##### 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 September 30, 2001

Commission file number 1-82

PHELPS DODGE CORPORATION

(a New York corporation)

13-1808503

(I.R.S. Employer Identification No.)

2600 North Central Avenue, Phoenix, AZ 85004-3089

Registrants telephone number: (602) 234-8100

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   (Check Box)    No   (Box)

Number of Common Shares outstanding at November 8, 2001: 78,699,734 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 COMMON 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 6. Exhibits and Reports on Form 8-K    
|                              | Signatures                                  
|                              | Index to Exhibits                           
|EX-3.2                       
|EX-12                        
|EX-15                        



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##### Table of Contents



PHELPS DODGE CORPORATION

Quarterly Report on Form 10-Q

For the Quarter Ended September 30, 2001

Table of Contents

|                              |                                              |                                                                    |  |      |    | 
|----------------------------- | -------------------------------------------- | ------------------------------------------------------------------ |  | ---- | -- | 
|                              |                                              |                                                                    |  | Page
|Part I. Financial Information |                                              |                                                                    |  |     
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|                              | Item 1. Financial Statements (unaudited)     |                                                                    |  |      |   
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|                              |                                              | Statement of Consolidated Operations                               |  |      | 1  | 
|                             
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|                              |                                              | Consolidated Balance Sheet                                         |  |      | 2  | 
|                             
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|                              |                                              | Consolidated Statement of Cash Flows                               |  |      | 3  | 
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|                              |                                              | Consolidated Statement of Common Shareholders Equity              |  |      | 4  | 
|                             
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|                              |                                              | Financial Data by Business Segment                                 |  |      | 5  | 
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|                              |                                              | Notes to Consolidated Financial Information                        |  |      | 6  | 
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|                              |                                              | Review by Independent Accountants                                  |  |      | 12 | 
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|                              |                                              | Report of Independent Accountants                                  |  |      | 13 | 
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|                              | Item 2. Managements Discussion and Analysis |                                                                    |  |      |   
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|                              |                                              | Results of Operations                                              |  |      | 14 | 
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|                              |                                              | Results of Phelps Dodge Mining Company                             |  |      | 15 | 
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|                              |                                              | Results of Phelps Dodge Industries                                 |  |      | 17 | 
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|                              |                                              | Other Matters Relating to the Statement of Consolidated Operations |  |      | 18 | 
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|                              |                                              | Changes in Financial Condition                                     |  |      | 19 | 
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|Part II. Other Information    |                                              |                                                                    |  |     
|                             
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|                              | Item 1. Legal Proceedings                    |                                                                    |  | 20   |   
|                             
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|                              | Item 6. Exhibits and Reports on Form 8-K     |                                                                    |  | 20   |   
|                             
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|                              | Signatures                                   |                                                                    |  | 21   |   
|                             
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|                              | Index to Exhibits                            |                                                                    |  | 21   |   

