. net
operating loss, capital loss, and alternative minimum tax credit carryforwards,
our Chilean net operating loss carryforwards, and our Venezuelan net operating
loss carryforwards. The increase in our valuation allowances in 2001 relates
primarily to U.S. and Chilean net operating loss carryforwards while the
decrease in 2002 relates primarily to our ability to utilize U.S. net operating
loss carryforwards as a result of the enact-





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##### Table of Contents



- 136 -

ment of the Job Creation and Worker
Assistance Act of 2002 that enabled us to obtain a refund of taxes paid in
prior years. The tax benefit recognized in 2002 is primarily attributable to
these refunds and the related reduction in the valuation allowances, as well as
the release of deferred taxes previously provided with regard to an arbitration
award.

Deferred income tax assets (liabilities) comprised the following at
December 31:

|                                           |  |      |          |       |  |  |          |  
|------------------------------------------ |  | ---- | -------- | ----- |  |  | -------- | -
|                                           |  | 2002 |          | 2001*
|                                           |  |      |          |      
|Tax credits                                |  | $    | 353.4    |       |  |  | 317.9    |  
|Postretirement and postemployment
benefits |  |      | 113.9    |       |  |  | 115.8    |  
|Reserves                                   |  |      | 208.7    |       |  |  | 180.6    |  
|Mining costs                               |  |      | 30.7     |       |  |  | 53.6     |  
|Net operating loss carryforwards           |  |      | 461.1    |       |  |  | 520.8    |  
|Capital loss carryforwards                 |  |      | 41.9     |       |  |  | 76.5     |  
|Other                                      |  |      | 27.5     |       |  |  | 23.2     |  
|                                           |  |      |          |       |  |  |          |  
|Deferred tax assets                        |  |      | 1,237.2  |       |  |  | 1,288.4  |  
|Valuation allowances                       |  |      | (508.4   | )     |  |  | (550.4   | )
|                                           |  |      |          |       |  |  |          |  
|Net deferred tax assets                    |  |      | 728.8    |       |  |  | 738.0    |  
|                                           |  |      |          |       |  |  |          |  
|Exploration and mine development costs     |  |      | (80.5    | )     |  |  | (97.3    | )
|Depreciation                               |  |      | (881.6   | )     |  |  | (937.7   | )
|Mining properties                          |  |      | (108.4   | )     |  |  | (48.4    | )
|Pensions                                   |  |      | (7.5     | )     |  |  | (20.6    | )
|                                           |  |      |          |       |  |  |          |  
|Deferred tax liabilities                   |  |      | (1,078.0 | )     |  |  | (1,104.0 | )
|                                           |  |      |          |       |  |  |          |  
|                                           |  | $    | (349.2   | )     |  |  | (366.0   | )
|                                           |  |      |          |       |  |  |          |  



|* |  | 2001 has been restated. Refer to Note 22, Restatement of Consolidated
Financial Statements, for further discussion.
|- |  | -------------------------------------------------------------------------------------------------------------------

The Cyprus Amax federal income tax returns for the years 1997 through 1999
and the Phelps Dodge federal income tax returns for the years 1998 and 1999 are
currently under examination by the Internal Revenue Service. Our management
believes that it has made adequate provision so that resolution of any issues
raised, including application of those determinations to subsequent open years,
will not have an adverse effect on our consolidated financial condition or
results of operations.

Income taxes have not been provided on our share (approximately $638
million) of undistributed earnings of our foreign manufacturing and mining
subsidiaries over which we have sufficient influence to control the
distribution of such earnings and have determined that such earnings have been
reinvested indefinitely. These earnings could become subject to additional tax
if they were remitted as dividends, if foreign earnings were loaned to any of
our U.S. entities, or if we sell our stock in the subsidiaries. It is
estimated that repatriation of these earnings would generate additional foreign
tax withholdings and U.S. tax of approximately $84 million and $5 million,
respectively.

7. Mill and Leach Stockpiles, Inventories and
Supplies

Mill and leach stockpiles, inventories and supplies at December 31, 2002,
were as follows:

|                          |  |      |       |     |  |       |       |  |  |  |       | 
|------------------------- |  | ---- | ----- | --- |  | ----- | ----- |  |  |  | ----- | 
|                          |  | PDMC |       | PDI |  | Total
|                          |  |      |       |     |  |      
|Mill and Leach Stockpiles |  |      |       |     |  |       |       |  |  |  |       | 
|Current:                  |  |      |       |     |  |       |       |  |  |  |       | 
|Leach stockpiles          |  | $    | 48.9  |     |  |       |      |  |  |  | 48.9  | 
|                          |  |      |       |     |  |       |       |  |  |  |       | 
|Long-term*:               |  |      |       |     |  |       |       |  |  |  |       | 
|Mill stockpiles           |  | $    | 31.9  |     |  |       |      |  |  |  | 31.9  | 
|Leach stockpiles          |  |      | 32.4  |     |  |       |      |  |  |  | 32.4  | 
|                          |  |      |       |     |  |       |       |  |  |  |       | 
|                          |  | $    | 64.3  |     |  |       |      |  |  |  | 64.3  | 
|                          |  |      |       |     |  |       |       |  |  |  |       | 
|Inventories               |  |      |       |     |  |       |       |  |  |  |       | 
|Raw materials             |  | $    | 0.5   |     |  |       | 34.2  |  |  |  | 34.7  | 
|Work-in-process           |  |      | 18.8  |     |  |       | 13.4  |  |  |  | 32.2  | 
|Finished goods            |  |      | 260.4 |     |  |       | 71.2  |  |  |  | 331.6 | 
|                          |  |      |       |     |  |       |       |  |  |  |       | 
|                          |  | $    | 279.7 |     |  |       | 118.8 |  |  |  | 398.5 | 
|                          |  |      |       |     |  |       |       |  |  |  |       | 
|Supplies                  |  | $    | 118.0 |     |  |       | 24.8  |  |  |  | 142.8 | 
|                          |  |      |       |     |  |       |       |  |  |  |       | 



|* |  | Stockpiles not expected to be processed within the next 12 months are
classified as long-term.
|- |  | ----------------------------------------------------------------------------------------------





---



##### Table of Contents



- 137 -

Mill and leach stockpiles, inventories and
supplies at December 31,
2001, were as follows:

|                            |  |       |       |     |  |       |       |  |  |  |       | 
|--------------------------- |  | ----- | ----- | --- |  | ----- | ----- |  |  |  | ----- | 
|                            |  | PDMC* |       | PDI |  | Total
|                            |  |       |       |     |  |      
|Mill and Leach Stockpiles
 |  |       |       |     |  |       |       |  |  |  |       | 
|Current:                    |  |       |       |     |  |       |       |  |  |  |       | 
|Leach
stockpiles            |  | $     | 51.0  |     |  |       |      |  |  |  | 51.0  | 
|                            |  |       |       |     |  |       |       |  |  |  |       | 
|Long-term**:                |  |       |       |     |  |       |       |  |  |  |       | 
|Mill stockpiles             |  | $     | 30.3  |     |  |       |      |  |  |  | 30.3  | 
|Leach
stockpiles            |  |       | 12.3  |     |  |       |      |  |  |  | 12.3  | 
|                            |  |       |       |     |  |       |       |  |  |  |       | 
|                            |  | $     | 42.6  |     |  |       |      |  |  |  | 42.6  | 
|                            |  |       |       |     |  |       |       |  |  |  |       | 
|Inventories                |  |       |       |     |  |       |       |  |  |  |       | 
|Raw materials               |  | $     | 1.5   |     |  |       | 28.6  |  |  |  | 30.1  | 
|Work-in-process             |  |       | 14.0  |     |  |       | 14.2  |  |  |  | 28.2  | 
|Finished goods              |  |       | 305.0 |     |  |       | 81.1  |  |  |  | 386.1 | 
|                            |  |       |       |     |  |       |       |  |  |  |       | 
|                            |  | $     | 320.5 |     |  |       | 123.9 |  |  |  | 444.4 | 
|                            |  |       |       |     |  |       |       |  |  |  |       | 
|Supplies                    |  | $     | 122.7 |     |  |       | 27.6  |  |  |  | 150.3 | 
|                            |  |       |       |     |  |       |       |  |  |  |       | 



|*  |  | As restated, refer to Note 22, Restatement of Consolidated Financial
Statements, for further discussion.
|-- |  | --------------------------------------------------------------------------------------------------------
|  
|** |  | Stockpiles not expected to be processed within the next 12 months
are
classified as long-term.          

Mill and leach stockpiles valued by the
last-in, first-out method would
have been greater if valued at current costs by approximately $779 million and
$443 million at December 31, 2002 and 2001, respectively.
The increase in 2002
current costs is primarily due to a 0.5 million tons increase in the estimated
commercially recoverable copper. Current costs for mill and leach
stockpiles for both 2002 and 2001 are significantly higher than their
respective carrying costs primarily due to 0.5
million tons of copper contained in leach stockpiles that are carried at a zero
value. That material was originally mined as waste, but as a result of changes
in our technological capabilities is now expected to be processed.

Inventories valued by the last-in, first-out
method would have been
greater if valued at current costs by approximately $79 million and $75 million
at December 31, 2002 and 2001, respectively.

Supplies are stated net of a reserve for
obsolescence of $28.4 million and
$27.2 million at December 31, 2002 and 2001, respectively. We use valuation
allowances for defective, unusable or obsolete inventories.

8. Property, Plant and Equipment

Property, plant and equipment at
December 31 comprised the following:

|                                                          |  |      |         |       |  |  |         | 
|--------------------------------------------------------- |  | ---- | ------- | ----- |  |  | ------- | 
|                                                          |  | 2002 |         | 2001*
|                                                          |  |      |         |      
|Buildings, machinery and
equipment                        |  | $    | 7,019.6 |       |  |  | 7,072.8 | 
|Mining
properties                                         |  |      | 1,361.4 |       |  |  | 1,461.1 | 
|Capitalized mine
development**                            |  |      | 171.8   |       |  |  | 168.2   | 
|Land and water
rights                                     |  |      | 135.8   |       |  |  | 136.7   | 
|                                                          |  |      |         |       |  |  |         | 
|                                                          |  |      | 8,688.6 |       |  |  | 8,838.8 | 
|Less accumulated depreciation,
depletion
and amortization |  |      | 3,529.0 |       |  |  | 3,224.8 | 
|                                                          |  |      |         |       |  |  |         | 
|                                                          |  | $    | 5,159.6 |       |  |  | 5,614.0 | 
|                                                          |  |      |         |       |  |  |         | 



|*  |  | 2001 has been restated. Refer to Note 22, Restatement of Consolidated
Financial Statements, for further discussion.                                                                                
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|** |  | For comparative purposes, fully amortized capitalized mine development
has been removed from capitalized mine development costs and accumulated
amortization to conform with the 2002 presentation.

Refer to Note 19, Contingencies, for property, plant and equipment associated
with properties on care-and-maintenance status.





---



##### Table of Contents



- 138 -

9. Other Assets and Deferred Charges

Other assets and deferred charges at
December 31 were as follows:

|                                         |  |      |       |      |  |  |       | 
|---------------------------------------- |  | ---- | ----- | ---- |  |  | ----- | 
|                                         |  | 2002 |       | 2001
|                                         |  |      |       |     
|Goodwill, less accumulated
amortization* |  | $    | 90.7  |      |  |  | 143.1 | 
|Employee benefit
plans**                 |  |      | 87.4  |      |  |  | 108.9 | 
|Debt issue
costs                         |  |      | 13.9  |      |  |  | 27.6  | 
|Interest rate swap
contracts***          |  |      | 32.7  |      |  |  | 1.0   | 
|Other                                    |  |      | 8.9   |      |  |  | 6.8   | 
|                                         |  |      |       |      |  |  |       | 
|                                         |  | $    | 233.6 |      |  |  | 287.4 | 
|                                         |  |      |       |      |  |  |       | 



|*   |  | Refer to Note 1, Summary of Significant Accounting Policies, relating to
the implementation of SFAS No. 142.                                                                                                                                                                                 
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|**  |  | Refer to Note 10, Accounts Payable and Accrued Expenses, for
short-term
liability, Note 11, Other Liabilities and Deferred Credits, for long-term
liability, and Note 15, Pension Plans, and Note 16, Postretirement and
Other Employee Benefits Other Than Pensions, for further discussion.
|   
|*** |  | Refer to Note 20, Derivative Financial Instruments Held for Purposes
Other Than Trading and Fair Value of Financial Instruments, for further
discussion.                                                                                                                                     

10. Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses at
December 31 were as follows:

|                                                                           |  |      |       |       |  |  |       | 
|-------------------------------------------------------------------------- |  | ---- | ----- | ----- |  |  | ----- | 
|                                                                           |  | 2002 |       | 2001*
|                                                                           |  |      |       |      
|Accounts
payable                                                           |  | $    | 246.9 |       |  |  | 287.3 | 
|Salaries, wages and other
compensation                                     |  |      | 49.5  |       |  |  | 35.7  | 
|Pension, postretirement,
postemployment
and other employee benefit plans** |  |      | 51.5  |       |  |  | 39.4  | 
|Insurance
reserves***                                                      |  |      | 14.8  |       |  |  | 24.9  | 
|Environmental
reserves***                                                  |  |      | 44.2  |       |  |  | 46.9  | 
|Restructuring
reserves****                                                 |  |      | 4.0   |       |  |  | 24.7  | 
|Smelting, refining and
freight                                             |  |      | 9.0   |       |  |  | 14.6  | 
|Other accrued
taxes                                                        |  |      | 28.5  |       |  |  | 31.3  | 
|Closure
reserves***                                                        |  |      | 1.7   |       |  |  | 11.2  | 
|Accrued utilities                                                          |  |      | 21.0  |       |  |  | 16.4  | 
|Interest*****                                                              |  |      | 20.0  |       |  |  | 32.8  | 
|Professional
fees                                                          |  |      | 10.3  |       |  |  | 9.8   | 
|Lawsuit
accruals******                                                     |  |      | 49.2  |       |  |  | 1.2   | 
|Maintenance contracts/contractor
accruals                                  |  |      | 8.9   |       |  |  | 10.1  | 
|Other                                                                      |  |      | 49.6  |       |  |  | 65.8  | 
|                                                                           |  |      |       |       |  |  |       | 
|                                                                           |  | $    | 609.1 |       |  |  | 652.1 | 
|                                                                           |  |      |       |       |  |  |       | 



|*      |  | 2001 has been restated. Refer to Note 22, Restatement of Consolidated
Financial Statements, for further discussion.                                                                                             
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      
|**     |  | Refer to Note 11, Other Liabilities and Deferred Credits, for long-term
portion and Note 15, Pension Plans, and Note 16, Postretirement and Other
Employee Benefits Other Than Pensions, for further discussion.
|      
|***    |  | Short-term portion of these reserves. Refer to Note 11, Other
Liabilities and Deferred Credits, for long-term portion of reserves and
Note 19, Contingencies, for further discussion.                           
|      
|****   |  | Refer to Note 3, Special Items and Provisions, for further
discussion.                                                                                                                                          
|      
|*****  |  | Interest paid by the Company in 2002 was $223.6 million,
compared with
$233.1 million in 2001 and $200.6 million in 2000.                                                                                       
|      
|****** |  | Included $43.5 million charge for lawsuit settlement with RAG
American
Coal Company in 2002.                                                                                                                    





---



##### Table of Contents



- 139 -

11. Other Liabilities and Deferred Credits

Other liabilities and deferred credits at
December 31 were as follows:

|                                                                           |  |      |       |       |  |  |       | 
|-------------------------------------------------------------------------- |  | ---- | ----- | ----- |  |  | ----- | 
|                                                                           |  | 2002 |       | 2001*
|                                                                           |  |      |       |      
|Pension, postretirement,
postemployment and other
employee benefit plans** |  | $    | 539.2 |       |  |  | 412.6 | 
|Environmental
reserves***                                                  |  |      | 261.7 |       |  |  | 264.3 | 
|Insurance
reserves***                                                      |  |      | 37.9  |       |  |  | 27.6  | 
|Closure
reserves***                                                        |  |      | 136.9 |       |  |  | 89.4  | 
|Other****                                                                  |  |      | 11.1  |       |  |  | 21.2  | 
|                                                                           |  |      |       |       |  |  |       | 
|                                                                           |  | $    | 986.8 |       |  |  | 815.1 | 
|                                                                           |  |      |       |       |  |  |       | 



|*    |  | 2001 has been restated. Refer to Note 22, Restatement of Consolidated
Financial Statements, for further discussion.                                                                                                   
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|**   |  | Refer to Note 10, Accounts Payable and Other Accrued Expenses, for
short-term portion and Note 15, Pension Plans, and Note 16, Postretirement
and Other Employee Benefits Other Than Pensions, for further discussion.
|    
|***  |  | Refer to Note 10, Accounts Payable and Other Accrued Expenses, for
short-term portion of reserves and Note 19, Contingencies, for further
discussion.                                                                 
|    
|**** |  | Fair value of swap contracts of $20.6 million was reclassified to
debt to
conform with the 2002 presentation.                                                                                                         



12. Debt and Other Financing

Debt at December 31 is summarized
below:

|                                                                   |                                             |   |         |      |      |  |         |      | 
|------------------------------------------------------------------ | ------------------------------------------- | - | ------- | ---- | ---- |  | ------- | ---- | 
|                                                                   |                                             |   | 2002    |      | 2001
|                                                                   |                                             |   |         |      |     
|10.125% Notes due
2002                                             |                                             | $ |        |      |      |  | 150.9   |     
|6.375% Notes due
2004                                              |                                             |   | 85.0    |      |      |  | 100.0   |     
|6.625% Notes due
2005                                              |                                             |   | 226.0   |      |      |  | 239.4   |     
|7.375% Notes due
2007                                              |                                             |   | 186.8   |      |      |  | 240.5   |     
|8.75% Notes due
2011                                               |                                             |   | 389.8   |      |      |  | 635.7   |     
|Air Quality Control
Obligations:                                   |                                             |   |         |      |      |  |         |     
|                                                                   | 5.45% Notes due
2009                        |   |         | 81.1 |      |  |         | 81.1 | 
|                                                                   | 6.50% Installment Sale Obligations
due 2013 |   |         | 90.0 |      |  |         | 90.0 | 
|8.375% Debentures due
2023                                         |                                             |   | 148.8   |      |      |  | 151.2   |     
|7.125% Debentures due
2027                                         |                                             |   | 115.0   |      |      |  | 150.0   |     
|9.50% Notes due
2031                                               |                                             |   | 197.0   |      |      |  | 280.1   |     
|Candelaria Project
Financing                                       |                                             |   | 186.1   |      |      |  | 215.8   |     
|Capital Lease
Obligations                                          |                                             |   | 10.5    |      |      |  | 13.7    |     
|Cerro Verde Bank Loan
due 2004                                     |                                             |   | 3.0     |      |      |  | 2.0     |     
|Cerro Verde Project
Financing                                      |                                             |   | 30.9    |      |      |  | 73.4    |     
|Columbian Chemicals
Korea                                          |                                             |   | 24.5    |      |      |  | 15.0    |     
|Columbian Tiszai Carbon
Ltda. (Hungary)                            |                                             |   | 5.3     |      |      |  | 10.2    |     
|Columbian Carbon Spain,
S.A.                                       |                                             |   | 1.4     |      |      |  |        |     
|Columbian Chemicals
Canada                                         |                                             |   |        |      |      |  | 2.1     |     
|Cyprus Amax Chile
Ltd.                                             |                                             |   | 10.0    |      |      |  | 10.0    |     
|El Abra Project
Financing                                          |                                             |   | 246.3   |      |      |  | 301.6   |     
|Phelps Dodge
Dublin                                                |                                             |   | 2.4     |      |      |  | 5.0     |     
|Phelps Dodge Wire and
Cable Group                                  |                                             |   |        |      |      |  | 8.0     |     
|Various Pollution Control
and
Industrial Development Revenue Bonds |                                             |   | 35.5    |      |      |  | 36.5    |     
|Other                                                              |                                             |   |        |      |      |  | 0.1     |     
|                                                                   |                                             |   |         |      |      |  |         |     
|Debt and capital lease
obligations,
including current portion      |                                             |   | 2,075.4 |      |      |  | 2,812.3 |     
|Less current
portion                                               |                                             |   | 127.0   |      |      |  | 274.0   |     
|                                                                   |                                             |   |         |      |      |  |         |     
|Debt and capital lease
obligations
excluding current portion       |                                             | $ | 1,948.4 |      |      |  | 2,538.3 |     
|                                                                   |                                             |   |         |      |      |  |         |     

Note: Fair value of swap contracts of $20.6 million was reclassified from
Other Liabilities and Deferred Credits and applied against the related debt
to conform with the 2002 presentation.

The amounts included above are shown net
of unamortized discounts and
purchase price adjustments of $13.3 million and $20.6 million at December 31,
2002 and 2001, respectively.





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The following is a table of future maturities
of long-term debt at
December 31, 2002:

|           |  |           |         |                |  |             |       |  |  |  |         | 
|---------- |  | --------- | ------- | -------------- |  | ----------- | ----- |  |  |  | ------- | 
|           |  |           |         |                |  | Project and |       |  |  | 
|           |  |           |         |                |  | Subsidiary  |       |  |  | 
|           |  | Corporate |         | Debt Financing |  | Total      
|           |  |           |         |                |  |            
|2003       |  | $         | 2.1     |                |  |             | 124.9 |  |  |  | 127.0   | 
|2004       |  |           | 96.8    |                |  |             | 124.9 |  |  |  | 221.7   | 
|2005       |  |           | 236.6   |                |  |             | 103.2 |  |  |  | 339.8   | 
|2006       |  |           | 1.6     |                |  |             | 82.4  |  |  |  | 84.0    | 
|2007       |  |           | 196.1   |                |  |             | 45.7  |  |  |  | 241.8   | 
|Thereafter |  |           | 1,042.3 |                |  |             | 18.8  |  |  |  | 1,061.1 | 
|           |  |           |         |                |  |             |       |  |  |  |         | 
|           |  | $         | 1,575.5 |                |  |             | 499.9 |  |  |  | 2,075.4 | 
|           |  |           |         |                |  |             |       |  |  |  |         | 

In July 2002, the Company purchased
$480.7 million of its long-term debt
on the open market for $511.2 million, which resulted in a 2002 third quarter
pre-tax extraordinary loss of $31.3 million ($26.6 million after taxes)
including issuance costs and other book adjustments ($0.8 million). The face
value of debt repurchased comprised the following:

|                           |  |       |       | 
|-------------------------- |  | ----- | ----- | 
|                           |  | Face 
|                           |  | Value
|                           |  |      
|6.375% Notes due
2004      |  | $     | 15.0  | 
|6.625% Notes due
2005      |  |       | 32.0  | 
|7.375% Notes due
2007      |  |       | 74.5  | 
|8.75% Notes due
2011       |  |       | 240.7 | 
|8.375% Debentures due
2023 |  |       | 2.2   | 
|7.125% Debentures due
2027 |  |       | 35.0  | 
|9.50% Notes due
2031       |  |       | 81.3  | 
|                           |  |       |       | 
|                           |  | $     | 480.7 | 
|                           |  |       |       | 

On December 31, 2001, we retired
our 7.75 percent Notes due January 1,
2002, in their entirety by depositing cash in an amount equal to all accrued
and unpaid interest through the maturity date plus the outstanding principal
amount with Chase Manhattan Bank and Trust Company, the trustee, and by meeting
all other requirements of defeasance.

On April 1, 2002, we retired the
10.125 percent Notes then due in their
entirety.

The 6.375 percent Notes, due in
2004, bear interest payable semi-annually
on May 1 and November 1. These notes are not redeemable by the Company prior
to maturity and will not be entitled to any sinking fund. We reduced principal
outstanding on these notes by $15.0 million in July 2002 by means of
open-market repurchases.

The 6.625 percent Notes, due
October 15, 2005, bear interest payable
semi-annually on October 15 and April 15. In the event of a rating decline
occurring within 90 days of certain designated events (which, to the extent
beyond our control, generally involve a change of or contest for control), each
holder of a note may require the Company to redeem the holders notes, in whole
or in part, at 100 percent of the principal amount plus accrued interest to the
date of redemption. Otherwise, the notes are not redeemable by the Company
prior to maturity. We reduced principal outstanding on these notes by $32.0
million in July 2002 by means of open-market repurchases.

The 7.375 percent Notes, due
May 15, 2007, bear interest payable
semi-annually on May 15 and November 15. These notes are not redeemable by the
Company prior to maturity and will not be entitled to any sinking fund. We reduced principal outstanding on
these notes by $74.5 million in July 2002 by means of open-market repurchases.

The 5.45 percent Air Quality Control
Obligations, due June 1, 2009, bear
interest payable semi-annually on June 1 and December 1. Beginning on June 1,
2004, these tax-exempt, unsecured notes are redeemable at the option of the
Company at 102 percent of the principal amount, together with any accrued and
unpaid interest, declining at a rate of 1 percent per year until June 1, 2006,
and at 100 percent on June 1, 2006, and thereafter.

The 6.5 percent Air Quality Control
Obligations, due April 1, 2013, bear
interest payable semi-annually on April 1 and October 1. Beginning on April 1,
2003, these tax-exempt, unsecured notes are redeemable at the option of the
Company at 102 percent of the principal amount, together with any accrued and
unpaid interest, declining at a rate of 1 percent per year until April 1, 2005,
and at 100 percent on April 1, 2005, and thereafter.

On May 24, 2001, we issued
$625 million of 8.75 percent Notes maturing on
June 1, 2011, and $275 million of 9.5 percent Notes maturing on June 1, 2031,
under an indenture dated September 22, 1997, between the Company and First
Union National Bank, as successor trustee. Net proceeds received were
approximately $891 million. Interest on these notes is payable semi-annually
on June 1 and December 1 of each year. These notes are redeemable in whole or
in part, at the option of the Company, at a redemption price equal to any
accrued and unpaid interest plus the greater of (i) 100 percent of the
principal amount of the notes to be redeemed and (ii) the sum of the present
values of the remaining scheduled payments discounted to the redemption date,
on a semi-annual basis, at the yield of a U.S. Treasury security having a
comparable maturity to the remaining term of the notes plus, in the case of the
notes due 2011, 45 basis points





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and, in the case of the notes due 2031, 50
basis points. The notes are not entitled to any sinking fund. We applied
proceeds from the sale of these notes to repay corporate short-term borrowings
and current maturities of long-term debt. We reduced principal outstanding on
our 8.75 percent and 9.5 percent Notes by $240.7 million and $81.3 million,
respectively, in July 2002 by means of open-market repurchases.

The 8.375 percent Debentures, due
in 2023, bear interest payable
semi-annually on February 1 and August 1. The debentures are not redeemable
prior to February 1, 2003. On or after that date, at the option of the
Company, the debentures may be redeemed in whole or in part at 103.73 percent
of the principal amount, together with any accrued and unpaid interest,
declining at the rate of 0.375 percent per year to February 1, 2013, and at 100
percent on February 1, 2013, and thereafter. In the event of a rating decline
occurring within 90 days (subject to extension under limited circumstances) of
certain designated events (which, to the extent beyond our control, generally
involve a change of or contest for control), each holder of a note may require
the Company to redeem the holders notes, in whole or in part, at 100 percent
of the principal amount plus accrued interest to the date of redemption.
Rating declines that occur at any other time do not trigger an obligation to
redeem any such notes. We reduced principal outstanding on these notes by $2.2
million in July 2002 by means of open-market repurchases.

The 7.125 percent Debentures, due
in 2027, bear interest payable
semi-annually on May 1 and November 1. The debentures are redeemable by the
Company at any time prior to maturity at par plus a yield maintenance premium.
We reduced principal outstanding on these notes by $35.0 million in July 2002 by
means of open-market repurchases.

As of December 31, 2002, our
80 percent-owned joint venture interest in
Candelaria mining operation in Chile had project debt outstanding of $186.1
million. The debt comprised $150.6 million of floating-rate,
dollar-denominated debt (tied to six-month LIBOR), $17.7 million of fixed-rate,
dollar-denominated debt and $17.8 million to recognize the market value of
interest rate swap agreements that convert the floating-rate debt to fixed
rates. The debt and repayments are scheduled to vary from period to period
with all debt maturing by the year 2008. Candelaria did not borrow funds in
2002 or 2001, and prepaid an intercompany loan with the Company
totaling $85.2 million in September 2001. At December 31, 2002, the
overall weighted average interest rate including the interest rate swap was
7.82 percent. The debt obligations and the interest rate swaps are
non-recourse to us. Under the proportional consolidation method, the debt
amounts listed above represent our 80 percent share.

On December 31, 2002, our Cerro
Verde mine had project debt outstanding of
$30.9 million. This debt comprised $30.0 million of a floating-rate facility
(tied to six-month LIBOR) that requires semi-annual installments of varying
amounts through April 1, 2005 (Tranche A) and $0.9 million to recognize the
market value of an interest rate swap agreement that converts a portion of its
floating-rate debt to a fixed rate. During 2002, a $30.0 million bullet loan
due in April 2003 (Tranche B) was fully retired using available cash. The
project debt is backed by proceeds from sales collections. The pledge of $45
million in assets on Tranche B was released in February 2003, as this debt was
fully retired. The weighted average interest rate including the interest rate
swap on this debt at December 31, 2002, was 7.91 percent. In addition, Cerro
Verde has a revolving credit facility, for up to $35 million, that can be used
and repaid whenever it has excess cash. The amount outstanding on the
revolving facility as of December 31, 2002, was $3.0 million, compared with a
balance outstanding of $2.0 million as of December 31, 2001.

On December 31, 2002, our
Columbian Chemicals Korea operation had
long-term debt outstanding in the amount of $24.5 million. The debt comprises
three bank loans that bear variable-rate, semi-annual interest based on LIBOR
plus spreads ranging from 1.80 to 1.95 percent. Each loan amortizes principal
semi-annually, with $10 million due in 2003 and final maturities ranging from
October 2004 to April 2005.

On December 31, 2002, Cyprus
Amax Chile Ltd., a Chilean entity, had a bank
loan outstanding in the amount of $10 million that was secured by a cash time
deposit in the same amount. The loan bears variable-rate, semi-annual interest
at a rate of LIBOR plus 0.2375 percent per year and matures in November 2004.

At year-end 2002, our 51 percent joint
venture interest in El Abra mining
operations had outstanding project-financed debt of $246.3 million. This debt
comprised: (i) a syndicated loan facility with two tranches totaling $205.4
million (Tranche A: $157.1 million; Tranche B: $48.3 million); (ii) a
trade-related facility with a German institution totaling $36.2 million; and
(iii) $4.7 million to recognize the market value of an interest rate swap
agreement that converts a portion of its floating-rate debt to a fixed rate.
The Company currently has guarantees outstanding of $94.7 million on this
project debt (including its share of Tranche B debt, as well as Corporación
Nacional del Cobre de Chiles (CODELCOs) share). The debt has





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a 9.5-year term, due May 15, 2007, and requires semi-annual principal
payments that began
on May 15, 1998. A portion of the floating-rate debt has been converted to
fixed-rate debt with the use of interest rate swap agreements, which terminate
in November 2003. The weighted average interest rate including the interest
rate swaps on this debt at December 31, 2002, was 5.00 percent. The loan
agreement specifies certain restrictions on additional borrowings by El Abra
and on dividend and subordinated debt payments. Under the proportional
consolidation method, the debt amounts listed above represent our 51 percent
share.

The various pollution control and industrial
development revenue bonds are
due from 2003 through 2009. The interest on the bonds is paid either quarterly
or semi-annually at various times of the year. The interest rates on the bonds
at December 31, 2002, ranged from 1.40 percent to 9.90 percent.

The revolving credit agreement between the
Company and several lenders
that became effective on May 10, 2000, remains in effect. The facility is to
be used for general corporate purposes. The agreement permits borrowings of up
to $1 billion from time to time until its scheduled maturity on May 10, 2005.
The agreement allows for one-year extensions of the maturity date under certain
conditions subject to the approval of lenders holding at least a majority of
the commitments. In the event of such approval, total commitments under the
agreement may total less than $1 billion depending upon the willingness of
the approving and other lenders to assume the commitments of those lenders
electing not to participate in the renewal. Under the agreement, interest is
payable at a variable rate based on the agent banks prime rate or at a fixed
rate, based on the LIBOR or at fixed rates offered independently by the several
lenders, for maturities of up to 360 days. This agreement provides for a
facility fee (currently 22.5 basis points (0.225 percent)) ranging from 9 basis
points to 35 basis points (depending on our public debt rating) on total
commitments. The agreement requires us to maintain a minimum consolidated
tangible net worth of $1.5 billion and limits indebtedness to 60 percent of
total consolidated capitalization. There were no borrowings under the
agreement at December 31, 2002, or at December 31, 2001.

