##### Table of Contents



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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



FORM 10-Q



QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934



For the quarter ended June 30, 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

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

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  (XBOX)    No  (BOX) .
Number of Common Shares outstanding at August 12,
2002: 88,906,857 shares.



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TABLE OF CONTENTS



|                              |                                                             |                                                                    |  |  |  |  |  | 
|----------------------------- | ----------------------------------------------------------- | ------------------------------------------------------------------ |  |  |  |  |  | 
|Part I. Financial Information
|                              | Item 1. Financial Statements                               
|                              |                                                             | STATEMENT OF CONSOLIDATED OPERATIONS                              
|                              |                                                             | CONSOLIDATED BALANCE SHEET                                        
|                              |                                                             | CONSOLIDATED STATEMENT OF CASH FLOWS                              
|                              |                                                             | CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY                    
|                              |                                                             | FINANCIAL DATA BY BUSINESS SEGMENT                                
|                              |                                                             | NOTES TO CONSOLIDATED FINANCIAL INFORMATION                       
|                              |                                                             | REVIEW BY INDEPENDENT ACCOUNTANTS                                 
|                              |                                                             | Report of Independent Accountants                                 
|                              | Item 2. Managements Discussion and Analysis               
|                              |                                                             | RESULTS OF OPERATIONS                                             
|                              |                                                             | RESULTS OF PHELPS DODGE MINING COMPANY                            
|                              |                                                             | RESULTS OF PHELPS DODGE INDUSTRIES                                
|                              |                                                             | OTHER MATTERS RELATING TO THE STATEMENT OF CONSOLIDATED OPERATIONS
|                              |                                                             | CHANGES IN FINANCIAL CONDITION                                    
|Part II. Other Information   
|                              | Item 1. Legal Proceedings                                  
|                              | Item 4. Submission of Matters to a Vote of Security Holders
|                              | Item 6. Exhibits and Reports on Form 8-K                   
|Signatures                   
|Index to Exhibits            
|EX-4.9                       
|EX-4.10                      
|EX-11                        
|EX-12                        
|EX-15                        



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##### Table of Contents



-i-

PHELPS DODGE CORPORATION

Quarterly Report on Form 10-Q

For the Quarter Ended June 30, 2002

Table of Contents

|                              |                                                             |                                                                    |  |      |    | 
|----------------------------- | ----------------------------------------------------------- | ------------------------------------------------------------------ |  | ---- | -- | 
|                              |                                                             |                                                                    |  | Page
|                              |                                                             |                                                                    |  |     
|Part I. Financial Information |                                                             |                                                                    |  |     
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|                              |                                                             |                                                                    |  |     
|                             
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|                              | Item 1. Financial Statements (unaudited)                    |                                                                    |  |      |   
|                             
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|                             
|                              |                                                             | Statement of Consolidated Operations                               |  |      | 1  | 
|                             
|                             
|                             
|                             
|                              |                                                             | Consolidated Balance Sheet                                         |  |      | 2  | 
|                             
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|                              |                                                             | Consolidated Statement of Cash Flows                               |  |      | 3  | 
|                             
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|                              |                                                             | Consolidated Statement of Shareholders Equity                     |  |      | 4  | 
|                             
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|                              |                                                             | Financial Data by Business Segment                                 |  |      | 5  | 
|                             
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|                              |                                                             | Notes to Consolidated Financial Information                        |  |      | 6  | 
|                             
|                             
|                             
|                             
|                              |                                                             | Review by Independent Accountants                                  |  |      | 14 | 
|                             
|                             
|                             
|                             
|                              |                                                             | Report of Independent Accountants                                  |  |      | 15 | 
|                             
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|                              |                                                             |                                                                    |  |     
|                             
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|                              | Item 2. Managements Discussion and Analysis                |                                                                    |  |      |   
|                             
|                             
|                             
|                             
|                              |                                                             | Results of Operations                                              |  |      | 16 | 
|                             
|                             
|                             
|                             
|                              |                                                             | Results of Phelps Dodge Mining Company                             |  |      | 18 | 
|                             
|                             
|                             
|                             
|                              |                                                             | Results of Phelps Dodge Industries                                 |  |      | 20 | 
|                             
|                             
|                             
|                             
|                              |                                                             | Other Matters Relating to the Statement of Consolidated Operations |  |      | 21 | 
|                             
|                             
|                             
|                             
|                              |                                                             | Changes in Financial Condition                                     |  |      | 21 | 
|                             
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|                              |                                                             |                                                                    |  |     
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|Part II. Other Information    |                                                             |                                                                    |  |     
|                             
|                             
|                             
|                             
|                              |                                                             |                                                                    |  |     
|                             
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|                             
|                             
|                              | Item 1. Legal Proceedings                                   |                                                                    |  | 24   |   
|                             
|                             
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|                             
|                              |                                                             |                                                                    |  |     
|                             
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|                              | Item 4. Submission of Matters to a Vote of Security Holders |                                                                    |  | 24   |   
|                             
|                             
|                             
|                             
|                              |                                                             |                                                                    |  |     
|                             
|                             
|                             
|                             
|                              | Item 6. Exhibits and Reports on Form 8-K                    |                                                                    |  | 25   |   
|                             
|                             
|                             
|                             
|                              |                                                             |                                                                    |  |     
|                             
|                             
|                             
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|                              | Signatures                                                  |                                                                    |  | 26   |   
|                             
|                             
|                             
|                             
|                              |                                                             |                                                                    |  |     
|                             
|                             
|                             
|                             
|                              | Index to Exhibits                                           |                                                                    |  | 27   |   



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##### Table of Contents



-1-

PHELPS DODGE CORPORATION AND SUBSIDIARIES




Part I. Financial Information





Item 1. Financial Statements




STATEMENT OF CONSOLIDATED OPERATIONS
(Unaudited; in millions except per share data)

|                                                                                                                                        |                                                                       |   |                |       |          |  |         |       |      |  |                  |         |   |  |         |         |  
|--------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------- | - | -------------- | ----- | -------- |  | ------- | ----- | ---- |  | ---------------- | ------- | - |  | ------- | ------- | -
|                                                                                                                                        |                                                                       |   |                |       |          |  |         |       |      |  | Six Months Ended
|                                                                                                                                        |                                                                       |   | Second Quarter |       | June 30,
|                                                                                                                                        |                                                                       |   |                |       |         
|                                                                                                                                        |                                                                       |   | 2002           |       | 2001     |  | 2002    |       | 2001
|                                                                                                                                        |                                                                       |   |                |       |          |  |         |       |     
|Sales and other operating revenues                                                                                                      |                                                                       | $ | 966.8          |       |          |  | 1,063.5 |       |      |  | 1,885.3          |         |   |  | 2,164.2 |        
|                                                                                                                                        |                                                                       |   |                |       |          |  |         |       |      |  |                  |         |   |  |         |        
|Operating costs and expenses                                                                                                            |                                                                       |   |                |       |          |  |         |       |      |  |                  |         |   |  |         |        
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                        | Cost of products sold                                                 |   |                | 807.2 |          |  |         | 897.5 |      |  |                  | 1,576.0 |   |  |         | 1,831.2 |  
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                        | Depreciation, depletion and amortization                              |   |                | 106.1 |          |  |         | 121.3 |      |  |                  | 211.7   |   |  |         | 237.8   |  
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                        | Selling and general administrative expense                            |   |                | 29.8  |          |  |         | 31.5  |      |  |                  | 62.0    |   |  |         | 63.7    |  
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                        | Exploration and research expense                                      |   |                | 9.2   |          |  |         | 17.1  |      |  |                  | 17.9    |   |  |         | 31.9    |  
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                        | Special items and provisions, net (see Note 2)                        |   |                | 30.3  |          |  |         | 13.3  |      |  |                  | 26.5    |   |  |         | (17.6   | )
|                                                                                                                                        |                                                                       |   |                |       |          |  |         |       |      |  |                  |         |   |  |         |        
|                                                                                                                                        |                                                                       |   | 982.6          |       |          |  | 1,080.7 |       |      |  | 1,894.1          |         |   |  | 2,147.0 |        
|                                                                                                                                        |                                                                       |   |                |       |          |  |         |       |      |  |                  |         |   |  |         |        
|                                                                                                                                        |                                                                       |   |                |       |          |  |         |       |      |  |                  |         |   |  |         |        
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Operating income (loss)                                                                                                                 |                                                                       |   | (15.8          | )     |          |  | (17.2   | )     |      |  | (8.8             | )       |   |  | 17.2    |        
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                        | Interest expense                                                      |   |                | (49.2 | )        |  |         | (55.5 | )    |  |                  | (102.0  | ) |  |         | (108.9  | )
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                        | Capitalized interest                                                  |   |                |      |          |  |         |      |      |  |                  |        |   |  |         | 0.6     |  
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                        | Miscellaneous income and expense, net                                 |   |                | (0.3  | )        |  |         | 10.9  |      |  |                  | 1.7     |   |  |         | 14.6    |  
|                                                                                                                                        |                                                                       |   |                |       |          |  |         |       |      |  |                  |         |   |  |         |        
|Loss before taxes, minority interests, equity in net earnings (loss)
of affiliated companies and cumulative effect of accounting change |                                                                       |   | (65.3          | )     |          |  | (61.8   | )     |      |  | (109.1           | )       |   |  | (76.5   | )      
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                        | Benefit (provision) for taxes on income (see Note 8)                  |   |                | 30.8  |          |  |         | (47.4 | )    |  |                  | 70.5    |   |  |         | (14.1   | )
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                        | Minority interests in consolidated subsidiaries                       |   |                | (2.5  | )        |  |         | (1.3  | )    |  |                  | (3.7    | ) |  |         | (2.9    | )
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                        | Equity in net earnings (loss) of affiliated companies                 |   |                | 0.6   |          |  |         |      |      |  |                  | 1.1     |   |  |         | (0.8    | )
|                                                                                                                                        |                                                                       |   |                |       |          |  |         |       |      |  |                  |         |   |  |         |        
|Loss before cumulative effect of accounting change                                                                                      |                                                                       |   | (36.4          | )     |          |  | (110.5  | )     |      |  | (41.2            | )       |   |  | (94.3   | )      
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                        | Cumulative effect of accounting change, net of taxes
of $10.1 in 2002 |   |                |      |          |  |         |      |      |  |                  | (22.9   | ) |  |         | (2.0    | )
|                                                                                                                                        |                                                                       |   |                |       |          |  |         |       |      |  |                  |         |   |  |         |        
|Net loss                                                                                                                                |                                                                       | $ | (36.4          | )     |          |  | (110.5  | )     |      |  | (64.1            | )       |   |  | (96.3   | )      
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                        | Preferred stock dividends                                             |   |                | (2.4  | )        |  |         |      |      |  |                  | (2.4    | ) |  |         |        |  
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Loss applicable to common shares                                                                                                        |                                                                       | $ | (38.8          | )     |          |  | (110.5  | )     |      |  | (66.5            | )       |   |  | (96.3   | )      
|                                                                                                                                        |                                                                       |   |                |       |          |  |         |       |      |  |                  |         |   |  |         |        
|                                                                                                                                        |                                                                       |   |                |       |          |  |         |       |      |  |                  |         |   |  |         |        
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Average number of shares outstanding  basic                                                                                            |                                                                       |   | 80.6           |       |          |  | 78.5    |       |      |  | 79.6             |         |   |  | 78.5    |        
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                        |                                                                       |   |                |       |          |  |         |       |      |  |                  |         |   |  |         |        
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Basic loss per share before cumulative effect of accounting change                                                                      |                                                                       | $ | (0.48          | )     |          |  | (1.41   | )     |      |  | (0.55            | )       |   |  | (1.20   | )      
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                        | Cumulative effect of accounting change                                |   |                |      |          |  |         |      |      |  |                  | (0.29   | ) |  |         | (0.03   | )
|                                                                                                                                        |                                                                       |   |                |       |          |  |         |       |      |  |                  |         |   |  |         |        
|Basic loss per share                                                                                                                    |                                                                       | $ | (0.48          | )     |          |  | (1.41   | )     |      |  | (0.84            | )       |   |  | (1.23   | )      
|                                                                                                                                        |                                                                       |   |                |       |          |  |         |       |      |  |                  |         |   |  |         |        
|                                                                                                                                        |                                                                       |   |                |       |          |  |         |       |      |  |                  |         |   |  |         |        
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Average number of shares outstanding  diluted                                                                                          |                                                                       |   | 80.6           |       |          |  | 78.5    |       |      |  | 79.6             |         |   |  | 78.5    |        
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                        |                                                                       |   |                |       |          |  |         |       |      |  |                  |         |   |  |         |        
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Diluted loss per share before cumulative effect of accounting change                                                                    |                                                                       | $ | (0.48          | )     |          |  | (1.41   | )     |      |  | (0.55            | )       |   |  | (1.20   | )      
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                        | Cumulative effect of accounting change                                |   |                |      |          |  |         |      |      |  |                  | (0.29   | ) |  |         | (0.03   | )
|                                                                                                                                        |                                                                       |   |                |       |          |  |         |       |      |  |                  |         |   |  |         |        
|Diluted loss per share                                                                                                                  |                                                                       | $ | (0.48          | )     |          |  | (1.41   | )     |      |  | (0.84            | )       |   |  | (1.23   | )      
|                                                                                                                                        |                                                                       |   |                |       |          |  |         |       |      |  |                  |         |   |  |         |        

See Notes to Consolidated Financial Information.



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##### Table of Contents



-2-




CONSOLIDATED BALANCE SHEET
(Unaudited; in millions except par value data)