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##### Table of Contents



PHELPS DODGE CORPORATION AND SUBSIDIARIES




Part I. Financial Information




Item 1. Financial Statements




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

|                                                                                                                                                 |                                                       |   |               |       |                   |  |         |       |      |  |         |         |   |  |         |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------ | ----------------------------------------------------- | - | ------------- | ----- | ----------------- |  | ------- | ----- | ---- |  | ------- | ------- | - |  | ------- | ------- | -
|                                                                                                                                                 |                                                       |   | Third Quarter |       | First Nine Months
|                                                                                                                                                 |                                                       |   |               |       |                  
|                                                                                                                                                 |                                                       |   | 2001          |       | 2000              |  | 2001    |       | 2000
|                                                                                                                                                 |                                                       |   |               |       |                   |  |         |       |     
|Sales and other operating revenues                                                                                                               |                                                       | $ | 937.0         |       |                   |  | 1,193.4 |       |      |  | 3,101.2 |         |   |  | 3,426.0 |        
|                                                                                                                                                 |                                                       |   |               |       |                   |  |         |       |      |  |         |         |   |  |         |        
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|Operating costs and expenses                                                                                                                     |                                                       |   |               |       |                   |  |         |       |      |  |         |         |   |  |         |        
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                 | Cost of products sold                                 |   |               | 841.3 |                   |  |         | 932.5 |      |  |         | 2,672.5 |   |  |         | 2,701.1 |  
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                 | Depreciation, depletion and amortization              |   |               | 108.6 |                   |  |         | 111.0 |      |  |         | 346.4   |   |  |         | 349.5   |  
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                 | Selling and general administrative expense            |   |               | 25.9  |                   |  |         | 32.7  |      |  |         | 89.6    |   |  |         | 99.7    |  
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                 | Exploration and research expense                      |   |               | 14.3  |                   |  |         | 12.6  |      |  |         | 46.2    |   |  |         | 39.8    |  
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                 | Non-recurring items, net (see Note 2)                 |   |               | (0.2  | )                 |  |         | 3.3   |      |  |         | (17.8   | ) |  |         | 49.6    |  
|                                                                                                                                                 |                                                       |   |               |       |                   |  |         |       |      |  |         |         |   |  |         |        
|                                                                                                                                                 |                                                       |   | 989.9         |       |                   |  | 1,092.1 |       |      |  | 3,136.9 |         |   |  | 3,239.7 |        
|                                                                                                                                                 |                                                       |   |               |       |                   |  |         |       |      |  |         |         |   |  |         |        
|Operating income (loss)                                                                                                                          |                                                       |   | (52.9         | )     |                   |  | 101.3   |       |      |  | (35.7   | )       |   |  | 186.3   |        
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                 | Interest expense                                      |   |               | (58.7 | )                 |  |         | (54.4 | )    |  |         | (167.6  | ) |  |         | (163.8  | )
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                 | Capitalized interest                                  |   |               |      |                   |  |         | 2.2   |      |  |         | 0.6     |   |  |         | 3.5     |  
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                 | Miscellaneous income and expense, net                 |   |               | 3.2   |                   |  |         | 4.8   |      |  |         | 17.8    |   |  |         | 16.2    |  
|                                                                                                                                                 |                                                       |   |               |       |                   |  |         |       |      |  |         |         |   |  |         |        
|Income (loss) before taxes, minority interests, equity in net earnings (loss)
of affiliated companies and cumulative effect of accounting change |                                                       |   | (108.4        | )     |                   |  | 53.9    |       |      |  | (184.9  | )       |   |  | 42.2    |        
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                 | (Provision) benefit for taxes on income               |   |               | 8.4   |                   |  |         | (12.0 | )    |  |         | (5.7    | ) |  |         | (17.3   | )
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                 | Minority interests in consolidated subsidiaries       |   |               | (0.6  | )                 |  |         | (2.3  | )    |  |         | (3.5    | ) |  |         | (5.2    | )
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                 | Equity in net earnings (loss) of affiliated companies |   |               | 0.2   |                   |  |         | (0.3  | )    |  |         | (0.6    | ) |  |         | 1.2     |  
|                                                                                                                                                 |                                                       |   |               |       |                   |  |         |       |      |  |         |         |   |  |         |        
|Income (loss) before cumulative effect of accounting change                                                                                      |                                                       |   | (100.4        | )     |                   |  | 39.3    |       |      |  | (194.7  | )       |   |  | 20.9    |        
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                 | Cumulative effect of accounting change                |   |               |      |                   |  |         |      |      |  |         | (2.0    | ) |  |         |        |  
|                                                                                                                                                 |                                                       |   |               |       |                   |  |         |       |      |  |         |         |   |  |         |        
|Net income (loss)                                                                                                                                |                                                       | $ | (100.4        | )     |                   |  | 39.3    |       |      |  | (196.7  | )       |   |  | 20.9    |        
|                                                                                                                                                 |                                                       |   |               |       |                   |  |         |       |      |  |         |         |   |  |         |        
|Average number of shares outstanding  basic                                                                                                     |                                                       |   | 78.5          |       |                   |  | 78.4    |       |      |  | 78.5    |         |   |  | 78.4    |        
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|Basic earnings (loss) per share before cumulative effect
of accounting change                                                                    |                                                       | $ | (1.28         | )     |                   |  | 0.50    |       |      |  | (2.48   | )       |   |  | 0.27    |        
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                 | Cumulative effect of accounting change                |   |               |      |                   |  |         |      |      |  |         | (0.03   | ) |  |         |        |  
|                                                                                                                                                 |                                                       |   |               |       |                   |  |         |       |      |  |         |         |   |  |         |        
|Basic earnings (loss) per share                                                                                                                  |                                                       | $ | (1.28         | )     |                   |  | 0.50    |       |      |  | (2.51   | )       |   |  | 0.27    |        
|                                                                                                                                                 |                                                       |   |               |       |                   |  |         |       |      |  |         |         |   |  |         |        
|Average number of shares outstanding  diluted                                                                                                   |                                                       |   | 78.5          |       |                   |  | 78.7    |       |      |  | 78.5    |         |   |  | 78.8    |        
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|Diluted earnings (loss) per share before cumulative effect
of accounting change                                                                  |                                                       | $ | (1.28         | )     |                   |  | 0.50    |       |      |  | (2.48   | )       |   |  | 0.27    |        
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                 | Cumulative effect of accounting change                |   |               |      |                   |  |         |      |      |  |         | (0.03   | ) |  |         |        |  
|                                                                                                                                                 |                                                       |   |               |       |                   |  |         |       |      |  |         |         |   |  |         |        
|Diluted earnings (loss) per share                                                                                                                |                                                       | $ | (1.28         | )     |                   |  | 0.50    |       |      |  | (2.51   | )       |   |  | 0.27    |        
|                                                                                                                                                 |                                                       |   |               |       |                   |  |         |       |      |  |         |         |   |  |         |        

See Notes to Consolidated Financial Information.

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##### Table of Contents






CONSOLIDATED BALANCE SHEET
(Unaudited; in millions)