We established a commercial paper
program on August 15, 1997, under a
private placement agency agreement between two placement agents and us. The
agreement permits us to issue up to $1 billion of short-term promissory notes
(generally known as commercial paper) at any time. Commercial paper may bear
interest or be sold at a discount, as mutually agreed by the placement agents
and us at the time of each issuance. Our commercial paper program requires
that issuances of commercial paper be backed by an undrawn line of credit; the
revolving credit agreement described above provides such support. At our
current short-term credit ratings (A-3 by Standard and Poors and P-3 by
Moodys), market demand for our commercial paper is extremely limited. There
were no borrowings under this commercial paper program at December 31, 2002 or
2001.

On December 31, 2002, our
Columbian Chemicals Canada operation had
short-term debt outstanding against its revolving credit facility in the amount
of $2.5 million. The $3.2 million facility is guaranteed by the Company and
matures in November 2003. Variable-rate interest is paid monthly based on the
Canadian prime rate.

Short-term debt was $35.2 million, all
by our international operations, at
December 31, 2002, compared with $59.3 million at December 31, 2001.

The weighted average interest rate on total
short-term borrowings at
December 31, 2002, and December 31, 2001, was 3.1 percent and 4.9 percent,
respectively.

13. Shareholders Equity

As of December 31, 2002, there
were 88.9 million shares of common stock
outstanding and 1.7 million shares authorized for repurchase. In June 2002,
the Company issued 10.0 million common shares along with 2.0 million of
mandatory convertible preferred shares in a block trade with J.P. Morgan.

As of December 31, 2002, there
were 2.0 million shares of cumulative
preferred stock outstanding; 6.0 million shares are authorized with a par value
of $1.00 each. There were no shares outstanding at December 31, 2001.

The Series A Mandatory Convertible
Preferred Stock (Series A Stock) is
convertible into 2.083 shares of Common Stock, subject to certain adjustments,
at any time prior to August 15, 2005, and is entitled to an annual dividend of
$6.75, paid quarterly. On August 15, 2005, each Series A Stock will
automatically convert, subject to certain adjustments, into between 2.083 and
2.5 shares of Common Stock depending on the then current market price of our
Common Stock. Each share of Series A Stock is non-voting and entitled to a
liquidation preference of $100 plus any accrued but unpaid dividends.

We have in place a Preferred Share
Purchase Rights Plan that contains
provisions to protect stockholders in the event of unsolicited offers or
attempts to acquire Phelps Dodge, including acquisitions in the





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open market of shares constituting control without offering fair value
to all stockholders and other coercive or unfair takeover tactics that
could impair the ability of the Board of Directors to represent the
stockholders interests fully.

14. Stock Option Plans; Restricted Stock

Executives and other key employees have
been granted options to purchase
common shares under stock option plans adopted in 1993 and 1998. The option
price equals the fair market value of the common shares on the day of the grant
and an options maximum term is 10 years. Options granted vest ratably over a
three-year period. Certain of our stock option plans include reload features
(as discussed below) accompanying the original grants.

If an optionee exercises an option under the
1993 or 1998 plan with
already owned shares of the Company, the optionee receives a reload option
that restores the option opportunity on a number of common shares equal to the
number of shares used to exercise the original option. A reload option has the
same terms as the original option except that it has an exercise price per
share equal to the fair market value of a common share on the date the reload
option is granted and is exercisable six months after the date of grant.

The 1998 plan provides (and the 1993 plan
provided) for the issuance to
executives and other key employees, without any payment by them, of common
shares subject to certain restrictions (Restricted Stock). There were 359,184
shares of Restricted Stock outstanding and 818,191 shares available for grant
at December 31, 2002.

At December 31, 2002, 883,012
shares were available for option grants
(including 818,191 shares as Restricted Stock awards) under the 1998 plan.
These amounts are subject to future adjustment as described in the plan
agreement. No further options may be granted under the 1993 or 1989 plans.

During 2002, 2001 and 2000, the Company
awarded 205,700, 11,700 and 69,000
shares, respectively, of Restricted Stock under the 1998 plan, with
weighted-average fair values at the date of grant of $40.35, $40.33 and $54.44
per share, respectively. Compensation expense recorded in 2002, 2001 and 2000
for Restricted Stock was $2.7 million, $2.1 million and $3.4 million,
respectively. Restricted Stock generally becomes fully vested in five years.
Although the July 2002 award becomes fully vested in five years, a portion of
the shares included in that award will vest on the third and fourth
anniversaries of the award.

In connection with the 1999 acquisition, former Cyprus Amax stock options
were converted into 1,870,804 Phelps Dodge options, which retain the terms by
which they were originally granted under the Management Incentive Program of
Cyprus Amax Minerals Company. These options carry a maximum term of 10 years
and became fully vested upon the acquisition of Cyprus Amax in October 1999.
Exercise periods ranged up to eight years at acquisition. No further options
may be granted under this plan.

The 1997 Directors Stock Unit Plan provides
to each non-employee director
an annual grant of stock units having a value equivalent to our common shares.
This plan replaced the 1989 Directors Stock Option Plan.

Changes during 2000, 2001 and 2002 in
options outstanding for the combined
plans were as follows:

|                                 |                       |  |           |           |                 |   |                |       | 
|-------------------------------- | --------------------- |  | --------- | --------- | --------------- | - | -------------- | ----- | 
|                                 |                       |  |           |           |                 |   | Average Option
|                                 |                       |  | Shares    |           | Price Per Share
|                                 |                       |  |           |           |                
|Outstanding at
December 31, 1999 |                       |  | 7,204,793 |           |                 | $ | 62.89          |      
|                                 | Granted               |  |           | 1,450,412 |                 |   |                | 51.81 | 
|                                 | Exercised             |  |           | (44,122   | )               |   |                | 42.86 | 
|                                 | Expired or
terminated |  |           | (431,247  | )               |   |                | 64.65 | 
|                                 |                       |  |           |           |                 |   |                |       | 
|Outstanding at
December 31, 2000 |                       |  | 8,179,836 |           |                 |   | 60.95          |      
|                                 | Granted               |  |           | 1,420,090 |                 |   |                | 34.80 | 
|                                 | Exercised             |  |           | (12,403   | )               |   |                | 40.30 | 
|                                 | Expired or
terminated |  |           | (468,670  | )               |   |                | 60.73 | 
|                                 |                       |  |           |           |                 |   |                |      
|Outstanding at
December 31, 2001 |                       |  | 9,118,853 |           |                 |   | 56.91          |      
|                                 | Granted               |  |           | 802,800   |                 |   |                | 40.12 | 
|                                 | Exercised             |  |           | (8,080    | )               |   |                | 30.24 | 
|                                 | Expired or
terminated |  |           | (978,972  | )               |   |                | 57.56 | 
|                                 |                       |  |           |           |                 |   |                |      
|Outstanding at
December 31, 2002 |                       |  | 8,934,601 |           |                 |   | 55.36          |      
|                                 |                       |  |           |           |                 |   |                |      





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##### Table of Contents



- 144 -

Options outstanding based on a range of
exercise prices at December 31,
2002, were as follows:

|            |        |             |           |           |  |         |          |             |         |       |          |  | 
|----------- | ------ | ----------- | --------- | --------- |  | ------- | -------- | ----------- | ------- | ----- | -------- |  | 
|            |        |             |           |           |  |         |          |             |         |       | Weighted
|            |        |             |           |           |  |         | Weighted |             | Average
|Range       |        |             |           |           |  | Average |          | Outstanding
|of Exercise |        | Options     |           | Remaining |  | Option 
|Prices      |        | Outstanding |           | Term      |  | Price  
|            |        |             |           |           |  |        
|$27-40      |        |             | 1,564,242 |           |  | 9 years |          | $           | 34.35   |      
|            | 40-60  |             |           | 4,237,237 |  |         | 7 years  |             |         | 50.74 |         
|            | 60-80  |             |           | 2,846,740 |  |         | 4 years  |             |         | 70.10 |         
|            | 80-100 |             |           | 160,369   |  |         | 2 years  |             |         | 83.87 |         
|100-102     |        |             | 126,013   |           |  | 1 year  |          |             | 102.14  |      
|            |        |             |           |           |  |         |          |             |         |       |          | 
|            |        |             | 8,934,601 |           |  |         |          |             |         |       |          | 
|            |        |             |           |           |  |         |          |             |         |       |          | 

Exercisable options by plan at
December 31, 2002, were as follows:

|                  |           |  |           |           |                 |  |                |       | 
|----------------- | --------- |  | --------- | --------- | --------------- |  | -------------- | ----- | 
|                  |           |  |           |           |                 |  | Weighted      
|                  |           |  |           |           |                 |  | Average Option
|                  |           |  | Shares    |           | Price Per Share
|                  |           |  |           |           |                
|PD
Plans          |           |  |           |           |                 |  |                |      
|                  | 1998 Plan |  |           | 3,101,441 |                 |  | $              | 50.68 | 
|                  | 1993 Plan |  |           | 2,189,903 |                 |  |                | 66.65 | 
|                  | 1989 Plan |  |           | 40,180    |                 |  |                | 51.14 | 
|Cyprus Amax
Plans |           |  | 1,588,022 |           |                 |  | 68.39          |      
|                  |           |  |           |           |                 |  |                |      
|                  |           |  | 6,919,546 |           |                 |  |                |      
|                  |           |  |           |           |                 |  |                |      

Exercisable options by range of exercise
prices at December 31, 2002, were
as follows:

|            |        |             |           |             |           |  |        |          |       | 
|----------- | ------ | ----------- | --------- | ----------- | --------- |  | ------ | -------- | ----- | 
|            |        |             |           |             |           |  |        | Weighted
|            |        |             |           |             |           |  |        | Average 
|Range       |        | Options     |           | Outstanding
|of Exercise |        | Exercisable |           | Option     
|Prices      |        | at 12/31/02 |           | Price      
|            |        |             |           |            
|            |        | $27-40      |           |             | 673,960   |  |        | $        | 34.03 | 
|            |        | 40-60       |           |             | 3,112,464 |  |        |          | 53.00 | 
|            |        | 60-80       |           |             | 2,846,740 |  |        |          | 70.10 | 
|            | 80-100 |             |           | 160,369     |           |  |        | 83.87    |      
|100-102     |        |             | 126,013   |             |           |  | 102.14 |         
|            |        |             |           |             |           |  |        |         
|            |        |             | 6,919,546 |             |           |  |        |         
|            |        |             |           |             |           |  |        |         

Equity compensation plans at
December 31, 2002, were as follows:

|                                                 |  |                                                                                            |           |                                                                            |  |                                                                                                                                |       |  |  |  |         | 
|------------------------------------------------ |  | ------------------------------------------------------------------------------------------ | --------- | -------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------ | ----- |  |  |  | ------- | 
|                                                 |  | (a)                                                                                        |           | (b)                                                                        |  | (c)                                                                                                                           
|Plan Category                                    |  | Number
ofsecurities to
be issued
upon exercise
of outstanding
options,
warrants and
rights |           | Weighted-averageexercise
price of
outstanding
options, warrants
and rights |  | Number
ofsecuritiesremaining for
future
issuance
under equity
compensation
plans (excluding
securities
reflected in
column(a))
|                                                 |  |                                                                                            |           |                                                                            |  |                                                                                                                                |       |  |  | 
|Equity com-                                      |  |                                                                                            | 8,934,601 |                                                                            |  | $                                                                                                                              | 55.36 |  |  |  | 883,012 | 
|pensation plans
approved by
security holders     |  |                                                                                            |           |                                                                            |  |                                                                                                                                |       |  |  |  |         | 
|                                                 |  |                                                                                            |           |                                                                            |  |                                                                                                                                |       |  |  |  |         | 
|Equity com-                                      |  |                                                                                            |          |                                                                            |  |                                                                                                                                |      |  |  |  |        | 
|pensation plans
not approved by
security holders |  |                                                                                            |           |                                                                            |  |                                                                                                                                |       |  |  |  |         | 
|                                                 |  |                                                                                            |           |                                                                            |  |                                                                                                                                |       |  |  |  |         | 
|Total                                            |  |                                                                                            | 8,934,601 |                                                                            |  | $                                                                                                                              | 55.36 |  |  |  | 883,012 | 

Of the 883,012 shares available for grant as
of December 31, 2002, under
the shareholder approved 1998 Plan, 818,191 shares may be issued as Restricted
Stock.

Changes during 2000, 2001 and 2002 in
Restricted Stock were as follows:

|                                 |            |  |         |          |  
|-------------------------------- | ---------- |  | ------- | -------- | -
|                                 |            |  | Shares 
|                                 |            |  |        
|Outstanding at
December 31, 1999 |            |  | 281,850 |         
|                                 | Granted    |  |         | 69,000   |  
|                                 | Terminated |  |         | (18,000  | )
|                                 | Released   |  |         | (113,272 | )
|                                 |            |  |         |         
|Outstanding at
December 31, 2000 |            |  | 219,578 |         
|                                 | Granted    |  |         | 11,700   |  
|                                 | Terminated |  |         | (26,533  | )
|                                 | Released   |  |         | (15,011  | )
|                                 |            |  |         |         
|Outstanding at
December 31, 2001 |            |  | 189,734 |         
|                                 | Granted    |  |         | 205,700  |  
|                                 | Terminated |  |         | (19,800  | )
|                                 | Released   |  |         | (16,450  | )
|                                 |            |  |         |         
|Outstanding at
December 31, 2002 |            |  | 359,184 |         
|                                 |            |  |         |         





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The fair value of each option grant is
estimated on the date of grant
using a Black-Scholes option-pricing model with the following assumptions:

|                                |  |         |      |         |  |         |      |   |  |  |      |  
|------------------------------- |  | ------- | ---- | ------- |  | ------- | ---- | - |  |  | ---- | -
|                                |  | 2002    |      | 2001    |  | 2000   
|                                |  |         |      |         |  |        
|Expected dividend
yield         |  |         | 3.04 | %       |  |         | 3.16 | % |  |  | 3.30 | %
|Expected stock price
volatility |  |         | 38.8 | %       |  |         | 40.9 | % |  |  | 39.0 | %
|Risk-free interest
rate         |  |         | 3.3  | %       |  |         | 3.4  | % |  |  | 5.4  | %
|Expected life of
options        |  | 3 years |      | 3 years |  | 3 years |     

The weighted-average fair value of options
per share granted during 2002
was $9.76 per share, compared with $8.84 in 2001 and $13.47 in 2000.

15. Pension Plans

We have trusteed, non-contributory pension
plans covering substantially
all our U.S. employees and some employees of international subsidiaries. The
benefits are based on, in the case of certain plans, final average monthly
compensation and years of service and depending on the applicable plan design
and, in the case of other plans, a fixed amount for each year of service.
Participants generally vest in their benefits after five years of service.

Our funding policy provides that payments to
pension trusts shall be at
least equal to the minimum funding requirements of the Employee Retirement
Income Security Act of 1974, as amended, for U.S. plans, or, in the case of
international subsidiaries, minimum legal requirements in the various
countries. Additional payments also may be made from time to time.
Contributions were approximately $7 million in 2002 and 2001, mostly for plans
at international subsidiaries and a supplemental retirement plan.

In some of our plans, the plan assets
exceed the accumulated benefit
obligations (overfunded plans), while in the remainder, the accumulated benefit
obligations exceed the plan assets (underfunded plans). For the underfunded
plans, the aggregate benefit obligation was $981 million and the aggregate fair
value of plan assets was $770 million as of December 31, 2002.

Our pension plans were valued between
December 1, 2000, and January 1,
2001, and between December 1, 2001, and January 1, 2002. Obligations were
projected to and assets were valued as of the end of 2001 and 2002. The
majority of plan assets are invested in a diversified portfolio of stocks,
bonds and cash or cash equivalents. A small portion of the plan assets is
invested in pooled real estate and other private investment funds.

The Master Trust, which holds plan assets
for the Phelps Dodge Retirement
Plan and U.S. pension plans for bargained employees, constituted 95 percent of
total plan assets as of year-end 2002. These plans accounted for approximately
91 percent of benefit obligations. The investment portfolio for this trust as
of year-end 2002 had an asset mix that included 52 percent equities (37 percent
U.S. equities, 12 percent international equities and 3 percent emerging market
equities), 38 percent fixed income (20 percent U.S. fixed income, 5 percent
international fixed income, 4 percent emerging market fixed income, 5 percent
U.S. high yield, and 4 percent treasury inflation-protected securities), 7
percent real estate and real estate investment trusts, and 3 percent other.

Our policy for determining asset-mix targets
for the Master Trust includes
the periodic development of asset/liability studies by a nationally recognized
third-party investment consultant (to determine our expected long-term rate of
return and expected risk for various investment portfolios). Management
considers these studies in the formal establishment of asset-mix targets that
are presented to the Finance Committee of the Board of Directors.

Our expected long-term rate of return on
plan assets is updated at least
annually, taking into consideration our asset allocation, historical returns on
the types of assets held in the Master Trust, and the current economic
environment. Based on these factors, we expect our pension assets will earn an
average of 8.75 percent per annum over the 20 years beginning December 1, 2002,
with a standard deviation of 10.6 percent. The 8.75 percent estimation was
based on a passive return on a compound basis of 8.5 percent with a premium for
active management of 0.25 percent. On an arithmetic average basis, the passive
return would have been 9.0 percent with a premium for active management of 0.25
percent. The expected return as of December 1, 2001, was 9.0 percent with a
standard deviation of 11.1 percent.

For estimation purposes, we assume our
long-term asset mix generally will
be consistent with the current mix. Changes in our asset mix could impact the
amount of recorded pension income or expense, the funded status of the plan and
the need for future cash contributions. A lower-than-expected return on assets
also would decrease plan assets and decrease the amount of recorded pension
income (or increase recorded pension expense) in future years. When
calculating the expected return on plan assets, the Company uses a
market-related value of assets that spreads asset gains and losses over five
years. As a result, changes in the fair value of assets prior to January 1,
2003, will be reflected in the results of operations by January 1, 2008.





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The fair value of all plan assets
($830 million at year-end 2002 and $940
million at year-end 2001) is impacted by general market conditions. If actual
returns on plan assets vary from the expected returns, actual results could
differ.

A third-party actuary determines our net
pension asset or liability and
associated income or expense. We recognize in our financial statements an
accrued liability (or a prepaid pension expense) for the difference between
pension cost and contributions to the plan. In addition, as required by SFAS
No. 87, a minimum pension liability is recorded when a plans accumulated
benefit obligation exceeds the plans assets by more than the amount of accrued
liability recognized for that plan.

Our benefit obligation totaled
$1,111 million and $1,006 million at
year-end 2002 and 2001, respectively. Among the assumptions used to estimate
the benefit obligation is a benchmark discount rate used to calculate the
expected present value of future benefit payments. For our U.S. plans, the
discount rate assumption is designed to reflect yields on high-quality,
fixed-income investments for a given duration. We consider Moodys Long-term
AA Corporate Bond yield prevailing at the end of the plan year to be our
principal guide in the determination of our discount rate. At the end of
November 2002, the Moodys Long-term AA Corporate Bond yield was equal to 6.77
percent and we chose 6.75 percent as our discount rate. Changes in this
assumption are reflected in our benefit obligation and, therefore, in the
liabilities and income or expense we record.

We periodically review our actual asset mix,
benchmark discount rate,
expected rate of return and other actuarial assumptions and adjust them as
deemed necessary. Our assumption concerning the average rate of compensation
increase was 4 percent for all periods.

The following table presents the benefit
obligation, changes in plan
assets, the funded status of the pension plans and the assumptions used at
December 31:

|                                                    |                                                  |   |      |       |      |  |     |       |  
|--------------------------------------------------- | ------------------------------------------------ | - | ---- | ----- | ---- |  | --- | ----- | -
|                                                    |                                                  |   | 2002 |       | 2001
|                                                    |                                                  |   |      |       |     
|Assumptions:                                        |                                                  |   |      |       |      |  |     |      
|                                                    | Discount rate                                    |   |      | 6.75  | %    |  |     | 7.25  | %
|                                                    | Rate of increase in salary
levels                |   |      | 4.00  | %    |  |     | 4.00  | %
|Change in benefit
obligation:                       |                                                  |   |      |       |      |  |     |      
|                                                    | Benefit obligation at beginning of
year          |   | $    | 1,006 |      |  |     | 969   |  
|                                                    | Service cost  benefits earned
during
the period |   |      | 20    |      |  |     | 19    |  
|                                                    | Interest cost on benefit
obligation              |   |      | 70    |      |  |     | 69    |  
|                                                    | Plan
amendments                                  |   |      | 1     |      |  |     | 1     |  
|                                                    | Actuarial loss                                   |   |      | 71    |      |  |     | 19    |  
|                                                    | Benefits paid                                    |   |      | (73   | )    |  |     | (74   | )
|                                                    | Curtailments                                     |   |      |      |      |  |     |      |  
|                                                    | Special retirement
benefits                      |   |      | 10    |      |  |     | 4     |  
|                                                    | Currency translation
adjustments                 |   |      | 6     |      |  |     | (1    | )
|                                                    |                                                  |   |      |       |      |  |     |       |  
|                                                    | Benefit obligation at end of
year                |   | $    | 1,111 |      |  |     | 1,006 |  
|                                                    |                                                  |   |      |       |      |  |     |       |  
|Change in plan
assets:                              |                                                  |   |      |       |      |  |     |      
|                                                    | Fair value of plan assets at beginning
of year   |   | $    | 940   |      |  |     | 1,050 |  
|                                                    | Actual loss on plan
assets                       |   |      | (48   | )    |  |     | (42   | )
|                                                    | Employer
contributions                           |   |      | 7     |      |  |     | 7     |  
|                                                    | Currency translation
adjustments                 |   |      | 4     |      |  |     | (1    | )
|                                                    | Benefits paid                                    |   |      | (73   | )    |  |     | (74   | )
|                                                    |                                                  |   |      |       |      |  |     |       |  
|                                                    | Fair value of plan assets at end of
year         |   | $    | 830   |      |  |     | 940   |  
|                                                    |                                                  |   |      |       |      |  |     |       |  
|Funded
status                                       |                                                  | $ | (281 | )     |      |  | (66 | )    
|                                                    | Unrecognized actuarial
loss                      |   |      | 257   |      |  |     | 44    |  
|                                                    | Unrecognized prior service
cost                  |   |      | 20    |      |  |     | 28    |  
|                                                    |                                                  |   |      |       |      |  |     |       |  
|                                                    | Net amount
recognized                            |   | $    | (4    | )    |  |     | 6     |  
|                                                    |                                                  |   |      |       |      |  |     |       |  
|Amounts recognized in
the balance sheet consist of: |                                                  |   |      |       |      |  |     |      
|                                                    | Prepaid benefit
cost                             |   | $    | 29    |      |  |     | 53    |  
|                                                    | Accrued benefit
liability                        |   |      | (211  | )    |  |     | (58   | )
|                                                    | Intangible asset                                 |   |      | 20    |      |  |     | 3     |  
|                                                    | Deferred tax
benefit                             |   |      | 12    |      |  |     | 2     |  
|                                                    | Accumulated other comprehensive
income           |   |      | 146   |      |  |     | 6     |  
|                                                    |                                                  |   |      |       |      |  |     |       |  
|                                                    | Net amount
recognized                            |   | $    | (4    | )    |  |     | 6     |  
|                                                    |                                                  |   |      |       |      |  |     |       |  





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- 147 -

Assumptions used as of the beginning of the plan year to determine the
listed components of net periodic benefit cost for the associated year consist
of the following:

|                                         |                                                  |  |      |       |      |  |      |       |   |  |  |       |  
|---------------------------------------- | ------------------------------------------------ |  | ---- | ----- | ---- |  | ---- | ----- | - |  |  | ----- | -
|                                         |                                                  |  | 2002 |       | 2001 |  | 2000
|                                         |                                                  |  |      |       |      |  |     
|Assumptions:                             |                                                  |  |      |       |      |  |      |       |   |  |  |      
|                                         | Discount rate                                    |  |      | 7.25  | %    |  |      | 7.75  | % |  |  | 7.75  | %
|                                         | Expected long-term rate of return                |  |      | 9.00  | %    |  |      | 9.50  | % |  |  | 9.50  | %
|                                         | Rate of increase in salary levels                |  |      | 4.00  | %    |  |      | 4.00  | % |  |  | 4.00  | %
|Components of net periodic benefit cost: |                                                  |  |      |       |      |  |      |       |   |  |  |      
|                                         | Service cost  benefits earned
during the period |  | $    | 20.3  |      |  |      | 18.8  |   |  |  | 22.3  |  
|                                         | Interest cost on benefit obligation              |  |      | 70.0  |      |  |      | 69.4  |   |  |  | 70.1  |  
|                                         | Expected return on plan assets                   |  |      | (92.7 | )    |  |      | (99.0 | ) |  |  | (94.3 | )
|                                         | Amortization of transition
obligation (asset)    |  |      | 1.1   |      |  |      | 0.3   |   |  |  |      |  
|                                         | Amortization of prior service cost               |  |      | 3.7   |      |  |      | 3.9   |   |  |  | 4.2   |  
|                                         | Amortization of actuarial gain                   |  |      | (0.4  | )    |  |      | (6.0  | ) |  |  | (3.1  | )
|                                         | Curtailments and special
retirement benefits     |  |      | 10.2  |      |  |      | 3.9   |   |  |  |      |  
|                                         | Recognized prior service cost                    |  |      | 2.1   |      |  |      | 0.2   |   |  |  |      |  
|                                         |                                                  |  |      |       |      |  |      |       |   |  |  |       |  
|                                         | Net periodic benefit cost
(income)               |  | $    | 14.3  |      |  |      | (8.5  | ) |  |  | (0.8  | )
|                                         |                                                  |  |      |       |      |  |      |       |   |  |  |       |  

We recognize a minimum liability in our financial statements for our
underfunded pension plans. The accrued pension benefit cost for the
underfunded plans was $211 million, which included an additional minimum
liability of $178 million and was included in Other Liabilities and Deferred
Credits at December 31, 2002, compared with $58 million, which included an
additional minimum liability of $11 million (included in Other Liabilities and
Deferred Credits) at December 31, 2001. The additional minimum liability was
offset by a $20 million intangible asset, a $146 million reduction in
Shareholders Equity and a $12 million deferred tax benefit at December 31,
2002, compared with a $3 million intangible asset, a $6 million reduction in
Shareholders Equity and a $2 million deferred tax benefit at December 31,
2001.

16.     Postretirement and Other Employee Benefits
Other Than Pensions

We record obligations for postretirement medical and life insurance
benefits on the accrual basis. One of the principal requirements of the method
is that the expected cost of providing such postretirement benefits be accrued
during the years employees render the necessary service.

Our postretirement plans provide medical insurance benefits for many
employees retiring from active service. The coverage is provided on a
non-contributory basis for certain groups of employees and on a contributory
basis for other groups. The majority of these benefits are paid by the
Company. We also provide life insurance benefits to our U.S. employees who
retire from active service and to some of our international employees. Life
insurance benefits also are available pursuant to the terms of certain
collective bargaining agreements. The majority of the costs of such benefits
were paid out of a previously established fund maintained by an insurance
company.

The following table presents the change in benefit obligation, change in
plan assets, the funded status of the other postretirement benefit plans and
the assumptions used at December 31:

|                              |                                                  |  |      |      |      |  |  |      |  
|----------------------------- | ------------------------------------------------ |  | ---- | ---- | ---- |  |  | ---- | -
|                              |                                                  |  | 2002 |      | 2001
|                              |                                                  |  |      |      |     
|Assumptions:                  |                                                  |  |      |      |      |  |  |     
|                              | Expected long-term rate of return on
plan assets |  |      | 8.00 | %    |  |  | 8.00 | %
|                              | Weighted average discount rate                   |  |      | 6.75 | %    |  |  | 7.25 | %
|Change in benefit obligation: |                                                  |  |      |      |      |  |  |     
|                              | Benefit obligation at beginning of year          |  | $    | 329  |      |  |  | 331  |  
|                              | Service cost  benefits earned during
the year   |  |      | 4    |      |  |  | 4    |  
|                              | Interest cost on benefit obligation              |  |      | 22   |      |  |  | 23   |  
|                              | Actuarial loss                                   |  |      | 40   |      |  |  |     |  
|                              | Benefits paid, net of employee
contributions     |  |      | (29  | )    |  |  | (29  | )
|                              | Other                                            |  |      | 3    |      |  |  |     |  
|                              |                                                  |  |      |      |      |  |  |      |  
|                              | Benefit obligation at end of year                |  | $    | 369  |      |  |  | 329  |  
|                              |                                                  |  |      |      |      |  |  |      |  
|Change in plan assets:        |                                                  |  |      |      |      |  |  |     
|                              | Fair value of plan assets at
beginning of year   |  | $    | 8    |      |  |  | 10   |  
|                              | Actual return on plan assets                     |  |      |     |      |  |  | (1   | )
|                              | Employee contributions                           |  |      | 28   |      |  |  | 28   |  
|                              | Benefits paid, net of employee
contributions     |  |      | (29  | )    |  |  | (29  | )
|                              |                                                  |  |      |      |      |  |  |      |  
|                              | Fair value of plan assets at end of year         |  | $    | 7    |      |  |  | 8    |  
|                              |                                                  |  |      |      |      |  |  |      |  
|                              | Unfunded status                                  |  | $    | (362 | )    |  |  | (321 | )
|                              | Unrecognized actuarial loss (gain)               |  |      | 32   |      |  |  | (10  | )
|                              | Unrecognized prior service cost                  |  |      | 11   |      |  |  | 14   |  
|                              |                                                  |  |      |      |      |  |  |      |  
|                              | Net amount recognized  accrued liability        |  | $    | (319 | )    |  |  | (317 | )
|                              |                                                  |  |      |      |      |  |  |      |  





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- 148 -

The assumptions used and components of net periodic postretirement benefit
cost were as follows at December 31:

|                                         |                                                  |                                 |   |      |      |      |  |      |      |   |  |      |   | 
|---------------------------------------- | ------------------------------------------------ | ------------------------------- | - | ---- | ---- | ---- |  | ---- | ---- | - |  | ---- | - | 
|                                         |                                                  |                                 |   | 2002 |      | 2001 |  | 2000
|                                         |                                                  |                                 |   |      |      |      |  |     
|Assumptions:                             |                                                  |                                 |   |      |      |      |  |      |      |   |  |     
|                                         | Expected long-term rate of
return on plan assets |                                 |   | 8.00 | %    |      |  | 8.00 | %    |   |  | 8.00 | %
|                                         | Discount rate                                    |                                 |   | 7.25 | %    |      |  | 7.75 | %    |   |  | 7.75 | %
|                                         | Rate of increase in salary levels                |                                 |   | 4.00 | %    |      |  | 4.00 | %    |   |  | 4.00 | %
|Components of net periodic benefit cost: |                                                  |                                 |   |      |      |      |  |      |      |   |  |     
|                                         | Service cost  benefits earned
during the year   |                                 | $ | 4.2  |      |      |  | 3.9  |      |   |  | 4.4  |  
|                                         | Interest cost                                    |                                 |   | 21.7 |      |      |  | 22.6 |      |   |  | 22.6 |  
|                                         | Expected return on plan assets                   |                                 |   | (0.7 | )    |      |  | (0.8 | )    |   |  | (0.8 | )
|                                         | Amortization of:                                 |                                 |   |      |      |      |  |      |      |   |  |      |  
|                                         |                                                  | Unrecognized prior service cost |   |      | 1.3  |      |  |      | 1.3  |   |  |      |  | 
|                                         |                                                  | Unrecognized net gain           |   |      | (0.3 | )    |  |      | (1.1 | ) |  |      |  | 
|                                         | Curtailments and special
retirement benefits     |                                 |   | 3.4  |      |      |  | 0.5  |      |   |  |     |  
|                                         |                                                  |                                 |   |      |      |      |  |      |      |   |  |      |  
|                                         | Net periodic benefit cost                        |                                 | $ | 29.6 |      |      |  | 26.4 |      |   |  | 26.2 |  
|                                         |                                                  |                                 |   |      |      |      |  |      |      |   |  |      |  

For 2002 measurement purposes, the annual rate of increase in the cost of
covered health care benefits was assumed to average 11 percent for our major
medical plan and 8 percent for our basic only plan in 2003, and was projected
to decrease to 5 percent by 2009 and remain at that level.

Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plan. A 1-percentage-point change in
assumed health care cost trend rates assumed for postretirement benefits would
have the following effects:

|                                                        |  |                    |      |          |  |  |       |  
|------------------------------------------------------- |  | ------------------ | ---- | -------- |  |  | ----- | -
|                                                        |  | 1 Percentage-Point
|                                                        |  |                   
|                                                        |  | Increase           |      | Decrease
|                                                        |  |                    |      |         
|Effect on total of service and interest
cost components |  | $                  | 1.2  |          |  |  | (1.1  | )
|Effect on postretirement benefit
obligation             |  | $                  | 18.4 |          |  |  | (16.8 | )

We have a number of postemployment plans covering severance, long-term
disability income, health care, life insurance, continuation of health and life
insurance coverage for disabled employees or other welfare benefits. At
December 31, 2002 and 2001, the accumulated postemployment benefit disability
consisted of a current portion of $3.6 million and $3.3 million included in
accounts payable and accrued expenses and $18.0 million and $21.8 million
included in other liabilities and deferred credits.

We also sponsor savings plans for the majority of our employees. The
plans allow employees to contribute a portion of their pre-tax and/or after-tax
income in accordance with specified guidelines. The principal savings plan is
a 401(k) plan for all U.S. salaried and non-bargained hourly employees. In
this plan, participants exercise control and direct the investment of their
contributions and account balances among a broad range of investment options,
including company stock. Participants also may direct their contributions into
a brokerage option through which they can invest in stocks, bonds and mutual
funds. Participants may change investment direction or transfer existing
balances at any time without restriction, with some exceptions for certain
officers and other insiders. We match a percentage of employee contributions
up to
certain limits. These matching contributions are made in cash, which is
immediately invested according to each employees current investment direction.
Our contributions amounted to $11.5 million in 2002, $13.3 million in 2001,
and $6.9 million in 2000.

17. Commitments

Phelps Dodge leases mineral interests and various other types of
properties, including shovels, offices and miscellaneous equipment. Certain of
the mineral leases require minimum annual royalty payments, and others provide
for royalties based on production.

Summarized below at December 31, 2002, are future minimum rentals and
royalties under non-cancelable leases:

|                                |                                     |   |           |       |           |  |         |      |  |  |      |      | 
|------------------------------- | ----------------------------------- | - | --------- | ----- | --------- |  | ------- | ---- |  |  | ---- | ---- | 
|                                |                                     |   | Operating |       | Mineral   |  | Capital
|                                |                                     |   | Leases    |       | Royalties |  | Leases 
|                                |                                     |   |           |       |           |  |        
|2003                            |                                     | $ | 15.7      |       |           |  | 1.3     |      |  |  | 4.0  |     
|2004                            |                                     |   | 14.6      |       |           |  | 1.3     |      |  |  | 4.1  |     
|2005                            |                                     |   | 12.9      |       |           |  | 1.3     |      |  |  | 4.0  |     
|2006                            |                                     |   | 11.3      |       |           |  | 1.3     |      |  |  |     |     
|2007                            |                                     |   | 12.0      |       |           |  | 1.3     |      |  |  |     |     
|After 2007                      |                                     |   | 38.8      |       |           |  | 16.8    |      |  |  |     |     
|                                |                                     |   |           |       |           |  |         |      |  |  |      |     
|                                | Total payments                      |   | $         | 105.3 |           |  |         | 23.3 |  |  |      | 12.1 | 
|                                |                                     |   |           |       |           |  |         |      |  |  |      |     
|Less imputed interest           |                                     |   |           |       |           |  |         |      |  |  | (1.6 | )   
|                                |                                     |   |           |       |           |  |         |      |  |  |      |     
|Present value of lease payments |                                     |   |           |       |           |  |         |      |  |  | 10.5 |     
|Less current portion            |                                     |   |           |       |           |  |         |      |  |  | (3.3 | )   
|                                |                                     |   |           |       |           |  |         |      |  |  |      |     
|                                | Present value of long-term payments |   |           |       |           |  |         |      |  |  | $    | 7.2  | 
|                                |                                     |   |           |       |           |  |         |      |  |  |      |     





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Summarized below at December 31, 2002, is future sub-lease income:

|           |  |           |      | 
|---------- |  | --------- | ---- | 
|           |  | Sub-lease
|           |  | Income   
|           |  |  
|2003       |  | $         | 3.3  | 
|2004       |  |           | 3.3  | 
|2005       |  |           | 3.3  | 
|2006       |  |           | 3.4  | 
|2007       |  |           | 3.5  | 
|After 2007 |  |           | 2.8  | 
|           |  |           |      | 
|           |  | $         | 19.6 | 
|           |  |           |      | 

Rent and royalty expense for the years ended December 31 were as follows:

|                |  |      |      |      |  |      |      |  |  |  |      | 
|--------------- |  | ---- | ---- | ---- |  | ---- | ---- |  |  |  | ---- | 
|                |  | 2002 |      | 2001 |  | 2000
|                |  |      |      |      |  |     
|Rental expense  |  | $    | 21.4 |      |  |      | 22.4 |  |  |  | 29.1 | 
|Mineral royalty |  |      | 1.3  |      |  |      | 0.6  |  |  |  | 0.8  | 
|                |  |      |      |      |  |      |      |  |  |  |      | 
|                |  | $    | 22.7 |      |  |      | 23.0 |  |  |  | 29.9 | 
|                |  |      |      |      |  |      |      |  |  |  |      | 

Phelps Dodge has unconditional purchase obligations (take-or-pay
contracts) of $614.2 million comprising the procurement of electricity
(approximately 52 percent); petroleum-based products (approximately 29
percent); transportation (approximately 6 percent); sulfuric acid
(approximately 3 percent), oxygen (approximately 2 percent), natural gas
(approximately 2 percent) and other supplies (approximately 4 percent); and
port fee commitments (approximately 2 percent) that are essential to our
operations worldwide. Approximately 81 percent of our take-or-pay electricity
obligations are through PD Energy Services, the legal entity used to manage
power for PDMC, at generally fixed-price arrangements. PD Energy Services has
the right and the ability to resell the electricity as circumstances warrant.
Obligations for petroleum-based feedstock at our Specialty Chemicals segment
that is converted into carbon black, are for specific quantities, and will
ultimately be purchased based upon prevailing market prices at that time.
These petroleum-based products may be re-sold to others if circumstances
warrant. Transportation obligations are for exporting cathode produced at El
Abra and copper in concentrate at Candelaria and for importing sulfuric acid to El Abra. Our carbon
black facility in the United Kingdom has port fee commitments.

Our future commitments for the next five years and beyond are $164.9
million, $108.5 million, $93.8 million, $64.0 million, $56.8 million, and
$126.2 million for 2003, 2004, 2005, 2006, 2007, and after 2007, respectively.

18. Guarantees

In November 2002, FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others (FIN 45). FIN 45 requires that upon
issuance of certain guarantees, a guarantor must recognize a liability for the
fair value of an obligation assumed under the guarantee. FIN 45 also requires
significant new disclosures by guarantors, in both interim and annual financial
statements, about obligations associated with guarantees issued. FIN 45
disclosure requirements are effective for our year ended December 31, 2002, and
the initial recognition and measurement provisions are applicable on a
prospective basis to guarantees issued or modified after December 31, 2002.
Phelps Dodge as a guarantor is involved in financial guarantees
(including option guarantees and indirect guarantees of the indebtedness
of others) and indemnities.

Our financial guarantees primarily consist of the Cyprus Amax guarantee to
cover our partners share of El Abras Tranche B debt. The value of our
partners 49 percent share of the project debt we guarantee (which reflects our
maximum potential payment) totaled $46.4 million at December 31, 2002. This
debt matures in May 2007 (refer to Note 12, Debt and Other Financing, for
additional discussions concerning our project debt and guarantee arrangement at
El Abra). As of December 31, 2002, the Company has not recorded any liability
on its financial statements in connection with this guarantee as the Company
does not believe, based on information available, that it is probable that any
amounts will be paid under this guarantee.

At one of our U.S. mining operations, we have a venture agreement with our
business partner that includes a put/call option guarantee clause. Under
certain conditions defined in the venture agreement, our partner has the right
to sell its share to the Company. Likewise, under certain conditions, the
Company has the right to exercise its purchase option to acquire our business
partners share of the venture. Based on calculations defined in the venture
agreement, at December 31, 2002, the maximum potential payment the Company is
obligated to make to our business partner upon exercise of the put option (or
the Companys exercise of its call option) totaled approximately $112 million.
As of December 31, 2002, the Company has not recorded any liability on its
financial statements in connection with this guarantee as the Company does not
believe, based on information





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available, that it is probable that any amounts
will be paid under this guarantee.

The Company (and its subsidiaries, including Cyprus Amax Minerals Company)
has, as part of its merger, acquisition, divestiture and other transactions,
entered into during the ordinary course of business (including transactions
involving the purchase and sale of property), from time to time, indemnified
certain sellers, buyers or other parties related to the transaction from and
against certain liabilities associated with conditions in existence (or claims
associated with actions taken) prior to the closing date of the transaction.
In certain transactions, the Company indemnified the counterparty from and
against certain excluded or retained liabilities existing at the time of sale
that would otherwise have been transferred to the party at closing. These
indemnity provisions generally require Phelps Dodge (or its subsidiaries) to
indemnify the party against certain liabilities that may arise in the future
from the pre-closing activities of the Company or assets sold or purchased.
The indemnity classifications include environmental, tax and certain operating
liabilities, claims or litigation existing at closing and various excluded
liabilities or obligations. Most of these indemnity obligations arise from
transactions that closed many years ago, and given the nature of these
indemnity obligations, it is impossible to estimate the maximum potential
exposure. Except as described in the following sentence, we do not consider
any of such obligations as having a probable likelihood of payment that is
reasonably estimable, and accordingly, we have not recorded any obligations
associated with these indemnities. With respect to our environmental indemnity
obligations, any expected costs from these guarantees are accrued when
potential environmental obligations are considered by management to be probable
and the costs can be reasonably estimated (refer to Note 19, Contingencies, for
further discussions concerning our environmental reserve process).

One of our subsidiaries has entered into an indirect guarantee to pledge
certain of our land and improvements as collateral to a lender for a real
estate development loan issued on behalf of our joint venture investment. The
Company owns a 50 percent interest in the joint venture and has guaranteed
payment of any amounts due on the loan in the event of the joint ventures loan
default. The loan value and maximum potential payment for this guarantee at
December 31, 2002, was approximately $24 million. The estimated fair value of
our collateralized land at year-end was approximately $6 million. As of
December 31, 2002, the Company has not recorded any liability on its financial
statements in connection with this guarantee as the Company does not believe,
based on information available, that it is probable that any amounts will be
paid under this guarantee.

19. Contingencies

Letters of Credit and Surety Bonds

Phelps Dodge had standby letters of credit totaling $102.9 million at
December 31, 2002, primarily for Candelarias project financing; insurance
programs associated with workers compensation, casualty and owner controlled
reinsurance, indemnity agreements, and general and automobile liability;
purchase commitments; and reclamation and environmental obligations. In
addition, Phelps Dodge also had surety bonds totaling $232.6 million at
December 31, 2002, associated with reclamation and closure bonds (approximately
91 percent), which are discussed below, and self-insurance bonds (approximately
9 percent). Phelps Dodge also had performance guarantees of $31.6 million
primarily associated with our Wire and Cable segments sales contracts.

The terms and conditions presently available from our principal surety
bond provider for reclamation and other types of long-lived surety bonds have
made this type of financial assurance economically impracticable.

Insurance

The Company purchases a variety of insurance products to mitigate losses.
The various insurance products generally have specified deductible amounts,
retention requirements and policy limits. The adequacy of insurance limits for
each major coverage are reviewed periodically. The Company generally is
self-insured for workers compensation, but purchases excess insurance to limit
its exposures. The Company also purchases property insurance with varying
levels of site deductibles and an aggregate deductible to mitigate property
losses. Reserves for self-insurance totaled $52.7 million and $52.5 million at
December 31, 2002 and 2001, respectively.

Environmental

Phelps Dodge is subject to various federal, state and local environmental
laws and regulations that govern emissions of air pollutants; discharges of
water pollutants; and generation, handling, storage and disposal of hazardous
substances, hazardous wastes and other toxic materials. The Company is also
subject to potential liabilities arising under CERCLA or similar state laws
that impose responsibility on persons who arranged for the disposal of
hazardous substances, and on current and previous owners and operators of a
facility for the cleanup of hazardous substances released from the facility
into the environment. In addition, the Company is subject to potential
liabilities under the Resource, Conservation and Recovery Act





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(RCRA) and
analogous state laws that require responsible parties to remediate releases of
hazardous or solid waste constituents into the environment associated with past
or present activities.

Phelps Dodge or its subsidiaries have been advised by the U.S.
Environmental Protection Agency (EPA), the U.S. Forest Service and several
state agencies that they may be liable under CERCLA or similar state laws and
regulations for costs of responding to environmental conditions at a number of
sites that have been or are being investigated by EPA, the U.S. Forest Service
or states to determine whether releases of hazardous substances have occurred
and, if so, to develop and implement remedial actions.

Phelps Dodge has provided reserves for potential environmental obligations
that management considers probable and for which reasonable estimates can be
made. For closed facilities and closed portions of operating facilities with
closure obligations, an environmental liability is considered probable and is
accrued when a closure determination is made and approved by management.
Environmental liabilities attributed to CERCLA or analogous state programs are
considered probable when a claim is asserted, or is probable of assertion, and
we
have been associated with the site. Other environmental remediation
liabilities are considered probable based upon specific facts and
circumstances. Liability estimates are based on an evaluation of, among other
factors, currently available facts, existing technology, presently enacted laws
and regulations, Phelps Dodges experience in remediation, other companies
remediation experience, Phelps Dodges status as a potentially responsible
party (PRP), and the ability of other PRPs to pay their allocated portions.
Accordingly, total environmental reserves of $305.9 million and $311.2 million
were recorded as of December 31, 2002 and 2001, respectively. The long-term
portion of these reserves is included in other liabilities and deferred credits
on the consolidated balance sheet and amounted to $261.7 million and $264.3
million at December 31, 2002 and 2001, respectively.

The sites for which we have received a liability claim, a notice of
potential liability or an information request that currently are considered to
be the most significant are the Pinal Creek site near Miami, Arizona; the
Laurel Hill site at Maspeth, New York; the former American Zinc and Chemical
site in Langeloth, Pennsylvania; and the Cyprus Tohono site near Casa Grande,
Arizona.

Pinal Creek Site

The Pinal Creek site was listed under the Arizona Department of
Environmental Quality (ADEQ) Water Quality Assurance Revolving Fund program in
1989 for contamination in the shallow alluvial aquifers within the Pinal Creek
drainage near Miami, Arizona. Since that time, environmental remediation has
been performed by the members of the Pinal Creek Group (PCG), comprising Phelps
Dodge Miami, Inc. (a wholly owned subsidiary of the Company) and two other
companies. In 1998, the District Court approved a Consent Decree between the
PCG members and the state of Arizona resolving all matters related to an
enforcement action contemplated by the state of Arizona against the PCG members
with respect to the groundwater matter. The Consent Decree committed Phelps
Dodge Miami, Inc. and the other PCG members to complete the remediation work
outlined in the Consent Decree. That work continues at this time pursuant to
the Consent Decree and consistent with the National Contingency Plan prepared
by EPA under CERCLA.

Phelps Dodge Miami, Inc. and the other members of the PCG are pursuing
contribution litigation against three other parties involved with the site. At
least two of the three defendants now have admitted direct liability as
responsible parties. The case is expected to be assigned a trial date in 2004.
Phelps Dodge Miami, Inc. also asserted claims against certain past insurance
carriers. As of November 2002, all of the carriers have settled or had their
liability adjudicated. One carrier has appealed the judgment against it.

In addition, a dispute between one dissenting PCG member and Phelps Dodge
Miami, Inc. and the other PCG member was filed in Superior Court in 2002. The
litigation seeks a declaratory judgment on the dissenting members contract
liability under the PCG agreement. Trial for this matter is scheduled for
early 2004.

While significant recoveries may be achieved in the contribution
litigation, the Company cannot reasonably estimate the amount and, therefore,
has not taken potential recoveries into consideration in the recorded reserve.

Phelps Dodge Miami, Inc.s share of the planned remediation work has a
cost range for reasonably expected outcomes estimated to be from $117 million
to $219 million, and, as no point within that range is more likely than any
other, the lower end of the range has been reserved as required by generally
accepted accounting principles. Approximately $117 million remained in the
Companys Pinal Creek remediation reserve at December 31, 2002.





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Laurel Hill Site

Phelps Dodge Refining Corporation, a subsidiary of the Company, owns the
Laurel Hill property in Maspeth, New York, that formerly was used for
metal-related smelting, refining and manufacturing. All industrial operations
at the Laurel Hill site ceased in 1984. In June 1999, the Company entered into
an Order on Consent with the New York State Department of Environmental
Conservation (NYSDEC) that required the Company to perform, among other things,
a remedial investigation and feasibility study relating to environmental
conditions and remedial options at the Laurel Hill site.

The Companys final feasibility study, which was submitted to NYSDEC in
May 2002, recommended that the Laurel Hill site be remediated by removing
certain hot spots of contaminated soils, capping most of the surface of the
site, installing and operating a groundwater extraction, containment and
treatment system, long-term groundwater monitoring, and implementing
institutional controls concerning future land uses. In June 2002, NYSDEC
issued a Proposed Remedial Action Plan (PRAP) adopting Phelps Dodges remedial
recommendation. NYSDEC has held public meetings concerning its PRAP and issued
a final remedial decision in January 2003 in the form of a Record of Decision.
Phelps Dodge expects to commence implementation of the remedy sometime during
the second or third quarter of 2003. While the Laurel Hill site is under a
contract for sale for $34 million, and the contract vendee has
assumed the obligation of capping the site at a cost of about $5 million,
implementing the remainder of the remedy is expected to cost the Company as
much as $16 million. The Company has reserved the entire estimated cost of $21
million.

In July 2002, Phelps Dodge entered into another Order on Consent with
NYSDEC requiring the Company to conduct a remedial investigation and
feasibility study relating to sediments in Newtown and Maspeth Creeks, which
are located contiguous to the Laurel Hill site. The Company expects to
commence the remedial investigation in mid to late 2003. It cannot be
determined what, if any, remedial action will be required by NYSDEC concerning
the Newtown and Maspeth Creek sediments until the remedial investigation and
feasibility studies are complete.

American Zinc and Chemical Site

In June 1999, Cyprus Amax, now a subsidiary of Phelps Dodge, received an
information request from the Pennsylvania Department of Environmental
Protection (PADEP) regarding the former American Zinc and Chemical (AZC) site
in Langeloth, Pennsylvania. For PADEP, the AZC site consists of a former zinc
smelter facility operated until 1947 by the former American Zinc and Chemical
Company and a contiguous, currently operating molybdenum refinery formerly
owned by the Climax Molybdenum Company, a Cyprus Amax subsidiary. The American
Zinc and Chemical Company, which was dissolved in 1951, also was a subsidiary
of a corporate predecessor to Cyprus Amax.

In discussions with Cyprus Amax in 2001 and early 2002, PADEP informally
indicated that it expects Cyprus Amax to investigate and remediate
environmental conditions at the AZC site, which predominates at and about the
former zinc smelter facility. Preliminary evaluations of the nature and extent
of environmental conditions at and about the zinc smelter facility indicate
that remediation of the AZC site may range in cost from $18 million to $52
million. While the Company has reserved $20 million for possible remediation
work at the AZC site, which represents the most likely point within the range
of estimates, Cyprus Amax has indicated to PADEP that the Company is not liable
for the actions of its former subsidiary, American Zinc and Chemical Company,
under existing federal and state environmental laws. To date, PADEP has not
responded to Cyprus Amaxs assertion of non-liability.

Cyprus Tohono Site

Cyprus Tohono Corporation (Cyprus Tohono), a wholly owned subsidiary of
Cyprus Amax, holds three leases for lands on the Tohono Oodham Indian Nation.
The leased lands include the site of a mining operation, currently on
care-and-maintenance status, comprising an open pit, underground mine workings,
leach and non-leach rock stockpiles, tailing and evaporation ponds and solution
extraction/electrowinning (SX/EW) operations, and ancillary facilities.

EPA has started a Preliminary Assessment and Site Investigation of Cyprus
Tohono to evaluate the need to conduct remedial actions under CERCLA. We are
unable to project the remedial action measures, if any, that may be required as
a result of these investigations; however, based upon our best estimate of
remedial actions that Cyprus Tohono may undertake, the Company reserved $11
million for Cyprus Tohono for the CERCLA matter.

Other

In 2002, the Company recognized charges of $14.0 million for environmental
remediation primarily for the Laurel Hill site ($13.5 million) and the
remainder at closed sites, none of which increased or decreased individually
more than $2 million.





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At December 31, 2002, the cost range for reasonably possible outcomes for
all reservable environmental remediation sites other than Pinal Creek, Laurel
Hill, AZC and Cyprus Tohono was estimated to be from $119 million to $219
million of which $137 million has been reserved. Work on these sites is
expected to be substantially completed in the next several years, subject to
inherent delays involved in the remediation process.

Phelps Dodge believes certain insurance policies partially cover the
foregoing environmental liabilities; however, some of the insurance carriers
have denied coverage. We presently are negotiating with the carriers over some
of these disputes. Further, Phelps Dodge believes it has other potential
claims for recovery from other third parties, including the United States
Government and other PRPs. Neither insurance recoveries nor other claims or
offsets are recognized unless such offsets are considered probable of
realization. In 2002 and 2001, the Company recognized proceeds from
settlements reached with several insurance companies on historic environmental
liability claims of $34.3 million and $61.8 million, net of fees and expenses,
respectively.

Phelps Dodge has a number of sites that are not the subject of an
environmental reserve because it is not probable that a successful claim will
be made against the Company for those sites, but for which there is a
reasonably possible likelihood of an environmental remediation liability. At
December 31, 2002, the cost range for reasonably possible outcomes for all such
sites was estimated to be from $4 million to $37 million. The liabilities
arising from potential environmental obligations that have not been reserved at
this time may be material to the results of any single quarter or year in the
future. Management, however, believes the liability arising from potential
environmental obligations is not likely to have a material adverse effect on
the Companys liquidity or financial position as such obligations could be
satisfied over a period of years.

The following table summarizes environmental reserve activities for the
years ended December 31:

|                           |                                           |   |       |       |      |  |       |       |   |  |       |       |  
|-------------------------- | ----------------------------------------- | - | ----- | ----- | ---- |  | ----- | ----- | - |  | ----- | ----- | -
|                           |                                           |   | 2002  |       | 2001 |  | 2000 
|                           |                                           |   |       |       |      |  |      
|Balance, beginning of year |                                           | $ | 311.2 |       |      |  | 307.1 |       |   |  | 336.1 |      
|                           | Additions to reserves                     |   |       | 18.3  |      |  |       | 37.1  |   |  |       | 15.7  |  
|                           | Reductions in reserve estimate            |   |       | (4.3  | )    |  |       | (6.0  | ) |  |       | (15.7 | )
|                           | Spending against reserves                 |   |       | (19.3 | )    |  |       | (27.0 | ) |  |       | (31.8 | )
|                           | Liabilities assumed in
Cyprus acquisition |   |       |      |      |  |       |      |   |  |       | 2.8   |  
|                           |                                           |   |       |       |      |  |       |       |   |  |       |      
|Balance, end of year       |                                           | $ | 305.9 |       |      |  | 311.2 |       |   |  | 307.1 |      
|                           |                                           |   |       |       |      |  |       |       |   |  |       |      

Closure and Reclamation

The following table summarizes closure and reclamation reserve activities
for the years ended December 31:

|                           |                       |   |       |      |      |  |              |      |   |  |      |      |  
|-------------------------- | --------------------- | - | ----- | ---- | ---- |  | ------------ | ---- | - |  | ---- | ---- | -
|                           |                       |   | 2002  |      | 2001 |  | 2000        
|                           |                       |   |       |      |      |  |             
|                           |                       |   |       |      |      |  | As Restated*
|                           |                       |   |       |      |      |  |             
|Balance, beginning of year |                       | $ | 100.6 |      |      |  | 98.6         |      |   |  | 94.7 |     
|                           | Additions to reserves |   |       | 33.1 |      |  |              | 10.1 |   |  |      | 5.6  |  
|                           | Accretion             |   |       | 6.7  |      |  |              | 6.4  |   |  |      | 5.0  |  
|                           | Payments              |   |       | (1.8 | )    |  |              | (9.6 | ) |  |      | (6.7 | )
|                           | Deductions            |   |       |     |      |  |              | (4.9 | ) |  |      |     |  
|                           |                       |   |       |      |      |  |              |      |   |  |      |     
|Balance, end of year       |                       | $ | 138.6 |      |      |  | 100.6        |      |   |  | 98.6 |     
|                           |                       |   |       |      |      |  |              |      |   |  |      |     



|* |  | Refer to Note 22, Restatement of Consolidated Financial Statements, for
further discussion.
|- |  | -------------------------------------------------------------------------------------------

The Company recognizes estimated final reclamation costs over the life of
active mining properties on a units-of-production basis. Non-operating sites
currently on care-and-maintenance status suspend accrual of mine closure costs
until the site resumes production. When management determines a mine should be
permanently closed, any unrecognized closure obligation is recognized. The
Companys cost estimates consider mining and operating plans, use of Company
resources, and other factors necessary to achieve compliance with laws and
regulations for reclamation and closure. The Companys cost estimates for
reclamation and closure may differ from financial assurance cost estimate
requirements due to a variety of factors including historical cost advantages,
savings from use of the Companys own personnel and equipment versus
third-party contractor costs, and opportunities to prepare each site for more
efficient reclamation through careful development of the site over time.

We have estimated that total reclamation and closure costs for the year
ended December 31, 2002, aggregated approximately $660 million, leaving
approximately $521 million remaining to be accrued. In late December 2001, the
Company and the state of New Mexico reached a stipulated agreement on the Chino
closure plan as more fully described below. In the 2002 first quarter, the
Company reviewed its targeted closure accrual estimates. Based on that review,
the Companys aggregate closure accrual estimate was increased to approximately
$660 million, principally reflecting adjustments for the Companys cost
estimates associated with Chino (two-thirds basis) and Tyrone. These aggregate
closure costs may increase or decrease materially in the future as a result of
changes in regulations, technology, mine plans or other factors. In addition,
closure activities and expenditures are generally made over a number of years
or





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potentially greater periods commencing near the end of the mine life.

Significant Arizona Closure and
Reclamation Programs

ADEQ has adopted regulations for its aquifer protection permit (APP)
program that replaced the previous Arizona groundwater quality protection
permit regulations. Several of our properties continue to operate pursuant to
the transition provisions for existing facilities under the APP regulations.
The APP regulations require permits for certain facilities, activities and
structures for mining, concentrating and smelting. The APP requires compliance
with aquifer water quality standards at an applicable point of compliance well
or location. The APP also may require mitigation and discharge reduction or
elimination of some discharges. An application for an APP requires a
description of a closure strategy to meet applicable groundwater protection
requirements following cessation of operations and a cost estimate to implement
the closure strategy. An APP may specify closure requirements, which may
include postclosure monitoring and maintenance requirements. A more detailed
closure plan must be submitted within 90 days after a permittee notifies ADEQ
of its intent to cease operations. A permit applicant must demonstrate its
financial capability to meet the costs required under the APP, including
closure costs.

Portions of the Companys Arizona mining operations that operated after
January 1, 1986, also are subject to the Arizona Mined Land Reclamation Act
(AMLRA). AMLRA requires reclamation to achieve stability and safety consistent
with post-mining land use objectives specified in a reclamation plan.
Reclamation plans require approval by the State Mine Inspector and must include
a cost estimate to perform the reclamation measures specified in the plan.
Financial assurance must be provided under AMLRA covering the estimated cost of
performing the reclamation plan.

Under both APP regulations and AMLRA, a publicly traded company may
satisfy the financial assurance requirements by showing that its unsecured debt
rating is investment grade and that it meets certain requirements regarding
assets in relation to the estimated closure and
post-closure cost and reclamation cost estimates. If this test is not
met, the permittee must provide an alternative form of financial assurance that
meets the requirements of the applicable regulations or that is approved by
ADEQ or the State Mine Inspector, as applicable. The Companys Arizona
operations have met the applicable financial assurance requirements by
supplying a demonstration of the Companys investment-grade bond rating.

At December 31, 2002 and 2001, we had accrued closure costs of
approximately $43 million and $38 million, respectively, for our Arizona
operations. The amount of financial assurance currently provided under both
regulatory programs is approximately $115 million. If the Companys bond
rating falls below investment-grade, the Arizona mining operations would be
required to supply financial assurance in another form.

Significant New Mexico Closure and
Reclamation Programs

Mining and smelting operations with leaching, tailing ponds, surface
impoundments and other discharging facilities in New Mexico are subject to
regulation under the New Mexico Water Quality Act and the Water Quality Control
Commission (WQCC) Regulations. The Chino, Cobre and Tyrone mines and the
Hidalgo smelter each have obtained multiple discharge permits for their
operations, which specify operational, monitoring and notification
requirements. These permits are issued for five-year terms and require renewal
following the end of each permit term. The WQCC Regulations authorize the New
Mexico Environment Department (NMED), which administers the discharge permit
program, to require the submission of closure plans showing how applicable
discharge permit requirements will be met following closure. Under certain
circumstances, NMED also may require submission and approval of abatement plans
to address the exceedance of applicable water quality standards.

Further, Chino, Cobre, Tyrone and Hidalgo must submit closure plans for
their operations. Hidalgo has an approved closure plan under its discharge
permit. The three mines have submitted closure plans, which have been combined
with closeout plans under the New Mexico Mining Act (NMMA), as discussed below.
The proposed closure plans currently are subject to approval by NMED as part
of separate discharge permits for closure for each of the three operations that
would supplement the existing discharge permits (hereinafter referred to as
closure permits). The proposed closure permits contain a number of permit
conditions that would modify the proposed closure plans. Chino Mines Company
and NMED reached agreement in December 2001 on proposed closure permit
conditions presented at a public hearing in February 2002. On January 23,
2003, NMEDs hearing officer issued a decision approving the closure permit as
proposed by NMED and Chino, with minor changes. NMED issued a permit
consistent with the hearing officers decision on February 24, 2003. An appeal
has been filed by a local environmental group. Phelps Dodge Tyrone, Inc. and
NMED were unable to reach agreement on permit terms before a public hearing
held in May 2002, and presented





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competing permit proposals. Other parties who
participated in the public hearing presented their own proposals. On March 7,
2003, Tyrone received the hearing officers decision on its permit, which
generally adopted NMEDs proposal. On April 2, 2003, Tyrone filed an appeal of
the hearing officers decision with the WQCC. NMED issued a permit in
accordance with the hearing officers decision on April 8, 2003, which Tyrone
also expects to appeal. Cobre Mining Company and NMED also have not reached
agreement on the terms of a closure permit. The closure permit for Cobre
Mining Company does not require a public hearing, and may be issued by NMED at
any time.

Chino, Cobre and Tyrone also are subject to permit requirements under
NMMA, which was passed in 1993. Following adoption of the New Mexico Mining
Act Rules (NMMAR) in 1994, Chino, Cobre and Tyrone received initial permits as
existing mining operations under NMMAR in 1997. These permits require
revisions to incorporate approved closeout plans, which consist of plans for
reclamation of the mining operations to achieve a self-sustaining ecosystem or
an approved post-mining land use following cessation of operations at a mine.
Existing mining operations may seek a waiver of these reclamation standards for
open pits and waste units based
upon a demonstration that achieving these standards is technically or
economically infeasible or environmentally unsound, as long as measures will be
taken to meet air and water quality standards following closure.

NMMAR originally required approval of a closeout plan for an existing
mining operation by December 31, 1999, based upon an extension granted by the
Director of the Mining and Minerals Division (MMD). NMMAR subsequently was
amended to extend the deadline for closeout plan approval until December 31,
2001, and later to October 1, 2002. NMMAR contains a requirement that NMED
must provide MMD with a determination that a closeout plan meets applicable
environmental standards, including air and water quality standards, before MMD
can approve the closeout plan. NMEDs policy is to issue this determination
after it has issued closure permits for the facility that submits the closeout
plan. In early 2001, Chino, Cobre and Tyrone submitted comprehensive
closure/closeout plans (CCPs) to both NMED and MMD intended to address the
requirements of both the WQCC Regulations and NMMAR. Approval of the CCPs
under NMMAR would require the granting of waivers by MMD as authorized under
NMMAR. The CCPs were the subject of the public hearings before NMED for Chino
and Tyrone, as discussed above.