|                                                |                                                                                                                |                     |         |          |         |              |         |         |         | 
|----------------------------------------------- | -------------------------------------------------------------------------------------------------------------- | ------------------- | ------- | -------- | ------- | ------------ | ------- | ------- | ------- | 
|                                                |                                                                                                                |                     |         | June 30, |         | December 31,
|                                                |                                                                                                                |                     |         | 2002     |         | 2001        
|                                                |                                                                                                                |                     |         |          |         |             
|Assets                                          |                                                                                                                |                     |         |          |         |              |         |        
|                                               
|                                               
|                                               
|                                               
|                                                | Cash and cash equivalents                                                                                      |                     | $       | 870.3    |         |              |         | 386.9   |        
|                                               
|                                               
|                                               
|                                               
|                                                | Accounts receivable, net                                                                                       |                     |         | 415.2    |         |              |         | 398.8   |        
|                                               
|                                               
|                                               
|                                               
|                                                | Inventories and supplies                                                                                       |                     |         | 566.3    |         |              |         | 602.1   |        
|                                               
|                                               
|                                               
|                                               
|                                                | Prepaid expenses and other current assets                                                                      |                     |         | 133.4    |         |              |         | 116.4   |        
|                                                |                                                                                                                |                     |         |          |         |              |         |        
|                                                |                                                                                                                | Current assets      |         |          | 1,985.2 |              |         |         | 1,504.2 | 
|                                               
|                                               
|                                               
|                                               
|                                                | Investments and long-term receivables                                                                          |                     |         | 130.3    |         |              |         | 105.3   |        
|                                               
|                                               
|                                               
|                                               
|                                                | Net property, plant and equipment                                                                              |                     |         | 5,500.9  |         |              |         | 5,665.6 |        
|                                               
|                                               
|                                               
|                                               
|                                                | Non-current deferred income taxes                                                                              |                     |         | 58.3     |         |              |         | 56.3    |        
|                                               
|                                               
|                                               
|                                               
|                                                | Other assets and deferred charges                                                                              |                     |         | 239.8    |         |              |         | 287.4   |        
|                                                |                                                                                                                |                     |         |          |         |              |         |        
|                                                |                                                                                                                | $                   | 7,914.5 |          |         |              | 7,618.8 |        
|                                                |                                                                                                                |                     |         |          |         |              |         |        
|                                                |                                                                                                                |                     |         |          |         |              |         |        
|                                               
|                                               
|                                               
|                                               
|Liabilities                                     |                                                                                                                |                     |         |          |         |              |         |        
|                                               
|                                               
|                                               
|                                               
|                                                | Short-term debt                                                                                                |                     | $       | 51.6     |         |              |         | 59.3    |        
|                                               
|                                               
|                                               
|                                               
|                                                | Current portion of long-term debt                                                                              |                     |         | 135.7    |         |              |         | 269.7   |        
|                                               
|                                               
|                                               
|                                               
|                                                | Accounts payable and accrued expenses                                                                          |                     |         | 659.5    |         |              |         | 673.7   |        
|                                               
|                                               
|                                               
|                                               
|                                                | Dividends payable                                                                                              |                     |         | 2.4      |         |              |         |        |        
|                                               
|                                               
|                                               
|                                               
|                                                | Accrued income taxes                                                                                           |                     |         | 10.9     |         |              |         | 11.5    |        
|                                                |                                                                                                                |                     |         |          |         |              |         |        
|                                                |                                                                                                                | Current liabilities |         |          | 860.1   |              |         |         | 1,014.2 | 
|                                               
|                                               
|                                               
|                                               
|                                                | Long-term debt                                                                                                 |                     |         | 2,467.5  |         |              |         | 2,522.0 |        
|                                               
|                                               
|                                               
|                                               
|                                                | Deferred income taxes                                                                                          |                     |         | 444.3    |         |              |         | 441.8   |        
|                                               
|                                               
|                                               
|                                               
|                                                | Other liabilities and deferred credits                                                                         |                     |         | 859.4    |         |              |         | 874.2   |        
|                                                |                                                                                                                |                     |         |          |         |              |         |        
|                                                |                                                                                                                |                     | 4,631.3 |          |         |              | 4,852.2 |        
|                                                |                                                                                                                |                     |         |          |         |              |         |        
|                                                |                                                                                                                |                     |         |          |         |              |         |        
|                                               
|                                               
|                                               
|                                               
|Minority interests in consolidated subsidiaries |                                                                                                                |                     | 62.4    |          |         |              | 59.4    |        
|                                                |                                                                                                                |                     |         |          |         |              |         |        
|                                                |                                                                                                                |                     |         |          |         |              |         |        
|                                               
|                                               
|                                               
|                                               
|Shareholders equity                            |                                                                                                                |                     |         |          |         |              |         |        
|                                               
|                                               
|                                               
|                                               
|                                                | Common shares, par value $6.25; 200.0 shares authorized;
88.7 outstanding in 2002 and 78.7 outstanding in 2001 |                     |         | 554.5    |         |              |         | 491.9   |        
|                                               
|                                               
|                                               
|                                               
|                                                | Preferred shares, par value $1.00; 6.0 shares authorized;
2.0 outstanding in 2002                              |                     |         | 2.0      |         |              |         |        |        
|                                               
|                                               
|                                               
|                                               
|                                                | Capital in excess of par value                                                                                 |                     |         | 1,544.5  |         |              |         | 1,016.8 |        
|                                               
|                                               
|                                               
|                                               
|                                                | Retained earnings                                                                                              |                     |         | 1,431.1  |         |              |         | 1,497.6 |        
|                                               
|                                               
|                                               
|                                               
|                                                | Accumulated other comprehensive loss                                                                           |                     |         | (305.7   | )       |              |         | (292.7  | )      
|                                               
|                                               
|                                               
|                                               
|                                                | Other                                                                                                          |                     |         | (5.6     | )       |              |         | (6.4    | )      
|                                                |                                                                                                                |                     |         |          |         |              |         |        
|                                                |                                                                                                                |                     | 3,220.8 |          |         |              | 2,707.2 |        
|                                                |                                                                                                                |                     |         |          |         |              |         |        
|                                                |                                                                                                                |                     |         |          |         |              |         |        
|                                               
|                                               
|                                               
|                                               
|                                                |                                                                                                                | $                   | 7,914.5 |          |         |              | 7,618.8 |        
|                                                |                                                                                                                |                     |         |          |         |              |         |        

See Notes to Consolidated Financial Information.



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##### Table of Contents



-3-




CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited; in millions)

|                                                 |                                                                                 |                                                  |                                                     |                                           |       |                  |       |         |       |       |        |  
|------------------------------------------------ | ------------------------------------------------------------------------------- | ------------------------------------------------ | --------------------------------------------------- | ----------------------------------------- | ----- | ---------------- | ----- | ------- | ----- | ----- | ------ | -
|                                                 |                                                                                 |                                                  |                                                     |                                           |       | Six Months Ended
|                                                 |                                                                                 |                                                  |                                                     |                                           |       | June 30,        
|                                                 |                                                                                 |                                                  |                                                     |                                           |       |                 
|                                                 |                                                                                 |                                                  |                                                     |                                           |       | 2002             |       | 2001   
|                                                 |                                                                                 |                                                  |                                                     |                                           |       |                  |       |        
|Operating activities                             |                                                                                 |                                                  |                                                     |                                           |       |                  |       |        
|                                                
|                                                
|                                                
|                                                
|                                                 | Net loss                                                                        |                                                  | $                                                   | (64.1                                     | )     |                  |       | (96.3   | )    
|                                                
|                                                
|                                                
|                                                
|                                                 | Adjustments to reconcile net loss to net cash
provided by operating activities: |                                                  |                                                     |                                           |       |                  |       |         |      
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                 | Depreciation, depletion and amortization         |                                                     |                                           | 211.7 |                  |       |         | 237.8 |      
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                 | Deferred income taxes                            |                                                     |                                           | (9.1  | )                |       |         | 7.6   |      
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                 | Equity earnings (loss) net of dividends received |                                                     |                                           | 1.2   |                  |       |         | 1.3   |      
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                 | Special items and provisions                     |                                                     |                                           | 60.7  |                  |       |         | (21.4 | )    
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                 | Changes in current assets and liabilities:       |                                                     |                                           |       |                  |       |         |       |      
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                 |                                                  | Accounts receivable, net                            |                                           |       | (24.2            | )     |         |       | (19.1 | )     
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                 |                                                  | Proceeds from securitization of accounts receivable |                                           |       | 4.7              |       |         |       |      |       
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                 |                                                  | Inventories                                         |                                           |       | 37.0             |       |         |       | (1.2  | )     
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                 |                                                  | Supplies                                            |                                           |       | (0.3             | )     |         |       | (0.4  | )     
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                 |                                                  | Prepaid expenses and other current assets           |                                           |       | (9.9             | )     |         |       | (7.5  | )     
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                 |                                                  | Deferred income taxes                               |                                           |       | 0.1              |       |         |       | 0.1   |       
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                 |                                                  | Interest payable                                    |                                           |       | (7.5             | )     |         |       | 5.8   |       
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                 |                                                  | Other accounts payable                              |                                           |       | (29.7            | )     |         |       | 0.1   |       
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                 |                                                  | Accrued income taxes                                |                                           |       | 1.5              |       |         |       | (7.9  | )     
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                 |                                                  | Other accrued expenses                              |                                           |       | (15.6            | )     |         |       | (20.0 | )     
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                 | Other adjustments, net                           |                                                     |                                           | 23.2  |                  |       |         | (1.6  | )    
|                                                 |                                                                                 |                                                  |                                                     |                                           |       |                  |       |        
|                                                 |                                                                                 |                                                  |                                                     | Net cash provided by operating
activities |       |                  | 179.7 |         |       |       | 77.3   |  
|                                                 |                                                                                 |                                                  |                                                     |                                           |       |                  |       |        
|                                                 |                                                                                 |                                                  |                                                     |                                           |       |                  |       |        
|                                                
|                                                
|                                                
|                                                
|Investing activities                             |                                                                                 |                                                  |                                                     |                                           |       |                  |       |        
|                                                
|                                                
|                                                
|                                                
|                                                 | Capital outlays                                                                 |                                                  |                                                     | (48.9                                     | )     |                  |       | (146.1  | )    
|                                                
|                                                
|                                                
|                                                
|                                                 | Capitalized interest                                                            |                                                  |                                                     |                                          |       |                  |       | (0.6    | )    
|                                                
|                                                
|                                                
|                                                
|                                                 | Investment in subsidiaries and other                                            |                                                  |                                                     | (1.9                                      | )     |                  |       | (47.0   | )    
|                                                
|                                                
|                                                
|                                                
|                                                 | Proceeds from asset dispositions                                                |                                                  |                                                     | 24.6                                      |       |                  |       | 1.1     |      
|                                                
|                                                
|                                                
|                                                
|                                                 | Other investing                                                                 |                                                  |                                                     | (28.7                                     | )     |                  |       | (2.2    | )    
|                                                 |                                                                                 |                                                  |                                                     |                                           |       |                  |       |        
|                                                 |                                                                                 |                                                  |                                                     | Net cash used in investing activities     |       |                  | (54.9 | )       |       |       | (194.8 | )
|                                                 |                                                                                 |                                                  |                                                     |                                           |       |                  |       |        
|                                                 |                                                                                 |                                                  |                                                     |                                           |       |                  |       |        
|                                                
|                                                
|                                                
|                                                
|Financing activities                             |                                                                                 |                                                  |                                                     |                                           |       |                  |       |        
|                                                
|                                                
|                                                
|                                                
|                                                 | Increase in debt                                                                |                                                  |                                                     | 16.8                                      |       |                  |       | 1,175.2 |      
|                                                
|                                                
|                                                
|                                                
|                                                 | Payment of debt                                                                 |                                                  |                                                     | (246.7                                    | )     |                  |       | (887.2  | )    
|                                                
|                                                
|                                                
|                                                
|                                                 | Common dividends                                                                |                                                  |                                                     |                                          |       |                  |       | (49.2   | )    
|                                                
|                                                
|                                                
|                                                
|                                                 | Issuance of shares                                                              |                                                  |                                                     | 592.2                                     |       |                  |       | 0.4     |      
|                                                
|                                                
|                                                
|                                                
|                                                 | Other, net                                                                      |                                                  |                                                     | (3.7                                      | )     |                  |       | (7.7    | )    
|                                                 |                                                                                 |                                                  |                                                     |                                           |       |                  |       |        
|                                                 |                                                                                 |                                                  |                                                     | Net cash provided by financing
activities |       |                  | 358.6 |         |       |       | 231.5  |  
|                                                 |                                                                                 |                                                  |                                                     |                                           |       |                  |       |        
|                                                 |                                                                                 |                                                  |                                                     |                                           |       |                  |       |        
|                                                
|                                                
|                                                
|                                                
|Increase in cash and cash equivalents            |                                                                                 |                                                  | 483.4                                               |                                           |       |                  | 114.0 |        
|                                                
|                                                
|                                                
|                                                
|Cash and cash equivalents at beginning of period |                                                                                 |                                                  | 386.9                                               |                                           |       |                  | 250.0 |        
|                                                 |                                                                                 |                                                  |                                                     |                                           |       |                  |       |        
|                                                 |                                                                                 |                                                  |                                                     |                                           |       |                  |       |        
|                                                
|                                                
|                                                
|                                                
|Cash and cash equivalents at end of period       |                                                                                 | $                                                | 870.3                                               |                                           |       |                  | 364.0 |        
|                                                 |                                                                                 |                                                  |                                                     |                                           |       |                  |       |        

See Notes to Consolidated Financial Information.



---



##### Table of Contents



-4-




CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
(Unaudited; in millions)

|                             |                               |                                                |                                    |                          |  |               |       |                  |  |            |     |        |  |           |     |          |  |               |         |       |  |        |         |               |       |   |        |   |  |       |       |     |  |   |         |       |       |       |       |  
|---------------------------- | ----------------------------- | ---------------------------------------------- | ---------------------------------- | ------------------------ |  | ------------- | ----- | ---------------- |  | ---------- | --- | ------ |  | --------- | --- | -------- |  | ------------- | ------- | ----- |  | ------ | ------- | ------------- | ----- | - | ------ | - |  | ----- | ----- | --- |  | - | ------- | ----- | ----- | ----- | ----- | -
|                             |                               |                                                |                                    |                          |  | Common Shares |       | Preferred Shares |  |            |     |        |  |           |     |          |  | Accumulated   |         |       |  |        |         |               |       |  
|                             |                               |                                                |                                    |                          |  |               |       |                  |  | Capital in |     |        |  |           |     | Other    |  |               |         |       |  |        |         |              
|                             |                               |                                                |                                    |                          |  | Number        |       | At Par           |  | Number     |     | At Par |  | Excess of |     | Retained |  | Comprehensive |         |       |  |        |         | Shareholders'
|                             |                               |                                                |                                    |                          |  | of Shares     |       | Value            |  | of Shares  |     | Value  |  | Par Value |     | Earnings |  | Income (Loss) |         | Other |  | Equity
|                             |                               |                                                |                                    |                          |  |               |       |                  |  |            |     |        |  |           |     |          |  |               |         |       |  |       
|Balance at December 31, 2001 |                               |                                                | 78.7                               |                          |  | $             | 491.9 |                  |  |            |    |        |  | $         |    |          |  | $             | 1,016.8 |       |  | $      | 1,497.6 |               |       | $ | (292.7 | ) |  | $     | (6.4  | )   |  | $ | 2,707.2 |      
|                            
|                            
|                            
|                            
|                             | Stock options exercised       |                                                |                                    |                          |  |               |       |                  |  |            |     |        |  |           |     |          |  |               |         | 0.2   |  |        |         |               |       |   |        |   |  |       |       |     |  |   |         | 0.2   |      
|                            
|                            
|                            
|                            
|                             | Restricted shares issued, net |                                                |                                    |                          |  |               |       | 0.1              |  |            |     |        |  |           |     |          |  |               |         |       |  |        |         |               |       |   |        |   |  |       |       | 0.8 |  |   |         | 0.9   |      
|                            
|                            
|                            
|                            
|                             | Issuance of shares            |                                                |                                    | 10.0                     |  |               |       | 62.5             |  |            |     | 2.0    |  |           |     | 2.0      |  |               |         | 527.5 |  |        |         |               |       |   |        |   |  |       |       |     |  |   |         | 592.0 |      
|                            
|                            
|                            
|                            
|                             | Dividends on preferred shares |                                                |                                    |                          |  |               |       |                  |  |            |     |        |  |           |     |          |  |               |         |       |  |        |         | (2.4          | )     |   |        |   |  |       |       |     |  |   |         | (2.4  | )    
|                            
|                            
|                            
|                            
|                             | Comprehensive income (loss):  |                                                |                                    |                          |  |               |       |                  |  |            |     |        |  |           |     |          |  |               |         |       |  |        |         |               |       |   |        |   |  |       |       |     |  |   |         |       |      
|                            
|                            
|                            
|                            
|                             |                               | Net loss                                       |                                    |                          |  |               |       |                  |  |            |     |        |  |           |     |          |  |               |         |       |  |        |         |               | (64.1 | ) |        |   |  |       |       |     |  |   |         |       | (64.1 | )    
|                            
|                            
|                            
|                            
|                             |                               | Other comprehensive income (loss),
net of tax: |                                    |                          |  |               |       |                  |  |            |     |        |  |           |     |          |  |               |         |       |  |        |         |               |       |   |        |   |  |       |       |     |  |   |         |       |       |      
|                            
|                            
|                            
|                            
|                             |                               |                                                | Translation adjustment             |                          |  |               |       |                  |  |            |     |        |  |           |     |          |  |               |         |       |  |        |         |               |       |   |        |   |  | (14.6 | )     |     |  |   |         |       |       | (14.6 | )    
|                            
|                            
|                            
|                            
|                             |                               |                                                | Net gain on derivative instruments |                          |  |               |       |                  |  |            |     |        |  |           |     |          |  |               |         |       |  |        |         |               |       |   |        |   |  | 2.1   |       |     |  |   |         |       |       | 2.1   |      
|                            
|                            
|                            
|                            
|                             |                               |                                                | Unrealized loss on securities      |                          |  |               |       |                  |  |            |     |        |  |           |     |          |  |               |         |       |  |        |         |               |       |   |        |   |  | (0.5  | )     |     |  |   |         |       |       | (0.5  | )    
|                             |                               |                                                |                                    |                          |  |               |       |                  |  |            |     |        |  |           |     |          |  |               |         |       |  |        |         |               |       |   |        |   |  |       |       |     |  |   |         |       |       |       |       |  
|                             |                               |                                                |                                    | Other comprehensive loss |  |               |       |                  |  |            |     |        |  |           |     |          |  |               |         |       |  |        |         |               |       |   |        |   |  |       | (13.0 | )   |  |   |         |       |       |       | (13.0 | )
|                             |                               |                                                |                                    |                          |  |               |       |                  |  |            |     |        |  |           |     |          |  |               |         |       |  |        |         |               |       |   |        |   |  |       |       |     |  |   |         |      
|                             |                               | Comprehensive loss                             |                                    |                          |  |               |       |                  |  |            |     |        |  |           |     |          |  |               |         |       |  |        |         |               |       |   |        |   |  |       |       |     |  |   |         |       | (77.1 | )    
|                             |                               |                                                |                                    |                          |  |               |       |                  |  |            |     |        |  |           |     |          |  |               |         |       |  |        |         |               |       |   |        |   |  |       |       |     |  |   |         |      
|                             |                               |                                                |                                    |                          |  |               |       |                  |  |            |     |        |  |           |     |          |  |               |         |       |  |        |         |               |       |   |        |   |  |       |       |     |  |   |         |      
|                            
|                            
|                            
|                            
|Balance at June 30, 2002     |                               |                                                | 88.7                               |                          |  | $             | 554.5 |                  |  |            | 2.0 |        |  | $         | 2.0 |          |  | $             | 1,544.5 |       |  | $      | 1,431.1 |               |       | $ | (305.7 | ) |  | $     | (5.6  | )   |  | $ | 3,220.8 |      
|                             |                               |                                                |                                    |                          |  |               |       |                  |  |            |     |        |  |           |     |          |  |               |         |       |  |        |         |               |       |   |        |   |  |       |       |     |  |   |         |      

See Notes to Consolidated Financial Information.