|                                                |                                                                                            |                     |         |               |         |              |         |         |         | 
|----------------------------------------------- | ------------------------------------------------------------------------------------------ | ------------------- | ------- | ------------- | ------- | ------------ | ------- | ------- | ------- | 
|                                                |                                                                                            |                     |         | September 30, |         | December 31,
|                                                |                                                                                            |                     |         | 2001          |         | 2000        
|                                                |                                                                                            |                     |         |               |         |             
|Assets                                          |                                                                                            |                     |         |               |         |              |         |        
|                                               
|                                               
|                                               
|                                               
|                                                | Cash and cash equivalents                                                                  |                     | $       | 423.2         |         |              |         | 250.0   |        
|                                               
|                                               
|                                               
|                                               
|                                                | Accounts receivable, net                                                                   |                     |         | 479.6         |         |              |         | 528.7   |        
|                                               
|                                               
|                                               
|                                               
|                                                | Inventories and supplies                                                                   |                     |         | 582.9         |         |              |         | 602.7   |        
|                                               
|                                               
|                                               
|                                               
|                                                | Prepaid expenses and other current assets                                                  |                     |         | 138.8         |         |              |         | 126.2   |        
|                                                |                                                                                            |                     |         |               |         |              |         |        
|                                                |                                                                                            | Current assets      |         |               | 1,624.5 |              |         |         | 1,507.6 | 
|                                               
|                                               
|                                               
|                                               
|                                                | Net property, plant and equipment and other assets                                         |                     |         | 6,097.6       |         |              |         | 6,278.1 |        
|                                               
|                                               
|                                               
|                                               
|                                                | Non-current deferred income taxes                                                          |                     |         | 55.8          |         |              |         | 45.1    |        
|                                                |                                                                                            |                     |         |               |         |              |         |        
|                                                |                                                                                            | $                   | 7,777.9 |               |         |              | 7,830.8 |        
|                                                |                                                                                            |                     |         |               |         |              |         |        
|Liabilities                                     |                                                                                            |                     |         |               |         |              |         |        
|                                               
|                                               
|                                               
|                                               
|                                                | Short-term debt                                                                            |                     | $       | 64.3          |         |              |         | 518.2   |        
|                                               
|                                               
|                                               
|                                               
|                                                | Current portion of long-term debt                                                          |                     |         | 374.6         |         |              |         | 206.5   |        
|                                               
|                                               
|                                               
|                                               
|                                                | Accounts payable and accrued expenses                                                      |                     |         | 672.1         |         |              |         | 669.8   |        
|                                               
|                                               
|                                               
|                                               
|                                                | Accrued income taxes                                                                       |                     |         | 12.6          |         |              |         | 23.4    |        
|                                                |                                                                                            |                     |         |               |         |              |         |        
|                                                |                                                                                            | Current liabilities |         |               | 1,123.6 |              |         |         | 1,417.9 | 
|                                               
|                                               
|                                               
|                                               
|                                                | Long-term debt                                                                             |                     |         | 2,555.0       |         |              |         | 1,963.0 |        
|                                               
|                                               
|                                               
|                                               
|                                                | Deferred income taxes                                                                      |                     |         | 452.8         |         |              |         | 439.0   |        
|                                               
|                                               
|                                               
|                                               
|                                                | Other liabilities and deferred credits                                                     |                     |         | 833.9         |         |              |         | 814.2   |        
|                                                |                                                                                            |                     |         |               |         |              |         |        
|                                                |                                                                                            |                     | 4,965.3 |               |         |              | 4,634.1 |        
|                                                |                                                                                            |                     |         |               |         |              |         |        
|Minority interests in consolidated subsidiaries |                                                                                            |                     | 59.9    |               |         |              | 91.7    |        
|                                                |                                                                                            |                     |         |               |         |              |         |        
|Common shareholders equity                     |                                                                                            |                     |         |               |         |              |         |        
|                                               
|                                               
|                                               
|                                               
|                                                | Common shares, par value $6.25; 200.0 shares authorized;
78.7 outstanding in 2001 and 2000 |                     |         | 491.9         |         |              |         | 491.9   |        
|                                               
|                                               
|                                               
|                                               
|                                                | Capital in excess of par value                                                             |                     |         | 1,017.0       |         |              |         | 1,017.7 |        
|                                               
|                                               
|                                               
|                                               
|                                                | Retained earnings                                                                          |                     |         | 1,575.9       |         |              |         | 1,831.7 |        
|                                               
|                                               
|                                               
|                                               
|                                                | Accumulated other comprehensive loss                                                       |                     |         | (324.8        | )       |              |         | (226.4  | )      
|                                               
|                                               
|                                               
|                                               
|                                                | Other                                                                                      |                     |         | (7.3          | )       |              |         | (9.9    | )      
|                                                |                                                                                            |                     |         |               |         |              |         |        
|                                                |                                                                                            |                     | 2,752.7 |               |         |              | 3,105.0 |        
|                                                |                                                                                            |                     |         |               |         |              |         |        
|                                                |                                                                                            | $                   | 7,777.9 |               |         |              | 7,830.8 |        
|                                                |                                                                                            |                     |         |               |         |              |         |        

See Notes to Consolidated Financial Information.

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##### Table of Contents






CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited; in millions)