As of October 1, 2002, NMED had not issued closure permits for Chino,
Cobre or Tyrone. Consequently, as of October 1, 2002, MMD had not approved
closeout permits for these three mines. MMD issued Notices of Violation (NOVs)
to Chino, Cobre and Tyrone because the three mines did not obtain approved
closeout plans by the October 1, 2002, deadline. The NOVs were modified by the
Mining Commission following a public hearing to set new deadlines for closeout
plan approval tied to NMED permit actions. Based on NMEDs permit actions,
closeout plan approval for Chino is now due by September 24, 2003, and the
closeout plan approval date for Tyrone should be about April 8, 2004. The
closeout plan approval deadline for Cobre will be nine months from the date of
NMEDs permit issuance, which is currently pending.

NMMAR contains specific requirements regarding financial assurance that
must be provided to MMD to assure that sufficient funds would be available to
MMD to carry out the closeout plan in the event of a default by the permittee.
NMED also may require financial assurance under the WQCC Regulations. The
financial assurance requirements are based upon the net present value of
estimated costs to carry out the requirements of the closure permit and the
approved closeout plan, assuming the state would hire a third-party contractor
to conduct the work. Actual reclamation costs may differ significantly from
the costs estimated under the permits due to advances in technology and
reclamation techniques and opportunities to prepare each site for more
efficient reclamation through careful development of the site over time.
Consequently, the estimated costs under the permits are higher than the cost
the Company would be expected to incur if the Company performed the work.

The CCPs submitted in early 2001 contained cost estimates of approximately
$100 million for Chino, $121 million for Tyrone, and $9 million for Cobre,
based upon unescalated and undiscounted capital and operating costs over a
30-year operating period. The closure permit negotiated by NMED and Chino
Mines Company and approved by the NMED hearing officer has an estimated cost of
approximately $391 million, based upon third-party unescalated and undiscounted
capital and operating costs over a 100-year operating period. This cost
estimate will be adjusted to include the cost of technical studies required
under the permit conditions after a cost estimate for those costs has been
approved by NMED. The Companys two-thirds share of NMEDs $391 million
estimate is approximately $261 million and our joint venture partners cost
share is approximately $130 million. We estimate total costs to achieve the
closure standards required by NMED to be approximately $261 million. The
Companys cost estimate to achieve the New Mexico closure standards is
approximately one-third lower than the financial assurance cost estimate as a
result of the Companys historical cost advantages, savings from the use of the
Companys own personnel and equip-





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ment versus third-party contract costs, and
opportunities to prepare the site for more efficient reclamation. The
financial assurance cost estimate includes approximately $10 million (100
percent basis) of costs the Company has
recognized in environmental reserves. The Companys two-thirds share of
these costs is approximately $174 million and our joint venture partners cost
share is approximately $87 million. At December 31, 2002 and 2001, we had
accrued approximately $8 million and $5 million, respectively, (two-thirds
basis) for reclamation at Chino. The NMED cost estimate for Chino is subject to
further review, and possible adjustment, by MMD under NMMAR.

NMED estimated the cost to carry out the requirements of its proposed
closure permits for Tyrone at approximately $440 million, without discounting
or escalation, under NMEDs proposal at the May 2002 hearing; Tyrone estimated
the cost of its proposal at approximately $328 million, without discounting or
escalation over a 100-year operating period. NMED has not yet supplied its
proposed cost estimate for Cobre. The proposed terms of the closure permits
would require additional studies over the five-year term of the permits to
refine the closure plan. The plan requirements and cost estimates may increase
or decrease based upon the results of the studies and other factors, including
changes in technology, completion of some closure and reclamation work, and
inflation.

Based upon NMEDs undiscounted financial assurance cost estimates for the
Tyrone plan of approximately $440 million, and considering the same cost
advantages as indicated in the above discussion regarding Chino, we estimate
the Companys costs to achieve the closure standards under that estimate to be
approximately $288 million for Tyrone. The Company has not obtained approval
from NMED of an estimate of its cost to achieve the closure standards that
would be required by the hearing officers decision. The Companys current
cost estimate for Cobre of approximately $9 million will be updated with the
issuance of the discharge permit. At December 31, 2002 and 2001, we had
accrued closure costs of approximately $27 million and $8 million,
respectively, at Tyrone and approximately $2 million at Cobre.

Following NMEDs issuance of the closure permits, Chino, Cobre and Tyrone
are required to submit proposals for financial assurance based upon the permit
requirements and subject to NMEDs approval. Under the proposed closure permit
terms, the amount of financial assurance may be based upon the net present
value of the estimated cost for a third-party to implement the plan, using
discount and escalation rates specified in the permit. These amounts are
expected to be substantially lower than the undiscounted and unescalated cost
estimates. For example, based upon the cost estimate approved by the hearing
officer, the financial assurance amount for Chino could be approximately $189
million. This amount is based on annual escalation rates of approximately 3.2
percent for long-term water treatment costs and approximately 3.6 percent for
other costs and discount rates of 5 percent for years one through 12 of the
plan and 8 percent for years 13 through 100.

NMMAR requires that financial assurance for a closeout plan be approved
and put in place before MMD can approve the closeout plan. Currently, under
interim financial assurance required under the terms of their NMED closure
permits, Chino and Tyrone have provided approximately $56 million and $58
million of financial assurance, respectively, which is held by NMED. Cobre
also has approximately $2 million of financial assurance in place held jointly
by NMED and MMD. Following NMEDs issuance of the closure permits, and prior
to MMDs approval of the closeout plans, Chino, Tyrone and Cobre will be
required to provide substantial
amounts of additional financial assurance to cover the amounts of the
approved cost estimates. Hidalgo currently has provided financial assurance in
the amount of approximately $11 million under its discharge permit.

Significant Colorado Reclamation Program

Our Climax and Henderson mines in Colorado are subject to permitting
requirements under the Colorado Mined Land Reclamation Act, which requires
approval of reclamation plans and provisions for financial assurance. These
mines have had approved mined land reclamation plans for several years and have
provided the required financial assurance to the state of Colorado in the
amount of $52.4 million and $10.1 million, for Climax and Henderson,
respectively. As a result of adjustments to the approved cost estimates for
various reasons, the amount of financial assurance requirements can increase or
decrease over time. At December 31, 2002 and 2001, we had accrued closure
costs of approximately $19 million and $18 million, respectively, for our
Colorado operations.

Other

Some portions of our mining operations located on public lands are subject
to mine plans of operation approved by the federal Bureau of Land Management
(BLM). BLMs regulations include financial assurance requirements for
reclamation plans required as part of the approved plans of operation. As a
result of recent changes to BLMs regulations, including more stringent
financial assurance requirements, increases in existing financial assurance
amounts held by BLM could be required. Currently, financial assurance
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the
Companys operations held by BLM totals $2.7 million.

The Company is investigating available options to provide additional
financial assurance and, in some instances, to replace existing financial
assurance. The cost of surety bonds, the traditional source of financial
assurance, has increased significantly over the past year, and many surety
companies are now requiring an increased level of collateral supporting the
bonds such that they no longer are economically prudent. Some surety companies
that issued surety bonds to the Company are seeking to exit the market for
reclamation bonds. The terms and conditions presently available from our
principal surety bond provider for reclamation and other types of long-lived
surety bonds have made this type of financial assurance economically
impracticable. We are working with the impacted state and federal agencies to
put in place acceptable alternative forms of financial assurance in a timely
fashion.

Our Chino and Cobre copper operations in New Mexico, our Climax molybdenum
mine in Colorado, our Ojos del Salado copper operations in Chile, and our Miami
copper mine and refinery and Tohono copper operations in Arizona are currently
on care-and-maintenance status.

The following table lists for each operation: (i) the date it was placed
on care-and-maintenance status; (ii) net property, plant and equipment; (iii)
estimated closure costs; (iv) accrued closure costs; and (v) unaccrued closure
costs.

|                        |  |             |      |            |     |             |     |         |    |           |     |  |    |  |    |  |    |  |     | 
|----------------------- |  | ----------- | ---- | ---------- | --- | ----------- | --- | ------- | -- | --------- | --- |  | -- |  | -- |  | -- |  | --- | 
|                        |  |             |      |            |     | At 12/31/02
|                        |  |             |      |            |     |            
|                        |  | Date        |      | Net        |     |             |     |         |    |           |     |  |    |  |    | 
|                        |  | Placed on   |      | Property,  |     | Est.        |     |         |    |           |     |  |    | 
|                        |  | Care-and-   |      | Plant and  |     | Closure     |     |         |    |           |     |  |    | 
|                        |  | Maintenance |      | Equip. (1) |     | Costs       |     | Accrued |    | Unaccrued
|                        |  |             |      |            |     |             |     |         |    |          
|Chino (2)               |  |             | 1Q02 |            |     | $           | 324 |         |    |           | 168 |  |    |  | 8  |  |    |  | 160 | 
|Cobre                   |  |             | 1Q99 |            |     |             | 55  |         |    |           | 6   |  |    |  | 2  |  |    |  | 4   | 
|Climax (3)              |  | Acq. 4Q99   |      |            | 138 |             |     |         | 60 |           |     |  | 15 |  |    |  | 45 | 
|Ojos del Salado         |  |             | 4Q98 |            |     |             | 27  |         |    |           | 2   |  |    |  |   |  |    |  | 2   | 
|Miami Mine
and Refinery |  |             | 1Q02 |            |     |             | 154 |         |    |           | 42  |  |    |  | 20 |  |    |  | 22  | 
|Tohono                  |  |             | 4Q99 |            |     |             |    |         |    |           | 5   |  |    |  |   |  |    |  | 5   | 
|                        |  |             |      |            |     |             |     |         |    |           |     |  |    |  |    |  |    |  |     | 
|                        |  |             |      |            |     | $           | 698 |         |    |           | 283 |  |    |  | 45 |  |    |  | 238 | 
|                        |  |             |      |            |     |             |     |         |    |           |     |  |    |  |    |  |    |  |     | 



|(1) |  | Because depreciation for our mines and smelters is recognized on a
units-of-production basis, these assets are generally not subject to
depreciation due to their temporary curtailment status. Depreciation is
recognized at the Chino and Miami operations associated with residual
SX/EW cathode production, and at Climax primarily associated with
equipment for water management.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Our closure cost estimates for Chino (our two-thirds share) were updated
effective January 1, 2002, to reflect the change in closure estimates
associated with the stipulated agreement reached with the state of New
Mexico. The estimated unaccrued closure costs increased as of January 1,
2002, by approximately $130 million at Chino (two-thirds basis).                        
|   
|(3) |  | We acquired Climax in the fourth quarter of 1999 as part of the Cyprus
Amax acquisition. The Climax molybdenum mine had been placed on
care-and-maintenance in 1995 by the predecessor owner. At year-end 2002,
as well as at the acquisition, we expected to bring Climax into production
concurrent with the exhaustion of the Henderson molybdenum mine reserves.                   

The Company considers the curtailment of these operations to be temporary
and not permanent. Given the long lives of our base metal ore reserves and the
pronounced price cycles that have repeated with regularity over a long period,
the Company conducts its business and believes it is appropriate to evaluate
the viability of its base metal reserves with a long-term perspective. While
operations are considered permanently closed and written off as they become
technologically obsolete or as ore reserves are depleted, we do not consider
operations permanently impaired as a result of short- to intermediate-term
fluctuations in base metal prices. There is persuasive evidence that copper
and molybdenum price cycles range from eight to 10 years in duration on
average.

Because these are non-replenishable natural resources and we have the
flexibility to curtail or produce in order to optimize their value, we do not
con-





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sider the operations in question permanently closed. Nonetheless, each of
these care-and-maintenance operations is evaluated at least annually for
closure and/or impairment. If and when management determines any of these
properties should be permanently closed, any unrecognized closure obligation
would be recognized in that period. Similarly, any impairment of assets would
be recognized.

Legal

In September 2000, RAG American Coal Company (RAG) filed a complaint
against Cyprus Amax Minerals Company and Amax Energy Inc. (Cyprus) in the
Supreme Court of New York, County of New York (RAG American Coal Company v.
Cyprus Amax Minerals Company and Amax Energy, Inc., (CV00-604200)). The
complaint alleged claims relating to breach of contract, fraud, negligent
misrepresentation, and negligence arising from alleged inaccuracies in
financial statements relating to the sale by Cyprus of its coal subsidiary to
RAG in June 1999.
The complaint sought damages in the amount of $115 million under four
different legal theories (breach of contract, fraud, negligent
misrepresentation and negligence). Cyprus filed a motion to dismiss the
complaint. On April 18, 2002, the Court issued its decision on this motion to
dismiss. The Court granted Cyprus motion to dismiss with respect to the
negligent misrepresentation and negligence claims, and denied Cyprus motion to
dismiss with respect to the contract and fraud claims. In a November 21, 2002
decision, the appellate division denied Cyprus appeal of the lower courts
decision on the contract and fraud claims. On January 17, 2003, RAG and Cyprus
entered into a mediated settlement agreement. Under the settlement agreement,
Cyprus paid $43.5 million on February 7, 2003, to RAG, all RAGs claims under
this action were released, and the parties filed with the Court a stipulation
of discontinuance with prejudice.

On June 25, 2001, Plateau Mining Corporation (Plateau Mining), now a
subsidiary of RAG, initiated binding arbitration proceedings against the
Companys subsidiary, Cyprus, demanding payment under the terms of a 1997 tax
sharing agreement previously entered into by the parties. Plateau Mining is a
former subsidiary of Cyprus. On July 18, 2002, the arbitration panel awarded
Plateau Mining the amount of $36.5 million on its claim, plus interest. On
August 15, 2002, Cyprus paid to Plateau Mining approximately $47 million
(including approximately $11 million in interest) in satisfaction of the July
18, 2002, arbitration award. This payment was made without prejudicing the
rights of Cyprus to seek indemnification for this payment from RAG under the
provisions of other agreements entered into by Cyprus and RAG. On October 22,
2002, Cyprus served the required notice on RAG that it was seeking
indemnification of this amount under a 1999 tax sharing and indemnification
agreement entered into by Cyprus and RAG. In November 2002, RAG commenced an
action in the New York State Supreme Court, which seeks to bar Cyprus from
asserting its indemnification claim against RAG. In December 2002, Cyprus
filed its response to this legal action and asserted its claim for
indemnification with respect to this arbitration award (Indemnification
Action). In addition, potential claims continued to exist between Cyprus and
RAG with respect to the status of Plateau Mining in the Cyprus consolidated tax
group for certain tax periods prior to RAGs acquisition of Plateau Mining
(Potential Claims). On April 11, 2003, RAG and its subsidiaries and
affiliates entered into a settlement agreement with Cyprus whereby the parties
agreed not to pursue further the Indemnification Action and the Potential
Claims. Under the terms of the settlement, no further payments were required,
other than certain ongoing reimbursements to Cyprus for Black Lung Excise Tax
refunds and related state tax refunds which are not in dispute; the claims
included in the Indemnification Action and Potential Claims were released;
and the parties agreed to discontinue the Indemnification Action with
prejudice.

In November 2002, Columbian Chemicals Company was contacted by U.S. and
European antitrust authorities regarding a joint investigation they initiated
into alleged price fixing in the carbon black industry. European antitrust
authorities have reviewed documents at three of Columbian Chemicals facilities
in Europe, and U.S. authorities have contacted Columbian Chemicals
headquarters in Marietta, Georgia.

The Company and Columbian Chemicals Company have been named as defendants
in two actions: i) Technical Industries, Inc. v. Cabot Corporation, et al., in
the U.S. District Court in Boston, Massachusetts and ii) Parker Hannifin
Corporation v. Cabot Corporation for the Northern District of Ohio. The
complaints filed on behalf of a purported class of all individuals or entities
who purchased carbon black directly from the defendants from 1999 to 2003,
allege that the defendants fixed the prices of carbon black. The complaints
seek treble damages in an unspecified amount and attorneys fees under the U.S.
antitrust laws. The Company understands that a similar action has been filed
against Columbian in the District of New Jersey, but neither it nor Columbian
has been served with a complaint. The Company believes the claims are without
merit and intends to defend the lawsuit vigorously.

Since approximately 1990, Phelps Dodge or its subsidiaries have been named
as a defendant in a number of product liability or premises lawsuits brought by
electricians and other skilled tradesmen or con-





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tractors claiming injury from
exposure to asbestos found in limited lines
of electrical wire products produced or marketed many years ago, or from
asbestos at certain Phelps Dodge properties. Phelps Dodge believes its
liability, if any, in these matters will not have a material adverse effect,
either individually or in the aggregate, upon its business, financial
condition, liquidity, results of operations or cash flow. There can be no
assurance; however, that future developments will not alter this conclusion.

20.     Derivative Financial Instruments Held for
Purposes Other Than Trading and Fair Value
of Financial Instruments

The following is a summary of our price protection programs:

|                                                    |                                             |  |              |     |              |  |  |     | 
|--------------------------------------------------- | ------------------------------------------- |  | ------------ | --- | ------------ |  |  | --- | 
|(Units in millions)                                 |                                             |  |              |     |              |  |  |    
|                                                    |                                             |  | Positions at |     | Positions at
|                                                    |                                             |  | 12/31/2002   |     | 12/31/2001  
|                                                    |                                             |  |              |     |             
|Fair Value Hedges                                   |                                             |  |              |     |              |  |  |    
|                                                    | Copper fixed-price (lbs.)                   |  |              | 17  |              |  |  | 25  | 
|                                                    | Foreign currency (USD)                      |  | $            | 16  |              |  |  | 13  | 
|                                                    | Fixed-to-floating interest rate
swaps (USD) |  | $            | 375 |              |  |  | 400 | 
|Cash Flow Hedges                                    |                                             |  |              |     |              |  |  |    
|                                                    | Aluminum purchase (lbs.)                    |  |              | 14  |              |  |  | 13  | 
|                                                    | Floating-to-fixed interest rate
swaps (USD) |  | $            | 274 |              |  |  | 364 | 
|                                                    | Diesel fuel price protection
(gallons)      |  |              | 24  |              |  |  | 24  | 
|                                                    | Natural gas price protection
(decatherms)   |  |              | 4   |              |  |  | 2   | 
|Derivative Financial Instruments Not
Qualifying for |                                             |  |              |     |              |  |  |    
|Hedge Accounting                                    |                                             |  |              |     |              |  |  |    
|                                                    | Copper fixed-price rod sales (lbs.)         |  |              | 37  |              |  |  | 47  | 

We do not purchase, hold or sell derivative contracts unless we have an
existing asset or obligation or we anticipate a future activity that is likely
to occur and will result in exposing us to market risk. We do not enter into
any contracts for speculative purposes. We will use various strategies to
manage our market risk, including the use of derivative contracts to limit,
offset or reduce our market exposure. Derivative instruments are used to
manage well-defined commodity price, energy, foreign exchange and interest rate
risks from our primary business activities. The fair values of our derivative
instruments are based on quoted market prices for similar instruments and on
market closing prices at year end. A summary of the derivative instruments we
hold is discussed below.

Metals Hedging

Fair Value Hedges

Copper Fixed-Price Hedging.Some of our copper wire customers request a fixed
sales price instead of the COMEX average price in the month of shipment or
receipt. As a convenience to these customers, we enter into copper swap and
futures contracts to hedge our fixed-price sales exposure in a manner that will
allow us to receive the COMEX average price in the month of shipment or receipt
while our customers receive the fixed price they requested. We accomplish this
by liquidating the copper futures contracts and settling the copper swap
contracts during the month of shipment or receipt, which generally results in
the realization of the COMEX average price.

At December 31, 2002, our copper futures and swap contracts had maturities
through December 2003. We did not have any significant gains or losses during
the year resulting from ineffectiveness.

Copper Scrap Purchase Hedging.We may purchase copper scrap as a raw material
to be processed into rod for sale to customers. The copper scrap is purchased
from third parties at a copper content price different than the sales price
contracted with eventual rod customers. The Company hedges the price risk
difference between the purchase and sales price and delivery months of the
copper. The hedge program involves the sale of over-the-counter swaps priced
at the same basis and for the same delivery month as the scrap purchase. In
the month the copper rod associated with the scrap purchase is sold, the swap
is liquidated at the COMEX average price. We did not have any copper hedge
contracts in place during 2002 or 2001.

Cash Flow Hedges

Copper Price Protection Program.We may purchase or sell copper options to
hedge a portion of our expected future mine production in order to limit the
effects of potential decreases in copper selling prices. We did not have any
outstanding copper price protection contracts in place during 2002 or 2001.

Aluminum Purchase Hedging

Our South American wire and cable operations may enter into aluminum swap
contracts to hedge our aluminum raw material purchase price exposure on
fixed-price sales contracts to allow us to lock in the cost of aluminum ingot
used in fixed-price aluminum cable sold to customers. These swap contracts
generally are settled during the month of shipment or receipt of metal, which
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sistent with that agreed to with our customers.
Hedge gains or losses from the swap contracts are recognized in cost of
products sold.

At December 31, 2002, our outstanding aluminum swap contracts had
maturities through August 2003.

Foreign Currency Hedging

Fair Value Hedges

As a global company, we transact business in many countries and in many
currencies. Foreign currency transactions of our international subsidiaries
increase our risks because exchange rates can change between the time
agreements are made and the time foreign currency transactions are settled. We
manage these exposures by entering into forward exchange contracts in the same
currency as the transaction to lock in or minimize the effects of changes in
exchange rates. With regard to foreign currency transactions, we may hedge or
protect the functional currencies of our international subsidiaries
transactions for which we have a firm legal obligation or when anticipated
transactions are likely to occur.

Our foreign exchange contracts in place at December 31, 2002, have
maturities through June 2003. We did not have any significant gains or losses
during the year resulting from ineffectiveness.

Interest Rate Hedging

Fair Value Hedges

Fixed-to-Floating Interest Rate Swaps. In some situations, we may enter into
interest rate swap contracts to protect against changes in the fair value of
the underlying fixed-rate debt that result from changes in the general level of
market interest rates. These interest rate swaps have maturity dates through
May 2007. As a result of the repurchase of debt in the third quarter of 2002,
we terminated a like portion of the interest rate swap ($25 million), which
resulted in the recognition of a gain of $1.3 million. Our interest rate swaps
were considered to be fully effective with any resulting gains or losses on the
derivative offset by a similar amount on the underlying interest payments or
fair value of the debt. We did not recognize any significant gains or losses
during the year resulting from ineffectiveness.

In addition, during May 2001, we entered into $900 million in interest
rate swap contracts to convert fixed-rate debt to floating-rate debt. In
August 2001, we unwound these interest rate swaps, resulting in a gain of $23.2
million of which $4.7 million related to reduced interest expense. The
remaining $18.5 million is being amortized into earnings over the remaining
life of the respective notes.

Cash Flow Hedges

Floating-to-Fixed Interest Rate Swaps.In some situations, we are exposed to
increasing costs from interest rates associated with floating-rate debt. We
may enter into interest rate swap contracts to protect against our exposure to
variability in future interest payments attributable to increases in interest
rates of the designated floating-rate debt. At year-end 2002, we had
approximately $23 million in unrealized losses recorded in other comprehensive
income (loss) related to the swap contracts. At current interest rates at
December 31, 2002, approximately $11.7 million of this amount would be charged
to earnings in 2003. The interest rate swaps have maturities through December
2008. Hedge ineffectiveness did not have a material impact during the year
ended December 31, 2002.

Energy Price Protection Programs

Cash Flow Hedges

Diesel Fuel Price Protection Program. We purchase significant quantities of
diesel fuel to operate our mine sites as an input to the manufacturing process.
Price volatility of diesel fuel impacts our cost of products sold. The
objective of the diesel fuel price protection program is to protect against a
significant upward movement in diesel fuel prices while retaining the
flexibility to participate in some downward price movement.

To implement these objectives, we may purchase out-of-the-money (OTM)
diesel fuel call options and/or fixed-price swaps. Purchase of these call
options protect us against significant upward movement in diesel fuel prices
while allowing us full participation in downward movements. Purchase of
fixed-price swaps create certainty of the diesel fuel purchase price during the
hedge period.

Our diesel fuel option contracts have maturities through December 2003.
Effectiveness is assessed using an intrinsic value method with the time value
of money component recognized immediately in earnings. During 2002,
approximately $0.9 million in option premiums were
reflected in cost of products sold associated with amounts excluded from
the hedge effectiveness assessment.

Natural Gas Price Protection Program. We purchase significant quantities of
natural gas to supply our operations primarily as an input for electricity
generation and copper refining. Price volatility of natural gas impacts our
cost of products sold. The objective of the natural gas price protection
program is to protect





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against a significant upward movement in natural gas
prices while retaining the flexibility to participate in downward price
movements.

To implement these objectives, we may purchase OTM call options for
natural gas. Purchase of these call options protects us against significant
upward movement in natural gas prices while allowing us full participation in
downward movements in natural gas prices.

Our natural gas call option contracts outstanding at year-end 2002 protect
our domestic mining operations through October 2003. Effectiveness is assessed
using an intrinsic value method with the time value of money component
recognized immediately in earnings. During 2002, approximately $2.2 million of
option premiums were reflected in cost of products sold associated with amounts
excluded from the hedge effectiveness assessment.

Feedstock Oil Price Protection Program.We purchase significant quantities of
feedstock oil (a derivative of petroleum) that is the primary raw material used
in the manufacture of carbon black. Feedstock oil typically exceeds 50 percent
of the total manufacturing costs for our Specialty Chemicals segment. The
objective of the feedstock oil price protection program is to protect against a
significant upward movement in feedstock oil prices while retaining the
flexibility to participate in downward price movements. To reduce our exposure
to feedstock oil price risk, we purchase OTM call options that allow the
Company to cap the commodity purchase cost at the strike price of the option
while allowing the Company the ability to purchase the commodity at a lower
cost when market prices are lower than the strike price.

At December 31, 2002, we did not have any outstanding feedstock oil call
option contracts. Effectiveness is assessed using an intrinsic value method
with the time value of money component recognized immediately in earnings.
During 2002, approximately $0.7 million of option premiums were reflected in
cost of products sold associated with amounts excluded from the hedge
effectiveness assessment.

Other Protection Programs

Our copper fixed-price rod sales programs did not meet all of the criteria
to qualify under SFAS Nos. 133 and 138 as hedge transactions. These derivative
contracts and programs are discussed below.

Copper Fixed-Price Rod Sales Program. Some of our copper rod customers request
a fixed sales price instead of the COMEX average price in the month of shipment
or receipt. As a convenience to these customers, we enter into copper swap and
futures contracts to protect the sales in a manner that will allow us to
receive the COMEX average price in the month of shipment or receipt while our
customers receive the fixed price they requested. We accomplish this by
liquidating the copper futures contracts and settling the copper swap contracts
during the month of shipment or receipt, which generally results in the
realization of the COMEX average price.

At year-end 2002, the unrealized loss of approximately $0.5 million
associated with the rod price protection program was recorded to cost of
products sold. At December 31, 2002, our copper rod protection program had
maturities through October 2004.

Credit Risk

We are exposed to credit loss in cases when the financial institutions
with which we have entered into derivative transactions (commodity, foreign
exchange and currency/interest rate swaps) are unable to pay us when they owe
us funds as a result of our protection agreements with them. To minimize the
risk of such losses, we only use highly rated financial institutions that meet
certain requirements. We also periodically review the creditworthiness of
these institutions to ensure that they are maintaining their ratings. We do
not anticipate that any of the financial institutions that we deal with will
default on their obligations. As of December 31, 2002, the maximum amount of
credit exposure was approximately $33 million.

Other Financial Instruments

The methods and assumptions we used to estimate the fair value of each
group of financial instruments for which we can reasonably determine a value
are as follows:

Cash and Cash Equivalents. The financial statement amount is a reasonable
estimate of the fair value because of the short maturity of these instruments.

Accounts Receivable. The financial statement amount is a reasonable estimate
of the fair value because of the short-term nature of these instruments.

Investments and Long-Term Receivables. The fair values of some investments are
estimated based on quoted market prices for those or similar investments. The
fair values of other types of instruments are estimated by discounting the
future cash flows using the current rates at which similar instruments would be
made with similar credit ratings and maturities.

Accounts Payable and Accrued Expenses. The financial statement amount is a
reasonable estimate of the





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fair value because of the short-term nature of these
instruments.

Long-Term Debt. The fair value of substantially all of our long-term debt is
estimated based on the quoted market prices for the same or similar issues or
on the current notes offered to us for debt with similar remaining maturities.

A comparison of the carrying amount and the estimated fair values of our
financial instruments at December 31, 2002, was as follows:

|                                                                                                                                             |                                         |   |          |         |       |  |       |         | 
|-------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------- | - | -------- | ------- | ----- |  | ----- | ------- | 
|                                                                                                                                             |                                         |   | Carrying |         | Fair 
|                                                                                                                                             |                                         |   | Amount   |         | Value
|                                                                                                                                             |                                         |   |          |         |      
|Cash and short-term investments                                                                                                              |                                         | $ | 349.8    |         |       |  | 349.8 |        
|Accounts receivable, net                                                                                                                     |                                         |   | 391.1    |         |       |  | 391.1 |        
|Investments and long-term receivables
(excluded $31.8 million of equity
investments for which it is not
practicable to estimate fair value)* |                                         |   | 100.5    |         |       |  | 249.3 |        
|Accounts payable and accrued expenses                                                                                                        |                                         |   | 609.1    |         |       |  | 609.1 |        
|Long-term debt                                                                                                                               |                                         |   |          |         |       |  |       |        
|                                                                                                                                             | (including amounts due within one year) |   |          | 2,075.4 |       |  |       | 2,033.0 | 



|* |  | Our largest cost basis investment is our minority interest in SPCC, which
is carried at a book value of $13.2 million. Based on the New York Stock
Exchange closing market price of listed SPCC shares on December 31, 2002,
the estimated fair value of our investment is approximately $161 million.
Our ownership interest in SPCC is represented by our share of a class of
SPCC common stock that is currently not registered for trading on any
public exchange.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

21. Business Segment Data

Our business consists of two major divisions, PDMC and PDI. The principal
activities of each division are described below, and the accompanying tables
present results of operations and other financial information by significant
geographic area and by segment.

PDMC is our international business division that comprises our vertically
integrated copper operations from mining through rod production, primary
molybdenum operations through conversion, marketing and sales, and worldwide
exploration. PDMC comprises 11 reportable segments.

Our copper mines comprise five reportable segments in the United States
(Morenci, Bagdad/Sierrita, Miami/Bisbee, Chino/Cobre, and Tyrone) and three
reportable segments in South America (Candelaria, Cerro Verde and El Abra).
These segments include open-pit mining, sulfide ore concentrating and
electrowinning. In addition, they produce gold and silver, and the Bagdad and
Sierrita mines also produce molybdenum and rhenium, as by-products.

The Manufacturing and Sales segment consists of conversion facilities
including our smelters, refineries and rod mills, as well as sales and
marketing. The Manufacturing and Sales segment sells copper to others
primarily as rod, cathode or concentrate, and as rod to PDIs Wire and Cable
segment. In addition, at times it smelts and refines copper and produces
copper rod for customers on a toll basis. Toll arrangements require the
tolling customer to deliver appropriate copper-bearing material to our
facilities, which we then process into a product that is returned to the
customer. The customer pays PDMC for processing its material into the
specified products.

The Primary Molybdenum segment consists of the Henderson and Climax mines
and related conversion facilities. This segment is an integrated producer of
molybdenum, with mining, roasting and processing facilities producing
high-purity, molybdenum-based chemical and metallurgical products. In
addition, at times it roasts and/or processes material on a toll basis. Toll
arrangements require the tolling customer to deliver appropriate
molybdenum-bearing material to our facilities, which we then process into a
product that is returned to the customer. The customer pays PDMC for
processing its material into the specified products.

Other Mining segment includes our worldwide mineral exploration and
development programs, a process technology center that directs its activities
at improving existing processes and developing new cost-competitive
technologies, and other ancillary operations.

The U.S. mines transfer their copper production to the Manufacturing and
Sales segment of PDMC. Intersegment revenues of the individual U.S. mines
represent an internal allocation based on PDMCs sales to unaffiliated
customers. Additionally, the South American mines sold approximately 40 to 45
percent of their copper to the Manufacturing and Sales segment in 2002, 2001
and 2000. Intersegment sales by the South American mines are based upon arms
length prices at the time of the sale. Intersegment sales of any individual
mine may not be reflective of the actual prices PDMC ultimately receives due to
a variety of factors including additional processing, timing of sales to
unaffiliated customers, and certain transportation premiums.

In addition to the allocation of revenues, management allocates certain
operating costs, expenses and capital of PDMCs segments that may not be
reflective of market conditions. We also do not allocate all costs and
expenses applicable to a mine or operation from the division or corporate
offices. Accordingly, the segment information reflects management
deter-





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minations that may not be indicative of actual financial performance of
each segment as if it was an independent entity.