---



##### Table of Contents



-5-




FINANCIAL DATA BY BUSINESS SEGMENT
(Unaudited; in millions)

|                      |                                          |                        |  |              |         |           |  |                         |       |       |  |            |       |              |  |         |       |  |  |         |         |  |  |         |       |   |  |         |         | 
|--------------------- | ---------------------------------------- | ---------------------- |  | ------------ | ------- | --------- |  | ----------------------- | ----- | ----- |  | ---------- | ----- | ------------ |  | ------- | ----- |  |  | ------- | ------- |  |  | ------- | ----- | - |  | ------- | ------- | 
|                      |                                          |                        |  |              |         |           |  | Phelps Dodge Industries |       |       |  |            |       |              |  |         |       |  |  |        
|                      |                                          |                        |  | Phelps Dodge |         |           |  |                         |       |       |  | Corporate, |       |              |  |        
|                      |                                          |                        |  | Mining       |         | Specialty |  | Wire &                  |       |       |  |            |       | Segment      |  | Other & |       |  |  |        
|                      |                                          |                        |  | Company      |         | Chemicals |  | Cable                   |       | Total |  | Subtotal   |       | Eliminations |  | Totals 
|                     
|Second Quarter 2002   |                                          |                        |  |              |         |           |  |                         |       |       |  |            |       |              |  |         |       |  |  |         |         |  |  |         |       |   |  |        
|                     
|                     
|                     
|                     
|                      | Sales & other operating revenues:        |                        |  |              |         |           |  |                         |       |       |  |            |       |              |  |         |       |  |  |         |         |  |  |         |       |   |  |         |        
|                     
|                     
|                     
|                     
|                      |                                          | Unaffiliated customers |  | $            | 644.5   |           |  |                         | 140.5 |       |  |            | 181.8 |              |  |         | 322.3 |  |  |         | 966.8   |  |  |         |      |   |  |         | 966.8   | 
|                     
|                     
|                     
|                     
|                      |                                          | Intersegment           |  |              | 37.3    |           |  |                         |      |       |  |            |      |              |  |         |      |  |  |         | 37.3    |  |  |         | (37.3 | ) |  |         |        | 
|                     
|                     
|                     
|                     
|                      | Depreciation, depletion and amortization |                        |  | 82.7         |         |           |  | 10.7                    |       |       |  | 10.6       |       |              |  | 21.3    |       |  |  | 104.0   |         |  |  | 2.1     |       |   |  | 106.1   |        
|                     
|                     
|                     
|                     
|                      | Special items and provisions, net        |                        |  | 20.9         |         |           |  |                        |       |       |  |           |       |              |  |        |       |  |  | 20.9    |         |  |  | (51.2   | )     |   |  | (30.3   | )      
|                     
|                     
|                     
|                     
|                      | Operating income (loss)                  |                        |  | 32.3         |         |           |  | 17.0                    |       |       |  | 3.3        |       |              |  | 20.3    |       |  |  | 52.6    |         |  |  | (68.4   | )     |   |  | (15.8   | )      
|                     
|                     
|                     
|                     
|                      | Assets at June 30                        |                        |  | 5,420.3      |         |           |  | 687.8                   |       |       |  | 572.3      |       |              |  | 1,260.1 |       |  |  | 6,680.4 |         |  |  | 1,234.1 |       |   |  | 7,914.5 |        
|                     
|                     
|                     
|                     
|                      | Capital outlays and investments          |                        |  | 20.7         |         |           |  | 3.2                     |       |       |  | 2.6        |       |              |  | 5.8     |       |  |  | 26.5    |         |  |  | 1.5     |       |   |  | 28.0    |        
|                     
|Second Quarter 2001   |                                          |                        |  |              |         |           |  |                         |       |       |  |            |       |              |  |         |       |  |  |         |         |  |  |         |       |   |  |        
|                     
|                     
|                     
|                     
|                      | Sales & other operating revenues:        |                        |  |              |         |           |  |                         |       |       |  |            |       |              |  |         |       |  |  |         |         |  |  |         |       |   |  |         |        
|                     
|                     
|                     
|                     
|                      |                                          | Unaffiliated customers |  | $            | 712.9   |           |  |                         | 148.0 |       |  |            | 202.6 |              |  |         | 350.6 |  |  |         | 1,063.5 |  |  |         |      |   |  |         | 1,063.5 | 
|                     
|                     
|                     
|                     
|                      |                                          | Intersegment           |  |              | 30.5    |           |  |                         |      |       |  |            |      |              |  |         |      |  |  |         | 30.5    |  |  |         | (30.5 | ) |  |         |        | 
|                     
|                     
|                     
|                     
|                      | Depreciation, depletion and amortization |                        |  | 96.2         |         |           |  | 11.1                    |       |       |  | 12.0       |       |              |  | 23.1    |       |  |  | 119.3   |         |  |  | 2.0     |       |   |  | 121.3   |        
|                     
|                     
|                     
|                     
|                      | Special items and provisions, net        |                        |  | (10.0        | )       |           |  |                        |       |       |  | (3.3       | )     |              |  | (3.3    | )     |  |  | (13.3   | )       |  |  |        |       |   |  | (13.3   | )      
|                     
|                     
|                     
|                     
|                      | Operating income (loss)                  |                        |  | (21.3        | )       |           |  | 18.2                    |       |       |  | 4.4        |       |              |  | 22.6    |       |  |  | 1.3     |         |  |  | (18.5   | )     |   |  | (17.2   | )      
|                     
|                     
|                     
|                     
|                      | Assets at June 30                        |                        |  | 5,920.2      |         |           |  | 744.3                   |       |       |  | 678.5      |       |              |  | 1,422.8 |       |  |  | 7,343.0 |         |  |  | 513.8   |       |   |  | 7,856.8 |        
|                     
|                     
|                     
|                     
|                      | Capital outlays and investments          |                        |  | 51.3         |         |           |  | 7.8                     |       |       |  | 5.4        |       |              |  | 13.2    |       |  |  | 64.5    |         |  |  | 5.1     |       |   |  | 69.6    |        
|                     
|Six Months Ended 2002 |                                          |                        |  |              |         |           |  |                         |       |       |  |            |       |              |  |         |       |  |  |         |         |  |  |         |       |   |  |        
|                     
|                     
|                     
|                     
|                      | Sales & other operating revenues:        |                        |  |              |         |           |  |                         |       |       |  |            |       |              |  |         |       |  |  |         |         |  |  |         |       |   |  |         |        
|                     
|                     
|                     
|                     
|                      |                                          | Unaffiliated customers |  | $            | 1,256.2 |           |  |                         | 269.8 |       |  |            | 359.3 |              |  |         | 629.1 |  |  |         | 1,885.3 |  |  |         |      |   |  |         | 1,885.3 | 
|                     
|                     
|                     
|                     
|                      |                                          | Intersegment           |  |              | 74.3    |           |  |                         |      |       |  |            | 0.2   |              |  |         | 0.2   |  |  |         | 74.5    |  |  |         | (74.5 | ) |  |         |        | 
|                     
|                     
|                     
|                     
|                      | Depreciation, depletion and amortization |                        |  | 165.1        |         |           |  | 21.2                    |       |       |  | 21.3       |       |              |  | 42.5    |       |  |  | 207.6   |         |  |  | 4.1     |       |   |  | 211.7   |        
|                     
|                     
|                     
|                     
|                      | Special items and provisions, net        |                        |  | 34.7         |         |           |  |                        |       |       |  |           |       |              |  |        |       |  |  | 34.7    |         |  |  | (61.2   | )     |   |  | (26.5   | )      
|                     
|                     
|                     
|                     
|                      | Operating income (loss)                  |                        |  | 53.6         |         |           |  | 30.2                    |       |       |  | 6.1        |       |              |  | 36.3    |       |  |  | 89.9    |         |  |  | (98.7   | )     |   |  | (8.8    | )      
|                     
|                     
|                     
|                     
|                      | Assets at June 30                        |                        |  | 5,420.3      |         |           |  | 687.8                   |       |       |  | 572.3      |       |              |  | 1,260.1 |       |  |  | 6,680.4 |         |  |  | 1,234.1 |       |   |  | 7,914.5 |        
|                     
|                     
|                     
|                     
|                      | Capital outlays and investments          |                        |  | 38.1         |         |           |  | 5.2                     |       |       |  | 4.3        |       |              |  | 9.5     |       |  |  | 47.6    |         |  |  | 3.2     |       |   |  | 50.8    |        
|                     
|Six Months Ended 2001 |                                          |                        |  |              |         |           |  |                         |       |       |  |            |       |              |  |         |       |  |  |         |         |  |  |         |       |   |  |        
|                     
|                     
|                     
|                     
|                      | Sales & other operating revenues:        |                        |  |              |         |           |  |                         |       |       |  |            |       |              |  |         |       |  |  |         |         |  |  |         |       |   |  |         |        
|                     
|                     
|                     
|                     
|                      |                                          | Unaffiliated customers |  | $            | 1,439.4 |           |  |                         | 309.5 |       |  |            | 415.3 |              |  |         | 724.8 |  |  |         | 2,164.2 |  |  |         |      |   |  |         | 2,164.2 | 
|                     
|                     
|                     
|                     
|                      |                                          | Intersegment           |  |              | 88.8    |           |  |                         |      |       |  |            |      |              |  |         |      |  |  |         | 88.8    |  |  |         | (88.8 | ) |  |         |        | 
|                     
|                     
|                     
|                     
|                      | Depreciation, depletion and amortization |                        |  | 188.5        |         |           |  | 22.6                    |       |       |  | 24.1       |       |              |  | 46.7    |       |  |  | 235.2   |         |  |  | 2.6     |       |   |  | 237.8   |        
|                     
|                     
|                     
|                     
|                      | Special items and provisions, net        |                        |  | (10.0        | )       |           |  |                        |       |       |  | (3.3       | )     |              |  | (3.3    | )     |  |  | (13.3   | )       |  |  | 30.9    |       |   |  | 17.6    |        
|                     
|                     
|                     
|                     
|                      | Operating income (loss)                  |                        |  | (26.4        | )       |           |  | 38.4                    |       |       |  | 10.9       |       |              |  | 49.3    |       |  |  | 22.9    |         |  |  | (5.7    | )     |   |  | 17.2    |        
|                     
|                     
|                     
|                     
|                      | Assets at June 30                        |                        |  | 5,920.2      |         |           |  | 744.3                   |       |       |  | 678.5      |       |              |  | 1,422.8 |       |  |  | 7,343.0 |         |  |  | 513.8   |       |   |  | 7,856.8 |        
|                     
|                     
|                     
|                     
|                      | Capital outlays and investments          |                        |  | 115.2        |         |           |  | 14.0                    |       |       |  | 52.4       |       |              |  | 66.4    |       |  |  | 181.6   |         |  |  | 11.5    |       |   |  | 193.1   |        
|                     



---



##### Table of Contents



-6-




NOTES TO CONSOLIDATED FINANCIAL INFORMATION
(Unaudited)



|1. |  | General Information                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The unaudited consolidated financial information of Phelps Dodge
Corporation (the Company, which may be referred to as Phelps Dodge, PD,
we, us or ours) presented herein has been prepared in accordance with the
instructions to Form 10-Q and does not include all of the information and
note disclosures required by generally accepted accounting principles.
Therefore, this information should be read in conjunction with the
consolidated financial statements and notes thereto included in our Form
10-K for the year ended December 31, 2001. This information reflects all
adjustments that are, in the opinion of management, necessary to a fair
statement of the results for the interim periods reported.
|  
|   |  | The results of operations for the three-month and six-month periods ended
June 30, 2002, are not necessarily indicative of the results to be
expected for the full year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|
|2. |  | Special Items and Provisions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|   |  | The following schedules summarize the special items and provisions for the
second quarter and six months ended June 30, 2002:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              



---

(Unaudited; gains/(losses) in millions, except per share)

|                                       |                                                         |                                                                      |       |                     |       |       |       |      |       |   |       |       |       |  
|-------------------------------------- | ------------------------------------------------------- | -------------------------------------------------------------------- | ----- | ------------------- | ----- | ----- | ----- | ---- | ----- | - | ----- | ----- | ----- | -
|                                       |                                                         |                                                                      |       | Second Quarter 2002
|                                       |                                                         |                                                                      |       |                    
|Statement of Consolidated              |                                                         | Pre-tax                                                              |       | After-tax           |       | Per  
|Operations Line Item                   |                                                         | Earnings                                                             |       | Earnings            |       | Share
|                                       |                                                         |                                                                      |       |                     |       |      
|Special items and provisions, net:     |                                                         |                                                                      |       |                     |       |       |       |      |       |   |       |      
|                                      
|                                      
|                                      
|                                      
|                                       | PDMC -                                                  |                                                                      |       |                     |       |       |       |      |       |   |       |       |      
|                                      
|                                      
|                                      
|                                      
|                                       |                                                         | Environmental insurance
recoveries, net                              |       | $                   | (1.7  | )     |       |      | (1.5  | ) |       |       | (0.02 | )
|                                      
|                                      
|                                      
|                                      
|                                       |                                                         | Sale of non-core
real estate                                         |       |                     | 22.6  |       |       |      | 22.6  |   |       |       | 0.28  |  
|                                       |                                                         |                                                                      |       |                     |       |       |       |      |       |   |       |      
|                                       |                                                         |                                                                      | 20.9  |                     |       |       | 21.1  |      |       |   | 0.26  |      
|                                       |                                                         |                                                                      |       |                     |       |       |       |      |       |   |       |      
|                                       | Corporate and other -                                   |                                                                      |       |                     |       |       |       |      |       |   |       |       |      
|                                      
|                                      
|                                      
|                                      
|                                       |                                                         | Environmental provisions                                             |       |                     |      |       |       |      | 2.4   |   |       |       | 0.03  |  
|                                      
|                                      
|                                      
|                                      
|                                       |                                                         | Environmental insurance
recoveries, net                              |       |                     | 6.5   |       |       |      | 5.0   |   |       |       | 0.06  |  
|                                      
|                                      
|                                      
|                                      
|                                       |                                                         | Historic Cyprus Amax
lawsuit settlement                              |       |                     | (11.2 | )     |       |      | (8.9  | ) |       |       | (0.11 | )
|                                      
|                                      
|                                      
|                                      
|                                       |                                                         | Historic Cyprus Amax
arbitration award with
regard to Plateau Mining |       |                     | (46.5 | )     |       |      | (44.5 | ) |       |       | (0.55 | )
|                                       |                                                         |                                                                      |       |                     |       |       |       |      |       |   |       |      
|                                       |                                                         |                                                                      | (51.2 | )                   |       |       | (46.0 | )    |       |   | (0.57 | )    
|                                       |                                                         |                                                                      |       |                     |       |       |       |      |       |   |       |      
|                                       |                                                         |                                                                      | (30.3 | )                   |       |       | (24.9 | )    |       |   | (0.31 | )    
|                                       |                                                         |                                                                      |       |                     |       |       |       |      |       |   |       |      
|Miscellaneous income and
expense, net: |                                                         |                                                                      |       |                     |       |       |       |      |       |   |       |      
|                                      
|                                      
|                                      
|                                      
|                                       | Cost investment write-down                              |                                                                      |       | (0.7                | )     |       |       | (0.8 | )     |   |       | (0.01 | )    
|                                      
|                                      
|                                      
|                                      
|                                       |                                                         |                                                                      |       |                     |       |       |       |      |       |   |       |      
|                                      
|                                      
|                                      
|                                      
|Taxes:                                 |                                                         |                                                                      |       |                     |       |       |       |      |       |   |       |      
|                                      
|                                      
|                                      
|                                      
|                                       | Release of taxes provided with
regard to Plateau Mining |                                                                      |       |                    |       |       |       | 13.0 |       |   |       | 0.16  |      
|                                       |                                                         |                                                                      |       |                     |       |       |       |      |       |   |       |      
|                                       |                                                         |                                                                      |       |                     |       |       |       |      |       |   |       |      
|                                      
|                                      
|                                      
|                                      
|Total                                  |                                                         | $                                                                    | (31.0 | )                   |       |       | (12.7 | )    |       |   | (0.16 | )    
|                                       |                                                         |                                                                      |       |                     |       |       |       |      |       |   |       |      