|                                                 |                                                                                          |                                                 |                                                     |         |                                 |        |       |        |       |        |  
|------------------------------------------------ | ---------------------------------------------------------------------------------------- | ----------------------------------------------- | --------------------------------------------------- | ------- | ------------------------------- | ------ | ----- | ------ | ----- | ------ | -
|                                                 |                                                                                          |                                                 |                                                     |         | Nine Months Ended September 30,
|                                                 |                                                                                          |                                                 |                                                     |         |                                
|                                                 |                                                                                          |                                                 |                                                     |         | 2001                            |        | 2000 
|                                                 |                                                                                          |                                                 |                                                     |         |                                 |        |      
|Operating activities                             |                                                                                          |                                                 |                                                     |         |                                 |        |       |       
|                                                
|                                                
|                                                
|                                                
|                                                 | Net income (loss)                                                                        |                                                 | $                                                   | (196.7  | )                               |        |       | 20.9   |      
|                                                
|                                                
|                                                
|                                                
|                                                 | Adjustments to reconcile net income (loss) to net cash
provided by operating activities: |                                                 |                                                     |         |                                 |        |       |        |      
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                          | Depreciation, depletion and amortization        |                                                     |         | 346.4                           |        |       |        | 349.5 |       
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                          | Deferred income taxes                           |                                                     |         | 1.0                             |        |       |        | 13.2  |       
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                          | Equity earnings net of dividends received       |                                                     |         | 1.9                             |        |       |        |      |       
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                          | Non-recurring items and provisions (see Note 2) |                                                     |         | (21.6                           | )      |       |        | 56.7  |       
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                          | Changes in current assets and liabilities:      |                                                     |         |                                 |        |       |        |       |       
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                          |                                                 | Accounts receivable                                 |         |                                 | 29.1   |       |        |       | (103.4 | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                          |                                                 | Inventories                                         |         |                                 | 15.8   |       |        |       | 39.6   |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                          |                                                 | Supplies                                            |         |                                 | (4.0   | )     |        |       | (2.8   | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                          |                                                 | Prepaid expenses                                    |         |                                 | (12.5  | )     |        |       | 0.8    |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                          |                                                 | Deferred income taxes                               |         |                                 |       |       |        |       | (0.1   | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                          |                                                 | Interest payable                                    |         |                                 | 52.7   |       |        |       | 20.7   |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                          |                                                 | Other accounts payable                              |         |                                 | (5.1   | )     |        |       | 6.9    |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                          |                                                 | Accrued income taxes                                |         |                                 | (9.5   | )     |        |       | (38.1  | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                          |                                                 | Other accrued expenses                              |         |                                 | (26.0  | )     |        |       | (55.5  | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                          | Other adjustments, net                          |                                                     |         | 5.7                             |        |       |        | 4.7   |       
|                                                 |                                                                                          |                                                 |                                                     |         |                                 |        |       |       
|                                                 |                                                                                          |                                                 | Net cash provided by operating activities           |         |                                 | 177.2  |       |        |       | 313.1  |  
|                                                 |                                                                                          |                                                 |                                                     |         |                                 |        |       |       
|Investing activities                             |                                                                                          |                                                 |                                                     |         |                                 |        |       |       
|                                                
|                                                
|                                                
|                                                
|                                                 | Capital outlays                                                                          |                                                 |                                                     | (201.9  | )                               |        |       | (277.6 | )    
|                                                
|                                                
|                                                
|                                                
|                                                 | Capitalized interest                                                                     |                                                 |                                                     | (0.6    | )                               |        |       | (3.0   | )    
|                                                
|                                                
|                                                
|                                                
|                                                 | Investment in subsidiaries and other                                                     |                                                 |                                                     | (47.7   | )                               |        |       | (13.4  | )    
|                                                
|                                                
|                                                
|                                                
|                                                 | Proceeds from asset dispositions and other, net                                          |                                                 |                                                     | 0.8     |                                 |        |       | 152.4  |      
|                                                 |                                                                                          |                                                 |                                                     |         |                                 |        |       |       
|                                                 |                                                                                          |                                                 | Net cash used in investing activities               |         |                                 | (249.4 | )     |        |       | (141.6 | )
|                                                 |                                                                                          |                                                 |                                                     |         |                                 |        |       |       
|Financing activities                             |                                                                                          |                                                 |                                                     |         |                                 |        |       |       
|                                                
|                                                
|                                                
|                                                
|                                                 | Increase in debt                                                                         |                                                 |                                                     | 1,178.3 |                                 |        |       | 69.2   |      
|                                                
|                                                
|                                                
|                                                
|                                                 | Payment of debt                                                                          |                                                 |                                                     | (885.2  | )                               |        |       | (112.0 | )    
|                                                
|                                                
|                                                
|                                                
|                                                 | Common dividends                                                                         |                                                 |                                                     | (59.1   | )                               |        |       | (118.1 | )    
|                                                
|                                                
|                                                
|                                                
|                                                 | Other, net                                                                               |                                                 |                                                     | 11.4    |                                 |        |       | 1.1    |      
|                                                 |                                                                                          |                                                 |                                                     |         |                                 |        |       |       
|                                                 |                                                                                          |                                                 | Net cash provided by (used in) financing activities |         |                                 | 245.4  |       |        |       | (159.8 | )
|                                                 |                                                                                          |                                                 |                                                     |         |                                 |        |       |       
|Increase in cash and cash equivalents            |                                                                                          |                                                 | 173.2                                               |         |                                 |        | 11.7  |       
|                                                
|                                                
|                                                
|                                                
|Cash and cash equivalents at beginning of period |                                                                                          |                                                 | 250.0                                               |         |                                 |        | 234.2 |       
|                                                 |                                                                                          |                                                 |                                                     |         |                                 |        |       |       
|Cash and cash equivalents at end of period       |                                                                                          | $                                               | 423.2                                               |         |                                 |        | 245.9 |       
|                                                 |                                                                                          |                                                 |                                                     |         |                                 |        |       |       

See Notes to Consolidated Financial Information.