PDI, our manufacturing division, produces engineered products principally
for the global energy, telecommunications, transportation and specialty
chemicals sectors. Its operations are characterized by products with
significant market share, internationally competitive cost and quality, and
specialized engineering capabilities. The manufacturing division includes our
Specialty Chemicals segment and our Wire and Cable segment. Our Specialty
Chemicals segment includes Columbian Chemicals Company and its subsidiaries
(Columbian Chemicals or Columbian). Our Wire and Cable segment consists of
three worldwide product line businesses including magnet wire, energy and
telecommunications cables, and specialty conductors.

Interdivision sales reflect the transfer of copper from PDMC to PDI at the
same prices charged to outside customers.




FINANCIAL DATA BY GEOGRAPHIC AREA

The following tables give a summary of financial data by geographic area
and business segments for the years 2000 through 2002. (Refer to Notes 2,
Acquisitions and Divestitures, and 3, Special Items and Provisions, to the
consolidated financial statements for a discussion of major unusual items
during the three-year period.)

|                                    |                        |                 |         |      |         |      |         |              |         |  |         |  |         | 
|----------------------------------- | ---------------------- | --------------- | ------- | ---- | ------- | ---- | ------- | ------------ | ------- |  | ------- |  | ------- | 
|                                    |                        |                 |         | 2002 |         | 2001 |         | 2000        
|                                    |                        |                 |         |      |         |      |         |             
|                                    |                        |                 |         |      |         |      |         | As Restated*
|                                    |                        |                 |         |      |         |      |         |             
|Sales and other operating revenues: |                        |                 |         |      |         |      |         |              |         |  |         | 
|                                    | Unaffiliated customers |                 |         |      |         |      |         |              |         |  |         |  |        
|                                    |                        | United States   |         | $    | 2,301.8 |      |         |              | 2,651.3 |  |         |  | 3,356.8 | 
|                                    |                        | Latin America   |         |      | 986.2   |      |         |              | 929.9   |  |         |  | 761.4   | 
|                                    |                        | Other           |         |      | 434.0   |      |         |              | 421.2   |  |         |  | 406.9   | 
|                                    |                        |                 |         |      |         |      |         |              |         |  |         |  |         | 
|                                    |                        | $               | 3,722.0 |      |         |      | 4,002.4 |              |         |  | 4,525.1 | 
|                                    |                        |                 |         |      |         |      |         |              |         |  |         |  |         | 
|Long-lived assets at December 31:   |                        |                 |         |      |         |      |         |              |         |  |         | 
|                                    |                        | United States   |         | $    | 3,656.0 |      |         |              | 3,927.2 |  |         |  | 4,004.4 | 
|                                    |                        | Latin America** |         |      | 1,645.3 |      |         |              | 1,820.4 |  |         |  | 1,924.6 | 
|                                    |                        | Other           |         |      | 288.5   |      |         |              | 301.7   |  |         |  | 309.1   | 
|                                    |                        |                 |         |      |         |      |         |              |         |  |         |  |         | 
|                                    |                        | $               | 5,589.8 |      |         |      | 6,049.3 |              |         |  | 6,238.1 | 
|                                    |                        |                 |         |      |         |      |         |              |         |  |         |  |         | 



|*  |  | Refer to Note 22, Restatement of Consolidated Financial Statements, for
further discussion.                                                                
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|** |  | Long-lived assets in Chile
                                                           
                 
$1,057.0               1,134.8             1,182.5

Revenue is attributed to countries based on the location the sale
originated.

For comparative purposes, sales and other operating revenues to
unaffiliated customers by geographic area for 2001 and 2000 have been
reclassified to conform with the 2002 presentation. Copper sales made to the
Copper Trading Company have been reclassified to the countries where the sale
originated and not as U.S. sales (where the Copper Trading Company is located).





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- 164 -

FINANCIAL DATA BY BUSINESS SEGMENT



|                                                            |                        |  |            |       |          |  |         |       |        |  |        |      |  |  |        |       |  |  |       |       | 
|----------------------------------------------------------- | ---------------------- |  | ---------- | ----- | -------- |  | ------- | ----- | ------ |  | ------ | ---- |  |  | ------ | ----- |  |  | ----- | ----- | 
|                                                            |                        |  | U.S. Mines
|                                                            |                        |  |           
|                                                            |                        |  |            |       |          |  | Bagdad/ |       | Miami/ |  | Chino/ |      |  |  |       
|                                                            |                        |  | Morenci    |       | Sierrita |  | Bisbee  |       | Cobre  |  | Tyrone
|                                                            |                        |  |            |       |          |  |         |       |        |  |       
|2002                                                        |                        |  |            |       |          |  |         |       |        |  |        |      |  |  |        |       |  |  |       |      
|Sales & other operating revenues:                           |                        |  |            |       |          |  |         |       |        |  |        |      |  |  |        |       |  |  |       |      
|                                                            | Unaffiliated customers |  |            |      |          |  |         |      |        |  |        |     |  |  |        | 0.7   |  |  |       |      | 
|                                                            | Intersegment           |  |            | 521.9 |          |  |         | 363.6 |        |  |        | 22.8 |  |  |        | 58.1  |  |  |       | 103.7 | 
|Depreciation, depletion and amortization                    |                        |  | 78.7       |       |          |  | 27.4    |       |        |  | 5.7    |      |  |  | 11.2   |       |  |  | 12.5  |      
|Operating income (loss) before special
items and provisions |                        |  | 24.6       |       |          |  | 19.9    |       |        |  | (13.3  | )    |  |  | 6.8    |       |  |  | 1.6   |      
|Special items and provisions                                |                        |  | (0.5       | )     |          |  | 0.3     |       |        |  | (2.3   | )    |  |  | (117.2 | )     |  |  |      |      
|Operating income (loss)                                     |                        |  | 24.1       |       |          |  | 20.2    |       |        |  | (15.6  | )    |  |  | (110.4 | )     |  |  | 1.6   |      
|Interest income                                             |                        |  |           |       |          |  |        |       |        |  |       |      |  |  |       |       |  |  |      |      
|Interest expense                                            |                        |  |           |       |          |  |        |       |        |  |       |      |  |  |       |       |  |  |      |      
|Equity earnings (losses)                                    |                        |  |           |       |          |  |        |       |        |  |       |      |  |  |       |       |  |  |      |      
|Income tax expense (benefit)                                |                        |  | 8.7        |       |          |  | 2.9     |       |        |  | (5.9   | )    |  |  | 0.2    |       |  |  | (2.1  | )    
|Equity basis investments                                    |                        |  |           |       |          |  | 0.4     |       |        |  |       |      |  |  |       |       |  |  |      |      
|Assets at December 31                                       |                        |  | 1,077.4    |       |          |  | 766.1   |       |        |  | 124.7  |      |  |  | 282.6  |       |  |  | 150.9 |      
|Expenditures for segment assets                             |                        |  | 9.9        |       |          |  | 41.6    |       |        |  | 0.3    |      |  |  | 3.1    |       |  |  | 3.6   |      
|                                                            |                        |  |            |       |          |  |         |       |        |  |        |      |  |  |        |       |  |  |       |      
|2001 (as restated)*                                         |                        |  |            |       |          |  |         |       |        |  |        |      |  |  |        |       |  |  |       |      
|Sales & other operating revenues:                           |                        |  |            |       |          |  |         |       |        |  |        |      |  |  |        |       |  |  |       |      
|                                                            | Unaffiliated customers |  |            |      |          |  |         |      |        |  |        |     |  |  |        | 0.7   |  |  |       |      | 
|                                                            | Intersegment           |  |            | 494.2 |          |  |         | 474.8 |        |  |        | 69.6 |  |  |        | 73.4  |  |  |       | 113.7 | 
|Depreciation, depletion and amortization                    |                        |  | 90.5       |       |          |  | 36.2    |       |        |  | 7.2    |      |  |  | 12.2   |       |  |  | 13.2  |      
|Operating income (loss) before special
items and provisions |                        |  | (60.4      | )     |          |  | 18.4    |       |        |  | (1.5   | )    |  |  | (12.5  | )     |  |  | (14.4 | )    
|Special items and provisions                                |                        |  | (1.5       | )     |          |  | (6.9    | )     |        |  | (3.6   | )    |  |  | (3.0   | )     |  |  | (1.9  | )    
|Operating income (loss)                                     |                        |  | (61.9      | )     |          |  | 11.5    |       |        |  | (5.1   | )    |  |  | (15.5  | )     |  |  | (16.3 | )    
|Interest income                                             |                        |  | 0.1        |       |          |  |        |       |        |  |       |      |  |  | 0.1    |       |  |  |      |      
|Interest expense                                            |                        |  | 0.7        |       |          |  | 0.1     |       |        |  |       |      |  |  | 0.1    |       |  |  |      |      
|Equity earnings (losses)                                    |                        |  |           |       |          |  |        |       |        |  |       |      |  |  |       |       |  |  |      |      
|Income tax expense (benefit)                                |                        |  | 25.4       |       |          |  | (15.5   | )     |        |  | (3.9   | )    |  |  | 8.1    |       |  |  | 1.5   |      
|Equity basis investments                                    |                        |  |           |       |          |  | 0.3     |       |        |  |       |      |  |  |       |       |  |  |      |      
|Assets at December 31                                       |                        |  | 1,155.4    |       |          |  | 783.8   |       |        |  | 132.6  |      |  |  | 420.2  |       |  |  | 139.4 |      
|Expenditures for segment assets                             |                        |  | 61.0       |       |          |  | 9.3     |       |        |  | 3.3    |      |  |  | 4.0    |       |  |  | 5.4   |      
|                                                            |                        |  |            |       |          |  |         |       |        |  |        |      |  |  |        |       |  |  |       |      
|2000 (as restated)*                                         |                        |  |            |       |          |  |         |       |        |  |        |      |  |  |        |       |  |  |       |      
|Sales & other operating revenues:                           |                        |  |            |       |          |  |         |       |        |  |        |      |  |  |        |       |  |  |       |      
|                                                            | Unaffiliated customers |  |            | 71.3  |          |  |         | 6.4   |        |  |        |     |  |  |        | 2.0   |  |  |       |      | 
|                                                            | Intersegment           |  |            | 459.4 |          |  |         | 444.7 |        |  |        | 87.3 |  |  |        | 136.4 |  |  |       | 116.5 | 
|Depreciation, depletion and amortization                    |                        |  | 74.5       |       |          |  | 40.3    |       |        |  | 17.0   |      |  |  | 17.5   |       |  |  | 13.0  |      
|Operating income (loss) before special
items and provisions |                        |  | 81.7       |       |          |  | 53.4    |       |        |  | 17.2   |      |  |  | 9.7    |       |  |  | 3.5   |      
|Special items and provisions                                |                        |  |           |       |          |  |        |       |        |  | (1.5   | )    |  |  |       |       |  |  |      |      
|Operating income (loss)                                     |                        |  | 81.7       |       |          |  | 53.4    |       |        |  | 15.7   |      |  |  | 9.7    |       |  |  | 3.5   |      
|Interest income                                             |                        |  | 0.1        |       |          |  |        |       |        |  |       |      |  |  | 0.1    |       |  |  |      |      
|Interest expense                                            |                        |  | 0.3        |       |          |  |        |       |        |  |       |      |  |  |       |       |  |  |      |      
|Equity earnings (losses)                                    |                        |  |           |       |          |  |        |       |        |  |       |      |  |  |       |       |  |  |      |      
|Income tax expense (benefit)                                |                        |  | 66.1       |       |          |  | 10.9    |       |        |  | 4.5    |      |  |  | (5.5   | )     |  |  | 0.1   |      
|Equity basis investments                                    |                        |  |           |       |          |  | 0.4     |       |        |  |       |      |  |  |       |       |  |  |      |      
|Assets at December 31                                       |                        |  | 1,205.5    |       |          |  | 815.8   |       |        |  | 152.7  |      |  |  | 439.7  |       |  |  | 144.8 |      
|Expenditures for segment assets                             |                        |  | 178.9      |       |          |  | 25.5    |       |        |  | 12.6   |      |  |  | 6.3    |       |  |  | 10.9  |      

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                                            |                        |  |                      |       |       |  |         |      |            |  |       |       |         |  |       |       | 
|----------------------------------------------------------- | ---------------------- |  | -------------------- | ----- | ----- |  | ------- | ---- | ---------- |  | ----- | ----- | ------- |  | ----- | ----- | 
|                                                            |                        |  | South American Mines |       |       |  |        
|                                                            |                        |  |                      |       |       |  |        
|                                                            |                        |  |                      |       |       |  | Cerro   |      |            |  |       |       | Primary
|                                                            |                        |  | Candelaria           |       | Verde |  | El Abra |      | Molybdenum
|                                                            |                        |  |                      |       |       |  |         |      |           
|2002                                                        |                        |  |                      |       |       |  |         |      |            |  |       |       |         |  |       |      
|Sales & other operating revenues:                           |                        |  |                      |       |       |  |         |      |            |  |       |       |         |  |       |      
|                                                            | Unaffiliated customers |  |                      | 163.5 |       |  |         | 36.8 |            |  |       | 172.5 |         |  |       | 268.7 | 
|                                                            | Intersegment           |  |                      | 102.7 |       |  |         | 97.2 |            |  |       | 89.9  |         |  |       |      | 
|Depreciation, depletion and amortization                    |                        |  | 39.0                 |       |       |  | 30.8    |      |            |  | 63.1  |       |         |  | 24.1  |      
|Operating income (loss) before special
items and provisions |                        |  | 47.6                 |       |       |  | 24.8    |      |            |  | (7.0  | )     |         |  | 7.6   |      
|Special items and provisions                                |                        |  |                     |       |       |  |        |      |            |  |      |       |         |  | 1.0   |      
|Operating income (loss)                                     |                        |  | 47.6                 |       |       |  | 24.8    |      |            |  | (7.0  | )     |         |  | 8.6   |      
|Interest income                                             |                        |  | 1.2                  |       |       |  | 0.2     |      |            |  | 0.3   |       |         |  | 0.4   |      
|Interest expense                                            |                        |  | 20.7                 |       |       |  | 5.3     |      |            |  | 21.6  |       |         |  | (0.4  | )    
|Equity earnings (losses)                                    |                        |  |                     |       |       |  |        |      |            |  |      |       |         |  |      |      
|Income tax expense (benefit)                                |                        |  | 4.6                  |       |       |  | 5.8     |      |            |  | (0.2  | )     |         |  | 1.2   |      
|Equity basis investments                                    |                        |  | 0.4                  |       |       |  |        |      |            |  |      |       |         |  |      |      
|Assets at December 31                                       |                        |  | 633.5                |       |       |  | 428.0   |      |            |  | 504.5 |       |         |  | 779.0 |      
|Expenditures for segment assets                             |                        |  | 2.2                  |       |       |  | 7.3     |      |            |  | 6.3   |       |         |  | 9.8   |      
|                                                            |                        |  |                      |       |       |  |         |      |            |  |       |       |         |  |       |      
|2001 (as restated)*                                         |                        |  |                      |       |       |  |         |      |            |  |       |       |         |  |       |      
|Sales & other operating revenues:                           |                        |  |                      |       |       |  |         |      |            |  |       |       |         |  |       |      
|                                                            | Unaffiliated customers |  |                      | 202.2 |       |  |         | 32.2 |            |  |       | 118.8 |         |  |       | 226.3 | 
|                                                            | Intersegment           |  |                      | 79.7  |       |  |         | 86.5 |            |  |       | 67.5  |         |  |       |      | 
|Depreciation, depletion and amortization                    |                        |  | 42.6                 |       |       |  | 40.0    |      |            |  | 42.6  |       |         |  | 21.2  |      
|Operating income (loss) before special
items and provisions |                        |  | 50.0                 |       |       |  | 1.8     |      |            |  | 5.5   |       |         |  | (11.1 | )    
|Special items and provisions                                |                        |  |                     |       |       |  |        |      |            |  |      |       |         |  | (0.6  | )    
|Operating income (loss)                                     |                        |  | 50.0                 |       |       |  | 1.8     |      |            |  | 5.5   |       |         |  | (11.7 | )    
|Interest income                                             |                        |  | 4.7                  |       |       |  | 0.4     |      |            |  | 0.1   |       |         |  | 0.9   |      
|Interest expense                                            |                        |  | 21.5                 |       |       |  | 8.1     |      |            |  | 25.0  |       |         |  | 0.2   |      
|Equity earnings (losses)                                    |                        |  | (0.1                 | )     |       |  |        |      |            |  |      |       |         |  |      |      
|Income tax expense (benefit)                                |                        |  | 4.9                  |       |       |  | 4.8     |      |            |  | 56.1  |       |         |  | (7.7  | )    
|Equity basis investments                                    |                        |  | 0.4                  |       |       |  |        |      |            |  |      |       |         |  |      |      
|Assets at December 31                                       |                        |  | 660.8                |       |       |  | 452.4   |      |            |  | 575.6 |       |         |  | 801.6 |      
|Expenditures for segment assets                             |                        |  | 5.7                  |       |       |  | 14.2    |      |            |  | 40.9  |       |         |  | 8.9   |      
|                                                            |                        |  |                      |       |       |  |         |      |            |  |       |       |         |  |       |      
|2000 (as restated)*                                         |                        |  |                      |       |       |  |         |      |            |  |       |       |         |  |       |      
|Sales & other operating revenues:                           |                        |  |                      |       |       |  |         |      |            |  |       |       |         |  |       |      
|                                                            | Unaffiliated customers |  |                      | 215.4 |       |  |         | 39.3 |            |  |       | 72.8  |         |  |       | 251.1 | 
|                                                            | Intersegment           |  |                      | 63.4  |       |  |         | 90.7 |            |  |       | 109.9 |         |  |       |      | 
|Depreciation, depletion and amortization                    |                        |  | 41.6                 |       |       |  | 36.3    |      |            |  | 41.7  |       |         |  | 25.5  |      
|Operating income (loss) before special
items and provisions |                        |  | 78.3                 |       |       |  | 19.6    |      |            |  | 41.6  |       |         |  | (4.6  | )    
|Special items and provisions                                |                        |  |                     |       |       |  |        |      |            |  |      |       |         |  | (4.3  | )    
|Operating income (loss)                                     |                        |  | 78.3                 |       |       |  | 19.6    |      |            |  | 41.6  |       |         |  | (8.9  | )    
|Interest income                                             |                        |  | 8.9                  |       |       |  |        |      |            |  | 0.6   |       |         |  | 0.1   |      
|Interest expense                                            |                        |  | 24.2                 |       |       |  | 11.1    |      |            |  | 28.5  |       |         |  | (0.9  | )    
|Equity earnings (losses)                                    |                        |  | (0.1                 | )     |       |  |        |      |            |  |      |       |         |  |      |      
|Income tax expense (benefit)                                |                        |  | 15.4                 |       |       |  | 2.9     |      |            |  | 5.6   |       |         |  | (4.3  | )    
|Equity basis investments                                    |                        |  | 0.5                  |       |       |  |        |      |            |  |      |       |         |  |      |      
|Assets at December 31                                       |                        |  | 760.5                |       |       |  | 480.4   |      |            |  | 635.8 |       |         |  | 816.1 |      
|Expenditures for segment assets                             |                        |  | 7.3                  |       |       |  | 15.0    |      |            |  | 8.3   |       |         |  | 8.9   |      

* Refer to Note 22, Restatement of Consolidated Financial Statements.

Note: Refer to Notes 2, 3 and 22 to the Consolidated Financial Statements for a discussion of major unusual items during the three-year period.





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##### Table of Contents



- 165 -

FINANCIAL DATA BY BUSINESS SEGMENT



|                                                            |                        |  |             |         |        |  |         |      |          |  |           |          |   |  |         |         |  |  |       |       | 
|----------------------------------------------------------- | ---------------------- |  | ----------- | ------- | ------ |  | ------- | ---- | -------- |  | --------- | -------- | - |  | ------- | ------- |  |  | ----- | ----- | 
|                                                            |                        |  | Manufactur- |         |        |  |         |      | PDMC     |  |           |          |   |  |         |         | 
|                                                            |                        |  | ing and     |         | Other  |  | Elimi-  |      | PDMC     |  | Specialty
|                                                            |                        |  | Sales       |         | Mining |  | nations |      | Subtotal |  | Chemicals
|                                                            |                        |  |             |         |        |  |         |      |          |  |          
|2002                                                        |                        |  |             |         |        |  |         |      |          |  |           |          |   |  |         |         |  |  |       |      
|Sales & other operating revenues:                           |                        |  |             |         |        |  |         |      |          |  |           |          |   |  |         |         |  |  |       |      
|                                                            | Unaffiliated customers |  |             | 1,823.4 |        |  |         | 20.2 |          |  |           |         |   |  |         | 2,485.8 |  |  |       | 548.8 | 
|                                                            | Intersegment           |  |             | 395.8   |        |  |         | 57.2 |          |  |           | (1,676.5 | ) |  |         | 136.4   |  |  |       |      | 
|Depreciation, depletion and amortization                    |                        |  | 24.5        |         |        |  | 2.8     |      |          |  |          |          |   |  | 319.8   |         |  |  | 41.3  |      
|Operating income (loss) before special
items and provisions |                        |  | 4.9         |         |        |  | (65.6   | )    |          |  |          |          |   |  | 51.9    |         |  |  | 47.0  |      
|Special items and provisions                                |                        |  | 0.2         |         |        |  | 1.6     |      |          |  |          |          |   |  | (116.9  | )       |  |  | 1.1   |      
|Operating income (loss)                                     |                        |  | 5.1         |         |        |  | (64.0   | )    |          |  |          |          |   |  | (65.0   | )       |  |  | 48.1  |      
|Interest income                                             |                        |  |            |         |        |  | 3.8     |      |          |  | (2.9      | )        |   |  | 3.0     |         |  |  | 4.2   |      
|Interest expense                                            |                        |  | 2.9         |         |        |  | 0.5     |      |          |  | (2.9      | )        |   |  | 47.7    |         |  |  | 28.9  |      
|Equity earnings (losses)                                    |                        |  |            |         |        |  | 0.1     |      |          |  |          |          |   |  | 0.1     |         |  |  |      |      
|Income tax expense (benefit)                                |                        |  | 4.7         |         |        |  | (7.7    | )    |          |  | (5.8      | )        |   |  | 6.4     |         |  |  | 1.0   |      
|Equity basis investments                                    |                        |  |            |         |        |  |        |      |          |  |          |          |   |  | 0.8     |         |  |  |      |      
|Assets at December 31                                       |                        |  | 476.0       |         |        |  | 1,696.4 |      |          |  | (1,790.8  | )        |   |  | 5,128.3 |         |  |  | 679.2 |      
|Expenditures for segment assets                             |                        |  | 7.0         |         |        |  | 2.6     |      |          |  |          |          |   |  | 93.7    |         |  |  | 24.1  |      
|                                                            |                        |  |             |         |        |  |         |      |          |  |           |          |   |  |         |         |  |  |       |      
|2001 (as restated)*                                         |                        |  |             |         |        |  |         |      |          |  |           |          |   |  |         |         |  |  |       |      
|Sales & other operating revenues:                           |                        |  |             |         |        |  |         |      |          |  |           |          |   |  |         |         |  |  |       |      
|                                                            | Unaffiliated customers |  |             | 2,056.7 |        |  |         | 12.6 |          |  |           |         |   |  |         | 2,649.5 |  |  |       | 582.0 | 
|                                                            | Intersegment           |  |             | 501.3   |        |  |         | 65.7 |          |  |           | (1,873.4 | ) |  |         | 153.0   |  |  |       |      | 
|Depreciation, depletion and amortization                    |                        |  | 33.7        |         |        |  | 4.7     |      |          |  |          |          |   |  | 344.1   |         |  |  | 43.7  |      
|Operating income (loss) before special
items and provisions |                        |  | 21.1        |         |        |  | (78.4   | )    |          |  |          |          |   |  | (81.5   | )       |  |  | 63.2  |      
|Special items and provisions                                |                        |  | (6.9        | )       |        |  | 22.3    |      |          |  |          |          |   |  | (2.1    | )       |  |  | (1.4  | )    
|Operating income (loss)                                     |                        |  | 14.2        |         |        |  | (56.1   | )    |          |  |          |          |   |  | (83.6   | )       |  |  | 61.8  |      
|Interest income                                             |                        |  |            |         |        |  | 7.6     |      |          |  | (5.9      | )        |   |  | 8.0     |         |  |  | 4.3   |      
|Interest expense                                            |                        |  | 5.6         |         |        |  | 0.9     |      |          |  | (5.9      | )        |   |  | 56.3    |         |  |  | 42.4  |      
|Equity earnings (losses)                                    |                        |  |            |         |        |  | (2.9    | )    |          |  |          |          |   |  | (3.0    | )       |  |  |      |      
|Income tax expense (benefit)                                |                        |  | (8.5        | )       |        |  | 0.2     |      |          |  | 1.5       |          |   |  | 66.9    |         |  |  | 9.4   |      
|Equity basis investments                                    |                        |  |            |         |        |  | 0.1     |      |          |  |          |          |   |  | 0.8     |         |  |  |      |      
|Assets at December 31                                       |                        |  | 559.4       |         |        |  | 1,748.4 |      |          |  | (1,826.6  | )        |   |  | 5,603.0 |         |  |  | 709.0 |      
|Expenditures for segment assets                             |                        |  | 31.4        |         |        |  | 7.5     |      |          |  | 9.0       |          |   |  | 200.6   |         |  |  | 28.9  |      
|                                                            |                        |  |             |         |        |  |         |      |          |  |           |          |   |  |         |         |  |  |       |      
|2000 (as restated)*                                         |                        |  |             |         |        |  |         |      |          |  |           |          |   |  |         |         |  |  |       |      
|Sales & other operating revenues:                           |                        |  |             |         |        |  |         |      |          |  |           |          |   |  |         |         |  |  |       |      
|                                                            | Unaffiliated customers |  |             | 2,386.3 |        |  |         | 29.1 |          |  |           |         |   |  |         | 3,073.7 |  |  |       | 598.4 | 
|                                                            | Intersegment           |  |             | 303.4   |        |  |         | 47.9 |          |  |           | (1,617.0 | ) |  |         | 242.6   |  |  |       |      | 
|Depreciation, depletion and amortization                    |                        |  | 26.0        |         |        |  | 2.2     |      |          |  |          |          |   |  | 335.6   |         |  |  | 45.9  |      
|Operating income (loss) before special
items and provisions |                        |  | 47.8        |         |        |  | (66.4   | )    |          |  |          |          |   |  | 281.8   |         |  |  | 88.1  |      
|Special items and provisions                                |                        |  |            |         |        |  |        |      |          |  |          |          |   |  | (5.8    | )       |  |  |      |      
|Operating income (loss)                                     |                        |  | 47.8        |         |        |  | (66.4   | )    |          |  |          |          |   |  | 276.0   |         |  |  | 88.1  |      
|Interest income                                             |                        |  |            |         |        |  | 7.2     |      |          |  | (4.9      | )        |   |  | 12.1    |         |  |  | 4.3   |      
|Interest expense                                            |                        |  | 4.9         |         |        |  | 1.4     |      |          |  | (4.9      | )        |   |  | 64.6    |         |  |  | 38.2  |      
|Equity earnings (losses)                                    |                        |  |            |         |        |  | (2.7    | )    |          |  |          |          |   |  | (2.8    | )       |  |  |      |      
|Income tax expense (benefit)                                |                        |  | 7.1         |         |        |  | (16.2   | )    |          |  | (28.3     | )        |   |  | 58.3    |         |  |  | 12.4  |      
|Equity basis investments                                    |                        |  |            |         |        |  | 38.9    |      |          |  | (21.4     | )        |   |  | 18.4    |         |  |  |      |      
|Assets at December 31                                       |                        |  | 660.6       |         |        |  | 2,145.3 |      |          |  | (2,188.6  | )        |   |  | 6,068.6 |         |  |  | 768.6 |      
|Expenditures for segment assets                             |                        |  | 20.3        |         |        |  | 19.4    |      |          |  | (1.8      | )        |   |  | 311.6   |         |  |  | 73.7  |      

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                                            |                        |  |        |       |          |  |         |         |        |  |            |        |   |  |         |         | 
|----------------------------------------------------------- | ---------------------- |  | ------ | ----- | -------- |  | ------- | ------- | ------ |  | ---------- | ------ | - |  | ------- | ------- | 
|                                                            |                        |  |        |       |          |  |         |         |        |  | Corporate, |        |   |  |        
|                                                            |                        |  |        |       |          |  |         |         |        |  | Other &    |        |   |  |        
|                                                            |                        |  | Wire & |       | PDI      |  | Elimi-  |         |        |  |           
|                                                            |                        |  | Cable  |       | Subtotal |  | nations |         | Totals
|                                                            |                        |  |        |       |          |  |         |         |       
|2002                                                        |                        |  |        |       |          |  |         |         |        |  |            |        |   |  |         |        
|Sales & other operating revenues:                           |                        |  |        |       |          |  |         |         |        |  |            |        |   |  |         |        
|                                                            | Unaffiliated customers |  |        | 687.4 |          |  |         | 1,236.2 |        |  |            |       |   |  |         | 3,722.0 | 
|                                                            | Intersegment           |  |        | 0.4   |          |  |         | 0.4     |        |  |            | (136.8 | ) |  |         |        | 
|Depreciation, depletion and amortization                    |                        |  | 40.7   |       |          |  | 82.0    |         |        |  | 8.4        |        |   |  | 410.2   |        
|Operating income (loss) before special
items and provisions |                        |  | 5.6    |       |          |  | 52.6    |         |        |  | (77.4      | )      |   |  | 27.1    |        
|Special items and provisions                                |                        |  | (23.1  | )     |          |  | (22.0   | )       |        |  | (97.5      | )      |   |  | (236.4  | )      
|Operating income (loss)                                     |                        |  | (17.5  | )     |          |  | 30.6    |         |        |  | (174.9     | )      |   |  | (209.3  | )      
|Interest income                                             |                        |  | 1.4    |       |          |  | 5.6     |         |        |  | 7.2        |        |   |  | 15.8    |        
|Interest expense                                            |                        |  | 3.4    |       |          |  | 32.3    |         |        |  | 107.0      |        |   |  | 187.0   |        
|Equity earnings (losses)                                    |                        |  | 0.7    |       |          |  | 0.7     |         |        |  | 1.9        |        |   |  | 2.7     |        
|Income tax expense (benefit)                                |                        |  | (5.7   | )     |          |  | (4.7    | )       |        |  | (111.9     | )      |   |  | (110.2  | )      
|Equity basis investments                                    |                        |  | 5.2    |       |          |  | 5.2     |         |        |  | 25.8       |        |   |  | 31.8    |        
|Assets at December 31                                       |                        |  | 506.9  |       |          |  | 1,186.1 |         |        |  | 714.6      |        |   |  | 7,029.0 |        
|Expenditures for segment assets                             |                        |  | 9.3    |       |          |  | 33.4    |         |        |  | 6.1        |        |   |  | 133.2   |        
|                                                            |                        |  |        |       |          |  |         |         |        |  |            |        |   |  |         |        
|2001 (as restated)*                                         |                        |  |        |       |          |  |         |         |        |  |            |        |   |  |         |        
|Sales & other operating revenues:                           |                        |  |        |       |          |  |         |         |        |  |            |        |   |  |         |        
|                                                            | Unaffiliated customers |  |        | 770.9 |          |  |         | 1,352.9 |        |  |            |       |   |  |         | 4,002.4 | 
|                                                            | Intersegment           |  |        | 0.2   |          |  |         | 0.2     |        |  |            | (153.2 | ) |  |         |        | 
|Depreciation, depletion and amortization                    |                        |  | 47.0   |       |          |  | 90.7    |         |        |  | 5.1        |        |   |  | 439.9   |        
|Operating income (loss) before special
items and provisions |                        |  | 15.5   |       |          |  | 78.7    |         |        |  | (66.6      | )      |   |  | (69.4   | )      
|Special items and provisions                                |                        |  | (3.3   | )     |          |  | (4.7    | )       |        |  | 47.4       |        |   |  | 40.6    |        
|Operating income (loss)                                     |                        |  | 12.2   |       |          |  | 74.0    |         |        |  | (19.2      | )      |   |  | (28.8   | )      
|Interest income                                             |                        |  | 1.3    |       |          |  | 5.6     |         |        |  | 9.7        |        |   |  | 23.3    |        
|Interest expense                                            |                        |  | 5.7    |       |          |  | 48.1    |         |        |  | 123.1      |        |   |  | 227.5   |        
|Equity earnings (losses)                                    |                        |  | 0.9    |       |          |  | 0.9     |         |        |  | 1.8        |        |   |  | (0.3    | )      
|Income tax expense (benefit)                                |                        |  | 2.9    |       |          |  | 12.3    |         |        |  | (1.4       | )      |   |  | 77.8    |        
|Equity basis investments                                    |                        |  | 4.9    |       |          |  | 4.9     |         |        |  | 28.4       |        |   |  | 34.1    |        
|Assets at December 31                                       |                        |  | 638.1  |       |          |  | 1,347.1 |         |        |  | 634.2      |        |   |  | 7,584.3 |        
|Expenditures for segment assets                             |                        |  | 57.6   |       |          |  | 86.5    |         |        |  | 23.9       |        |   |  | 311.0   |        
|                                                            |                        |  |        |       |          |  |         |         |        |  |            |        |   |  |         |        
|2000 (as restated)*                                         |                        |  |        |       |          |  |         |         |        |  |            |        |   |  |         |        
|Sales & other operating revenues:                           |                        |  |        |       |          |  |         |         |        |  |            |        |   |  |         |        
|                                                            | Unaffiliated customers |  |        | 853.0 |          |  |         | 1,451.4 |        |  |            |       |   |  |         | 4,525.1 | 
|                                                            | Intersegment           |  |        | 1.5   |          |  |         | 1.5     |        |  |            | (244.1 | ) |  |         |        | 
|Depreciation, depletion and amortization                    |                        |  | 53.9   |       |          |  | 99.8    |         |        |  | 4.9        |        |   |  | 440.3   |        
|Operating income (loss) before special
items and provisions |                        |  | 28.2   |       |          |  | 116.3   |         |        |  | (78.1      | )      |   |  | 320.0   |        
|Special items and provisions                                |                        |  | (46.0  | )     |          |  | (46.0   | )       |        |  |           |        |   |  | (51.8   | )      
|Operating income (loss)                                     |                        |  | (17.8  | )     |          |  | 70.3    |         |        |  | (78.1      | )      |   |  | 268.2   |        
|Interest income                                             |                        |  | 1.3    |       |          |  | 5.6     |         |        |  | 1.8        |        |   |  | 19.5    |        
|Interest expense                                            |                        |  | 11.1   |       |          |  | 49.3    |         |        |  | 103.9      |        |   |  | 217.8   |        
|Equity earnings (losses)                                    |                        |  | 2.7    |       |          |  | 2.7     |         |        |  | 1.6        |        |   |  | 1.5     |        
|Income tax expense (benefit)                                |                        |  | 8.4    |       |          |  | 20.8    |         |        |  | (57.2      | )      |   |  | 21.9    |        
|Equity basis investments                                    |                        |  | 4.8    |       |          |  | 4.8     |         |        |  | 22.3       |        |   |  | 45.5    |        
|Assets at December 31                                       |                        |  | 683.5  |       |          |  | 1,452.1 |         |        |  | 320.5      |        |   |  | 7,841.2 |        
|Expenditures for segment assets                             |                        |  | 16.9   |       |          |  | 90.6    |         |        |  | 20.1       |        |   |  | 422.3   |        

* Refer to Note 22, Restatement of Consolidated Financial Statements.