---



##### Table of Contents



-7-

(Unaudited; gains/(losses) in millions, except per share)

|                                       |                                                         |                                                                      |       |                  |       |       |       |      |       |   |       |       |       |  
|-------------------------------------- | ------------------------------------------------------- | -------------------------------------------------------------------- | ----- | ---------------- | ----- | ----- | ----- | ---- | ----- | - | ----- | ----- | ----- | -
|                                       |                                                         |                                                                      |       | Six Months Ended
|                                       |                                                         |                                                                      |       | June 30, 2002   
|                                       |                                                         |                                                                      |       |                 
|Statement of Consolidated              |                                                         | Pre-tax                                                              |       | After-tax        |       | Per  
|Operations Line Item                   |                                                         | Earnings                                                             |       | Earnings         |       | Share
|                                       |                                                         |                                                                      |       |                  |       |      
|Special items and provisions, net:     |                                                         |                                                                      |       |                  |       |       |       |      |       |   |       |      
|                                      
|                                      
|                                      
|                                      
|                                       | PDMC -                                                  |                                                                      |       |                  |       |       |       |      |       |   |       |       |      
|                                      
|                                      
|                                      
|                                      
|                                       |                                                         | Environmental insurance
recoveries, net                              |       | $                | 12.1  |       |       |      | 9.7   |   |       |       | 0.12  |  
|                                      
|                                      
|                                      
|                                      
|                                       |                                                         | Sale of non-core
real estate                                         |       |                  | 22.6  |       |       |      | 22.6  |   |       |       | 0.28  |  
|                                       |                                                         |                                                                      |       |                  |       |       |       |      |       |   |       |      
|                                       |                                                         |                                                                      | 34.7  |                  |       |       | 32.3  |      |       |   | 0.40  |      
|                                       |                                                         |                                                                      |       |                  |       |       |       |      |       |   |       |      
|                                       | Corporate and other -                                   |                                                                      |       |                  |       |       |       |      |       |   |       |       |      
|                                      
|                                      
|                                      
|                                      
|                                       |                                                         | Environmental provisions                                             |       |                  | (12.1 | )     |       |      | (9.7  | ) |       |       | (0.12 | )
|                                      
|                                      
|                                      
|                                      
|                                       |                                                         | Environmental insurance
recoveries, net                              |       |                  | 8.6   |       |       |      | 6.9   |   |       |       | 0.08  |  
|                                      
|                                      
|                                      
|                                      
|                                       |                                                         | Historic Cyprus Amax
lawsuit settlement                              |       |                  | (11.2 | )     |       |      | (8.9  | ) |       |       | (0.11 | )
|                                      
|                                      
|                                      
|                                      
|                                       |                                                         | Historic Cyprus Amax
arbitration award with
regard to Plateau Mining |       |                  | (46.5 | )     |       |      | (44.5 | ) |       |       | (0.56 | )
|                                       |                                                         |                                                                      |       |                  |       |       |       |      |       |   |       |      
|                                       |                                                         |                                                                      | (61.2 | )                |       |       | (56.2 | )    |       |   | (0.71 | )    
|                                       |                                                         |                                                                      |       |                  |       |       |       |      |       |   |       |      
|                                       |                                                         |                                                                      | (26.5 | )                |       |       | (23.9 | )    |       |   | (0.31 | )    
|                                       |                                                         |                                                                      |       |                  |       |       |       |      |       |   |       |      
|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 |       |   |       | 0.16  |      
|                                      
|                                      
|                                      
|                                      
|                                       | Tax benefit for 2001 net
operating loss carryback       |                                                                      |       |                 |       |       |       | 38.5 |       |   |       | 0.49  |      
|                                       |                                                         |                                                                      |       |                  |       |       |       |      |       |   |       |      
|                                       |                                                         |                                                                      |      |                  |       |       | 51.5  |      |       |   | 0.65  |      
|                                       |                                                         |                                                                      |       |                  |       |       |       |      |       |   |       |      
|                                       |                                                         |                                                                      |       |                  |       |       |       |      |       |   |       |      
|                                      
|                                      
|                                      
|                                      
|Cumulative effect of
accounting change |                                                         |                                                                      | (33.0 | )                |       |       | (22.9 | )    |       |   | (0.29 | )    
|                                       |                                                         |                                                                      |       |                  |       |       |       |      |       |   |       |      
|                                       |                                                         |                                                                      |       |                  |       |       |       |      |       |   |       |      
|                                      
|                                      
|                                      
|                                      
|Total                                  |                                                         | $                                                                    | (60.7 | )                |       |       | 3.5   |      |       |   | 0.04  |      
|                                       |                                                         |                                                                      |       |                  |       |       |       |      |       |   |       |      





| |  | In the second quarter of 2002, a special, net pre-tax loss of $31.0
million was recognized consisting of (i) a $46.5 million pre-tax loss
($44.5 million after-tax) associated with an award made in a binding
arbitration proceeding filed against Cyprus Amax Minerals Company (Cyprus
Amax) by Plateau Mining Corporation (a former subsidiary of Cyprus Amax);
(ii) an $11.2 million charge including expenses ($8.9 million after-tax)
for the settlement of a lawsuit related to Amax Oil & Gas acquired with
the Cyprus Amax purchase; (iii) a $0.7 million loss (before and after
taxes) on the write-off of a cost investment; (iv) a $22.6 million gain
(before and after taxes) on the sale of a non-core parcel of real estate
in New Mexico; and (v) a $4.8 million net gain ($3.8 million after-tax)
from recoveries associated with insurance settlements on historic
environmental claims. The taxes associated with special items were a net
benefit of $18.3 million, including release of deferred taxes previously
provided ($13.0 million) and year-to-date adjustments ($2.0 million)
reflecting refinements in forecast estimates of U.S. net operating loss
carrybacks (refer to Note 8 for a further discussion of income taxes).
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In the 2002 first quarter, a special, net pre-tax loss of $29.7 million
was recognized consisting of (i) pre-tax charges of $33.0 million ($22.9
million after-tax) for the cumulative effect of an accounting change
(refer to Note 3 for further discussion); (ii) a $12.1 million charge
(before and after taxes) for environmental provisions (refer to Note 4);
(iii) a $0.5 million ($0.4 million after-tax) write-off of a cost basis
investment; and (iv) a $15.9 million gain ($13.1 million after-tax), net
of fees and expenses, from recoveries associated with insurance
settlements reached with companies on historic environmental claims at
Phelps Dodge Mining Company and Corporate and other. It is our policy to
recognize recoveries of environmental expenditures or costs from
insurance companies or other parties when they become probable. In
addition, the 2002 first quarter included a tax benefit of $38.5 million
for net operating loss carryback prior to 2002 resulting from recent U.S.
tax legislation (refer to Note 8).                                                                                                                                                                                           



---



##### Table of Contents



-8-



| |  | The following schedules summarize the special items and provisions for the
second quarter and six months ended June 30, 2001:
| |  | -----------------------------------------------------------------------------------------------------------------------------

(Unaudited; gains/(losses) in millions, except per share)

|                                       |                                      |                                         |       |                     |       |       |       |     |       |   |       |      |       |  
|-------------------------------------- | ------------------------------------ | --------------------------------------- | ----- | ------------------- | ----- | ----- | ----- | --- | ----- | - | ----- | ---- | ----- | -
|                                       |                                      |                                         |       | Second Quarter 2001
|                                       |                                      |                                         |       |                    
|Statement of Consolidated              |                                      | Pre-tax                                 |       | After-tax           |       | Per  
|Operations Line Item                   |                                      | Earnings                                |       | Earnings            |       | Share
|                                       |                                      |                                         |       |                     |       |      
|Special items and provisions, net:     |                                      |                                         |       |                     |       |       |       |     |       |   |       |     
|                                      
|                                      
|                                      
|                                      
|                                       | PDMC -                               |                                         |       |                     |       |       |       |     |       |   |       |      |      
|                                      
|                                      
|                                      
|                                      
|                                       |                                      | Restructuring programs                  |       | $                   | (10.0 | )     |       |     | (10.0 | ) |       |      | (0.13 | )
|                                       |                                      |                                         |       |                     |       |       |       |     |       |   |       |     
|                                       |                                      |                                         |       |                     |       |       |       |     |       |   |       |     
|                                      
|                                      
|                                      
|                                      
|                                       | PDI -                                |                                         |       |                     |       |       |       |     |       |   |       |      |      
|                                      
|                                      
|                                      
|                                      
|                                       |                                      | Hopkinsville
facility write-down        |       |                     | (3.3  | )     |       |     | (3.3  | ) |       |      | (0.04 | )
|                                       |                                      |                                         |       |                     |       |       |       |     |       |   |       |     
|                                       |                                      |                                         |       |                     |       |       |       |     |       |   |       |     
|                                      
|                                      
|                                      
|                                      
|                                       | Corporate and other -                |                                         |       |                     |       |       |       |     |       |   |       |      |      
|                                      
|                                      
|                                      
|                                      
|                                       |                                      | Environmental insurance
recoveries, net |       |                     | 7.2   |       |       |     | 7.2   |   |       |      | 0.09  |  
|                                      
|                                      
|                                      
|                                      
|                                       |                                      | Restructuring programs                  |       |                     | (1.3  | )     |       |     | (1.3  | ) |       |      | (0.01 | )
|                                      
|                                      
|                                      
|                                      
|                                       |                                      | Other                                   |       |                     | (5.9  | )     |       |     | (5.9  | ) |       |      | (0.08 | )
|                                       |                                      |                                         |       |                     |       |       |       |     |       |   |       |     
|                                       |                                      |                                         |      |                     |       |       |      |     |       |   |      |     
|                                       |                                      |                                         |       |                     |       |       |       |     |       |   |       |     
|                                       |                                      |                                         | (13.3 | )                   |       |       | (13.3 | )   |       |   | (0.17 | )   
|                                       |                                      |                                         |       |                     |       |       |       |     |       |   |       |     
|                                       |                                      |                                         |       |                     |       |       |       |     |       |   |       |     
|                                      
|                                      
|                                      
|                                      
|Miscellaneous income and
expense, net: |                                      |                                         |       |                     |       |       |       |     |       |   |       |     
|                                      
|                                      
|                                      
|                                      
|                                       | Interest on prior
years tax refunds |                                         |       | 4.3                 |       |       |       | 4.3 |       |   |       | 0.05 |      
|                                      
|                                      
|                                      
|                                      
|                                       | Other                                |                                         |       | 1.5                 |       |       |       | 1.5 |       |   |       | 0.02 |      
|                                       |                                      |                                         |       |                     |       |       |       |     |       |   |       |     
|                                       |                                      |                                         | 5.8   |                     |       |       | 5.8   |     |       |   | 0.07  |     
|                                       |                                      |                                         |       |                     |       |       |       |     |       |   |       |     
|                                       |                                      |                                         |       |                     |       |       |       |     |       |   |       |     
|                                      
|                                      
|                                      
|                                      
|Total                                  |                                      | $                                       | (7.5  | )                   |       |       | (7.5  | )   |       |   | (0.10 | )   
|                                       |                                      |                                         |       |                     |       |       |       |     |       |   |       |     

(Unaudited; gains/(losses) in millions, except per share)

|                                       |                                      |                                         |      |                  |       |       |      |     |       |   |       |      |       |  
|-------------------------------------- | ------------------------------------ | --------------------------------------- | ---- | ---------------- | ----- | ----- | ---- | --- | ----- | - | ----- | ---- | ----- | -
|                                       |                                      |                                         |      | Six Months Ended
|                                       |                                      |                                         |      | June 30, 2001   
|                                       |                                      |                                         |      |                 
|Statement of Consolidated              |                                      | Pre-tax                                 |      | After-tax        |       | Per  
|Operations Line Item                   |                                      | Earnings                                |      | Earnings         |       | Share
|                                       |                                      |                                         |      |                  |       |      
|Special items and provisions, net:     |                                      |                                         |      |                  |       |       |      |     |       |   |       |     
|                                      
|                                      
|                                      
|                                      
|                                       | PDMC -                               |                                         |      |                  |       |       |      |     |       |   |       |      |      
|                                      
|                                      
|                                      
|                                      
|                                       |                                      | Restructuring programs                  |      | $                | (10.0 | )     |      |     | (10.0 | ) |       |      | (0.13 | )
|                                       |                                      |                                         |      |                  |       |       |      |     |       |   |       |     
|                                       |                                      |                                         |      |                  |       |       |      |     |       |   |       |     
|                                      
|                                      
|                                      
|                                      
|                                       | PDI -                                |                                         |      |                  |       |       |      |     |       |   |       |      |      
|                                      
|                                      
|                                      
|                                      
|                                       |                                      | Hopkinsville
facility write-down        |      |                  | (3.3  | )     |      |     | (3.3  | ) |       |      | (0.04 | )
|                                       |                                      |                                         |      |                  |       |       |      |     |       |   |       |     
|                                       |                                      |                                         |      |                  |       |       |      |     |       |   |       |     
|                                      
|                                      
|                                      
|                                      
|                                       | Corporate and other -                |                                         |      |                  |       |       |      |     |       |   |       |      |      
|                                      
|                                      
|                                      
|                                      
|                                       |                                      | Environmental insurance
recoveries, net |      |                  | 38.1  |       |      |     | 38.1  |   |       |      | 0.49  |  
|                                      
|                                      
|                                      
|                                      
|                                       |                                      | Restructuring programs                  |      |                  | (1.3  | )     |      |     | (1.3  | ) |       |      | (0.01 | )
|                                      
|                                      
|                                      
|                                      
|                                       |                                      | Other                                   |      |                  | (5.9  | )     |      |     | (5.9  | ) |       |      | (0.08 | )
|                                       |                                      |                                         |      |                  |       |       |      |     |       |   |       |     
|                                       |                                      |                                         | 30.9 |                  |       |       | 30.9 |     |       |   | 0.40  |     
|                                       |                                      |                                         |      |                  |       |       |      |     |       |   |       |     
|                                       |                                      |                                         | 17.6 |                  |       |       | 17.6 |     |       |   | 0.23  |     
|                                       |                                      |                                         |      |                  |       |       |      |     |       |   |       |     
|                                       |                                      |                                         |      |                  |       |       |      |     |       |   |       |     
|                                      
|                                      
|                                      
|                                      
|Miscellaneous income and
expense, net: |                                      |                                         |      |                  |       |       |      |     |       |   |       |     
|                                      
|                                      
|                                      
|                                      
|                                       | Interest on prior
years tax refunds |                                         |      | 4.3              |       |       |      | 4.3 |       |   |       | 0.05 |      
|                                      
|                                      
|                                      
|                                      
|                                       | Other                                |                                         |      | 1.5              |       |       |      | 1.5 |       |   |       | 0.02 |      
|                                       |                                      |                                         |      |                  |       |       |      |     |       |   |       |     
|                                       |                                      |                                         | 5.8  |                  |       |       | 5.8  |     |       |   | 0.07  |     
|                                       |                                      |                                         |      |                  |       |       |      |     |       |   |       |     
|                                       |                                      |                                         |      |                  |       |       |      |     |       |   |       |     
|                                      
|                                      
|                                      
|                                      
|Cumulative effect of
accounting change |                                      |                                         | (2.0 | )                |       |       | (2.0 | )   |       |   | (0.03 | )   
|                                       |                                      |                                         |      |                  |       |       |      |     |       |   |       |     
|                                       |                                      |                                         |      |                  |       |       |      |     |       |   |       |     
|                                      
|                                      
|                                      
|                                      
|Total                                  |                                      | $                                       | 21.4 |                  |       |       | 21.4 |     |       |   | 0.27  |     
|                                       |                                      |                                         |      |                  |       |       |      |     |       |   |       |     





| |  | In the 2001 second quarter, net special items of $7.5 million (before and
after taxes) were recognized consisting of an $11.3 million (before and
after taxes) restructuring charge primarily for employee severance and
benefit costs associated with restructuring of our professional,
administrative and operations support functions, as well as various other
operational improvement initiatives. The restructuring charge was
partially offset by a special, net gain of $3.8 million (before and after
taxes) comprising (i) additional recoveries associated with settlements
reached with several insurance companies on historic environmental
liability claims, net of fees and expenses; (ii) the write-down of the
closed Hopkinsville, Kentucky, magnet wire facility; and (iii) other net
special items.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In the 2001 first quarter, a special, net gain of $28.9 million (before
and after taxes) was recognized consisting of $30.9 million (before and
after taxes), net of fees and expenses, in recoveries associated with
settlements reached                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                