-3-



---



##### Table of Contents






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

|                              |                               |                                                |                                        |   |               |   |            |   |           |   |          |      |               |   |             |       |        |   |               |   |  |       |       |     |  |   |         |       |        |       |  
|----------------------------- | ----------------------------- | ---------------------------------------------- | -------------------------------------- | - | ------------- | - | ---------- | - | --------- | - | -------- | ---- | ------------- | - | ----------- | ----- | ------ | - | ------------- | - |  | ----- | ----- | --- |  | - | ------- | ----- | ------ | ----- | -
|                              |                               |                                                |                                        |   | Common Shares |   |            |   |           |   |          |      |               |   | Accumulated |       |        |   |               |   |  |       |      
|                              |                               |                                                |                                        |   |               |   | Capital in |   |           |   |          |      | Other         |   |             |       |        |   | Common       
|                              |                               |                                                |                                        |   | Number        |   | At Par     |   | Excess of |   | Retained |      | Comprehensive |   |             |       |        |   | Shareholders'
|                              |                               |                                                |                                        |   | of Shares     |   | Value      |   | Par Value |   | Earnings |      | Income (Loss) |   | Other       |       | Equity
|                              |                               |                                                |                                        |   |               |   |            |   |           |   |          |      |               |   |             |       |       
|Balance at December 31, 2000  |                               |                                                | 78.7                                   |   |               | $ | 491.9      |   |           | $ | 1,017.7  |      |               | $ | 1,831.7     |       |        |   | $(226.4       | ) |  |       | $(9.9 | )   |  | $ | 3,105.0 |      
|                             
|                             
|                             
|                             
|                              | Stock options exercised       |                                                |                                        |  |               |   |            |  |           |   |          | 0.4  |               |   |             |       |        |   |               |   |  |       |       |     |  |   |         | 0.4   |       
|                             
|                             
|                             
|                             
|                              | Restricted shares issued, net |                                                |                                        |  |               |   |            |  |           |   |          | (1.1 | )             |   |             |       |        |   |               |   |  |       |       | 2.6 |  |   |         | 1.5   |       
|                             
|                             
|                             
|                             
|                              | Dividends on common shares    |                                                |                                        |   |               |   |            |   |           |   |          |      |               |   |             | (59.1 | )      |   |               |   |  |       |       |     |  |   |         | (59.1 | )     
|                             
|                             
|                             
|                             
|                              | Comprehensive income (loss):  |                                                |                                        |   |               |   |            |   |           |   |          |      |               |   |             |       |        |   |               |   |  |       |       |     |  |   |         |       |       
|                             
|                             
|                             
|                             
|                              |                               | Net loss                                       |                                        |   |               |   |            |   |           |   |          |      |               |   |             |       | (196.7 | ) |               |   |  |       |       |     |  |   |         |       | (196.7 | )    
|                             
|                             
|                             
|                             
|                              |                               | Other comprehensive income (loss),
net of tax: |                                        |   |               |   |            |   |           |   |          |      |               |   |             |       |        |   |               |   |  |       |       |     |  |   |         |       |        |      
|                             
|                             
|                             
|                             
|                              |                               |                                                | Translation adjustment                 |   |               |   |            |   |           |   |          |      |               |   |             |       |        |   |               |   |  | (72.6 | )     |     |  |   |         |       |        | (72.6 | )
|                             
|                             
|                             
|                             
|                              |                               |                                                | Cumulative effect of accounting change |   |               |   |            |   |           |   |          |      |               |   |             |       |        |   |               |   |  | (7.1  | )     |     |  |   |         |       |        | (7.1  | )
|                             
|                             
|                             
|                             
|                              |                               |                                                | Net loss on derivative instrument      |   |               |   |            |   |           |   |          |      |               |   |             |       |        |   |               |   |  | (19.0 | )     |     |  |   |         |       |        | (19.0 | )
|                             
|                             
|                             
|                             
|                              |                               |                                                | Unrealized gains on securities         |   |               |   |            |   |           |   |          |      |               |   |             |       |        |   |               |   |  | 0.3   |       |     |  |   |         |       |        | 0.3   |  
|                              |                               |                                                |                                        |   |               |   |            |   |           |   |          |      |               |   |             |       |        |   |               |   |  |       |       |     |  |   |         |      
|                              |                               |                                                | Other comprehensive loss               |   |               |   |            |   |           |   |          |      |               |   |             |       |        |   |               |   |  | (98.4 | )     |     |  |   |         |       |        | (98.4 | )
|                              |                               |                                                |                                        |   |               |   |            |   |           |   |          |      |               |   |             |       |        |   |               |   |  |       |       |     |  |   |         |      
|                              |                               | Comprehensive loss                             |                                        |   |               |   |            |   |           |   |          |      |               |   |             |       |        |   |               |   |  |       |       |     |  |   |         |       | (295.1 | )    
|                              |                               |                                                |                                        |   |               |   |            |   |           |   |          |      |               |   |             |       |        |   |               |   |  |       |       |     |  |   |         |      
|Balance at September 30, 2001 |                               |                                                | 78.7                                   |   |               | $ | 491.9      |   |           | $ | 1,017.0  |      |               | $ | 1,575.9     |       |        |   | $(324.8       | ) |  |       | $(7.3 | )   |  | $ | 2,752.7 |      
|                              |                               |                                                |                                        |   |               |   |            |   |           |   |          |      |               |   |             |       |        |   |               |   |  |       |       |     |  |   |         |      

See Notes to Consolidated Financial Information.

-4-



---



##### Table of Contents






FINANCIAL DATA BY BUSINESS SEGMENT
(Unaudited; in millions)