Note: Refer to Notes 2, 3 and 22 to the Consolidated Financial Statements for a discussion of major unusual items during the three-year period.





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##### Table of Contents



- 166 -

22. Restatement of Consolidated Financial Statements

As discussed in Note 1, Summary of Significant Accounting Policies, we
identified certain accounting matters relating to our December 31, 2001 and
2000, Consolidated Financial Statements that require restatement. These matters
are discussed in the following paragraphs and are summarized in the tables that
follow.

Depreciation.Historically, we depreciated our mining, smelting and refining
property and equipment using the units-of-production (UOP) method. Under this
method, the sum of each mines depreciable mining assets plus estimates of
future capital expenditures necessary to extract and process remaining
recoverable minerals (sustaining capital) was divided by the mines
recoverable minerals to arrive at a UOP depreciation rate. The UOP rate for
each mine was then applied to the amount of minerals recovered during the
period to arrive at the mines depreciation charge for the period. Recoverable
minerals were based on each mines proven and probable ore reserves, with the
exception of the Morenci and Tyrone mines whose amounts also included certain
mineralized material located in areas immediately adjacent to the respective
ore bodies and are expected to be recovered without significant additional
development expenditures. UOP depreciation rates for PDMCs depreciable
smelting and refining property and equipment were calculated in a similar
manner and included estimates of sustaining capital necessary to maintain
production over each facilitys productive life.

Management has reassessed this matter and determined that it was
appropriate to adjust the UOP depreciation rate calculations as follows:



| |  | estimates of sustaining capital necessary to extract and process
recoverable minerals will be excluded from the UOP calculation;                                                                                
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | recoverable minerals will include only proven and probable ore
reserves at each mine; mineralized material at Morenci and Tyrone will
be excluded from the respective mines UOP calculations; and              
| 
| |  | short-lived assets (e.g., haul trucks, shovels, information systems,
etc.) will be depreciated on a straight-line basis over the estimated
useful lives of the respective assets, less estimated salvage values.

We have restated our Consolidated Financial Statements to reflect the
change in the UOP calculation as of January 1, 2000. This change reduced our
2000 and 2001 depreciation, depletion and amortization expense by $23.9 million
and $25.4 million, respectively, as well as increased our net income by $17.0
million in 2000 and reduced our 2001 net loss by $18.6 million. In addition,
this change reduced our retained earnings at January 1, 2000, by $14.0 million
to reflect the prior years effect of increased depreciation, depletion and
amortization, net of related tax effects.

Reclamation Obligations.In October 1999, we acquired Cyprus Amax Minerals
Company for $1.9 billion, which included total assets of $4.6 billion. At the
time of the acquisition, we recorded $85.4 million of mine reclamation
accruals, the same amount that had been recorded by the acquired entity,
because we were satisfied with their cost estimates and the accrued obligations
in relation to remaining mine lives.

Management has reassessed this matter and determined that it was
appropriate to adjust the previously established estimate of fair values of the
acquired obligations as follows:



| |  | the expected timing of cash flows for estimated closure costs at each
mining location (adjusted for inflation) was determined and then
discounted based on a risk-adjusted rate to determine the estimated
fair value of the obligations;                                 
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | the estimated fair value of each obligation was then adjusted to
reflect the portion that had been incurred as of the acquisition date;                                                                                                                                   
| 
| |  | the difference between the estimated fair values of the respective
reclamation obligations and the amounts previously recognized as of
the acquisition date was determined and used to reduce the value
assigned to mining land in the original purchase price allocation;
| 
| |  | accretion expense for periods subsequent to the acquisition was
determined by multiplying the revised reclamation obligation by the
applicable discount factor;                                                                                                           
| 
| |  | the reclamation costs associated with operations subsequent to the
acquisition date were determined on a units-of-production basis based
upon undiscounted cost estimates; and                                                                                            
| 
| |  | the total of the accretion expense and reclamation costs was compared
with the amounts previously recognized for each period to determine
the required adjustment for each period.                                                                                        

We have restated our Consolidated Financial Statements to reflect the change
relating to the acquired reclamation obligations as of January 1, 2000. This
change increased our cost of products sold by





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$0.1 million in 2000 and $2.5 million in 2001 as well as increased our net
loss in 2001 by $2.0 million (no effect on net income in 2000). In addition,
this change reduced our retained earnings at January 1, 2000, by $0.2 million
to reflect the prior year effects of increased cost of products sold, net of
related tax effects.

During 2001, our Tyrone, New Mexico, operation did not update its
reclamation cost estimate for the permit it filed late in the 2001 first
quarter because the permit application was not yet reviewed or approved by the
state of New Mexico. We have restated our Consolidated Financial Statements to
reflect the change relating to the Tyrone reclamation obligation for the year
ended December 31, 2001. This change increased our cost of products sold and
net loss by $4.3 million in 2001.

Loss Contingency.During 2001, the Company received an insurance settlement
that it recorded as a loss reserve for potential future legal matters. In
re-evaluating that loss reserve, management determined that there was not a
probable loss at that time and that it was appropriate to reverse the related
loss reserve to income.

We have restated our Consolidated Financial Statements to reflect the
change relating to the loss contingency for the year ended December 31, 2001.
This change increased our special items and provisions net, (credit) by $9.0
million in 2001 as well as decreased our net loss by $9.0 million in 2001.

Mill and Leach Stockpiles and In-Process.Historically, we have not
capitalized costs associated with mill and leach stockpiles or the consequent
in-process materials that were in the process of being converted to salable
copper products. Management has reassessed this matter and determined that it
was appropriate to capitalize costs associated with this material. We reviewed
such capitalized costs each period for lower of cost or market considerations
and as a result, determined that write-downs totaling $8.7 million were
required in 2001. Inventories not expected to be processed within the next 12
months are classified as long-term.

We have restated our Consolidated Financial Statements to reflect the change
relating to stockpiles and in-process material as of January 1, 2000. This
change decreased our cost of products sold by $11.3 million in 2000 and
increased our cost of products sold by $11.5 million in 2001 as well as
increased our net income by $11.4 million in 2000 and increased our net loss in
2001 by $12.8 million. In addition, this change increased our retained
earnings at January 1, 2000, by $66.3 million, net of related tax effects.

Deferred Tax Asset Valuation Allowance. In connection with the acquisition of
Cyprus Amax, the Company recorded certain deferred tax assets relating to the
El Abra mine in Chile. We subsequently recognized additional deferred tax
benefits relating to El Abras net operating losses. Management reassessed
this matter and has determined that it was appropriate to establish a valuation
allowance against these deferred tax assets.

We have restated our Consolidated Financial Statements to reflect the
establishment of the valuation allowance in 2001. This change increased our
net loss by $65.0 million, which included $7.1 million associated with an
adjustment to deferred tax benefit previously recognized in the first three
quarters of 2001.

Reclassifications.Certain previously reported amounts have been reclassified
to conform with the current year presentation.

The following tables set forth the effect of the restatements on Phelps
Dodges Statements of Consolidated Operations and Consolidated Statements of
Cash Flows for the years ended December 31, 2001 and 2000, and the Consolidated
Balance Sheet at December 31, 2001.





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- 168 -

PHELPS DODGE CORPORATION
STATEMENT OF CONSOLIDATED OPERATIONS

|                                                                                                                                                   |                                                                   |   |                                      |         |              |  |            |       |             |  |       |     |          |  |       |      |       |  |       |       |       |  |         |         |  
|-------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------- | - | ------------------------------------ | ------- | ------------ |  | ---------- | ----- | ----------- |  | ----- | --- | -------- |  | ----- | ---- | ----- |  | ----- | ----- | ----- |  | ------- | ------- | -
|                                                                                                                                                   |                                                                   |   | For the year ended December 31, 2001
|                                                                                                                                                   |                                                                   |   |                                     
|                                                                                                                                                   |                                                                   |   | As Previously                        |         |              |  |            |       | Reclamation |  |       |     |          |  |       |      |       |  | As   
|                                                                                                                                                   |                                                                   |   | Reported                             |         | Depreciation |  | Obligation |       | Inventory   |  | Other |     | Restated
|                                                                                                                                                   |                                                                   |   |                                      |         |              |  |            |       |             |  |       |     |         
|Sales and other operating revenues                                                                                                                 |                                                                   | $ | 4,002.4                              |         |              |  |           |       |             |  |      |     |          |  |      |      |       |  |      |       |       |  | 4,002.4 |        
|                                                                                                                                                   |                                                                   |   |                                      |         |              |  |            |       |             |  |       |     |          |  |       |      |       |  |       |       |       |  |         |        
|Operating costs and expenses                                                                                                                       |                                                                   |   |                                      |         |              |  |            |       |             |  |       |     |          |  |       |      |       |  |       |       |       |  |         |        
|                                                                                                                                                   | Cost of products sold (exclusive of items shown
separately below) |   |                                      | 3,440.8 |              |  |            |      |             |  |       | 6.8 | (e)      |  |       | 11.5 | (j)   |  |       |      |       |  |         | 3,459.1 |  
|                                                                                                                                                   | Depreciation, depletion and amortization                          |   |                                      | 465.3   |              |  |            | (25.4 | ) (a)       |  |       |    |          |  |       |     |       |  |       |      |       |  |         | 439.9   |  
|                                                                                                                                                   | Selling and general administrative expense                        |   |                                      | 116.5   |              |  |            |      |             |  |       |    |          |  |       |     |       |  |       |      |       |  |         | 116.5   |  
|                                                                                                                                                   | Exploration and research expense                                  |   |                                      | 56.3    |              |  |            |      |             |  |       |    |          |  |       |     |       |  |       |      |       |  |         | 56.3    |  
|                                                                                                                                                   | Special items and provisions, net (see Note 3)                    |   |                                      | (31.6   | )            |  |            |      |             |  |       |    |          |  |       |     |       |  |       | (9.0  | ) (o) |  |         | (40.6   | )
|                                                                                                                                                   |                                                                   |   |                                      |         |              |  |            |       |             |  |       |     |          |  |       |      |       |  |       |       |       |  |         |        
|                                                                                                                                                   |                                                                   |   | 4,047.3                              |         |              |  | (25.4      | )     |             |  | 6.8   |     |          |  | 11.5  |      |       |  | (9.0  | )     |       |  | 4,031.2 |        
|                                                                                                                                                   |                                                                   |   |                                      |         |              |  |            |       |             |  |       |     |          |  |       |      |       |  |       |       |       |  |         |        
|Operating income (loss)                                                                                                                            |                                                                   |   | (44.9                                | )       |              |  | 25.4       |       |             |  | (6.8  | )   |          |  | (11.5 | )    |       |  | 9.0   |       |       |  | (28.8   | )      
|                                                                                                                                                   | Interest expense                                                  |   |                                      | (227.5  | )            |  |            |      |             |  |       |    |          |  |       |     |       |  |       |      |       |  |         | (227.5  | )
|                                                                                                                                                   | Capitalized interest                                              |   |                                      | 1.6     |              |  |            |      |             |  |       |    |          |  |       |     |       |  |       |      |       |  |         | 1.6     |  
|                                                                                                                                                   | Miscellaneous income and expense, net                             |   |                                      | 8.1     |              |  |            |      |             |  |       |    |          |  |       |     |       |  |       |      |       |  |         | 8.1     |  
|                                                                                                                                                   |                                                                   |   |                                      |         |              |  |            |       |             |  |       |     |          |  |       |      |       |  |       |       |       |  |         |        
|Income (loss) before taxes, minority interests,
equity in net earnings (losses) of affiliated
companies and cumulative effect of
accounting change |                                                                   |   | (262.7                               | )       |              |  | 25.4       |       |             |  | (6.8  | )   |          |  | (11.5 | )    |       |  | 9.0   |       |       |  | (246.6  | )      
|                                                                                                                                                   | Benefit (provision) for taxes on income                           |   |                                      | (5.9    | )            |  |            | (6.2  | ) (b)       |  |       | 0.4 | (f)      |  |       | (1.1 | ) (k) |  |       | (7.1  | ) (s) |  |         | (77.8   | )
|                                                                                                                                                   |                                                                   |   |                                      |         |              |  |            |       |             |  |       |     |          |  |       |      |       |  | (57.9 | ) (r) |       |  |         |        
|                                                                                                                                                   | Minority interests in consolidated subsidiaries                   |   |                                      | (4.1    | )            |  |            | (0.6  | ) (c)       |  |       | 0.1 | (g)      |  |       | (0.2 | ) (l) |  |       |      |       |  |         | (4.8    | )
|                                                                                                                                                   | Equity in net earnings (losses) of affiliated
companies           |   |                                      | (0.3    | )            |  |            |      |             |  |       |    |          |  |       |     |       |  |       |      |       |  |         | (0.3    | )
|                                                                                                                                                   |                                                                   |   |                                      |         |              |  |            |       |             |  |       |     |          |  |       |      |       |  |       |       |       |  |         |        
|Income (loss) before cumulative effect of
accounting change                                                                                        |                                                                   |   | (273.0                               | )       |              |  | 18.6       |       |             |  | (6.3  | )   |          |  | (12.8 | )    |       |  | (56.0 | )     |       |  | (329.5  | )      
|                                                                                                                                                   | Cumulative effect of accounting change
(net of tax $0)            |   |                                      | (2.0    | )            |  |            |      |             |  |       |    |          |  |       |     |       |  |       |      |       |  |         | (2.0    | )
|                                                                                                                                                   |                                                                   |   |                                      |         |              |  |            |       |             |  |       |     |          |  |       |      |       |  |       |       |       |  |         |        
|Net income (loss) applicable to common shares                                                                                                      |                                                                   | $ | (275.0                               | )       |              |  | 18.6       |       |             |  | (6.3  | )   |          |  | (12.8 | )    |       |  | (56.0 | )     |       |  | (331.5  | )      
|                                                                                                                                                   |                                                                   |   |                                      |         |              |  |            |       |             |  |       |     |          |  |       |      |       |  |       |       |       |  |         |        
|Average number of common shares
outstanding - basic                                                                                                |                                                                   |   | 78.5                                 |         |              |  | 78.5       |       |             |  | 78.5  |     |          |  | 78.5  |      |       |  | 78.5  |       |       |  | 78.5    |        
|Basic earnings (loss) per common share before
cumulative effect of accounting change                                                               |                                                                   | $ | (3.47                                | )       |              |  | 0.23       |       |             |  | (0.08 | )   |          |  | (0.16 | )    |       |  | (0.71 | )     |       |  | (4.19   | )      
|                                                                                                                                                   | Cumulative effect of accounting change                            |   |                                      | (0.03   | )            |  |            |      |             |  |       |    |          |  |       |     |       |  |       |      |       |  |         | (0.03   | )
|                                                                                                                                                   |                                                                   |   |                                      |         |              |  |            |       |             |  |       |     |          |  |       |      |       |  |       |       |       |  |         |        
|Basic earnings (loss) per common share                                                                                                             |                                                                   | $ | (3.50                                | )       |              |  | 0.23       |       |             |  | (0.08 | )   |          |  | (0.16 | )    |       |  | (0.71 | )     |       |  | (4.22   | )      
|                                                                                                                                                   |                                                                   |   |                                      |         |              |  |            |       |             |  |       |     |          |  |       |      |       |  |       |       |       |  |         |        
|Average number of common shares
outstanding - diluted*                                                                                             |                                                                   |   | 78.5                                 |         |              |  | 78.5       |       |             |  | 78.5  |     |          |  | 78.5  |      |       |  | 78.5  |       |       |  | 78.5    |        
|Diluted earnings (loss) per common share before
cumulative effect of accounting change                                                             |                                                                   | $ | (3.47                                | )       |              |  | 0.23       |       |             |  | (0.08 | )   |          |  | (0.16 | )    |       |  | (0.71 | )     |       |  | (4.19   | )      
|                                                                                                                                                   | Cumulative effect of accounting change                            |   |                                      | (0.03   | )            |  |            |      |             |  |       |    |          |  |       |     |       |  |       |      |       |  |         | (0.03   | )
|                                                                                                                                                   |                                                                   |   |                                      |         |              |  |            |       |             |  |       |     |          |  |       |      |       |  |       |       |       |  |         |        
|Diluted earnings (loss) per common share                                                                                                           |                                                                   | $ | (3.50                                | )       |              |  | 0.23       |       |             |  | (0.08 | )   |          |  | (0.16 | )    |       |  | (0.71 | )     |       |  | (4.22   | )      
|                                                                                                                                                   |                                                                   |   |                                      |         |              |  |            |       |             |  |       |     |          |  |       |      |       |  |       |       |       |  |         |        

|  |  |                                                                                                                                                                                          
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* |  | Diluted earnings (loss) per common share would have been anti-dilutive for the year ended December 31, 2001, if based on fully diluted shares
adjusted to reflect stock option exercises.





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- 169 -

PHELPS DODGE CORPORATION
CONSOLIDATED BALANCE SHEET

|                                                           |                                                                                                                        |                                                                          |         |                     |       |                   |         |              |      |            |       |             |       |       |      |          |       |       |       |       |       |     |         |         |       |  |         | 
|---------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------ | ------- | ------------------- | ----- | ----------------- | ------- | ------------ | ---- | ---------- | ----- | ----------- | ----- | ----- | ---- | -------- | ----- | ----- | ----- | ----- | ----- | --- | ------- | ------- | ----- |  | ------- | 
|                                                           |                                                                                                                        |                                                                          |         |                     |       | December 31, 2001
|                                                           |                                                                                                                        |                                                                          |         |                     |       |                  
|                                                           |                                                                                                                        |                                                                          |         |                     |       | As Previously     |         |              |      |            |       | Reclamation |       |       |      |          |       |       |       |       |       | As 
|                                                           |                                                                                                                        |                                                                          |         |                     |       | Reported          |         | Depreciation |      | Obligation |       | Inventory   |       | Other |      | Restated
|                                                           |                                                                                                                        |                                                                          |         |                     |       |                   |         |              |      |            |       |             |       |       |      |         
|Assets                                                     |                                                                                                                        |                                                                          |         |                     |       |                   |         |              |      |            |       |             |       |       |      |          |       |       |       |       |       |     |         |        
|                                                           | Current assets:                                                                                                        |                                                                          |         |                     |       |                   |         |              |      |            |       |             |       |       |      |          |       |       |       |       |       |     |         |         |      
|                                                           |                                                                                                                        | Cash and cash equivalents                                                |         | $                   | 386.9 |                   |         |              |     |            |       |             |      |       |      |          |      |       |       |       |      |     |         |         | 386.9 | 
|                                                           |                                                                                                                        | Accounts receivable, less allowance for
doubtful accounts (2001 - $14.2) |         |                     | 398.8 |                   |         |              |     |            |       |             |      |       |      |          |      |       |       |       |      |     |         |         | 398.8 | 
|                                                           |                                                                                                                        | Mill and leach stockpiles                                                |         |                     |      |                   |         |              |     |            |       |             |      |       |      |          | 51.0  | (j)   |       |       |      |     |         |         | 51.0  | 
|                                                           |                                                                                                                        | Inventories                                                              |         |                     | 426.3 |                   |         |              |     |            |       |             |      |       |      |          | 7.6   | (j)   |       |       |      |     |         |         | 444.4 | 
|                                                           |                                                                                                                        |                                                                          |         |                     |       |                   |         |              |      |            |       |             |       |       | 10.5 | (m)      |       |       |       |       |       |     |         |        
|                                                           |                                                                                                                        | Supplies                                                                 |         |                     | 150.3 |                   |         |              |     |            |       |             |      |       |      |          |      |       |       |       |      |     |         |         | 150.3 | 
|                                                           |                                                                                                                        | Prepaid expenses                                                         |         |                     | 27.0  |                   |         |              |     |            |       |             |      |       |      |          |      |       |       |       |      |     |         |         | 27.0  | 
|                                                           |                                                                                                                        | Deferred income taxes                                                    |         |                     | 89.4  |                   |         |              |     |            |       |             |      |       |      |          | (16.6 | ) (k) |       |       |      |     |         |         | 72.8  | 
|                                                           |                                                                                                                        |                                                                          |         |                     |       |                   |         |              |      |            |       |             |       |       |      |          |       |       |       |       |       |     |         |         |       | 
|                                                           |                                                                                                                        |                                                                          |         | Current assets      |       |                   | 1,478.7 |              |      |            |      |             |       |       |     |          |       |       | 52.5  |       |       |     |        |         |       |  | 1,531.2 | 
|                                                           | Investments and long-term receivables                                                                                  |                                                                          |         | 105.3               |       |                   |         |             |      |            |       |            |       |       |      |         |       |       |       |      |       |     |         | 105.3   |      
|                                                           | Property, plant and equipment, net                                                                                     |                                                                          |         | 5,665.6             |       |                   |         | 17.1         | (a)  |            |       | (58.2       | ) (h) |       |      | (10.5    | ) (m) |       |       |      |       |     |         | 5,614.0 |      
|                                                           | Long-term mill and leach stockpiles                                                                                    |                                                                          |         |                    |       |                   |         |             |      |            |       |            |       |       |      | 42.6     | (j)   |       |       |      |       |     |         | 42.6    |      
|                                                           | Deferred income taxes                                                                                                  |                                                                          |         | 56.3                |       |                   |         | (6.2         | )(b) |            |       |            |       |       |      | (3.4     | ) (k) |       |       | (7.1  | ) (s) |     |         | 3.8     |      
|                                                           |                                                                                                                        |                                                                          |         |                     |       |                   |         |              |      |            | 22.1  | (h)         |       |       |      |          |       |       | (57.9 | ) (r) |       |     |         |        
|                                                           | Other assets and deferred charges                                                                                      |                                                                          |         | 287.4               |       |                   |         |             |      |            |       |            |       |       |      |         |       |       |       |      |       |     |         | 287.4   |      
|                                                           |                                                                                                                        |                                                                          |         |                     |       |                   |         |              |      |            |       |             |       |       |      |          |       |       |       |       |       |     |         |         |       | 
|                                                           |                                                                                                                        | $                                                                        | 7,593.3 |                     |       |                   | 10.9    |              |      |            | (36.1 | )           |       |       | 81.2 |          |       |       | (65.0 | )     |       |     | 7,584.3 |        
|                                                           |                                                                                                                        |                                                                          |         |                     |       |                   |         |              |      |            |       |             |       |       |      |          |       |       |       |       |       |     |         |         |       | 
|Liabilities                                                |                                                                                                                        |                                                                          |         |                     |       |                   |         |              |      |            |       |             |       |       |      |          |       |       |       |       |       |     |         |        
|                                                           | Current liabilities:                                                                                                   |                                                                          |         |                     |       |                   |         |              |      |            |       |             |       |       |      |          |       |       |       |       |       |     |         |         |      
|                                                           |                                                                                                                        | Short-term debt                                                          |         | $                   | 59.3  |                   |         |              |     |            |       |             |      |       |      |          |      |       |       |       |      |     |         |         | 59.3  | 
|                                                           |                                                                                                                        | Current portion of long-term debt                                        |         |                     | 274.0 |                   |         |              |     |            |       |             |      |       |      |          |      |       |       |       |      |     |         |         | 274.0 | 
|                                                           |                                                                                                                        | Accounts payable and accrued expenses                                    |         |                     | 648.2 |                   |         |              |     |            |       |             |      |       |      |          |      |       |       |       | 3.9   | (p) |         |         | 652.1 | 
|                                                           |                                                                                                                        | Accrued income taxes                                                     |         |                     | 11.5  |                   |         |              |     |            |       |             |      |       |      |          |      |       |       |       |      |     |         |         | 11.5  | 
|                                                           |                                                                                                                        |                                                                          |         |                     |       |                   |         |              |      |            |       |             |       |       |      |          |       |       |       |       |       |     |         |         |       | 
|                                                           |                                                                                                                        |                                                                          |         | Current liabilities |       |                   | 993.0   |              |      |            |      |             |       |       |     |          |       |       |      |       |       |     | 3.9     |         |       |  | 996.9   | 
|                                                           | Long-term debt                                                                                                         |                                                                          |         | 2,538.3             |       |                   |         |             |      |            |       |            |       |       |      |         |       |       |       |      |       |     |         | 2,538.3 |      
|                                                           | Deferred income taxes                                                                                                  |                                                                          |         | 441.8               |       |                   |         | (11.9        | )(b) |            |       | (0.5        | ) (f) |       |      | 15.5     | (k)   |       |       | (2.8  | ) (q) |     |         | 442.6   |      
|                                                           |                                                                                                                        |                                                                          |         |                     |       |                   |         |              |      |            | 0.5   | (h)         |       |       |      |          |       |       |       |       |       |     |         |        
|                                                           | Other liabilities and deferred credits                                                                                 |                                                                          |         | 853.6               |       |                   |         |             |      |            |       | 7.1         | (e)   |       |      |         |       |       |       | (9.0  | ) (o) |     |         | 815.1   |      
|                                                           |                                                                                                                        |                                                                          |         |                     |       |                   |         |              |      |            | (36.6 | ) (h)       |       |       |      |          |       |       |       |       |       |     |         |        
|                                                           |                                                                                                                        |                                                                          |         |                     |       |                   |         |              |      |            |       |             |       |       |      |          |       |       |       |       |       |     |         |         |       | 
|                                                           |                                                                                                                        |                                                                          | 4,826.7 |                     |       |                   | (11.9   | )            |      |            | (29.5 | )           |       |       | 15.5 |          |       |       | (7.9  | )     |       |     | 4,792.9 |        
|                                                           |                                                                                                                        |                                                                          |         |                     |       |                   |         |              |      |            |       |             |       |       |      |          |       |       |       |       |       |     |         |         |       | 
|Commitments and contingencies
(see Notes 6, 17, 18 and 19) |                                                                                                                        |                                                                          |         |                     |       |                   |         |              |      |            |       |             |       |       |      |          |       |       |       |       |       |     |         |        
|Minority interests in consolidated
subsidiaries            |                                                                                                                        |                                                                          | 59.4    |                     |       |                   | 1.2     | (c)          |      |            | (0.1  | ) (g)       |       |       | 0.8  | (l)      |       |       |      |       |       |     | 61.3    |        
|                                                           |                                                                                                                        |                                                                          |         |                     |       |                   |         |              |      |            |       |             |       |       |      |          |       |       |       |       |       |     |         |         |       | 
|Shareholders equity                                       |                                                                                                                        |                                                                          |         |                     |       |                   |         |              |      |            |       |             |       |       |      |          |       |       |       |       |       |     |         |        
|                                                           | Common shares, par value $6.25; 200.0 shares authorized; 78.7 outstanding after
deducting 17.1 shares held in treasury |                                                                          |         | 491.9               |       |                   |         |             |      |            |       |            |       |       |      |         |       |       |       |      |       |     |         | 491.9   |      
|                                                           | Capital in excess of par value                                                                                         |                                                                          |         | 1,016.8             |       |                   |         |             |      |            |       |            |       |       |      |         |       |       |       |      |       |     |         | 1,016.8 |      
|                                                           | Retained earnings                                                                                                      |                                                                          |         | 1,497.6             |       |                   |         | 21.6         | (d)  |            |       | (6.5        | ) (i) |       |      | 64.9     | (n)   |       |       | (57.1 | ) (t) |     |         | 1,520.5 |      
|                                                           | Accumulated other comprehensive loss                                                                                   |                                                                          |         | (292.7              | )     |                   |         |             |      |            |       |            |       |       |      |         |       |       |       |      |       |     |         | (292.7  | )    
|                                                           | Other                                                                                                                  |                                                                          |         | (6.4                | )     |                   |         |             |      |            |       |            |       |       |      |         |       |       |       |      |       |     |         | (6.4    | )    
|                                                           |                                                                                                                        |                                                                          |         |                     |       |                   |         |              |      |            |       |             |       |       |      |          |       |       |       |       |       |     |         |         |       | 
|                                                           |                                                                                                                        |                                                                          | 2,707.2 |                     |       |                   | 21.6    |              |      |            | (6.5  | )           |       |       | 64.9 |          |       |       | (57.1 | )     |       |     | 2,730.1 |        
|                                                           |                                                                                                                        |                                                                          |         |                     |       |                   |         |              |      |            |       |             |       |       |      |          |       |       |       |       |       |     |         |         |       | 
|                                                           |                                                                                                                        | $                                                                        | 7,593.3 |                     |       |                   | 10.9    |              |      |            | (36.1 | )           |       |       | 81.2 |          |       |       | (65.0 | )     |       |     | 7,584.3 |        
|                                                           |                                                                                                                        |                                                                          |         |                     |       |                   |         |              |      |            |       |             |       |       |      |          |       |       |       |       |       |     |         |         |       | 