---



##### Table of Contents



-9-



| |  | with several insurance companies on historic
environmental liability claims, partially offset by a $2.0 million (before
and after taxes) charge for the cumulative effect of an accounting change
(refer to Note 9 for further discussion).                                                                                                                                                                                                                                                                                                                                                                                    
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Restructuring Programs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | During 2001, two restructuring/operational improvement plans occurred. 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
the reduction of approximately 1,600 positions in 2002. In the second
quarter of 2001, we announced a restructuring of our professional,
administrative and operational support functions, as well as various other
operational improvements.
|
| |  | In the second quarter of 2000 and 1999, we announced plans to reduce
operating costs and restructure operations at our mining and wire and
cable segments. Refer to the Companys Form 10-K for the year ended
December 31, 2001, for additional discussion.                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | The following schedule presents a roll-forward from December 31, 2001, of
the liabilities incurred in connection with the 1999, 2000 and 2001
restructuring programs, which were reflected as current liabilities in our
consolidated balance sheet:                                                                                                                                                                                                                                                                                                                                                                           



---

(Unaudited; $ in millions)

|                                             |                                   |   |          |     |             |  |            |      |   |  |      |     | 
|-------------------------------------------- | --------------------------------- | - | -------- | --- | ----------- |  | ---------- | ---- | - |  | ---- | --- | 
|                                             |                                   |   |          |     |             |  | (Payments/ |      |   |  |     
|                                             |                                   |   | 12/31/01 |     | Deductions) |  | 6/30/02   
|                                             |                                   |   |          |     |             |  |           
|Phelps Dodge Mining Company -                |                                   |   |          |     |             |  |            |      |   |  |      |    
|                                            
|                                            
|                                            
|                                            
|                                             | Employee severance
and relocation |   | $        | 9.6 |             |  |            | (4.1 | ) |  |      | 5.5 | 
|                                            
|                                            
|                                            
|                                            
|                                             | Mothballing/take-or-pay
contracts |   |          | 9.7 |             |  |            | (5.4 | ) |  |      | 4.3 | 
|                                             |                                   |   |          |     |             |  |            |      |   |  |      |    
|                                             |                                   |   | 19.3     |     |             |  | (9.5       | )    |   |  | 9.8  |    
|                                             |                                   |   |          |     |             |  |            |      |   |  |      |    
|                                             |                                   |   |          |     |             |  |            |      |   |  |      |    
|                                            
|                                            
|                                            
|                                            
|Phelps Dodge Industries -                    |                                   |   |          |     |             |  |            |      |   |  |      |    
|                                            
|                                            
|                                            
|                                            
|Specialty Chemicals
Disposal and dismantling |                                   |   | 0.8      |     |             |  |           |      |   |  | 0.8  |    
|                                            
|                                            
|                                            
|                                            
|                                             | Employee severance
and relocation |   |          | 0.8 |             |  |            | (0.5 | ) |  |      | 0.3 | 
|                                            
|                                            
|                                            
|                                            
|                                             | Environmental                     |   |          | 0.6 |             |  |            |     |   |  |      | 0.6 | 
|                                             |                                   |   |          |     |             |  |            |      |   |  |      |    
|                                             |                                   |   | 2.2      |     |             |  | (0.5       | )    |   |  | 1.7  |    
|                                             |                                   |   |          |     |             |  |            |      |   |  |      |    
|                                             |                                   |   |          |     |             |  |            |      |   |  |      |    
|                                            
|                                            
|                                            
|                                            
|Wire and Cable                               |                                   |   |          |     |             |  |            |      |   |  |      |    
|                                            
|                                            
|                                            
|                                            
|                                             | Take-or-pay contracts             |   |          | 1.1 |             |  |            |     |   |  |      | 1.1 | 
|                                            
|                                            
|                                            
|                                            
|                                             | Plant removal and
dismantling     |   |          | 2.1 |             |  |            | (0.7 | ) |  |      | 1.4 | 
|                                             |                                   |   |          |     |             |  |            |      |   |  |      |    
|                                             |                                   |   | 3.2      |     |             |  | (0.7       | )    |   |  | 2.5  |    
|                                             |                                   |   |          |     |             |  |            |      |   |  |      |    
|                                             |                                   |   | 5.4      |     |             |  | (1.2       | )    |   |  | 4.2  |    
|                                             |                                   |   |          |     |             |  |            |      |   |  |      |    
|                                             |                                   |   |          |     |             |  |            |      |   |  |      |    
|                                            
|                                            
|                                            
|                                            
|Total                                        |                                   | $ | 24.7     |     |             |  | (10.7      | )    |   |  | 14.0 |    
|                                             |                                   |   |          |     |             |  |            |      |   |  |      |    





|3. |  | Accounting Standards                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards (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. Upon completion of the transitional
impairment tests, the implied fair value of goodwill at three of the
Companys international wire and cable reporting units was determined to
be less than



---



##### Table of Contents



-10-



|   |  | the reporting units carrying amount. The 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 forma effect of not amortizing
goodwill on the second quarter and six months ended June 30, 2001, would
have reduced goodwill amortization expense by $1.9 million and $3.8
million, respectively, reduced net loss by $1.7 million and $3.2 million,
respectively, and reduced loss per share by 2 cents and 4 cents,
respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | In August 2001, the Financial Accounting Standards Board (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 Accounting Principles Board (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, with no significant effect on our financial reporting or
disclosures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   |  | In June 2001, 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 January 1, 2003. We
are in the process of evaluating the effect that SFAS No. 143 will have on
our financial reporting and disclosures and are developing procedures to
effect its implementation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   |  | In April 2002, the 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
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
Opinion No. 30. Applying the provisions of Opinion 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 is required to be adopted by the Company on January 1, 2003.
|  
|4. |  | Environmental, and Reclamation and Closure Matters                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|   |  | As of December 31, 2001, we had a reserve balance of $311.2 million for
estimated future costs associated with environmental matters at closed
facilities and closed portions of certain operating facilities. During
the first six months of 2002, we had a $12.1 million increase in the
reserve and $8.6 million spending against that reserve. As of June 30,
2002, the reserve balance was $314.7 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   |  | As of December 31, 2001, we had a reclamation and closure reserve balance
of $130.1 million. During the first six months of 2002, we had a $10.1
million increase in the reserve and $0.7 million in spending. As of June
30, 2002, the reserve balance was $139.5 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   |  | We have contingencies regarding environmental, closure and other matters.
For a further discussion of these contingencies, please refer to our Form
10-K for the year ended December 31, 2001, and Note 18 to the Consolidated
Financial Statements included therein. Please also see Note 6 below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         



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##### Table of Contents



-11-



|5. |  | Acquisitions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | In January 2001, Alcoa Aluminio, S.A. exercised a put option that required
Phelps Dodge to acquire an additional 40 percent interest in Alcoa Fios e
Cabos Electricos, S.A., our wire and cable facility in Brazil, in which we
already held a 60 percent interest. The final settlement price of $44.8
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).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|6. |  | Contingencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|   |  | Our mining operations are subject to laws and regulations establishing new
requirements for mined land reclamation and financial assurance. New
Mexico passed a mined land reclamation law in 1993 authorizing regulations
that were adopted in 1994. The permitting process for New Mexico mining
operations commenced in December 1994. Approval of closeout plans
describing the reclamation planned for the Chino, Tyrone and Cobre mines
currently is due by October 1, 2002. Two New Mexico State agencies
currently are reviewing the permit applications for facility closure and
reclamation, and one public hearing was held on Chinos plan to protect
water quality in August 2001. A second public hearing was held in
February 2002 on the Chino plan to discuss a draft permit proposed jointly
by Chino and the New Mexico Environmental Department (NMED). The Company
is awaiting the NMED Hearing Officers decision. The cost estimate to
carry out this plan, including water treatment for 100 years, if needed,
is $386 million in current dollars. This figure compares to Chinos
initial proposal of approximately $100 million. The final cost estimate
is subject to the results of the hearing and any subsequent judicial
appeals. Actual reclamation costs may differ significantly from the cost
estimate based on a variety of factors including possible changes in legal
standards over time and potential cost savings from use of the Companys
own personnel and equipment at each site versus third-party contractor
costs (under New Mexico law, financial assurance requirements are
calculated based on estimated third-party costs), advances in technology
and reclamation techniques, and opportunities to prepare each site for
more efficient reclamation through careful development of the site over
time. The plan also calls for studies over the next four to five years to
refine the plan.
|  
|   |  | The Company is continuing to negotiate with the State regarding the amount
of interim financial assurance required to cover the $386 million cost
estimate. Based upon our current understanding of the States position,
the present value of the obligation when adjusted to reflect the
appropriate escalation and discount rates, is approximately $180 to $200
million. The final permits are subject to the public hearing process and
consideration of public comments, and a portion of the plan will require
the issuance of a waiver of certain standards as authorized by the New
Mexico Mining Act.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   |  | A public hearing on the Tyrone plan was held in May 2002 before the NMED
Hearing Officer. The NMED proposed a plan with a cost estimate of $440
million in current dollars with a financial assurance estimate based on an
adjusted present value of $265 million. The Company presented a revised
plan with a cost estimate of $331 million in current dollars and an
estimated present value of the estimated costs of $179 million.
Following the completion of post-hearing briefing, a hearing officer
decision on the Tyrone permit is expected this fall. The Company has been
advised that the State intends to issue a draft permit for a Cobre closure
plan in late August or September. The Company expects the cost estimate
for the Cobre plan to be approximately $40 million in current dollars. As
with Chino, portions of the Tyrone and Cobre plans as proposed by the
Company will require the approval of waivers of certain standards as
authorized by the New Mexico Mining Act for mines that existed when that
law was enacted.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   |  | The Company currently is
engaged in negotiations with the New Mexico Mining and Minerals Division
(MMD), which administers the New Mexico Mining Act, to extend the October 1,
2002, deadline for approval of closeout plans under the New Mexico Mining
Act. Completion of the NMED permit process is necessary before closeout
plans can be approved under the New Mexico Mining Act, and the NMED
Hearing Officer decisions may not be issued in time to complete the
closeout plan approval process before October 1. A proposal for a
five-year extension of the                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             



---



##### Table of Contents



-12-



|   |  | October 1, 2002, deadline
is being considered
subject to agreement on interim financial assurance and establishment
of a technical review board to evaluate scientific and technical issues
regarding the closure plans. The Company and MMD have reached an
agreement in principle for the Company  to provide additional interim
financial assurance for Chino, Tyrone and Cobre totaling
$219 million in the form of a corporate guarantee, collateral
($128 million) and a commitment by the Company to conduct
accelerated reclamation of certain areas no longer intended for use
in the mining operations (a total of $50 million to be expended
over eight years). The Company also would establish a reclamation
fund capped at the then existing amount of the corporate guarantee,
and make annual contributions based upon future New Mexico copper
production and the annual average copper price (the initial
contribution to the fund commences when the annual average copper
price is in excess of ninety cents per pound). The extension of the
October 1, 2002, deadline is subject to approval of the New
Mexico Mining Commission. If the deadline is not extended, the operations may not be able to meet the
October 1 deadline and may be subject to administrative orders, including
civil penalties, or other actions.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The Companys accounting policy is to 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 accruing mine closure costs until the
site resumes production. When management determines a mine should be
permanently closed, any unrecognized closure obligation is recognized.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|   |  | In September 2000, RAG American Coal Company (RAG) filed a complaint
against Cyprus Amax Minerals Company and Amax Energy Inc. (collectively,
Cyprus). The complaint alleges 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 seeks damages in the
amount of $115 million under four different legal theories (breach of
contract, fraud, negligent misrepresentation and negligence). On April
18, 2002, the Court issued its decision on the motion to dismiss filed by
Cyprus. The Court granted Cyprus motion to dismiss with respect to the
negligent misrepresentation and negligence claims, and denied Cyprus
motion with respect to the contract and fraud claims. We will continue to
advance the litigation.                                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|7. |  | Earnings Per Share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   |  | Basic earnings per share is computed by dividing income available to
common shareholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share is 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 dilutive potential common shares were issued. The
average number of diluted common shares outstanding for the quarter and
six-month period ended June 30, 2002, excluded 1.1 million and 0.5 million
of the diluted potential on common shares of mandatory convertible
preferred shares, respectively, and 0.2 million of restricted stock issued
to employees and 0.1 million of employee stock options (excluded as they
were anti-dilutive). The average number of diluted common shares
outstanding for the quarter and six-month period ended June 30, 2001,
excluded 0.2 million of restricted stock issued to employees.                                                                                                                                                                                                                                                                                                                                      
|  
|   |  | Additionally, stock options excluded from the computation of diluted
earnings per share because option prices exceeded the market value of the
Companys stock were as follows (in millions, except for option price):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          



|                     |  |                |       |                  |  |      |       |      |  |  |       |  |  |  |       | 
|-------------------- |  | -------------- | ----- | ---------------- |  | ---- | ----- | ---- |  |  | ----- |  |  |  | ----- | 
|                     |  | Second Quarter |       | First Six Months
|                     |  |                |       |                 
|                     |  | 2002           |       | 2001             |  | 2002 |       | 2001
|                     |  |                |       |                  |  |      |       |     
|Outstanding options  |  |                | 7.4   |                  |  |      | 7.8   |      |  |  | 7.4   |  |  |  | 7.7   | 
|                    
|                    
|                    
|                    
|Average option price |  | $              | 38.39 |                  |  |      | 43.74 |      |  |  | 37.47 |  |  |  | 45.20 | 





|8. |  | Benefit for Taxes on Income                                                                                                                                                                                                                                      
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The Companys income tax benefit for the 2002 second quarter principally
comprised the following items: (i) a $21.9 million benefit recognized for
the second quarter 2002 net operating losses that, based on the March
enactment of the Job Creation and Worker



---



##### Table of Contents



-13-



| |  | Assistance Act of 2002, may be
carried back to recover prior years taxes paid; (ii) a $13.0 million
benefit for release of deferred taxes previously provided with regard to
Plateau Mining Corporation; and (iii) $4.1 million expense for taxes on
earnings at international operations. The Companys income tax benefit
for the six months ended June 30, 2002, principally comprised the
following items: (i) $38.5 million tax benefit associated with the
carryback of 2001 net operating losses that, based on the new tax
legislation, may also be carried back to recover prior years taxes paid;
(ii) $34.8 million benefit recognized for the first half of 2002 net
operating losses, based on the new tax legislation; (iii) $15.8 million
expense for taxes on earnings at international operations; and (iv) a
$13.0 million benefit for release of deferred taxes previously provided.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|9.  |  | Accounting for Derivative Instruments and
Hedging Activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Phelps Dodge does not purchase, hold or sell derivative contracts unless
we have an existing asset, obligation or anticipate a future activity that
is likely to occur and will expose us to market risk. We do not enter
into any contracts for speculative purposes. We 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 period end. Please
refer to the Managements Discussion and Analysis and Note 19 to the
Consolidated Financial Statements included in the Companys Form 10-K for
the year ended December 31, 2001, for a discussion on our derivative
instruments.
|   
|    |  | During the 2002 second quarter and the six-month period ended June 30,
2002, we reclassified approximately $3.2 million and $6.8 million,
respectively, of other comprehensive losses to the statement of
consolidated operations, which were principally related to our
floating-to-fixed interest rate swaps.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|    |  | On January 1, 2001, Phelps Dodge 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. The implementation resulted in a cumulative
reduction to income of $2.0 million (before and after taxes), or 3 cents
per share, and a cumulative reduction to other comprehensive income of
$7.1 million (before and after taxes).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|10. |  | Subsequent Events                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|    |  | In July 2002, approximately $481 million of long-term debt was purchased
on the open market for $511 million, which will result in a 2002 third
quarter pre-tax extraordinary loss of approximately $33 million including
issuance costs and other book adjustments. This buy-back will reduce
annual interest cost by approximately $40 million before taxes. Had the
buy-back been completed by the second quarter ended June 30, 2002, the
Companys debt to total capitalization ratio would have been reduced to
approximately 40 percent.                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|    |  | The Company completed its 2001 federal income tax return in August 2002
and filed for a $59 million refund resulting from carrying back the 2001
net operating loss in accordance with the March enactment of the Job
Creation and Worker Assistance Act of 2002. The Company recognized an
estimated special current tax benefit of $38.5 million in the first
quarter of 2002, and it now expects to recognize an additional $14.4
million special current tax benefit in the third quarter of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|    |  | On July 2, 2002, the Board of Directors approved a 2002 stock option grant
covering 744,300 common shares and a restricted stock award covering
185,200 common shares to executives and other key employees under the
terms of the Phelps Dodge 1998 Stock Option and Restricted Stock Plan.
These grants and awards were approved in lieu of these individuals
participating in any merit-based salary adjustments for 2002, in
recognition of Quest for Zeroimprovements totaling $152 million to-date
and other significant corporate accomplishments, and for retention
purposes. Our next stock option grant cycle will likely begin in February
2004.                                                                                                                                                                                                                                                                                                                     



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##### Table of Contents



-14-




REVIEW BY INDEPENDENT ACCOUNTANTS

The financial information as of June 30, 2002, and for the three-month and
six-month periods ended June 30, 2002 and 2001, included in Part I pursuant to
Rule 10-01 of Regulation S-X has been reviewed by PricewaterhouseCoopers LLP
(PricewaterhouseCoopers), the Companys independent accountants, in accordance
with standards established by the American Institute of Certified Public
Accountants. PricewaterhouseCoopers report is included in this quarterly
report.