|                       |                                          |                        |  |         |         |           |  |               |       |       |  |          |       |              |  |             |         |  |  |         |         |  |  |           |        |   |  |         |         | 
|---------------------- | ---------------------------------------- | ---------------------- |  | ------- | ------- | --------- |  | ------------- | ----- | ----- |  | -------- | ----- | ------------ |  | ----------- | ------- |  |  | ------- | ------- |  |  | --------- | ------ | - |  | ------- | ------- | 
|                       |                                          |                        |  |         |         |           |  |               |       |       |  |          |       |              |  |             |         |  |  |         |         |  |  | Corporate |        |   |  |        
|                       |                                          |                        |  |         |         |           |  | PD Industries |       |       |  |          |       | Unallocated  |  |             |         | 
|                       |                                          |                        |  | Phelps  |         |           |  |               |       |       |  | &        |       |              |  |            
|                       |                                          |                        |  | Dodge   |         | Specialty |  | Wire &        |       |       |  |          |       | Segment      |  | Reconciling |         |  |  |        
|                       |                                          |                        |  | Mining  |         | Chemicals |  | Cable         |       | Total |  | Subtotal |       | Eliminations |  | Totals     
|                      
|Third Quarter 2001     |                                          |                        |  |         |         |           |  |               |       |       |  |          |       |              |  |             |         |  |  |         |         |  |  |           |        |   |  |        
|                      
|                      
|                      
|                      
|                       | Sales & other operating revenues:        |                        |  |         |         |           |  |               |       |       |  |          |       |              |  |             |         |  |  |         |         |  |  |           |        |   |  |         |        
|                      
|                      
|                      
|                      
|                       |                                          | Unaffiliated customers |  | $       | 614.7   |           |  |               | 138.2 |       |  |          | 184.1 |              |  |             | 322.3   |  |  |         | 937.0   |  |  |           |       |   |  |         | 937.0   | 
|                      
|                      
|                      
|                      
|                       |                                          | Intersegment           |  |         | 31.7    |           |  |               |      |       |  |          |      |              |  |             |        |  |  |         | 31.7    |  |  |           | (31.7  | ) |  |         |        | 
|                      
|                      
|                      
|                      
|                       | Depreciation, depletion and amortization |                        |  | 85.3    |         |           |  | 10.6          |       |       |  | 11.9     |       |              |  | 22.5        |         |  |  | 107.8   |         |  |  | 0.8       |        |   |  | 108.6   |        
|                      
|                      
|                      
|                      
|                       | Non-recurring items, net                 |                        |  |        |         |           |  |              |       |       |  |         |       |              |  |            |         |  |  |        |         |  |  | 0.2       |        |   |  | 0.2     |        
|                      
|                      
|                      
|                      
|                       | Operating income (loss)                  |                        |  | (52.7   | )       |           |  | 10.7          |       |       |  | 2.9      |       |              |  | 13.6        |         |  |  | (39.1   | )       |  |  | (13.8     | )      |   |  | (52.9   | )      
|                      
|                      
|                      
|                      
|                       | Assets at September 30                   |                        |  | 5,801.3 |         |           |  | 711.4         |       |       |  | 644.6    |       |              |  | 1,356.0     |         |  |  | 7,157.3 |         |  |  | 620.6     |        |   |  | 7,777.9 |        
|                      
|                      
|                      
|                      
|                       | Capital outlays and investments          |                        |  | 46.6    |         |           |  | 7.7           |       |       |  | 1.7      |       |              |  | 9.4         |         |  |  | 56.0    |         |  |  | 0.4       |        |   |  | 56.4    |        
|                      
|Third Quarter 2000     |                                          |                        |  |         |         |           |  |               |       |       |  |          |       |              |  |             |         |  |  |         |         |  |  |           |        |   |  |        
|                      
|                      
|                      
|                      
|                       | Sales & other operating revenues:        |                        |  |         |         |           |  |               |       |       |  |          |       |              |  |             |         |  |  |         |         |  |  |           |        |   |  |         |        
|                      
|                      
|                      
|                      
|                       |                                          | Unaffiliated customers |  | $       | 825.8   |           |  |               | 148.3 |       |  |          | 219.3 |              |  |             | 367.6   |  |  |         | 1,193.4 |  |  |           |       |   |  |         | 1,193.4 | 
|                      
|                      
|                      
|                      
|                       |                                          | Intersegment           |  |         | 61.2    |           |  |               |      |       |  |          | 0.4   |              |  |             | 0.4     |  |  |         | 61.6    |  |  |           | (61.6  | ) |  |         |        | 
|                      
|                      
|                      
|                      
|                       | Depreciation, depletion and amortization |                        |  | 85.9    |         |           |  | 11.6          |       |       |  | 12.7     |       |              |  | 24.3        |         |  |  | 110.2   |         |  |  | 0.8       |        |   |  | 111.0   |        
|                      
|                      
|                      
|                      
|                       | Non-recurring items, net                 |                        |  | (0.7    | )       |           |  |              |       |       |  | (2.6     | )     |              |  | (2.6        | )       |  |  | (3.3    | )       |  |  |          |        |   |  | (3.3    | )      
|                      
|                      
|                      
|                      
|                       | Operating income (loss)                  |                        |  | 91.5    |         |           |  | 20.7          |       |       |  | 8.4      |       |              |  | 29.1        |         |  |  | 120.6   |         |  |  | (19.3     | )      |   |  | 101.3   |        
|                      
|                      
|                      
|                      
|                       | Assets at September 30                   |                        |  | 6,299.1 |         |           |  | 764.7         |       |       |  | 706.0    |       |              |  | 1,470.7     |         |  |  | 7,769.8 |         |  |  | 252.5     |        |   |  | 8,022.3 |        
|                      
|                      
|                      
|                      
|                       | Capital outlays and investments          |                        |  | 108.1   |         |           |  | 13.2          |       |       |  | 3.2      |       |              |  | 16.4        |         |  |  | 124.5   |         |  |  | 1.9       |        |   |  | 126.4   |        
|                      
|First Nine Months 2001 |                                          |                        |  |         |         |           |  |               |       |       |  |          |       |              |  |             |         |  |  |         |         |  |  |           |        |   |  |        
|                      
|                      
|                      
|                      
|                       | Sales & other operating revenues:        |                        |  |         |         |           |  |               |       |       |  |          |       |              |  |             |         |  |  |         |         |  |  |           |        |   |  |         |        
|                      
|                      
|                      
|                      
|                       |                                          | Unaffiliated customers |  | $       | 2,054.1 |           |  |               | 447.7 |       |  |          | 599.4 |              |  |             | 1,047.1 |  |  |         | 3,101.2 |  |  |           |       |   |  |         | 3,101.2 | 
|                      
|                      
|                      
|                      
|                       |                                          | Intersegment           |  |         | 120.6   |           |  |               |      |       |  |          | 0.1   |              |  |             | 0.1     |  |  |         | 120.7   |  |  |           | (120.7 | ) |  |         |        | 
|                      
|                      
|                      
|                      
|                       | Depreciation, depletion and amortization |                        |  | 273.8   |         |           |  | 33.3          |       |       |  | 35.9     |       |              |  | 69.2        |         |  |  | 343.0   |         |  |  | 3.4       |        |   |  | 346.4   |        
|                      
|                      
|                      
|                      
|                       | Non-recurring items, net                 |                        |  | (10.0   | )       |           |  |              |       |       |  | (3.3     | )     |              |  | (3.3        | )       |  |  | (13.3   | )       |  |  | 31.1      |        |   |  | 17.8    |        
|                      
|                      
|                      
|                      
|                       | Operating income (loss)                  |                        |  | (79.1   | )       |           |  | 49.1          |       |       |  | 13.8     |       |              |  | 62.9        |         |  |  | (16.2   | )       |  |  | (19.5     | )      |   |  | (35.7   | )      
|                      
|                      
|                      
|                      
|                       | Assets at September 30                   |                        |  | 5,801.3 |         |           |  | 711.4         |       |       |  | 644.6    |       |              |  | 1,356.0     |         |  |  | 7,157.3 |         |  |  | 620.6     |        |   |  | 7,777.9 |        
|                      
|                      
|                      
|                      
|                       | Capital outlays and investments          |                        |  | 161.8   |         |           |  | 21.7          |       |       |  | 54.1     |       |              |  | 75.8        |         |  |  | 237.6   |         |  |  | 12.0      |        |   |  | 249.6   |        
|                      
|First Nine Months 2000 |                                          |                        |  |         |         |           |  |               |       |       |  |          |       |              |  |             |         |  |  |         |         |  |  |           |        |   |  |        
|                      
|                      
|                      
|                      
|                       | Sales & other operating revenues:        |                        |  |         |         |           |  |               |       |       |  |          |       |              |  |             |         |  |  |         |         |  |  |           |        |   |  |         |        
|                      
|                      
|                      
|                      
|                       |                                          | Unaffiliated customers |  | $       | 2,333.1 |           |  |               | 453.3 |       |  |          | 639.6 |              |  |             | 1,092.9 |  |  |         | 3,426.0 |  |  |           |       |   |  |         | 3,426.0 | 
|                      
|                      
|                      
|                      
|                       |                                          | Intersegment           |  |         | 180.1   |           |  |               |      |       |  |          | 1.5   |              |  |             | 1.5     |  |  |         | 181.6   |  |  |           | (181.6 | ) |  |         |        | 
|                      
|                      
|                      
|                      
|                       | Depreciation, depletion and amortization |                        |  | 269.1   |         |           |  | 34.7          |       |       |  | 42.0     |       |              |  | 76.7        |         |  |  | 345.8   |         |  |  | 3.7       |        |   |  | 349.5   |        
|                      
|                      
|                      
|                      
|                       | Non-recurring items, net                 |                        |  | (5.9    | )       |           |  |              |       |       |  | (43.7    | )     |              |  | (43.7       | )       |  |  | (49.6   | )       |  |  |          |        |   |  | (49.6   | )      
|                      
|                      
|                      
|                      
|                       | Operating income (loss)                  |                        |  | 197.9   |         |           |  | 71.8          |       |       |  | (27.3    | )     |              |  | 44.5        |         |  |  | 242.4   |         |  |  | (56.1     | )      |   |  | 186.3   |        
|                      
|                      
|                      
|                      
|                       | Assets at September 30                   |                        |  | 6,299.1 |         |           |  | 764.7         |       |       |  | 706.0    |       |              |  | 1,470.7     |         |  |  | 7,769.8 |         |  |  | 252.5     |        |   |  | 8,022.3 |        
|                      
|                      
|                      
|                      
|                       | Capital outlays and investments          |                        |  | 222.7   |         |           |  | 50.1          |       |       |  | 12.4     |       |              |  | 62.5        |         |  |  | 285.2   |         |  |  | 5.8       |        |   |  | 291.0   |        
|                      