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##### Table of Contents



- 170 -

PHELPS DODGE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS

|                                               |                                                                                          |                                                     |                                                  |                                           |       |                                      |        |              |     |             |       |             |       |       |      |          |       |        |      |        |       |        |       |        |       |          |        |  
|---------------------------------------------- | ---------------------------------------------------------------------------------------- | --------------------------------------------------- | ------------------------------------------------ | ----------------------------------------- | ----- | ------------------------------------ | ------ | ------------ | --- | ----------- | ----- | ----------- | ----- | ----- | ---- | -------- | ----- | ------ | ---- | ------ | ----- | ------ | ----- | ------ | ----- | -------- | ------ | -
|                                               |                                                                                          |                                                     |                                                  |                                           |       | For the
year ended December 31, 2001
|                                               |                                                                                          |                                                     |                                                  |                                           |       |                                     
|                                               |                                                                                          |                                                     |                                                  |                                           |       | As Previously                        |        |              |     |             |       | Reclamation |       |       |      |          |       |        |      |        |       | As    
|                                               |                                                                                          |                                                     |                                                  |                                           |       | Reported                             |        | Depreciation |     | Obligations |       | Inventory   |       | Other |      | Restated
|                                               |                                                                                          |                                                     |                                                  |                                           |       |                                      |        |              |     |             |       |             |       |       |      |         
|Operating activities                           |                                                                                          |                                                     |                                                  |                                           |       |                                      |        |              |     |             |       |             |       |       |      |          |       |        |      |        |       |        |       |       
|                                               | Net income (loss)                                                                        |                                                     | $                                                | (275.0                                    | )     |                                      |        | 18.6         | (d) |             |       | (6.3        | ) (i) |       |      | (12.8    | ) (n) |        |      | (56.0  | ) (t) |        |       | (331.5 | )    
|                                               | Adjustments to reconcile net income (loss) to net
cash provided by operating activities: |                                                     |                                                  |                                           |       |                                      |        |              |     |             |       |             |       |       |      |          |       |        |      |        |       |        |       |        |      
|                                               |                                                                                          |                                                     |                                                  | Depreciation, depletion and amortization  |       |                                      | 465.3  |              |     |             | (25.4 | )  (a)      |       |       |     |          |       |        |     |        |       |        |      |        |       |          | 439.9  |  
|                                               |                                                                                          |                                                     |                                                  | Deferred income taxes                     |       |                                      | (8.2   | )            |     |             | 6.2   | (b)         |       |       | (0.4 | )   (f)  |       |        | 1.1  | (k)    |       |        | 7.1   | (s)    |       |          | 63.7   |  
|                                               |                                                                                          |                                                     |                                                  |                                           |       |                                      |        |              |     |             |       |             |       |       |      |          |       |        | 57.9 | (r)    |       |        |       |       
|                                               |                                                                                          | Equity earnings (losses), net of dividends
received |                                                  |                                           | 1.7   |                                      |        |              |    |             |       |             |      |       |      |          |      |        |      |        |      |        |       |        | 1.7   |         
|                                               |                                                                                          | Special items and provisions                        |                                                  |                                           | (24.5 | )                                    |        |              |    |             |       |             |      |       |      |          |      |        |      |        | (9.0  | )  (o) |       |        | (33.5 | )       
|                                               |                                                                                          | Cumulative effect of accounting change              |                                                  |                                           | 2.0   |                                      |        |              |    |             |       |             |      |       |      |          |      |        |      |        |      |        |       |        | 2.0   |         
|                                               |                                                                                          | Changes in current assets and liabilities:          |                                                  |                                           |       |                                      |        |              |     |             |       |             |       |       |      |          |       |        |      |        |       |        |       |        |       |         
|                                               |                                                                                          |                                                     |                                                  | Accounts receivable                       |       |                                      | 34.5   |              |     |             |      |             |       |       |     |          |       |        |     |        |       |        |      |        |       |          | 34.5   |  
|                                               |                                                                                          |                                                     |                                                  | Proceeds from sale of accounts receivable |       |                                      | 79.7   |              |     |             |      |             |       |       |     |          |       |        |     |        |       |        |      |        |       |          | 79.7   |  
|                                               |                                                                                          |                                                     |                                                  | Mill and leach stockpiles                 |       |                                      |       |              |     |             |      |             |       |       |     |          |       |        | 17.7 | (j)    |       |        |      |        |       |          | 17.7   |  
|                                               |                                                                                          |                                                     |                                                  | Inventories                               |       |                                      | (10.1  | )            |     |             |      |             |       |       |     |          |       |        | (0.6 | )  (j) |       |        |      |        |       |          | (10.7  | )
|                                               |                                                                                          |                                                     |                                                  | Prepaid expenses                          |       |                                      | 9.8    |              |     |             |      |             |       |       |     |          |       |        |     |        |       |        |      |        |       |          | 9.8    |  
|                                               |                                                                                          |                                                     |                                                  | Other accounts payable                    |       |                                      | 24.5   |              |     |             |      |             |       |       |     |          |       |        |     |        |       |        |      |        |       |          | 24.5   |  
|                                               |                                                                                          |                                                     |                                                  | Accrued income taxes                      |       |                                      | (12.0  | )            |     |             |      |             |       |       |     |          |       |        |     |        |       |        |      |        |       |          | (12.0  | )
|                                               |                                                                                          |                                                     |                                                  | Other accrued expenses                    |       |                                      | (0.9   | )            |     |             |      |             |       |       |     |          |       |        |     |        |       |        |      |        |       |          | (0.9   | )
|                                               |                                                                                          | Other adjustments, net                              |                                                  |                                           | 15.9  |                                      |        |              | 0.6 | (c)         |       |             | 6.8   | (e)   |      |          | (5.6  | )  (j) |      |        |      |        |       |        | 17.8  |         
|                                               |                                                                                          |                                                     |                                                  |                                           |       |                                      |        |              |     |             | (0.1  | )  (g)      |       |       | 0.2  | (l)      |       |        |      |        |       |        |       |       
|                                               |                                                                                          |                                                     |                                                  |                                           |       |                                      |        |              |     |             |       |             |       |       |      |          |       |        |      |        |       |        |       |        |      
|                                               |                                                                                          |                                                     |                                                  | Net cash provided by operating activities |       |                                      | 302.7  |              |     |             |      |             |       |       |     |          |       |        |     |        |       |        |      |        |       |          | 302.7  |  
|                                               |                                                                                          |                                                     |                                                  |                                           |       |                                      |        |              |     |             |       |             |       |       |      |          |       |        |      |        |       |        |       |        |      
|Investing activities                           |                                                                                          |                                                     |                                                  |                                           |       |                                      |        |              |     |             |       |             |       |       |      |          |       |        |      |        |       |        |       |       
|                                               |                                                                                          |                                                     | Capital outlays                                  |                                           |       | (262.9                               | )      |              |     |             |       |             |       |       |      |          |       |        |      |        |       |        |       |        |       | (262.9   | )     
|                                               |                                                                                          |                                                     | Capitalized interest                             |                                           |       | (1.6                                 | )      |              |     |             |       |             |       |       |      |          |       |        |      |        |       |        |       |        |       | (1.6     | )     
|                                               |                                                                                          |                                                     | Investment in subsidiaries, net of cash received |                                           |       | (48.1                                | )      |              |     |             |       |             |       |       |      |          |       |        |      |        |       |        |       |        |       | (48.1    | )     
|                                               |                                                                                          |                                                     | Proceeds from asset dispositions                 |                                           |       | 51.5                                 |        |              |     |             |       |             |       |       |      |          |       |        |      |        |       |        |       |        |       | 51.5     |       
|                                               |                                                                                          |                                                     | Other investing                                  |                                           |       | (5.7                                 | )      |              |     |             |       |             |       |       |      |          |       |        |      |        |       |        |       |        |       | (5.7     | )     
|                                               |                                                                                          |                                                     |                                                  |                                           |       |                                      |        |              |     |             |       |             |       |       |      |          |       |        |      |        |       |        |       |       
|                                               |                                                                                          |                                                     |                                                  | Net cash used in investing activities     |       |                                      | (266.8 | )            |     |             |       |             |       |       |      |          |       |        |      |        |       |        |       |        |       |          | (266.8 | )
|                                               |                                                                                          |                                                     |                                                  |                                           |       |                                      |        |              |     |             |       |             |       |       |      |          |       |        |      |        |       |        |       |       
|Financing activities                           |                                                                                          |                                                     |                                                  |                                           |       |                                      |        |              |     |             |       |             |       |       |      |          |       |        |      |        |       |        |       |       
|                                               |                                                                                          |                                                     | Proceeds from issuance of debt                   |                                           |       | 1,203.3                              |        |              |     |             |       |             |       |       |      |          |       |        |      |        |       |        |       |        |       | 1,203.3  |       
|                                               |                                                                                          |                                                     | Payment of debt                                  |                                           |       | (1,053.9                             | )      |              |     |             |       |             |       |       |      |          |       |        |      |        |       |        |       |        |       | (1,053.9 | )     
|                                               |                                                                                          |                                                     | Common dividends                                 |                                           |       | (59.1                                | )      |              |     |             |       |             |       |       |      |          |       |        |      |        |       |        |       |        |       | (59.1    | )     
|                                               |                                                                                          |                                                     | Issuance of shares                               |                                           |       | 0.4                                  |        |              |     |             |       |             |       |       |      |          |       |        |      |        |       |        |       |        |       | 0.4      |       
|                                               |                                                                                          |                                                     | Debt issue costs                                 |                                           |       | (7.3                                 | )      |              |     |             |       |             |       |       |      |          |       |        |      |        |       |        |       |        |       | (7.3     | )     
|                                               |                                                                                          |                                                     | Other, net                                       |                                           |       | 17.6                                 |        |              |     |             |       |             |       |       |      |          |       |        |      |        |       |        |       |        |       | 17.6     |       
|                                               |                                                                                          |                                                     |                                                  |                                           |       |                                      |        |              |     |             |       |             |       |       |      |          |       |        |      |        |       |        |       |       
|                                               |                                                                                          |                                                     |                                                  | Net cash provided by financing activities |       |                                      | 101.0  |              |     |             |       |             |       |       |      |          |       |        |      |        |       |        |       |        |       |          | 101.0  |  
|                                               |                                                                                          |                                                     |                                                  |                                           |       |                                      |        |              |     |             |       |             |       |       |      |          |       |        |      |        |       |        |       |       
|Increase in cash and cash equivalents          |                                                                                          |                                                     | 136.9                                            |                                           |       |                                      |       |              |     |             |      |             |       |       |     |          |       |        |     |        |       |        | 136.9 |       
|Cash and cash equivalents at beginning of year |                                                                                          |                                                     | 250.0                                            |                                           |       |                                      |        |              |     |             |       |             |       |       |      |          |       |        |      |        |       |        | 250.0 |       
|                                               |                                                                                          |                                                     |                                                  |                                           |       |                                      |        |              |     |             |       |             |       |       |      |          |       |        |      |        |       |        |       |        |      
|Cash and cash equivalents at end of year       |                                                                                          | $                                                   | 386.9                                            |                                           |       |                                      |       |              |     |             |      |             |       |       |     |          |       |        |     |        |       |        | 386.9 |       
|                                               |                                                                                          |                                                     |                                                  |                                           |       |                                      |        |              |     |             |       |             |       |       |      |          |       |        |      |        |       |        |       |        |      





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##### Table of Contents



- 171 -

PHELPS DODGE CORPORATION
STATEMENT OF CONSOLIDATED OPERATIONS

|                                                                                                            |                                                                   |   |                                      |         |              |  |            |       |             |  |       |     |          |  |       |       |       |  |       |     |     |  |         |         |  
|----------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------- | - | ------------------------------------ | ------- | ------------ |  | ---------- | ----- | ----------- |  | ----- | --- | -------- |  | ----- | ----- | ----- |  | ----- | --- | --- |  | ------- | ------- | -
|                                                                                                            |                                                                   |   | For the year ended December 31, 2000
|                                                                                                            |                                                                   |   |                                     
|                                                                                                            |                                                                   |   | As Previously                        |         |              |  |            |       | Reclamation |  |       |     |          |  |       |       |       |  | As   
|                                                                                                            |                                                                   |   | Reported                             |         | Depreciation |  | Obligation |       | Inventory   |  | Other |     | Restated
|                                                                                                            |                                                                   |   |                                      |         |              |  |            |       |             |  |       |     |         
|Sales and other operating revenues                                                                          |                                                                   | $ | 4,525.1                              |         |              |  |           |       |             |  |      |     |          |  |      |       |       |  |      |     |     |  | 4,525.1 |        
|                                                                                                            |                                                                   |   |                                      |         |              |  |            |       |             |  |       |     |          |  |       |       |       |  |       |     |     |  |         |        
|Operating costs and expenses                                                                                |                                                                   |   |                                      |         |              |  |            |       |             |  |       |     |          |  |       |       |       |  |       |     |     |  |         |        
|                                                                                                            | Cost of products sold (exclusive of items
shown separately below) |   |                                      | 3,580.2 |              |  |            |      |             |  |       | 0.1 | (e)      |  |       | (11.3 | ) (j) |  |       | 3.0 | (p) |  |         | 3,572.0 |  
|                                                                                                            | Depreciation, depletion and amortization                          |   |                                      | 464.2   |              |  |            | (23.9 | ) (a)       |  |       |    |          |  |       |      |       |  |       |    |     |  |         | 440.3   |  
|                                                                                                            | Selling and general administrative expense                        |   |                                      | 135.1   |              |  |            |      |             |  |       |    |          |  |       |      |       |  |       | 0.9 | (p) |  |         | 136.0   |  
|                                                                                                            | Exploration and research expense                                  |   |                                      | 56.8    |              |  |            |      |             |  |       |    |          |  |       |      |       |  |       |    |     |  |         | 56.8    |  
|                                                                                                            | Special items and provisions, net (see Note 3)                    |   |                                      | 51.8    |              |  |            |      |             |  |       |    |          |  |       |      |       |  |       |    |     |  |         | 51.8    |  
|                                                                                                            |                                                                   |   |                                      |         |              |  |            |       |             |  |       |     |          |  |       |       |       |  |       |     |     |  |         |        
|                                                                                                            |                                                                   |   | 4,288.1                              |         |              |  | (23.9      | )     |             |  | 0.1   |     |          |  | (11.3 | )     |       |  | 3.9   |     |     |  | 4,256.9 |        
|                                                                                                            |                                                                   |   |                                      |         |              |  |            |       |             |  |       |     |          |  |       |       |       |  |       |     |     |  |         |        
|Operating income (loss)                                                                                     |                                                                   |   | 237.0                                |         |              |  | 23.9       |       |             |  | (0.1  | )   |          |  | 11.3  |       |       |  | (3.9  | )   |     |  | 268.2   |        
|                                                                                                            | Interest expense                                                  |   |                                      | (217.8  | )            |  |            |      |             |  |       |    |          |  |       |      |       |  |       |    |     |  |         | (217.8  | )
|                                                                                                            | Capitalized interest                                              |   |                                      | 4.5     |              |  |            |      |             |  |       |    |          |  |       |      |       |  |       |    |     |  |         | 4.5     |  
|                                                                                                            | Miscellaneous income and expense, net                             |   |                                      | 30.0    |              |  |            |      |             |  |       |    |          |  |       |      |       |  |       |    |     |  |         | 30.0    |  
|                                                                                                            |                                                                   |   |                                      |         |              |  |            |       |             |  |       |     |          |  |       |       |       |  |       |     |     |  |         |        
|Income (loss) before taxes, minority interests,
and equity in net earnings (losses) of
affiliated companies |                                                                   |   | 53.7                                 |         |              |  | 23.9       |       |             |  | (0.1  | )   |          |  | 11.3  |       |       |  | (3.9  | )   |     |  | 84.9    |        
|                                                                                                            | Benefit (provision) for taxes on income                           |   |                                      | (19.2   | )            |  |            | (6.3  | ) (b)       |  |       | 0.1 | (f)      |  |       | 0.7   | (k)   |  |       | 2.8 | (q) |  |         | (21.9   | )
|                                                                                                            | Minority interests in consolidated subsidiaries                   |   |                                      | (7.0    | )            |  |            | (0.6  | ) (c)       |  |       |    |          |  |       | (0.6  | ) (l) |  |       |    |     |  |         | (8.2    | )
|                                                                                                            | Equity in net earnings (losses) of affiliated
companies           |   |                                      | 1.5     |              |  |            |      |             |  |       |    |          |  |       |      |       |  |       |    |     |  |         | 1.5     |  
|                                                                                                            |                                                                   |   |                                      |         |              |  |            |       |             |  |       |     |          |  |       |       |       |  |       |     |     |  |         |        
|Net income (loss) applicable to common shares                                                               |                                                                   | $ | 29.0                                 |         |              |  | 17.0       |       |             |  |      |     |          |  | 11.4  |       |       |  | (1.1  | )   |     |  | 56.3    |        
|                                                                                                            |                                                                   |   |                                      |         |              |  |            |       |             |  |       |     |          |  |       |       |       |  |       |     |     |  |         |        
|Average number of common shares
outstanding - basic                                                         |                                                                   |   | 78.4                                 |         |              |  | 78.4       |       |             |  | 78.4  |     |          |  | 78.4  |       |       |  | 78.4  |     |     |  | 78.4    |        
|Basic earnings (loss) per common share                                                                      |                                                                   | $ | 0.37                                 |         |              |  | 0.22       |       |             |  |      |     |          |  | 0.14  |       |       |  | (0.01 | )   |     |  | 0.72    |        
|                                                                                                            |                                                                   |   |                                      |         |              |  |            |       |             |  |       |     |          |  |       |       |       |  |       |     |     |  |         |        
|Average number of common shares
outstanding - diluted                                                       |                                                                   |   | 78.8                                 |         |              |  | 78.8       |       |             |  | 78.8  |     |          |  | 78.8  |       |       |  | 78.8  |     |     |  | 78.8    |        
|Diluted earnings (loss) per common share                                                                    |                                                                   | $ | 0.37                                 |         |              |  | 0.22       |       |             |  |      |     |          |  | 0.14  |       |       |  | (0.01 | )   |     |  | 0.72    |        
|                                                                                                            |                                                                   |   |                                      |         |              |  |            |       |             |  |       |     |          |  |       |       |       |  |       |     |     |  |         |        





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##### Table of Contents



- 172 -

PHELPS DODGE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS

|                                               |                                                                                          |                                                     |                                           |        |                                      |        |              |      |             |      |             |   |       |      |          |      |       |      |      |      |      |      |       |        |       |        |  
|---------------------------------------------- | ---------------------------------------------------------------------------------------- | --------------------------------------------------- | ----------------------------------------- | ------ | ------------------------------------ | ------ | ------------ | ---- | ----------- | ---- | ----------- | - | ----- | ---- | -------- | ---- | ----- | ---- | ---- | ---- | ---- | ---- | ----- | ------ | ----- | ------ | -
|                                               |                                                                                          |                                                     |                                           |        | For the year ended December 31, 2000
|                                               |                                                                                          |                                                     |                                           |        |                                     
|                                               |                                                                                          |                                                     |                                           |        | As Previously                        |        |              |      |             |      | Reclamation |   |       |      |          |      |       |      |      |      | As  
|                                               |                                                                                          |                                                     |                                           |        | Reported                             |        | Depreciation |      | Obligations |      | Inventory   |   | Other |      | Restated
|                                               |                                                                                          |                                                     |                                           |        |                                      |        |              |      |             |      |             |   |       |      |         
|Operating activities                           |                                                                                          |                                                     |                                           |        |                                      |        |              |      |             |      |             |   |       |      |          |      |       |      |      |      |      |      |       |       
|                                               | Net income (loss)                                                                        |                                                     | $                                         | 29.0   |                                      |        |              | 17.0 | (d)         |      |             |  | (i)   |      |          | 11.4 | (n)   |      |      | (1.1 | )(t) |      |       | 56.3   |      
|                                               | Adjustments to reconcile net income (loss) to
net cash provided by operating activities: |                                                     |                                           |        |                                      |        |              |      |             |      |             |   |       |      |          |      |       |      |      |      |      |      |       |        |      
|                                               |                                                                                          | Depreciation, depletion and amortization            |                                           |        | 464.2                                |        |              |      | (23.9       | )(a) |             |   |      |      |          |      |      |      |      |      |     |      |       |        | 440.3 |       
|                                               |                                                                                          | Deferred income taxes                               |                                           |        | 12.8                                 |        |              |      | 6.3         | (b)  |             |   | (0.1  | )(f) |          |      | (0.7  | )(k) |      |      | (2.8 | )(q) |       |        | 15.5  |       
|                                               |                                                                                          | Equity earnings (losses), net of dividends
received |                                           |        | 0.9                                  |        |              |      |            |      |             |   |      |      |          |      |      |      |      |      |     |      |       |        | 0.9   |       
|                                               |                                                                                          | Special items and provisions                        |                                           |        | 54.3                                 |        |              |      |            |      |             |   |      |      |          |      |      |      |      |      |     |      |       |        | 54.3  |       
|                                               |                                                                                          | Changes in current assets and liabilities:          |                                           |        |                                      |        |              |      |             |      |             |   |       |      |          |      |       |      |      |      |      |      |       |        |       |       
|                                               |                                                                                          |                                                     | Accounts receivable                       |        |                                      | 9.7    |              |      |             |     |             |   |       |     |          |      |       |     |      |      |      |     |       |        |       | 9.7    |  
|                                               |                                                                                          |                                                     | Mill and leach stockpiles                 |        |                                      |       |              |      |             |     |             |   |       |     |          |      |       | 9.1  | (j)  |      |      |     |       |        |       | 9.1    |  
|                                               |                                                                                          |                                                     | Inventories                               |        |                                      | 45.5   |              |      |             |     |             |   |       |     |          |      |       | (3.6 | )(j) |      |      |     |       |        |       | 41.9   |  
|                                               |                                                                                          |                                                     | Supplies                                  |        |                                      | (5.3   | )            |      |             |     |             |   |       |     |          |      |       |     |      |      |      |     |       |        |       | (5.3   | )
|                                               |                                                                                          |                                                     | Prepaid expenses                          |        |                                      | 2.3    |              |      |             |     |             |   |       |     |          |      |       |     |      |      |      |     |       |        |       | 2.3    |  
|                                               |                                                                                          |                                                     | Deferred income taxes                     |        |                                      | (0.3   | )            |      |             |     |             |   |       |     |          |      |       |     |      |      |      |     |       |        |       | (0.3   | )
|                                               |                                                                                          |                                                     | Interest payable                          |        |                                      | (16.3  | )            |      |             |     |             |   |       |     |          |      |       |     |      |      |      |     |       |        |       | (16.3  | )
|                                               |                                                                                          |                                                     | Other accounts payable                    |        |                                      | (12.4  | )            |      |             |     |             |   |       |     |          |      |       |     |      |      |      |     |       |        |       | (12.4  | )
|                                               |                                                                                          |                                                     | Accrued income taxes                      |        |                                      | (24.9  | )            |      |             |     |             |   |       |     |          |      |       |     |      |      |      |     |       |        |       | (24.9  | )
|                                               |                                                                                          |                                                     | Other accrued expenses                    |        |                                      | (75.0  | )            |      |             |     |             |   |       |     |          |      |       |     |      |      |      | 3.9  | (p)   |        |       | (71.1  | )
|                                               |                                                                                          | Other adjustments, net                              |                                           |        | 26.7                                 |        |              |      | 0.6         | (c)  |             |   | 0.1   | (e)  |          |      | (16.8 | )(j) |      |      |     |      |       |        | 11.2  |       
|                                               |                                                                                          |                                                     |                                           |        |                                      |        |              |      |             |      |             |   |       |      | 0.6      | (l)  |       |      |      |      |      |      |       |       
|                                               |                                                                                          |                                                     |                                           |        |                                      |        |              |      |             |      |             |   |       |      |          |      |       |      |      |      |      |      |       |        |      
|                                               |                                                                                          |                                                     | Net cash provided by operating activities |        |                                      | 511.2  |              |      |             |     |             |   |       |     |          |      |       |     |      |      |      |     |       |        |       | 511.2  |  
|                                               |                                                                                          |                                                     |                                           |        |                                      |        |              |      |             |      |             |   |       |      |          |      |       |      |      |      |      |      |       |        |      
|Investing activities                           |                                                                                          |                                                     |                                           |        |                                      |        |              |      |             |      |             |   |       |      |          |      |       |      |      |      |      |      |       |       
|                                               | Capital outlays                                                                          |                                                     |                                           | (397.2 | )                                    |        |              |      |             |      |             |   |       |      |          |      |       |      |      |      |      |      |       | (397.2 | )    
|                                               | Capitalized interest                                                                     |                                                     |                                           | (4.5   | )                                    |        |              |      |             |      |             |   |       |      |          |      |       |      |      |      |      |      |       | (4.5   | )    
|                                               | Investment in subsidiaries, net of cash received                                         |                                                     |                                           | (25.1  | )                                    |        |              |      |             |      |             |   |       |      |          |      |       |      |      |      |      |      |       | (25.1  | )    
|                                               | Proceeds from asset dispositions                                                         |                                                     |                                           | 159.4  |                                      |        |              |      |             |      |             |   |       |      |          |      |       |      |      |      |      |      |       | 159.4  |      
|                                               | Other investing                                                                          |                                                     |                                           | (6.8   | )                                    |        |              |      |             |      |             |   |       |      |          |      |       |      |      |      |      |      |       | (6.8   | )    
|                                               |                                                                                          |                                                     |                                           |        |                                      |        |              |      |             |      |             |   |       |      |          |      |       |      |      |      |      |      |       |       
|                                               |                                                                                          |                                                     | Net cash used in investing activities     |        |                                      | (274.2 | )            |      |             |      |             |   |       |      |          |      |       |      |      |      |      |      |       |        |       | (274.2 | )
|                                               |                                                                                          |                                                     |                                           |        |                                      |        |              |      |             |      |             |   |       |      |          |      |       |      |      |      |      |      |       |       
|Financing activities                           |                                                                                          |                                                     |                                           |        |                                      |        |              |      |             |      |             |   |       |      |          |      |       |      |      |      |      |      |       |       
|                                               | Proceeds from issuance of debt                                                           |                                                     |                                           | 114.6  |                                      |        |              |      |             |      |             |   |       |      |          |      |       |      |      |      |      |      |       | 114.6  |      
|                                               | Payment of debt                                                                          |                                                     |                                           | (178.3 | )                                    |        |              |      |             |      |             |   |       |      |          |      |       |      |      |      |      |      |       | (178.3 | )    
|                                               | Common dividends                                                                         |                                                     |                                           | (157.5 | )                                    |        |              |      |             |      |             |   |       |      |          |      |       |      |      |      |      |      |       | (157.5 | )    
|                                               | Issuance of shares                                                                       |                                                     |                                           | 0.3    |                                      |        |              |      |             |      |             |   |       |      |          |      |       |      |      |      |      |      |       | 0.3    |      
|                                               | Other, net                                                                               |                                                     |                                           | (0.3   | )                                    |        |              |      |             |      |             |   |       |      |          |      |       |      |      |      |      |      |       | (0.3   | )    
|                                               |                                                                                          |                                                     |                                           |        |                                      |        |              |      |             |      |             |   |       |      |          |      |       |      |      |      |      |      |       |       
|                                               |                                                                                          |                                                     | Net cash used in financing activities     |        |                                      | (221.2 | )            |      |             |      |             |   |       |      |          |      |       |      |      |      |      |      |       |        |       | (221.2 | )
|                                               |                                                                                          |                                                     |                                           |        |                                      |        |              |      |             |      |             |   |       |      |          |      |       |      |      |      |      |      |       |       
|Increase in cash and cash equivalents          |                                                                                          |                                                     | 15.8                                      |        |                                      |        |             |      |             |      |            |   |       |      |         |      |       |      |     |      |      |      | 15.8  |       
|Cash and cash equivalents at beginning of year |                                                                                          |                                                     | 234.2                                     |        |                                      |        |              |      |             |      |             |   |       |      |          |      |       |      |      |      |      |      | 234.2 |       
|                                               |                                                                                          |                                                     |                                           |        |                                      |        |              |      |             |      |             |   |       |      |          |      |       |      |      |      |      |      |       |       
|Cash and cash equivalents at end of year       |                                                                                          | $                                                   | 250.0                                     |        |                                      |        |             |      |             |      |            |   |       |      |         |      |       |      |     |      |      |      | 250.0 |       
|                                               |                                                                                          |                                                     |                                           |        |                                      |        |              |      |             |      |             |   |       |      |          |      |       |      |      |      |      |      |       |       





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##### Table of Contents



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Adjustments:



|(a) |  | To adjust the units-of-production (UOP) depreciation rate.                                                                                                                                          
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | To record the income tax effect of adjustment (a).                                                                                                                                                  
|   
|(c) |  | To record the minority interest effect of adjustment (a).                                                                                                                                           
|   
|(d) |  | To reflect the combined effect of adjustments (a) through (c) on Net
Income (Loss)and Retained Earnings.                                                                                            
|   
|(e) |  | To adjust the closure cost accrual to reflect accretion for the adjusted
fair values of the acquired reclamation obligations and adjust Tyrones
cost estimate for 2001.                            
|   
|(f) |  | To record the income tax effect of adjustment (e).                                                                                                                                                  
|   
|(g) |  | To record the minority interest effect of adjustment (e).                                                                                                                                           
|   
|(h) |  | To record the effect of purchase accounting associated with adjustment
(e).                                                                                                                         
|   
|(i) |  | To reflect the combined effect of adjustments (e) through (g) on Net
Income (Loss)and Retained Earnings.                                                                                            
|   
|(j) |  | To record the effect of capitalizing costs associated with material in
mill and leach stockpiles, and the consequent in-process material, net of
any associated lower of cost or market adjustments.
|   
|(k) |  | To record the income tax effect of adjustment (j).                                                                                                                                                  
|   
|(l) |  | To record the minority interest effect of adjustment (j).                                                                                                                                           
|   
|(m) |  | To record the effect of purchase accounting associated with adjustment
(j).                                                                                                                         
|   
|(n) |  | To reflect the combined effect of adjustments (j) through (l) to Net
Income (Loss)and Retained Earnings.                                                                                            
|   
|(o) |  | To reverse the recording of a loss contingency reserve associated with
potential future legal matters.                                                                                              
|   
|(p) |  | To record an additional benefit obligation plan resulting from
adjustments that effected 2000 net income.                                                                                           
|   
|(q) |  | To record the income tax effect of adjustment (p).                                                                                                                                                  
|   
|(r) |  | To record a valuation allowance associated with deferred tax assets at
the 51 percent-owned El Abra copper mine.                                                                                    
|   
|(s) |  | To record the income tax effect associated with the deferred tax benefits
previously recognized during 2001.                                                                                        
|   
|(t) |  | To reflect the combined effect of adjustments (o) through (s) on Net
Income (Loss)and Retained Earnings.                                                                                            





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##### Table of Contents



- 174 -




Part III




Items 10, 11, 12 and 13.

The information called for by Part III (Items 10, 11, 12 and 13) is
incorporated herein by reference from the material included under the captions
Election of Directors, Beneficial Ownership of Securities, Equity
Compensation Plan Information, Executive Compensation and Other Matters in
Phelps Dodge Corporations definitive proxy statement (to be filed pursuant to
Regulation 14A) for its Annual Meeting of Shareholders to be held May 23, 2003
(the 2003 Proxy Statement), except that the information regarding executive
officers called for by Item 401 of Regulation S-K is included in Part I of this
report. The 2003 Proxy Statement is being prepared and will be filed with the
Securities and Exchange Commission and furnished to shareholders on or about
April 22, 2003.




Item 14. Controls and Procedures

The Company maintains a system of disclosure controls and procedures that
is designed to ensure information required to be disclosed by the Company is
accumulated and communicated to management in a timely manner. Management has
reviewed this system of disclosure controls and procedures within 90 days of
the date hereof, and has concluded that the current system of controls and
procedures is effective.

The Company maintains a system of internal controls and procedures for
financial reporting. Since the date of managements most recent evaluation,
there were no significant changes in internal controls or in other factors that
could significantly affect internal controls.