PricewaterhouseCoopers does not carry out any significant or additional
procedures beyond those that would have been necessary if its report had not
been included in this quarterly report. Accordingly, such report is not a
report or part of a registration statement within the meaning of Sections 7
and 11 of the Securities Act of 1933 and the liability provisions of Section 11
of such Act do not apply.



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##### Table of Contents



-15-




Report of Independent Accountants

To the Board of Directors and Shareholders
of Phelps Dodge Corporation

We have reviewed the accompanying consolidated balance sheet of Phelps Dodge
Corporation and its subsidiaries as of June 30, 2002, and the related statement
of consolidated operations for each of the three-month and six-month periods
ended June 30, 2002 and 2001 and the consolidated statement of cash flows for
the six-month periods ended June 30, 2002 and 2001 and consolidated statement
of shareholders equity for the six-month period ended June 30, 2002. This
financial information is the responsibility of the Corporations management.

We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with auditing standards generally accepted in the United States
of America, the objective of which is the expression of an opinion regarding
the financial statements taken as a whole. Accordingly, we do not express such
an opinion.

Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated interim financial information for them
to be in conformity with accounting principles generally accepted in the United
States of America.

We previously audited in accordance with auditing standards generally accepted
in the United States of America, the consolidated balance sheet as of December
31, 2001, and the related consolidated statements of operations, of cash flows
and of shareholders equity for the year then ended (not presented herein), and
in our report dated January 28, 2002 we expressed an unqualified opinion on
those consolidated financial statements. In our opinion, the information set
forth in the accompanying consolidated balance sheet information as of December
31, 2001, is fairly stated in all material respects in relation to the
consolidated balance sheet from which it has been derived.

PricewaterhouseCoopers

LLP
Phoenix, Arizona
July 22, 2002



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##### Table of Contents



-16-




Item 2. Managements Discussion and Analysis

The United States securities laws provide a safe harbor for certain
forward-looking statements. This quarterly report contains forward-looking
statements that express expectations of future events or results. All
statements based on future expectations rather than historical facts are
forward-looking statements that involve a number of risks and uncertainties,
and Phelps Dodge Corporation (the Company, which may be referred to as Phelps
Dodge, PD, we, us or ours) cannot give assurance that such statements will
prove to be correct. Please refer to the Managements Discussion and Analysis
section of the Companys report on Form 10-K for the year ended December 31,
2001, for a further discussion of our operations, including our critical
accounting policies. Additionally, please refer to Note 3 to the June 30,
2002, consolidated financial statements for a discussion on the adoption of
SFAS No. 142.




RESULTS OF OPERATIONS

Consolidated Results



---

(Unaudited; $ in millions, except per share amounts)

|                                                               |  |                |       |      |  |  |         |  
|-------------------------------------------------------------- |  | -------------- | ----- | ---- |  |  | ------- | -
|                                                               |  | Second Quarter
|                                                               |  |               
|                                                               |  | 2002           |       | 2001
|                                                               |  |                |       |     
|Sales and other operating revenues                             |  | $              | 966.8 |      |  |  | 1,063.5 |  
|                                                              
|                                                              
|                                                              
|                                                              
|Operating income (loss)
before special items                   |  | $              | 14.5  |      |  |  | (3.9    | )
|                                                              
|                                                              
|                                                              
|                                                              
|Operating loss                                                 |  | $              | (15.8 | )    |  |  | (17.2   | )
|                                                              
|                                                              
|                                                              
|                                                              
|Net loss before special items                                  |  | $              | (23.7 | )    |  |  | (103.0  | )
|                                                              
|                                                              
|                                                              
|                                                              
|Net loss                                                       |  | $              | (36.4 | )    |  |  | (110.5  | )
|                                                              
|                                                              
|                                                              
|                                                              
|Loss per common share, basic and
diluted, before special items |  | $              | (0.32 | )    |  |  | (1.31   | )
|                                                              
|                                                              
|                                                              
|                                                              
|Net loss per common
share, basic and diluted                   |  | $              | (0.48 | )    |  |  | (1.41   | )



The Company had a consolidated loss in the 2002 second quarter of $23.7
million, or 32 cents per common share, before a net special loss of $12.7
million, or 16 cents per common share, after taxes. The special, net pre-tax
loss of $31.0 million was recognized consisting of (i) a $46.5 million pre-tax
loss ($44.5 million after-tax) associated with an award made in a binding
arbitration proceeding filed against Cyprus Amax Minerals Company (Cyprus Amax)
by Plateau Mining Corporation (a former subsidiary of Cyprus Amax); (ii) an
$11.2 million charge ($8.9 million after-tax) for the settlement of a lawsuit
related to Amax Oil & Gas acquired with the Cyprus Amax purchase; (iii) a $0.7
million (before and after taxes) loss on the write-off of a cost investment;
(iv) a $22.6 million gain (before and after taxes) on the sale of a non-core
parcel of real estate in New Mexico; and (v) a $4.8 million net gain ($3.8
million after-tax) from recoveries associated with insurance settlements on
historic environmental claims. The taxes associated with the special items
were a net benefit of $18.3 million, including release of deferred taxes
previously provided ($13.0 million) and year-to-date adjustments ($2.0 million)
reflecting refinements in forecast estimates of U.S. net operating loss
carrybacks (refer to Notes 2 and 8 to the consolidated financial information
for further discussion of these special items).

By comparison, the loss in the 2001 second quarter was $103.0 million, or
$1.31 per share, before restructuring charges and special items of $7.5
million, or 10 cents per share, after taxes. Restructuring costs of $11.3
million (before and after taxes) associated with the operational improvement
plan announced on April 24, 2001, were partially offset by a special net gain
of $3.8 million (before and after taxes) comprising such items as net
recoveries associated with insurance settlements and interest income on prior
years tax refunds (refer to Note 2). The 2001 second quarter also included an
incremental charge to the income tax provision totaling $41.7 million, or 53
cents per share, to reflect the Companys copper price outlook for the year and
the resultant estimated effective income tax rate.

The consolidated loss before special items was less in the 2002 second
quarter compared with the corresponding 2001 period primarily as a result of a
lower implied unit cost of copper production (approximately $31 million)
including modestly higher molybdenum contribution, partially offset by lower
copper prices (approximately $10 million) and a decrease in our specialty
chemicals and wire and cable segments due to continued economic weakness. In
addition, the 2002 second quarter included a tax benefit of $12.5 million
before special items compared with a tax expense of $47.4 million in the 2001
corresponding period. This resulted from the new tax legislation in 2002 and
the absence of the incremental charge of $41.7 million to the income tax
provision in the 2001 second quarter that reflected the effect on the 2001
second quarter of the Company revising its full year copper price outlook.



---



##### Table of Contents



-17-



---

(Unaudited; $ in millions, except per share amounts)

|                                                               |  |                  |         |      |  |  |         |  
|-------------------------------------------------------------- |  | ---------------- | ------- | ---- |  |  | ------- | -
|                                                               |  | Six Months Ended
|                                                               |  | June 30,        
|                                                               |  |                 
|                                                               |  | 2002             |         | 2001
|                                                               |  |                  |         |     
|Sales and other operating revenues                             |  | $                | 1,885.3 |      |  |  | 2,164.2 |  
|                                                              
|                                                              
|                                                              
|                                                              
|Operating income (loss)
before special items                   |  | $                | 17.7    |      |  |  | (0.4    | )
|                                                              
|                                                              
|                                                              
|                                                              
|Operating income (loss)                                        |  | $                | (8.8    | )    |  |  | 17.2    |  
|                                                              
|                                                              
|                                                              
|                                                              
|Net loss before special items                                  |  | $                | (67.6   | )    |  |  | (117.7  | )
|                                                              
|                                                              
|                                                              
|                                                              
|Net loss                                                       |  | $                | (64.1   | )    |  |  | (96.3   | )
|                                                              
|                                                              
|                                                              
|                                                              
|Loss per common share, basic and
diluted, before special items |  | $                | (0.88   | )    |  |  | (1.50   | )
|                                                              
|                                                              
|                                                              
|                                                              
|Net loss per common
share, basic and diluted                   |  | $                | (0.84   | )    |  |  | (1.23   | )



The Company had a consolidated loss for the six months ended June 30,
2002, of $67.6 million, or 88 cents per common share, before a net special gain
of $3.5 million, or 4 cents per share, after taxes (refer to Notes 2 and 8 to
the consolidated financial information for further discussion of these special
items). By comparison, the loss for the six months ended June 30, 2001, was
$117.7 million, or $1.50 per common share, before a net special gain of $21.4
million, or 27 cents per common share (refer to Notes 2 and 9).

The consolidated loss before special items was less for the six months
ended June 30, 2002, compared with the corresponding 2001 period primarily as a
result of a lower implied unit cost of copper production (approximately $95
million) (refer to Results of Phelps Dodge Mining Company in Managements
Discussion and Analysis for further discussion) including modestly higher
molybdenum earnings partially offset by lower copper prices (approximately $61
million) and a decrease in our specialty chemicals and wire and cable segments
due to continued economic weakness.

After special items, the consolidated loss for the six months ended June
30, 2002, was $64.1 million, or 84 cents per common share, compared with a
consolidated loss of $96.3 million, or $1.23 per common share, in the
corresponding 2001 period.

The New York Commodity Exchange (COMEX) spot price per pound of copper
cathode, primarily upon which we base our U.S. sales, averaged 74 cents and 73
cents in the second quarter and first six months of 2002, respectively,
compared with 75 cents and 79 cents in the corresponding 2001 periods. The
London Metal Exchange (LME) spot price per pound of copper cathode, primarily
upon which we base our international sales, averaged 73 cents and 72 cents in
the second quarter and first six months of 2002, respectively, compared with 75
cents and 77 cents in the corresponding 2001 periods.

Any material change in the price we receive for copper, or in our unit
production costs, has a significant effect on our results. Our share of
current annual production, after our late 2001 announced curtailments, is
approximately 2 billion pounds of copper. Accordingly, each 1 cent per pound
change in our average annual realized copper price, or in our average unit
production costs, causes a variation in annual operating income before taxes of
approximately $20 million.

Our share of current molybdenum annual production, after our late 2001
announced curtailments, is approximately 44 million pounds. Approximately 75
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 any value-added premium.
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 $33 million.

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 June 30, 2002.

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. These combined savings of $400
million are key to achieving our goal of all-in copper production costs of 60
cents per pound by the end of 2003. Key elements of the plan, which have been
in development since early in the year, include Six Sigma quality programs,
technology innovations, global procurement savings, improved operating
practices and other actions.

During the 2002 second quarter, we achieved $53 million in improvements,
bringing the total to $152 million since the program was announced. Phelps
Dodge Mining Company is pursuing aggressively its Quest for Zerotarget of
all-in 60 cents per pound implied unit cost of copper production by the end of
2003.



---



##### Table of Contents



-18-

This target is the heart of our Quest for Zeroprogram, and should
enhance the tremendous leverage we have to rising copper prices.

Business Segments

Results for 2002 and 2001 can be meaningfully compared by separate
reference to our reporting divisions, Phelps Dodge Mining Company and Phelps
Dodge Industries. Phelps Dodge Mining Company is a business segment 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. Phelps Dodge Industries includes
our specialty chemicals segment and our wire and cable segment.




RESULTS OF PHELPS DODGE MINING COMPANY

Phelps Dodge Mining Company (PDMC) is our international business segment
that comprises a group of companies involved in vertically integrated copper
operations including mining, concentrating, electrowinning, smelting, refining,
rod production, marketing and sales, and related activities. PDMC sells copper
to others primarily as rod, cathode or concentrate, and as rod to our wire and
cable segment. In addition, PDMC at times smelts and refines copper and
produces copper rod for customers on a toll basis. It is also an integrated
producer of molybdenum, with mining, roasting and processing facilities
producing molybdenum concentrate as well as metallurgical and chemical
products. In addition, it produces gold, silver, molybdenum, copper sulfate,
rhenium and copper chemicals as by-products, and sulfuric acid from its air
quality control facilities. This business segment also includes worldwide
mineral exploration and development programs, and a process technology center
that directs its activities at improving existing processes and developing new
cost-competitive technologies.