-5-



---



##### Table of Contents






NOTES TO CONSOLIDATED FINANCIAL INFORMATION
(Unaudited)



|1. |  | General Information                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The unaudited consolidated financial information 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 Phelps Dodge Corporations (the Company, which may be
referred to as Phelps Dodge, the Corporation, we, us or ours) Form 10-K
for the year ended December 31, 2000. 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 nine-month periods ended
September 30, 2001, are not necessarily indicative of the results to be
expected for the full year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|2. |  | Restructuring Charges and Non-Recurring Items                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|   |  | In the third quarter of 2001, a non-recurring gain of $0.2 million (net of
fees and expenses) was recognized consisting of recoveries associated with
settlements reached with insurance companies on historic environmental
liability claims. It is our policy to recognize recoveries of
environmental expenditures or costs from insurance companies or other
parties when they become probable.                                                                                                                                                                                                                                                                                                                                
|  
|   |  | In the second quarter of 2001, we announced a plan to improve operating
income by restructuring of our professional, administrative and operations
support functions, as well as various other operational improvements.
This restructuring contemplated the elimination of 500 positions, which as
of September 30, 2001, has been completed. Additionally, we announced and
implemented a layoff of approximately 80 employees at our Tyrone, New
Mexico, operation for an indefinite period. For information concerning
the elimination of additional positions associated with the curtailments
announced on October 23, 2001, see Note 10.                                                                                    
|  
|   |  | In the second quarter of 2001, a net non-recurring charge of $7.5 million
was recognized consisting of an $11.3 million restructuring charge
primarily for employee severance and benefit costs associated with the
above-mentioned operational improvement plan. The restructuring charge
was partially offset by a net gain of $3.8 million 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 non-recurring items.                                                                             
|  
|   |  | In the first quarter of 2001, a non-recurring gain of $30.9 million (net
of fees and expenses) was recognized consisting of recoveries associated
with settlements reached with several insurance companies on historic
environmental liability claims.                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   |  | The following schedules summarize the non-recurring items for the third
quarter and nine months ended September 30, 2001:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  