Item 15. Exhibits, Financial Statement Schedule and Reports on Form 8-K



|(a) | 1. |  | Financial Statements: Index on page 110.
|--- | -- |  | ----------------------------------------



| | 2.  |  | Financial Statement Schedule: Index on page 110.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 3.  |  | Exhibits:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| | 3.1 |  | Restated Certificate of Incorporation of the Corporation
(incorporated by reference to Exhibit 3.1 to the Corporations
Quarterly Report on Form 10-Q for the quarter ended June 30, 1999) as
amended by the Certificate of Amendment to the Restated Certificate of
Incorporation of Phelps Dodge Corporation (incorporated by reference to
Exhibit 2.3 to the Corporations Registration Statement on Form 8-A,
filed with the SEC on June 10, 2002 (SEC File No. 1-82)).                                                                                                                                                                                                                                                                                           
|
| | 3.2 |  | Amended and Restated By-Laws of the Corporation, effective as of
September 5, 2001 (incorporated by reference to Exhibit 3.2 to the
Corporations Form 10-Q for the quarter ended September 30, 2001 (SEC
File No. 1-82)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| | 4.1 |  | Credit Agreement, effective May 10, 2000, among the Corporation,
the Lenders parties thereto, Salomon Smith Barney Inc., Bank of
Tokyo-Mitsubishi Trust Company, and Citibank, N.A., as agent
(incorporated by reference to Exhibit 4.2 of the Corporations Form
10-Q for the quarter ended March 31, 2000 (SEC File No. 1-82)).                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| | 4.2 |  | Rights Agreement, dated as of February 5, 1998 between the
Corporation and The Chase Manhattan Bank (which replaces the Rights
Agreement dated as of July 29, 1988 as amended and restated as of
December 6, 1989, the rights issued thereunder having been redeemed by
the Corporation), which includes the form of Certificate of Amendment
setting forth the terms of the Junior Participating Cumulative
Preferred Shares, par value $1.00 per share, as Exhibit A, the form of
Right Certificate as Exhibit B and the Summary of Rights to Purchase
Preferred Shares as Exhibit C (incorporated by reference to Exhibit 1
to the Corporations Current Report on Form 8-K and in the
Corporations Form 8-A, both filed on February 6, 1998 (SEC File No.
1-82)).
|
| |     |  | Note: Certain instruments with respect to long-term debt of the
Corporation have not been filed as Exhibits to this Report since the
total amount of securities authorized under any such instrument does
not exceed 10 percent of the total assets of the Corporation and its
subsidiaries on a consolidated basis. The Corporation agrees to
furnish a copy of each such instrument upon request of the Securities
and Exchange Commission.                                                                                                                                                                                                                                                                                                                         
|
| | 4.3 |  | Form of Indenture, dated as of September 22, 1997, between the
Corporation and The Chase Manhattan Bank, as Trustee (incorporated by
reference                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        



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| |      |  | to the Corporations Registration Statement and Post-Effective
Amendment No. 1 on Form S-3 (Registration Nos. 333-36415 and
33-44380)) filed with the Securities and Exchange Commission on
September 25, 1997 (incorporated by reference to Exhibit 4.3 to the
Corporations Form 10-Q for the quarter ended September 30, 1997 (SEC
File No. 1-82)).                                                                                                                                               
| | ---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 4.4  |  | Form of 6.375 percent Note, due November 1, 2004, of the
Corporation issued on November 5, 1997, pursuant to the Indenture,
dated as of September 22, 1997, between the Corporation and The Chase
Manhattan Bank, as Trustee (incorporated by reference to the
Corporations Current Report on Form 8-K filed with the Securities and
Exchange Commission on November 3, 1997 and Exhibit 4.4 of Form 10-Q
for the quarter ended September 30, 1997 (SEC File No. 1-82)).                            
|
| | 4.5  |  | Form of 7.125 percent Debenture, due November 1, 2027, of the
Corporation issued on November 5, 1997, pursuant to the Indenture,
dated as of September 22, 1997, between the Corporation and The Chase
Manhattan Bank, as Trustee (incorporated by reference to the
Corporations Current Report on Form 8-K filed with the Securities and
Exchange Commission on November 3, 1997 and Exhibit 4.5 of the
Corporations Form 10-Q for the quarter ended September 30, 1997 (SEC
File No. 1-82)).     
|
| | 4.6  |  | Tripartite/Conversion Agreement, dated as of August 8, 2000, among
Chase Manhattan Bank and First Union National Bank, and acknowledged by
the Corporation, pursuant to which First Union National Bank succeeded
Chase Manhattan Bank as trustee under the Indenture dated as of
September 22, 1997 (incorporated by reference to the Corporations
Registration Statement on Form S-3 (Reg. No. 333-43890) filed with the
Securities and Exchange Commission on August 16, 2000).                  
|
| | 4.7  |  | Form of 8.75 percent Note due June 1, 2011, of the Corporation
issued on May 30, 2001, pursuant to the Indenture dated September 22,
1997, between the Company and First Union National Bank, as successor
Trustee (incorporated by reference to the Current Report on Form 8-K
filed with the Securities and Exchange Commission on May 30, 2001 (SEC
File No. 1-82)).                                                                                                                              
|
| | 4.8  |  | Form of 9.5 percent Note due June 1, 2031, of the Corporation
issued on May 30, 2001, pursuant to the Indenture dated September 22,
1997, between the Company and First Union National Bank, as successor
Trustee (incorporated by reference to the Current Report on Form 8-K
filed with the Securities and Exchange Commission May 30, 2001 (SEC
File No. 1-82)).                                                                                                                                  
|
| | 4.9  |  | Form of Common Share Certificate of the Corporation (incorporated
by reference to Exhibit 4.9 of the Corporations Form 10-Q for the
quarter ended June 30, 2002 (SEC File No. 1-82)).                                                                                                                                                                                                                                                                                                               
|
| | 4.10 |  | Form of 6.75 percent Series A Mandatory Convertible Preferred Share
Certificate of the Corporation (incorporated by reference to Exhibit
4.10 of the Corporations Form 10-Q for the quarter ended June 30, 2002
(SEC File No. 1-82)).                                                                                                                                                                                                                                                               
|
| | 10.  |  | Management contracts and compensatory plans and agreements.                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | 10.1 |  | The Corporations 1989 Directors Stock Option Plan (the 1989
Directors Plan), as amended to and including June 3, 1992, suspended
effective November 6, 1996 (incorporated by reference to Exhibit 10.3
to the Corporations Form 10-Q for the quarter ended June 30, 1992
(SEC File No. 1-82)). Form of Stock Option Agreement under the 1989
Directors Plan (incorporated by reference to the Corporations
Registration Statement on Form S-8 (Reg. No. 33-34362)).                               
|
| | 10.2 |  | The Corporations 1993 Stock Option and Restricted Stock Plan (the
1993 Plan), as amended through December 1, 1993, and form of
Restricted Stock letter under the 1993 Plan (incorporated by reference
to Exhibit 10.4 to the Corporations 1993 Form 10-K (SEC File No.
1-82)). Amendment to 1993 Plan effective May 7, 1997 (incorporated by
reference to Exhibit 10.15 to the Corporations Form 10-Q for the
quarter ended June 30, 1997 (SEC File No. 1-82)). Amended and
restated form of Stock



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##### Table of Contents



- 176 -



| |       |  | Option Agreement, amended through February 5, 1997 (incorporated by
reference to Exhibit 10.3 of the Corporations 1997 Form 10-K (SEC
File No. 1-82)). Form of Reload Option Agreement, amended through
November 2, 1994, under the 1993 Plan (incorporated by reference to
Exhibit 10.3 to the Corporations 1994 Form 10-K (SEC File No. 1-82)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |       |  | Note: Omitted from filing pursuant to the Instruction to Item 601(b)
(10) are actual Stock Option Agreements between the Corporation and
certain officers, under the 1993 Plan, and certain Directors, under the
1989 Directors Plan, which contain substantial similar provisions to
Exhibits 10.1 and 10.2 above.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | 10.3  |  | Description of the Corporations Incentive Compensation Plan
(incorporated by reference to Exhibit 10.5 to the Corporations 1993
Form 10-K (SEC File No. 1-82)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| | 10.4  |  | Amended and restated Deferred Compensation Plan for the Directors
of the Corporation, dated as of December 3, 1998, effective January 1,
1999 (incorporated by reference to Exhibit 10.5 to the Corporations
1998 Form 10-K (SEC File No. 1-82)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | 10.5  |  | Form of Change-of-Control Agreement between the Corporation and
certain executives, including all of the current executive officers to
be listed in the summary compensation table to the 2003 Proxy Statement
(SEC File No. 1-82).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | 10.6  |  | Amended and restated form of Severance Agreement between the
Corporation and certain executives, including all of the current
executive officers to be listed in the summary compensation table to
the 2003 Proxy Statement (incorporated by reference to Exhibit 10.7 of
the Corporations 1997 Form 10-K (SEC File No. 1-82)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| | 10.7  |  | The Corporations Retirement Plan for Directors, effective January
1, 1988, terminated for active directors effective December 31, 1997
(incorporated by reference to Exhibit 10.13 to the Corporations 1987
Form 10-K (SEC File No. 1-82)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | 10.8  |  | The Corporations Supplemental Retirement Plan (which amends,
restates and re-names the provisions of the Corporations
Comprehensive Executive Nonqualified Retirement and Savings Plan other
than the supplemental savings provisions of such plan), effective
(except as otherwise noted therein) as of January 1, 1997
(incorporated by reference to Exhibit 10.9 to the Corporations 1997
Form 10-K (SEC File No. 1-82)). First Amendment to Plan, effective
January 1, 1998 (incorporated by reference to Exhibit 10.9 to the
Corporations 1998 Form 10-K (SEC File No. 1-82)). Second Amendment
to Plan, effective January 1, 1999 (incorporated by reference to
Exhibit 10.9 to the Corporations Form 10-Q for the quarter ended June
30, 1999 (SEC File No. 1-82)). Third Amendment to Plan, effective as
of January 1, 2000 (incorporated by reference to Exhibit 10.9 of the
Corporations Form 10-Q for the quarter ended June 30, 2000 (SEC File
No. 1-82)).
|
| | 10.9  |  | The Corporations Supplemental Savings Plan (SSP) (which amends,
restates, and replaces the supplemental savings provisions of the
Corporations Comprehensive Executive Nonqualified Retirement and
Savings Plan), effective (except as otherwise noted therein) as of
January 1, 1997 (incorporated by reference to Exhibit 10.10 of the
Corporations 1997 Form 10-K (SEC File No. 1-82)); as amended by the
First Amendment to such SSP, effective as of January 1, 1999
(incorporated by reference to Exhibit 10.10 of the Corporations Form
10-Q for the quarter ended September 30, 1999 (SEC File No. 1-82)).
Second Amendment to SSP, effective as of January 1, 2000 (incorporated
by reference to Exhibit 10.10 to the Corporations Form 10-Q for the
quarter ended June 30, 2000 (SEC File No. 1-82)).                                                                                                                                                        
|
| | 10.10 |  | The Corporations Directors Stock Unit Plan effective January 1,
1997 (incorporated by reference to Exhibit 10.10 to the Corporations
1996 Form 10-K (SEC File No. 1-82)) as amended and restated, effective
January 1, 1998 (incorporated by reference to Exhibit 10.11 of the
Corporations 1997 Form 10-K (SEC File
No. 1-82)). First Amendment to Plan, effective as of January 1, 2001
(incorporated by reference to Exhibit 10.11 of the Corporations Form
10-Q for the quarter                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     



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| |       |  | ended June 30, 2000 (SEC File No. 1-82)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 10.11 |  | The Corporations 1998 Stock Option and Restricted Stock Plan (the
1998 Plan) and forms of Reload Option Agreement and Restricted Stock
Agreement under the 1998 Plan, effective March 4, 1998 (incorporated by
reference to Exhibit 10.12 to the Corporations Form 10-Q for the
quarter ended June 30, 1998 (SEC File No. 1-82)), and amended form of
Stock Option Agreement, effective June 22, 1999 (incorporated by
reference to the Corporations Form 10-Q for the quarter ended June 30,
1999 (SEC File No. 1-82)) and amended Form of Restricted Stock Letter
Agreement, effective as of July 8, 2002 (incorporated by reference to
the Corporations Form 10-Q for the quarter ended September 30, 2002
(SEC File No. 1-82)). First Amendment to the 1998 Plan, effective as
of May 4, 2000 (incorporated by reference to Exhibit 10.12 of the
Corporations Form 10-Q for the quarter ended June 30, 2000 (SEC File
No. 1-82)).
|
| |       |  | Note: Omitted from filing pursuant to the Instruction to Item 601(b)
(10) are actual Stock Option Agreements between the Corporation and
certain officers under the 1998 Plan, which contain substantially
similar provisions to Exhibit 10.11 above.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| | 10.12 |  | Retirement Agreement, dated March 6, 2002, between the Corporation
and Manuel J. Iraola (incorporated by reference to Exhibit 10.14 of the
Corporations Form 10-Q for the quarter ended March 31, 2002 (SEC File
No. 1-82)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| | 10.13 |  | Waiver and Release, effective July 8, 2002, between the
Corporation and Manuel J. Iraola (incorporated by reference to Exhibit
10.15 of the Corporations Form 10-Q for the quarter ended September
30, 2002 (SEC File No. 1-82)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| | 11    |  | Computation of per share earnings.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| | 12    |  | Computation of ratios of total debt to total capitalization.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| | 21    |  | List of Subsidiaries and Investments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| | 23    |  | Consent of PricewaterhouseCoopers LLP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| | 24    |  | Powers of Attorney executed by certain officers and directors who signed this Annual Report on Form 10-K.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |       |  | Note: Shareholders may obtain copies of Exhibits by making written
request to the Secretary of the Corporation and paying copying costs of
10 cents per page, plus postage.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               



|(b) |  | Reports on Form 8-K:                                                                                                                                          
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | A report on Form 8-K was filed on November 13, 2002, to disclose the CEO and
CFO certifications related to the Companys Form 10-Q filed on November 13,
2002.



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Schedule II

PHELPS DODGE CORPORATION AND CONSOLIDATED SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In millions)

|                                                                      |                      |                    |  |            |       |            |  |           |       |  |  |  |      |            |   |           |  |  |  |         |       |  |  |  |       | 
|--------------------------------------------------------------------- | -------------------- | ------------------ |  | ---------- | ----- | ---------- |  | --------- | ----- |  |  |  | ---- | ---------- | - | --------- |  |  |  | ------- | ----- |  |  |  | ----- | 
|                                                                      |                      |                    |  |            |       |            |  | Additions |       |  |  |  |      |            |   |           |  |  |  |        
|                                                                      |                      |                    |  |            |       |            |  |           |       |  |  |  |      |            |   |           |  |  |  |        
|                                                                      |                      |                    |  | Balance at |       | Charged to |  |           |       |  |  |  |      |            |   |           |  |  |  | Balance
|                                                                      |                      |                    |  | beginning  |       | costs and  |  |           |       |  |  |  |      |            |   |           |  |  |  | at end 
|                                                                      |                      |                    |  | of period  |       | expenses   |  | Other     |       |  |  |  |      | Deductions |   | of period
|                                                                      |                      |                    |  |            |       |            |  |           |       |  |  |  |      |            |   |          
|Reserve deducted in balance sheet
from the asset to which applicable: |                      |                    |  |            |       |            |  |           |       |  |  |  |      |            |   |           |  |  |  |         |       |  |  | 
|                                                                      | Accounts Receivable: |                    |  |            |       |            |  |           |       |  |  |  |      |            |   |           |  |  |  |         |       |  |  |  |      
|                                                                      |                      | December 31, 2002  |  |            | 14.2  |            |  |           | 5.0   |  |  |  | (0.5 | )          |   |           |  |  |  |         | 4.6   |  |  |  | 14.1  | 
|                                                                      |                      | December 31, 2001  |  |            | 17.6  |            |  |           | 1.9   |  |  |  | 0.6  |            |   |           |  |  |  |         | 5.9   |  |  |  | 14.2  | 
|                                                                      |                      | December 31, 2000  |  |            | 17.5  |            |  |           | 0.3   |  |  |  | (0.2 | )          |   |           |  |  |  |         |      |  |  |  | 17.6  | 
|                                                                      | Supplies:            |                    |  |            |       |            |  |           |       |  |  |  |      |            |   |           |  |  |  |         |       |  |  |  |      
|                                                                      |                      | December 31, 2002  |  |            | 27.2  |            |  |           | 9.7   |  |  |  | 1.8  |            |   |           |  |  |  |         | 10.3  |  |  |  | 28.4  | 
|                                                                      |                      | December 31, 2001  |  |            | 24.2  |            |  |           | 4.0   |  |  |  | 0.5  |            |   |           |  |  |  |         | 1.5   |  |  |  | 27.2  | 
|                                                                      |                      | December 31, 2000  |  |            | 25.0  |            |  |           | 1.8   |  |  |  | (1.0 | )          |   |           |  |  |  |         | 1.6   |  |  |  | 24.2  | 
|                                                                      | Deferred Tax Asset:  |                    |  |            |       |            |  |           |       |  |  |  |      |            |   |           |  |  |  |         |       |  |  |  |      
|                                                                      |                      | December 31, 2002  |  |            | 550.4 |            |  |           | 70.6  |  |  |  |     |            |   |           |  |  |  |         | 112.6 |  |  |  | 508.4 | 
|                                                                      |                      | December 31, 2001* |  |            | 280.2 |            |  |           | 275.1 |  |  |  |     |            |   |           |  |  |  |         | 4.9   |  |  |  | 550.4 | 
|                                                                      |                      | December 31, 2000  |  |            | 165.3 |            |  |           | 23.0  |  |  |  | 91.9 | (A         | ) |           |  |  |  |         |      |  |  |  | 280.2 | 



|(A) |  | Deferred Tax Assets recorded
in conjunction with the acquisition of Cyprus Amax.                                                                                          
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*   |  | 2001 has been restated. Refer to
Note 22, Restatement of Consolidated Financial Statements, to the
Consolidated Financial Statements included elsewhere in this Form 10-K.



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- 179 -




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.



|               |  |                                                           |                                                                 
|-------------- |  | --------------------------------------------------------- | ----------------------------------------------------------------
|               |  | PHELPS DODGE CORPORATION
                    (Registrant)
|               |  |                                                           |                                                                 
|April 11, 2003 |  | By:                                                       | /s/ Ramiro G. Peru                                              
|               |  |                                                           |                                                                 
|               |  |                                                           | Ramiro G. Peru
Senior Vice President
and Chief Financial Officer

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



|                                                                                                                                                                                               |  |                                                                                         |  |               
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------- |  | --------------
|/s/ J. Steven Whisler                                                                                                                                                                          |  | Chairman, President, Chief Executive Officer
and Director
(Principal Executive Officer) |  | April 11, 2003
|                                                                                                                                                                                               |  |                                                                                         |  |               
|J. Steven Whisler                                                                                                                                                                              |  |                                                                                         |  |               
|                                                                                                                                                                                               |  |                                                                                         |  |               
|/s/ Ramiro G. Peru                                                                                                                                                                             |  | Senior Vice President
and Chief Financial Officer
(Principal Financial Officer)         |  | April 11, 2003
|                                                                                                                                                                                               |  |                                                                                         |  |               
|Ramiro G. Peru                                                                                                                                                                                 |  |                                                                                         |  |               
|                                                                                                                                                                                               |  |                                                                                         |  |               
|/s/ Stanton K. Rideout                                                                                                                                                                         |  | Vice President and Controller
(Principal Accounting Officer)                            |  | April 11, 2003
|                                                                                                                                                                                               |  |                                                                                         |  |               
|Stanton K. Rideout                                                                                                                                                                             |  |                                                                                         |  |               
|                                                                                                                                                                                               |  |                                                                                         |  |               
|(Robert N. Burt,
Archie W. Dunham, William A. Franke, Marie L. Knowles, Robert D. Krebs,
Jon C. Madonna, Southwood J. Morcott, Gordon
R. Parker, William J. Post, Jack E. Thompson, Directors) |  | April 11, 2003                                                                         

|    |  |                                                    
|--- |  | ---------------------------------------------------
|By: |  | /s/ Ramiro G. Peru

Ramiro G. Peru
Attorney-in-fact

Certifications

I, J. Steven Whisler, Chairman, President and Chief Executive Officer, certify
that:



|l. |  | I have reviewed this annual report on Form 10-K of Phelps Dodge
Corporation;                                                                                                                                                                                                                                            
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;                   



---



##### Table of Contents



- 180 -



|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have identified
for the registrants auditors any material weaknesses in internal
controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

April 11, 2003

|                                                                                        
|----------------------------------------------------------------------------------------
|/s/ J. Steven Whisler

J. Steven Whisler
Chairman, President and Chief Executive Officer

I, Ramiro G. Peru, Senior Vice President and Chief Financial Officer, certify
that:

l.     I have reviewed this annual report on Form 10-K of Phelps Dodge
Corporation;



|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                  



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





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##### Table of Contents



- 181 -



| | b) |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the Evaluation Date); and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | c) |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                      



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have identified
for the registrants auditors any material weaknesses in internal
controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

April 11, 2003

|                                                                                    
|------------------------------------------------------------------------------------
|/s/ Ramiro G. Peru

Ramiro G. Peru
Senior Vice President and Chief Financial Officer





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|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Index |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|3.1           |  | Restated Certificate of Incorporation of the Corporation
(incorporated by reference to Exhibit 3.1 to the Corporations
Quarterly Report on Form 10-Q for the quarter ended June 30, 1999) as
amended by the Certificate of Amendment to the Restated Certificate of
Incorporation of Phelps Dodge Corporation (incorporated by reference to
Exhibit 2.3 to the Corporations Registration Statement on Form 8-A,
filed with the SEC on June 10, 2002 (SEC File No. 1-82)).                                                                                                                                                                                                                                                                                           
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|3.2           |  | Amended and Restated By-Laws of the Corporation, effective as of
September 5, 2001 (incorporated by reference to Exhibit 3.2 to the
Corporations Form 10-Q for the quarter ended September 30, 2001 (SEC
File No. 1-82)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|4.1           |  | Credit Agreement, effective May 10, 2000, among the Corporation,
the Lenders parties thereto, Salomon Smith Barney Inc., Bank of
Tokyo-Mitsubishi Trust Company, and Citibank, N.A., as agent
(incorporated by reference to Exhibit 4.2 of the Corporations Form
10-Q for the quarter ended March 31, 2000 (SEC File No. 1-82)).                                                                                                                                                                                                                                                                                                                                                                                                                                     
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|4.2           |  | Rights Agreement, dated as of February 5, 1998 between the
Corporation and The Chase Manhattan Bank (which replaces the Rights
Agreement dated as of July 29, 1988 as amended and restated as of
December 6, 1989, the rights issued thereunder having been redeemed by
the Corporation), which includes the form of Certificate of Amendment
setting forth the terms of the Junior Participating Cumulative
Preferred Shares, par value $1.00 per share, as Exhibit A, the form of
Right Certificate as Exhibit B and the Summary of Rights to Purchase
Preferred Shares as Exhibit C (incorporated by reference to Exhibit 1
to the Corporations Current Report on Form 8-K and in the
Corporations Form 8-A, both filed on February 6, 1998 (SEC File No.
1-82)).
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|              |  | Note: Certain instruments with respect to long-term debt of the
Corporation have not been filed as Exhibits to this Report since the
total amount of securities authorized under any such instrument does
not exceed 10 percent of the total assets of the Corporation and its
subsidiaries on a consolidated basis. The Corporation agrees to
furnish a copy of each such instrument upon request of the Securities
and Exchange Commission.                                                                                                                                                                                                                                                                                                                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|4.3           |  | Form of Indenture, dated as of September 22, 1997, between the
Corporation and The Chase Manhattan Bank, as Trustee (incorporated by
reference                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        





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##### Table of Contents



|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |  | to the Corporations Registration Statement and
Post-Effective Amendment No. 1 on Form S-3 (Registration Nos.
333-36415 and 33-44380)) filed with the Securities and Exchange
Commission on September 25, 1997 (incorporated by reference to
Exhibit 4.3 to the Corporations Form 10-Q for the quarter ended
September 30, 1997 (SEC File No. 1-82)).                                                                                                                                               
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|4.4  |  | Form of 6.375 percent Note, due November 1, 2004, of the
Corporation issued on November 5, 1997, pursuant to the Indenture,
dated as of September 22, 1997, between the Corporation and The Chase
Manhattan Bank, as Trustee (incorporated by reference to the
Corporations Current Report on Form 8-K filed with the Securities and
Exchange Commission on November 3, 1997 and Exhibit 4.4 of Form 10-Q
for the quarter ended September 30, 1997 (SEC File No. 1-82)).                            
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|4.5  |  | Form of 7.125 percent Debenture, due November 1, 2027, of the
Corporation issued on November 5, 1997, pursuant to the Indenture,
dated as of September 22, 1997, between the Corporation and The Chase
Manhattan Bank, as Trustee (incorporated by reference to the
Corporations Current Report on Form 8-K filed with the Securities and
Exchange Commission on November 3, 1997 and Exhibit 4.5 of the
Corporations Form 10-Q for the quarter ended September 30, 1997 (SEC
File No. 1-82)).     
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|4.6  |  | Tripartite/Conversion Agreement, dated as of August 8, 2000, among
Chase Manhattan Bank and First Union National Bank, and acknowledged by
the Corporation, pursuant to which First Union National Bank succeeded
Chase Manhattan Bank as trustee under the Indenture dated as of
September 22, 1997
(incorporated by reference to the Corporations Registration Statement
on Form S-3 (Reg. No. 333-43890) filed with the Securities and Exchange
Commission on August 16, 2000).                  
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|4.7  |  | Form of 8.75 percent Note due June 1, 2011, of the Corporation
issued on May 30, 2001, pursuant to the Indenture dated September 22,
1997, between the Company and First Union National Bank, as successor
Trustee (incorporated by reference to the Current Report on Form 8-K
filed with the Securities and Exchange Commission on May 30, 2001 (SEC
File No. 1-82)).                                                                                                                              
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|4.8  |  | Form of 9.5 percent Note due June 1, 2031, of the Corporation
issued on May 30, 2001, pursuant to the Indenture dated September 22,
1997, between the Company and First Union National Bank, as successor
Trustee (incorporated by reference to the Current Report on Form 8-K
filed with the Securities and Exchange Commission May 30, 2001 (SEC
File No. 1-82)).                                                                                                                                  
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|4.9  |  | Form of Common Share Certificate of the Corporation (incorporated
by reference to Exhibit 4.9 of the Corporations Form 10-Q for the
quarter ended June 30, 2002 (SEC File No. 1-82)).                                                                                                                                                                                                                                                                                                               
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|4.10 |  | Form of 6.75 percent Series A Mandatory Convertible Preferred Share
Certificate of the Corporation (incorporated by reference to Exhibit
4.10 of the Corporations Form 10-Q for the quarter ended June 30, 2002
(SEC File No. 1-82)).                                                                                                                                                                                                                                                               
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.  |  | Management contracts and compensatory plans and agreements.                                                                                                                                                                                                                                                                                                                                                                                                                                          
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.1 |  | The Corporations 1989 Directors Stock Option Plan (the 1989
Directors Plan), as amended to and including June 3, 1992, suspended
effective November 6, 1996 (incorporated by reference to Exhibit 10.3
to the Corporations Form 10-Q for the quarter ended June 30, 1992
(SEC File No. 1-82)). Form of Stock Option Agreement under the 1989
Directors Plan (incorporated by reference to the Corporations
Registration Statement on Form S-8 (Reg. No. 33-34362)).                               
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.2 |  | The Corporations 1993 Stock Option and Restricted Stock Plan (the
1993 Plan), as amended through December 1, 1993, and form of
Restricted Stock letter under the 1993 Plan (incorporated by reference
to Exhibit 10.4 to the Corporations 1993 Form 10-K (SEC File No.
1-82)). Amendment to 1993 Plan effective May 7, 1997 (incorporated by
reference to Exhibit 10.15 to the Corporations Form 10-Q for the
quarter ended June 30, 1997 (SEC File No. 1-82)). Amended and
restated form of Stock





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|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |  | Option Agreement, amended through February 5,
1997 (incorporated by reference to Exhibit 10.3 of the Corporations
1997 Form 10-K (SEC File No. 1-82)). Form of Reload Option Agreement,
amended through November 2, 1994, under the 1993 Plan (incorporated by
reference to Exhibit 10.3 to the Corporations 1994 Form 10-K (SEC
File No. 1-82)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|      |  | Note: Omitted from filing pursuant to the Instruction to Item 601(b)
(10) are actual Stock Option Agreements between the Corporation and
certain officers, under the 1993 Plan, and certain Directors, under the
1989 Directors Plan, which contain substantial similar provisions to
Exhibits 10.1 and 10.2 above.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|10.3  |  | Description of the Corporations Incentive Compensation Plan
(incorporated by reference to Exhibit 10.5 to the Corporations 1993
Form 10-K (SEC File No. 1-82)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|10.4  |  | Amended and restated Deferred Compensation Plan for the Directors
of the Corporation, dated as of December 3, 1998, effective January 1,
1999 (incorporated by reference to Exhibit 10.5 to the Corporations
1998 Form 10-K (SEC File No. 1-82)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|10.5  |  | Form of Change-of-Control Agreement between the Corporation and
certain executives, including all of the current executive officers to
be listed in the summary compensation table to the 2003 Proxy Statement
(SEC File No. 1-82).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|10.6  |  | Amended and restated form of Severance Agreement between the
Corporation and certain executives, including all of the current
executive officers to be listed in the summary compensation table to
the 2003
Proxy Statement (incorporated by reference to Exhibit 10.7 of the
Corporations 1997 Form 10-K (SEC File No. 1-82)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|10.7  |  | The Corporations Retirement Plan for Directors, effective January
1, 1988, terminated for active directors effective December 31, 1997
(incorporated by reference to Exhibit 10.13 to the Corporations 1987
Form 10-K (SEC File No. 1-82)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|10.8  |  | The Corporations Supplemental Retirement Plan (which amends,
restates and re-names the provisions of the Corporations
Comprehensive Executive Nonqualified Retirement and Savings Plan other
than the supplemental savings provisions of such plan), effective
(except as otherwise noted therein) as of January 1, 1997
(incorporated by reference to Exhibit 10.9 to the Corporations 1997
Form 10-K (SEC File No. 1-82)). First Amendment to Plan, effective
January 1, 1998 (incorporated by reference to Exhibit 10.9 to the
Corporations 1998 Form 10-K (SEC File No. 1-82)). Second Amendment
to Plan, effective January 1, 1999 (incorporated by reference to
Exhibit 10.9 to the Corporations Form 10-Q for the quarter ended June
30, 1999 (SEC File No. 1-82)). Third Amendment to Plan, effective as
of January 1, 2000 (incorporated by reference to Exhibit 10.9 of the
Corporations Form 10-Q for the quarter ended June 30, 2000 (SEC File
No. 1-82)).
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|10.9  |  | The Corporations Supplemental Savings Plan (SSP) (which amends,
restates, and replaces the supplemental savings provisions of the
Corporations Comprehensive Executive Nonqualified Retirement and
Savings Plan), effective (except as otherwise noted therein) as of
January 1, 1997 (incorporated by reference to Exhibit 10.10 of the
Corporations 1997 Form 10-K (SEC File No. 1-82)); as amended by the
First Amendment to such SSP, effective as of January 1, 1999
(incorporated by reference to Exhibit 10.10 of the Corporations Form
10-Q for the quarter ended September 30, 1999 (SEC File No. 1-82)).
Second Amendment to SSP, effective as of January 1, 2000 (incorporated
by reference to Exhibit 10.10 to the Corporations Form 10-Q for the
quarter ended June 30, 2000 (SEC File No. 1-82)).                                                                                                                                                        
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|10.10 |  | The Corporations Directors Stock Unit Plan effective January 1,
1997 (incorporated by reference to Exhibit 10.10 to the Corporations
1996 Form 10-K (SEC File No. 1-82)) as amended and restated, effective
January 1, 1998 (incorporated by reference to Exhibit 10.11 of the
Corporations 1997 Form 10-K (SEC File No. 1-82)). First Amendment to
Plan, effective as of January 1, 2001 (incorporated by reference to
Exhibit 10.11 of the Corporations Form 10-Q for the quarter                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     





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##### Table of Contents



|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |  | ended
June 30, 2000 (SEC File No. 1-82)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.11 |  | The Corporations 1998 Stock Option and Restricted Stock Plan (the
1998 Plan) and forms of Reload Option Agreement and Restricted Stock
Agreement under the 1998 Plan, effective March 4, 1998 (incorporated by
reference to Exhibit 10.12 to the Corporations Form 10-Q for the
quarter ended June 30, 1998 (SEC File No. 1-82)), and amended form of
Stock Option Agreement, effective June 22, 1999 (incorporated by
reference to the Corporations Form 10-Q for the quarter ended June 30,
1999 (SEC File No. 1-82)) and amended Form of Restricted Stock Letter
Agreement, effective as of July 8, 2002 (incorporated by reference to
the Corporations Form 10-Q for the quarter ended September 30, 2002
(SEC File No. 1-82)). First Amendment to the 1998 Plan, effective as
of May 4, 2000 (incorporated by reference to Exhibit 10.12 of the
Corporations Form 10-Q for the quarter
|      |  | ended June 30, 2000 (SEC File
No. 1-82)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|      |  | Note: Omitted from filing pursuant to the Instruction to Item 601(b)
(10) are actual Stock Option Agreements between the Corporation and
certain officers under the 1998 Plan, which contain substantially
similar provisions to Exhibit 10.11 above.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.12 |  | Retirement Agreement, dated March 6, 2002, between the Corporation
and Manuel J. Iraola (incorporated by reference to Exhibit 10.14 of the
Corporations Form 10-Q for the quarter ended March 31, 2002 (SEC File
No. 1-82)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.13 |  | Waiver and Release, effective July 8, 2002, between the
Corporation and Manuel J. Iraola (incorporated by reference to Exhibit
10.15 of the Corporations Form 10-Q for the quarter ended September
30, 2002 (SEC File No. 1-82)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|11    |  | Computation of per share earnings.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|12    |  | Computation of ratios of total debt to total capitalization.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|21    |  | List of Subsidiaries and Investments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|23    |  | Consent of PricewaterhouseCoopers LLP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|24    |  | Powers of Attorney executed by certain officers and directors who
signed this Annual Report on Form 10-K.
Note: Shareholders may obtain copies of Exhibits by making written
request to the Secretary of the Corporation and paying copying costs
of 10 cents per page, plus postage.