(Unaudited)

|                                                             |                                        |   |                |       |      |  |       |       | 
|------------------------------------------------------------ | -------------------------------------- | - | -------------- | ----- | ---- |  | ----- | ----- | 
|                                                             |                                        |   | Second Quarter
|                                                             |                                        |   |               
|                                                             |                                        |   | 2002           |       | 2001
|                                                             |                                        |   |                |       |     
|Copper production (thousand short tons):                     |                                        |   |                |       |      |  |       |      
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Total production                       |   |                | 316.6 |      |  |       | 357.8 | 
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Less minority participants shares (A) |   |                | 62.0  |      |  |       | 64.0  | 
|                                                             |                                        |   |                |       |      |  |       |      
|                                                             | Net Phelps Dodge share                 |   |                | 254.6 |      |  |       | 293.8 | 
|                                                             |                                        |   |                |       |      |  |       |      
|                                                             |                                        |   |                |       |      |  |       |      
|                                                            
|                                                            
|                                                            
|                                                            
|Copper sales (thousand short tons):                          |                                        |   |                |       |      |  |       |      
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Net Phelps Dodge share
from own mines  |   |                | 264.7 |      |  |       | 310.3 | 
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Purchased copper                       |   |                | 133.4 |      |  |       | 96.5  | 
|                                                             |                                        |   |                |       |      |  |       |      
|                                                             | Total copper sales                     |   |                | 398.1 |      |  |       | 406.8 | 
|                                                             |                                        |   |                |       |      |  |       |      
|                                                             |                                        |   |                |       |      |  |       |      
|                                                            
|                                                            
|                                                            
|                                                            
|LME average spot copper price
per pound  cathodes           |                                        | $ | 0.73           |       |      |  | 0.75  |      
|                                                            
|                                                            
|                                                            
|                                                            
|COMEX average spot copper price
per pound  cathodes         |                                        | $ | 0.74           |       |      |  | 0.75  |      
|                                                            
|                                                            
|                                                            
|                                                            
|Implied full unit cost of
copper production (B)              |                                        | $ | 0.71           |       |      |  | 0.77  |      
|                                                            
|                                                            
|                                                            
|                                                            
|Implied cash unit cost of
copper production (B)              |                                        | $ | 0.54           |       |      |  | 0.61  |      
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                        |   |                |       |      |  |       |      
|                                                            
|                                                            
|                                                            
|                                                            
|Molybdenum production (million pounds)                       |                                        |   | 10.4           |       |      |  | 14.5  |      
|                                                            
|                                                            
|                                                            
|                                                            
|Molybdenum sales (million pounds):                           |                                        |   |                |       |      |  |       |      
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Net Phelps Dodge share
from own mines  |   |                | 11.3  |      |  |       | 14.1  | 
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Purchased molybdenum                   |   |                | 2.8   |      |  |       | 0.6   | 
|                                                             |                                        |   |                |       |      |  |       |      
|                                                             |                                        |   | 14.1           |       |      |  | 14.7  |      
|                                                             |                                        |   |                |       |      |  |       |      
|                                                             |                                        |   |                |       |      |  |       |      
|                                                            
|                                                            
|                                                            
|                                                            
|Metals Week:                                                 |                                        |   |                |       |      |  |       |      
|                                                            
|                                                            
|                                                            
|                                                            
|Molybdenum oxide price per pound                             |                                        | $ | 4.35           |       |      |  | 2.46  |      
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                        |   |                |       |      |  |       |      
|                                                            
|                                                            
|                                                            
|                                                            
|($ in millions)                                              |                                        |   |                |       |      |  |       |      
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                        |   |                |       |      |  |       |      
|                                                            
|                                                            
|                                                            
|                                                            
|Sales and other operating revenues
to unaffiliated customers |                                        | $ | 644.5          |       |      |  | 712.9 |      
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                        |   |                |       |      |  |       |      
|                                                            
|                                                            
|                                                            
|                                                            
|Operating income (loss) (C)                                  |                                        | $ | 32.3           |       |      |  | (21.3 | )    





---



##### Table of Contents



-19-

(Unaudited)

|                                                             |                                        |   |                  |       |      |  |         |       | 
|------------------------------------------------------------ | -------------------------------------- | - | ---------------- | ----- | ---- |  | ------- | ----- | 
|                                                             |                                        |   | Six Months Ended
|                                                             |                                        |   | June 30,        
|                                                             |                                        |   |                 
|                                                             |                                        |   | 2002             |       | 2001
|                                                             |                                        |   |                  |       |     
|Copper production (thousand short tons):                     |                                        |   |                  |       |      |  |         |      
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Total production                       |   |                  | 638.5 |      |  |         | 717.0 | 
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Less minority participants shares (A) |   |                  | 126.7 |      |  |         | 129.0 | 
|                                                             |                                        |   |                  |       |      |  |         |      
|                                                             | Net Phelps Dodge share                 |   |                  | 511.8 |      |  |         | 588.0 | 
|                                                             |                                        |   |                  |       |      |  |         |      
|                                                             |                                        |   |                  |       |      |  |         |      
|                                                            
|                                                            
|                                                            
|                                                            
|Copper sales (thousand short tons):                          |                                        |   |                  |       |      |  |         |      
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Net Phelps Dodge share
from own mines  |   |                  | 533.2 |      |  |         | 600.0 | 
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Purchased copper                       |   |                  | 245.6 |      |  |         | 210.3 | 
|                                                             |                                        |   |                  |       |      |  |         |      
|                                                             | Total copper sales                     |   |                  | 778.8 |      |  |         | 810.3 | 
|                                                             |                                        |   |                  |       |      |  |         |      
|                                                             |                                        |   |                  |       |      |  |         |      
|                                                            
|                                                            
|                                                            
|                                                            
|LME average spot copper price
per pound  cathodes           |                                        | $ | 0.72             |       |      |  | 0.77    |      
|                                                            
|                                                            
|                                                            
|                                                            
|COMEX average spot copper price
per pound  cathodes         |                                        | $ | 0.73             |       |      |  | 0.79    |      
|                                                            
|                                                            
|                                                            
|                                                            
|Implied full unit cost of
copper production (B)              |                                        | $ | 0.70             |       |      |  | 0.79    |      
|                                                            
|                                                            
|                                                            
|                                                            
|Implied cash unit cost of
copper production (B)              |                                        | $ | 0.54             |       |      |  | 0.63    |      
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                        |   |                  |       |      |  |         |      
|                                                            
|                                                            
|                                                            
|                                                            
|Molybdenum production (million pounds)                       |                                        |   | 21.0             |       |      |  | 29.2    |      
|                                                            
|                                                            
|                                                            
|                                                            
|Molybdenum sales (million pounds):                           |                                        |   |                  |       |      |  |         |      
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Net Phelps Dodge share
from own mines  |   |                  | 24.1  |      |  |         | 29.1  | 
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Purchased molybdenum                   |   |                  | 5.4   |      |  |         | 0.7   | 
|                                                             |                                        |   |                  |       |      |  |         |      
|                                                             |                                        |   | 29.5             |       |      |  | 29.8    |      
|                                                             |                                        |   |                  |       |      |  |         |      
|                                                             |                                        |   |                  |       |      |  |         |      
|                                                            
|                                                            
|                                                            
|                                                            
|Metals Week:                                                 |                                        |   |                  |       |      |  |         |      
|                                                            
|                                                            
|                                                            
|                                                            
|Molybdenum oxide price per pound                             |                                        | $ | 3.55             |       |      |  | 2.35    |      
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                        |   |                  |       |      |  |         |      
|                                                            
|                                                            
|                                                            
|                                                            
|($ in millions)                                              |                                        |   |                  |       |      |  |         |      
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                        |   |                  |       |      |  |         |      
|                                                            
|                                                            
|                                                            
|                                                            
|Sales and other operating revenues
to unaffiliated customers |                                        | $ | 1,256.2          |       |      |  | 1,439.4 |      
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                        |   |                  |       |      |  |         |      
|                                                            
|                                                            
|                                                            
|                                                            
|Operating income (loss) (C)                                  |                                        | $ | 53.6             |       |      |  | (26.4   | )    



---

|(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 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 interest in the El Abra copper
mining operation in Chile held by Corporación Nacional del Cobre de Chile
(CODELCO).
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(B) |  | Implied full unit cost of copper production is based on PDMCs all-in
operating margin per pound of copper sold (i.e., PDMC operating income
(loss) before special items, divided by pounds of PD-mined copper sold,
plus or minus the LME copper price). Implied cash unit cost of copper
production excludes PDMCs segment depreciation, depletion and
amortization and copper mine closure expense, from its all-in operating
margin in the above calculation.                                                                                                                                              
|   
|   
|   
|   
|(C) |  | Included a special, pre-tax gain of $20.9 million and $34.7 million in
the second quarter and the six months ended June 30, 2002, respectively;
included a special, pre-tax charge of $10.0 million in the second quarter
and the six months ended June 30, 2001. Refer to Note 2.                                                                                                                                                                                                                                                                                                                              



PDMC  Sales

PDMCs sales and other operating revenues to unaffiliated customers
decreased by $68.4 million, or 10 percent, in the 2002 second quarter and by
$183.2 million, or 13 percent, in the first six months of 2002 compared with
the corresponding 2001 periods. The decreases reflected lower copper prices
and lower sales volumes of PD-mined copper.

PDMC  Operating Income (Loss)

PDMC reported operating income of $11.4 million in the 2002 second quarter
before a special, net pre-tax gain of $20.9 million, compared with an operating
loss of $11.3 million before a special, net pre-tax charge of $10.0 million
in the corresponding 2001 period. This increase primarily reflected a
lower implied unit cost of copper production (approximately $31 million)
including modestly higher molybdenum earnings partially offset by lower copper
prices (approximately $10 million).

PDMC reported operating income of $18.9 million for the first six months
of 2002 before a special, net pre-tax gain of $34.7 million, compared with an
operating loss of $16.4 million before a special, net pre-tax charge of $10.0
million in the corresponding 2001 period. This increase primarily reflected a
lower implied unit cost of copper production (approximately $95 million)
including modestly higher molybdenum earnings partially offset by lower copper
prices (approximately $61 million).

The 2002 second quarter included a special, pre-tax gain of $20.9 million
consisting of a $22.6 million pre-tax gain on the sale of a non-core parcel of
real estate in New Mexico partially offset by a $1.7 million pre-tax charge
associated with settlements reached with insurance companies on historic
environmental liability claims. In addition, the 2002 first quarter included a
special, net pre-tax gain of $13.8 million for recoveries associated with
settlements reached with insurance companies on historic environmental
liability claims. By comparison, the 2001 second quarter and first six months
of 2001 included a special, pre-tax charge of $10.0 million for restructuring
programs. (Refer to Note 2 for further discussion of special items).

In the 2002 second quarter, the implied unit cost of copper production,
both full and cash, decreased 6 and 7 cents per pound, respectively, compared
with the corresponding 2001 quarter. For the first six months of 2002, the
full and cash implied unit costs of copper production decreased 9 cents
compared with the corresponding 2001 period. Despite the inefficiencies



---



##### Table of Contents



-20-

associated with production curtailments taken at the beginning of 2002,
approximately one-half of the cost improvements were due to lower energy costs
and the remainder was due to full operation of the Morenci mine-for-leach
process and general operational improvements associated with the Companys
Quest for Zeroprogram.

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, 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. As a
result, in the second quarter and the first six months of 2002, Phelps Dodge
was able to reduce and mitigate the impacts of volatile electricity markets,
diesel fuel and natural gas prices. Energy costs from copper mining through
smelting were 12 cents for the second quarter and first six months of 2002,
compared with 15 cents and 17 cents, respectively, for the corresponding 2001
periods.

PDMC  Other Matters

In the 2001 fourth quarter, Phelps Dodge announced a series of actions to
address the then current economic environment, including changes in copper
operations that led to curtailment of approximately 220,000 metric tons of
copper production annually (including our partners share), 14 million pounds
of by-product molybdenum annually, and the reduction of approximately 1,600
positions. These operations remain temporarily curtailed as a result of the
continued adverse economic environment. We believe our curtailment plan allows
us the maximum flexibility to quickly re-start operations when copper market
fundamentals experience a sustained improvement.




RESULTS OF PHELPS DODGE INDUSTRIES

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
telecommunications cables, and specialty conductors.



---

(Unaudited)

|                                                             |                     |   |                |       |      |  |       |       | 
|------------------------------------------------------------ | ------------------- | - | -------------- | ----- | ---- |  | ----- | ----- | 
|                                                             |                     |   | Second Quarter
|                                                             |                     |   |               
|                                                             |                     |   | 2002           |       | 2001
|                                                             |                     |   |                |       |     
|                                                             |                     |   | (in millions) 
|Sales and other operating revenues -
unaffiliated customers: |                     |   |                |       |      |  |       |      
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Specialty chemicals |   | $              | 140.5 |      |  |       | 148.0 | 
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Wire and cable      |   |                | 181.8 |      |  |       | 202.6 | 
|                                                             |                     |   |                |       |      |  |       |      
|                                                             |                     | $ | 322.3          |       |      |  | 350.6 |      
|                                                             |                     |   |                |       |      |  |       |      
|                                                             |                     |   |                |       |      |  |       |      
|                                                            
|                                                            
|                                                            
|                                                            
|Operating income:                                            |                     |   |                |       |      |  |       |      
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Specialty chemicals |   | $              | 17.0  |      |  |       | 18.2  | 
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Wire and cable (A)  |   |                | 3.3   |      |  |       | 4.4   | 
|                                                             |                     |   |                |       |      |  |       |      
|                                                             |                     | $ | 20.3           |       |      |  | 22.6  |      
|                                                             |                     |   |                |       |      |  |       |      

|                                                             |                     |   |                  |       |      |  |       |       | 
|------------------------------------------------------------ | ------------------- | - | ---------------- | ----- | ---- |  | ----- | ----- | 
|                                                             |                     |   | Six Months Ended
|                                                             |                     |   | June 30,        
|                                                             |                     |   |                 
|                                                             |                     |   | 2002             |       | 2001
|                                                             |                     |   |                  |       |     
|                                                             |                     |   | (in millions)   
|Sales and other operating revenues -
unaffiliated customers: |                     |   |                  |       |      |  |       |      
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Specialty chemicals |   | $                | 269.8 |      |  |       | 309.5 | 
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Wire and cable      |   |                  | 359.3 |      |  |       | 415.3 | 
|                                                             |                     |   |                  |       |      |  |       |      
|                                                             |                     | $ | 629.1            |       |      |  | 724.8 |      
|                                                             |                     |   |                  |       |      |  |       |      
|                                                             |                     |   |                  |       |      |  |       |      
|                                                            
|                                                            
|                                                            
|                                                            
|Operating income:                                            |                     |   |                  |       |      |  |       |      
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Specialty chemicals |   | $                | 30.2  |      |  |       | 38.4  | 
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Wire and cable (A)  |   |                  | 6.1   |      |  |       | 10.9  | 
|                                                             |                     |   |                  |       |      |  |       |      
|                                                             |                     | $ | 36.3             |       |      |  | 49.3  |      
|                                                             |                     |   |                  |       |      |  |       |      



---

|(A) |  | Included a special, pre-tax charge of $3.3 million in the 2001 second
quarter and six months ended June 30, 2001. Refer to Note 2.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------



PDI  Sales

PDI reported sales to unaffiliated customers of $322.3 million and $629.1
million in the 2002 second quarter and the six months ended June 30, 2002,
respectively, compared with sales of $350.6 million and $724.8 million in the
corresponding 2001 periods. The decrease in specialty chemicals sales was the
result of lower average unit selling prices and lower sales volumes. The
decrease in the wire and cable sales was primarily the result of lower sales
volumes due to continued economic weakness principally in the United States.



---



##### Table of Contents



-21-

PDI  Operating Income

PDI reported operating income of $20.3 million in the 2002 second quarter
and $36.3 million for the six months ended June 30, 2002. By comparison,
operating income was $25.9 million in the 2001 second quarter and $52.6 million
for the six months ended June 30, 2001, before a special, pre-tax charge of
$3.3 million for the write-down of the closed Hopkinsville, Kentucky, magnet
wire facility. The wire and cable segment decreased $4.4 million and $8.1
million, before special items, in the 2002 second quarter and the six months
ended June 30, 2002, respectively, principally due to lower sales volumes of
wire and cable sales in North America as a result of reduced demands and the
continued softness in the U.S. aerospace market. In addition, the specialty
chemicals segment decreased $1.2 million and $8.2 million in the 2002 second
quarter and the six months ended June 30, 2002, respectively, primarily due to
lower sales volumes in North America and reduced margins in Europe resulting
from the general industry over-capacity and the resulting competitive
environment.




OTHER MATTERS RELATING TO THE STATEMENT OF CONSOLIDATED OPERATIONS

Depreciation, Depletion and Amortization
Expense

Depreciation, depletion and amortization expense was $106.1 million in the
second quarter and $211.7 million for the first six months of 2002, compared
with $121.3 million and $237.8 million, respectively, in the corresponding 2001
periods. The decreases were primarily due to the temporary shutdowns and
production curtailments at PDMC and the $1.9 million in the 2002 second quarter
and $3.8 million for the first six months of 2002 reduction of goodwill
amortization expense at PDI resulting from the adoption of SFAS No. 142.

Exploration and Research Expense

Our net exploration and research expense was $9.2 million in the 2002
second quarter and $17.9 million for the six months ended June 30, 2002, a
decrease of $7.9 million and $14.0 million from the corresponding periods in
2001. The decreases primarily resulted from lower spending at most of our
locations and the absence of expenditures at the Sossego joint venture in
Brazil (approximately $2.5 million spent in the 2001 second quarter and $5.2
million spent for the six months ended June 30, 2001), which was sold in
October 2001.

Miscellaneous Income and Expense, Net

Miscellaneous income and expense, net, decreased $4.7 million in the
second quarter and $5.9 million for the first six months of 2002, before
special items, compared with the 2001 corresponding periods (refer to Note 2 to
the consolidated financial information for further discussion of these special
items). Approximately one-half of the decreases were due to lower interest
income. The remaining decreases were primarily due to a benefit plan
investment mark-to-market adjustments and foreign currency exchange losses.

Benefit for Taxes on Income

The Companys income tax benefit for the 2002 second quarter principally
comprised the following items: (i) a $21.9 million benefit recognized for the
second quarter 2002 net operating losses that, based on the March enactment of
the Job Creation and Worker Assistance Act of 2002, may be carried back to
recover prior years taxes paid; (ii) a $13.0 million benefit for release of
deferred taxes previously provided with regard to Plateau Mining Corporation;
and (iii) $4.1 million expense for taxes on earnings at international
operations. The Companys income tax benefit for the six months ended June 30,
2002, principally comprised the following items: (i) $38.5 million tax benefit
associated with the carryback of 2001 net operating losses that, based on the
new tax legislation, may also be carried back to recover prior years taxes
paid; (ii) $34.8 million benefit recognized for the first half of 2002 net
operating losses, based on the new tax legislation; (iii) $15.8 million expense
for taxes on earnings at international operations; and (iv) a $13.0 million
benefit for release of deferred taxes previously provided.




CHANGES IN FINANCIAL CONDITION

Working Capital

During the first six months of 2002, net working capital balances
(excluding cash and cash equivalents and debt) increased $10.0 million. This
increase resulted primarily from:



| |  |  | a $16.4 million increase in accounts receivable primarily due
to a $79.6 million increase associated with the tax benefit to
carryback the 2001 and the first six months of 2002 net operating
losses resulting from the March enactment of the Job Creation and
Worker Assistance Act of 2002 (refer to Note 8), partially offset by
lower copper realizations ($46 million)
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



---



##### Table of Contents



-22-



| |   |  | and $11 million of
collections for environmental insurance recoveries;                                                                                                                                                                                                                                                                                                                                                                              
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | a $35.8 million decrease in inventories and supplies primarily
due to a $37.7 million decrease in copper, gold and molybdenum
inventories at mining operations;                                                                                                                                                                                                                                                                                     
|
| |  |  | a $17.0 million increase in prepaid expenses and other current
assets primarily due to the prepayment of insurance premiums that
will be amortized over the remaining portion of the year and a $7.3
million increase in deferred income taxes; and                                                                                                                                                                                                 
|
| |  |  | a $14.2 million decrease in accounts payable and accrued
expenses primarily due to the production curtailments, shutdown of
facilities, staff reductions and lower accrued interest of $7.5
million (resulted from pay off of 10.125 percent notes discussed in
Debt below, and savings on interest rate swaps), partially offset by
the accruals for historic Cyprus Amax arbitration award ($46.5
million) and lawsuit settlement ($10.3 million).

Debt

At June 30, 2002, our total debt was $2,654.8 million, compared with
$2,851.0 million at year-end 2001. Our ratio of debt to total capitalization
was 44.7 percent at June 30, 2002, versus 50.8 percent at December 31, 2001.
On April 1, 2002, the Company paid the $150 million of principal on its 10.125
percent notes then due.

As of June 30, 2002, the Company had no borrowings against its $1 billion
revolving credit facility which is available, provided compliance with the
covenant requirements, until its scheduled maturity on May 10, 2005.

On June 11, 2002, Moodys confirmed its Baa3 credit rating on our senior
debt, on June 17, 2002, Fitch confirmed its BBB- credit rating and on July 25,
2002, Standard and Poors confirmed its BBB- credit rating. Fitch removed the
Companys rating from Rating Watch Negative to a Rating Outlook of Stable.
Moodys and Standard and Poors maintained their Negative Outlook rating. Key
factors they noted that influenced our ratings were the degree and timing of
economic recovery as well as copper price levels, and the Companys ability to
achieve the cost and operational improvements under our Quest for
Zero program.

Capital Expenditures and Investments

Capital expenditures and investments during the first six months of 2002
were $38.1 million for PDMC, $9.5 million for PDI and $3.2 million for other
Corporate-related activities. Capital expenditures and investments in the
corresponding 2001 period were $115.2 million for PDMC, $66.4 million for PDI
(including $44.8 million for the contractually obligated acquisition of the
remaining 40 percent share of the Companys wire and cable manufacturing
operation in Brazil) and $11.5 million for other Corporate-related activities.
We expect capital expenditures and investments for the year 2002 to be between
$165 million and $185 million, comprising approximately $130 million for PDMC,
approximately $45 million for PDI, and approximately $10 million for Corporate
and other.

Equity Offering

In June 2002, the Company issued 10 million common shares and 2 million
mandatory convertible preferred shares in a block trade with J.P. Morgan. Net
proceeds from this trade were approximately $592 million. Proceeds were
earmarked primarily for debt repurchase. In July 2002, approximately $481
million of long-term debt was purchased on the open market for $511 million,
which will result in a 2002 third quarter pre-tax extraordinary loss of
approximately $33 million including issuance costs and other book adjustments. This
buy-back will reduce annual interest cost
by approximately $40 million before taxes. Had the buy-back been
completed by the second quarter ended June 30, 2002, the Companys debt to
total capitalization ratio would have been reduced to approximately 40 percent.

The 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.

Dividends

Due to economic conditions and continuing unsatisfactory copper prices,
the Company 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 the first six months of 2002.



---



##### Table of Contents



-23-

On June 19, 2002, Phelps Dodge declared a prorated quarterly dividend of
$1.1813 per mandatory convertible preferred share, to be paid on
August 15, 2002.

Contractual Obligations

The following tables summarize Phelps Dodges contractual obligations at
June 30, 2002, and the effect such obligations are expected to have on its
liquidity and cash flow in future periods for short-term debt, long-term debt
(including capital lease obligations) and take-or-pay contracts. The following
table, as of June 30, 2002, reflects an update of only the major changes to the
similar table presented in the Companys Form 10-K at December 31, 2001:



---

Debt and Take-or-Pay Contracts as of June 30, 2002:

($ in millions)

|                      |  |       |         |        |  |           |       |  |  |  |       | 
|--------------------- |  | ----- | ------- | ------ |  | --------- | ----- |  |  |  | ----- | 
|                      |  |       |         |        |  | Less Than |       |  |  | 
|                      |  | Total |         | 1 Year |  | 1-3 Years
|                      |  |       |         |        |  |          
|Short-term debt       |  | $     | 51.6    |        |  |           | 51.6  |  |  |  |      | 
|                     
|                     
|                     
|                     
|Long-term debt        |  |       | 2,603.2 |        |  |           | 135.7 |  |  |  | 351.9 | 
|                     
|                     
|                     
|                     
|Take-or-pay contracts |  |       | 567.0   |        |  |           | 151.4 |  |  |  | 194.0 | 

|                      |  |           |       |         |  |       |         | 
|--------------------- |  | --------- | ----- | ------- |  | ----- | ------- | 
|                      |  |           |       |         |  | After
|                      |  | 4-5 Years |       | 5 Years
|                      |  |           |       |        
|Short-term debt       |  | $         |      |         |  |       |        | 
|                     
|                     
|                     
|                     
|Long-term debt        |  |           | 683.1 |         |  |       | 1,432.5 | 
|                     
|                     
|                     
|                     
|Take-or-pay contracts |  |           | 126.4 |         |  |       | 95.2    | 



The pro forma effect, as of June 30, 2002, of purchasing $481 million of
long-term debt in July 2002 is as follows:



Pro Forma Long-Term Debt Obligations as of June 30, 2002:

($ in millions)

|               |  |       |         |        |  |           |       |  |  |  |       | 
|-------------- |  | ----- | ------- | ------ |  | --------- | ----- |  |  |  | ----- | 
|               |  |       |         |        |  | Less Than |       |  |  | 
|               |  | Total |         | 1 Year |  | 1-3 Years
|               |  |       |         |        |  |          
|Long-term debt |  | $     | 2,122.2 |        |  |           | 135.7 |  |  |  | 336.9 | 

|               |  |           |       |         |  |       |         | 
|-------------- |  | --------- | ----- | ------- |  | ----- | ------- | 
|               |  |           |       |         |  | After
|               |  | 4-5 Years |       | 5 Years
|               |  |           |       |        
|Long-term debt |  | $         | 580.6 |         |  |       | 1,069.0 | 



Other Items that May Affect Liquidity

New Mexico and Colorados mined land reclamation laws require financial
assurance covering reclamation cost. In contrast, Arizonas Mine Land
Reclamation Act permits a company to satisfy financial assurance requirements
by demonstrating it has financial strength to fund reclamation costs identified
in an approved reclamation plan. An investment grade bond rating is one of the
financial strength tests under the Arizona Act. 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 in Arizona.

The costs of surety bonds (the traditional source of financial assurance)
have increased significantly during the past year. Also, many surety companies
are now requiring an increased level of collateral supporting the bonds. If
surety bonds are unavailable, the Company could be required to post other
collateral or possibly cash or cash equivalents directly in support of
financial assurance obligations.

Other Matters

For a discussion of new accounting standards, please refer to Notes 3 and
9 to the consolidated financial information.

On May 14, 2002, the parties to In re Cyprus Amax Minerals Company
Shareholders Litigation pending in the Court of Chancery of the state of
Delaware (the Action) entered into a stipulation agreeing that the claims
asserted in that action had become moot and should be dismissed. The Action
concerned the proposed merger of Cyprus Amax Minerals Company (Cyprus) and
ASARCO Incorporated. Plaintiffs in the Action and Phelps Dodge jointly
challenged the merger agreement which was eventually abandoned in favor of
Phelps Dodges superior offer for Cyprus. Phelps Dodge has agreed to pay the
fees and expenses incurred by plaintiffs counsel in litigating the Action in
an aggregate amount of $2.5 million. In the stipulation, plaintiffs release
all claims, rights, causes of action, suits, matters and issues, known or
unknown, that have been or could have been asserted by plaintiffs or their
attorneys in the Action, either directly or individually, derivatively,
representatively or in any other capacity, against defendants, or their
respective present or former officers, directors, agents, employees, attorneys,
representatives, advisors, heirs executors, administrators, successors and
assigns, and anyone else, in connection with or which now or hereafter arise
from, or which relate in any way to the issues in the Action or
any



---



##### Table of Contents



-24-

matters,
transactions or occurrences referred to in the complaints therein, including
any claim for plaintiffs attorneys fees and expenses, with prejudice as to
plaintiffs and their counsel.

Unless one or more shareholders of Phelps Dodge objects to the dismissal
of the Action as moot or to Phelps Dodges agreement with respect to the
payment of attorneys fees and expenses, and unless any such objections are
deemed by the Court to be of merit, the Court will, on or after September 20,
2002, enter a final order dismissing the Action on the terms provided in the
parties stipulation.




Part II. Other Information




Item 1. Legal Proceedings

Reference is made to Paragraph IX of Item 3, Legal Proceedings of the
Companys Form 10-K for the year ended December 31, 2001, regarding matters
described therein.

On July 3, 2002, Chino Mines Company and Phelps Dodge Tyrone, Inc. joined
with the New Mexico Environment Department (Department) in filing Stipulated
Voluntary Dismissals with the Hearing Officer. This action dismisses the
Compliance Orders that the Department issued alleging that the companies failed
to obtain construction permits before the construction of solution extraction
electrowinning plants in 1987 and 1983 as required by the New Mexico Air
Quality Act. Both facilities obtained permits for these plants after
construction, but before the Orders were issued. The Department determined
that it had previously indicated that it would not pursue enforcement action
against the facilities if they would obtain permits. Since the facilities did
obtain the permits, the Department agreed to stop the enforcement action. This
matter is now resolved.

In June 2002, Phelps Dodge reached settlement with plaintiffs in Questar
Exploration and Production Company & Anadarko Petroleum Corporation v. Phelps
Dodge Corporation and Midwest Coal Company, Case No. CJ-2001-15,
in the District Court of Texas County Oklahoma. The case involved a contract
dispute over responsibility for incorrectly calculated royalty payments to
royalty owners prior to 1994 by the former Amax Oil & Gas Inc. (previously
owned by Cyprus Amax). The settlement was for $10.3 million, of which $2.6
million has been paid with an additional payment in that amount due on October
15, 2002, with the balance due January 2, 2003.

Reference is made to Paragraph X of Item 3, Legal Proceedings of the
Companys Form 10-K for the year ended December 31, 2001, regarding matters
described therein.

On June 25, 2002, the Company received a settlement proposal from the
Department of Justice concerning alleged violations of the Clean Water Act at
the United Verde Mine. The Company will respond to the letter and continue its
efforts to reach a satisfactory settlement with the Department.

On June 25, 2001, Plateau Mining Corporation initiated binding arbitration
proceedings against Cyprus Amax Minerals Company 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 Amax Minerals Company. On July
18, 2002, the arbitration panel awarded Plateau Mining the amount of $36.5
million on its claim, plus interest of $10.0 million as of June 30, 2002.




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

Our annual meeting was held on April 30, 2002. A total of 66,657,252
common shares, or about 84.87 percent of our issued and outstanding common
shares, were represented at the meeting. Set forth below is a description of
the matters voted upon at the meeting and a summary of the voting regarding
each matter:

|                       |  |     |            |          |  |  |         | 
|---------------------- |  | --- | ---------- | -------- |  |  | ------- | 
|                       |  | For |            | Withheld
|                       |  |     |            |         
|Election of Directors: |  |     |            |          |  |  |         | 
|                      
|                      
|                      
|                      
|                       |  |     |            |          |  |  |         | 
|                      
|                      
|                      
|                      
|Archie W. Dunham       |  |     | 64,877,998 |          |  |  | 887,627 | 
|                      
|                      
|                      
|                      
|William A. Franke      |  |     | 64,878,078 |          |  |  | 889,587 | 
|                      
|                      
|                      
|                      
|Southwood J. Morcott   |  |     | 65,450,410 |          |  |  | 603,421 | 
|                      
|                      
|                      
|                      
|J. Steven Whisler      |  |     | 65,460,482 |          |  |  | 598,383 | 
|                      
|                      
|                      
|                      
|William J. Post        |  |     | 64,882,750 |          |  |  | 887,251 | 

|                        |  |     |            |         |  |         |           |  |  |  |         | 
|----------------------- |  | --- | ---------- | ------- |  | ------- | --------- |  |  |  | ------- | 
|                        |  | For |            | Against |  | Abstain
|                        |  |     |            |         |  |        
|Appointment
of Auditors |  |     | 64,080,727 |         |  |         | 2,235,730 |  |  |  | 339,596 | 

There were no broker non-votes included in the results of the election of
directors listed above and 1,199 broker non-votes were included in the
appointment of auditors.



---



##### Table of Contents



-25-




Item 6. Exhibits and Reports on Form 8-K



| | (a) |  | Any exhibits required to be filed by the Company are listed in
the Index to Exhibits.                                                                                                               
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | One Form 8-K was filed during the quarter ended June 30, 2002,
in regards to the offering of 10 million common shares and 2 million
mandatory convertible preferred shares (filed on June 13, 2002).



---



##### Table of Contents



-26-




Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Corporation has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

PHELPS DODGE CORPORATION
(Corporation or Registrant)

|                      |  |     |  |                                                                                 |  |  |  | 
|--------------------- |  | --- |  | ------------------------------------------------------------------------------- |  |  |  | 
|                      |  |     |  |                                                                                
|                     
|                     
|                     
|                     
|Date: August 13, 2002 |  | By: |  | /s/ Stanton K. Rideout                                                         
|                      |  |     |  |                                                                                
|                      |  |     |  | Stanton K. Rideout
Vice President and Controller
(Principal Accounting Officer)



---



##### Table of Contents



-27-




Index to 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).
|    
|    
|    
|    
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    
|    
|    
|    
|4.9  |  | Form of Common Share Certificate of the Corporation (SEC File
No. 1-82).                                                                                                                                                                                                                                                                                                                                                                                                   
|    
|    
|    
|    
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    
|    
|    
|    
|4.10 |  | Form of 6.75% Series A Mandatory Convertible Preferred Share Certificate
of the Corporation, issued by the Corporation on June 12, 2002 (SEC File
No. 1-82).                                                                                                                                                                                                                                                                                                               
|    
|    
|    
|    
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    
|    
|    
|    
|11   |  | Computation of Per Share Earnings.                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    
|    
|    
|    
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    
|    
|    
|    
|12   |  | Computation of ratios of total debt to total capitalization.                                                                                                                                                                                                                                                                                                                                                                                                               
|    
|    
|    
|    
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    
|    
|    
|    
|15   |  | Letter from PricewaterhouseCoopers LLP with respect to unaudited interim financial information.                                                                                                                                                                                                                                                                                                                                                                            
|    
|    
|    
|    
|     |  |