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

|                          |                                    |          |                    |           |  |       |  |     |  |  |  |      | 
|------------------------- | ---------------------------------- | -------- | ------------------ | --------- |  | ----- |  | --- |  |  |  | ---- | 
|                          |                                    |          | 2001 Third Quarter
|                          |                                    |          |                   
|Statement of Consolidated |                                    | Pre-tax  |                    | After-tax |  | Per  
|Operations Line Item      |                                    | Earnings |                    | Earnings  |  | Share
|                          |                                    |          |                    |           |  |      
|Non-recurring items, net: |                                    |          |                    |           |  |       |  |     |  |  |  |     
|                         
|                         
|                         
|                         
|                          | Environmental
insurance recoveries |          | $                  | 0.2       |  |       |  | 0.2 |  |  |  | 0.00 | 
|                          |                                    |          |                    |           |  |       |  |     |  |  |  |     

-6-



---



##### Table of Contents



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

|                                       |       |                                                    |      |                    |       |       |      |      |       |   |      |      |       |  
|-------------------------------------- | ----- | -------------------------------------------------- | ---- | ------------------ | ----- | ----- | ---- | ---- | ----- | - | ---- | ---- | ----- | -
|                                       |       |                                                    |      | Nine Months Ended 
|                                       |       |                                                    |      | September 30, 2001
|                                       |       |                                                    |      |                   
|Statement of Consolidated              |       | Pre-tax                                            |      | After-tax          |       | Per  
|Operations Line Item                   |       | Earnings                                           |      | Earnings           |       | Share
|                                       |       |                                                    |      |                    |       |      
|Non-recurring items, net:              |       |                                                    |      |                    |       |       |      |      |       |   |      |     
|                                      
|                                      
|                                      
|                                      
|                                       |       | April 2001 operating income
improvement plan       |      | $                  | (11.3 | )     |      |      | (11.3 | ) |      |      | (0.14 | )
|                                      
|                                      
|                                      
|                                      
|                                       |       | Hopkinsville plant write-down                      |      |                    | (3.3  | )     |      |      | (3.3  | ) |      |      | (0.04 | )
|                                      
|                                      
|                                      
|                                      
|                                       |       | Environmental
insurance recoveries                 |      |                    | 38.3  | *     |      |      | 38.3  |   |      |      | 0.49  |  
|                                      
|                                      
|                                      
|                                      
|                                       |       | Other                                              |      |                    | (5.9  | )     |      |      | (5.9  | ) |      |      | (0.08 | )
|                                      
|                                      
|                                      
|                                      
|                                       |       |                                                    |      |                    |       |       |      |      |       |   |      |     
|                                       |       |                                                    | 17.8 |                    |       |       | 17.8 |      |       |   | 0.23 |     
|                                       |       |                                                    |      |                    |       |       |      |      |       |   |      |     
|Miscellaneous income
and expense, net: |       |                                                    |      |                    |       |       |      |      |       |   |      |     
|                                      
|                                      
|                                      
|                                      
|                                       |       | Interest income 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 change in
accounting principle (Note 9) |      |                    | (2.0  | )     |      |      | (2.0  | ) |      |      | (0.03 | )
|                                       |       |                                                    |      |                    |       |       |      |      |       |   |      |     
|                                       | Total |                                                    | $    | 21.6               |       |       |      | 21.6 |       |   |      | 0.27 |      
|                                       |       |                                                    |      |                    |       |       |      |      |       |   |      |     



---

|* |  | Net of fees and expenses of $10.5 million for the first nine months.
|- |  | --------------------------------------------------------------------
| 



| |  | In the third quarter of 2000, non-recurring, pre-tax charges totaled $3.3
million ($2.2 million, or 3 cents per share, after taxes) reflecting (i)
curtailment of copper and molybdenum mining activities, and (ii) ongoing
costs for wire and cable restructuring activities.                                                                                                                                                                                                                                                                                                                        
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In the second quarter of 2000, we announced a plan to reduce operating
costs and restructure operations at our mining and wire and cable
segments. This plan comprised the following actions: (i) curtailing
higher cost production at the Miami copper mine in Arizona and reducing
production at the Henderson molybdenum mine in Colorado; (ii) ceasing
production at two wire and cable plants in Venezuela; (iii) initiating the
closure of a telephone cable operation in El Salvador, and (iv)
recognizing impairment charges for our wire and cable operations in
Austria and the Philippines.
|
| |  | Non-recurring, pre-tax items in the second quarter of 2000 totaled $52.0
million ($42.3 million, or 54 cents per share, after taxes) consisting of
a $41.3 million pre-tax restructuring charge for the activities previously
discussed, ongoing costs related to the wire and cable restructuring plan,
and a tax refund and associated interest resulting from settlement of the
Companys 1990 and 1991 income tax audits.                                                                                                                                                                         
|
| |  | In the 2000 first quarter, our wire and cable segment incurred pre-tax
charges of $2.1 million associated with the 1999 restructuring plan ($1.3
million, or 1 cent per share, after taxes).                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | The following schedules summarize the non-recurring items for the third
quarter and nine months ended September 30, 2000:                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|

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

|                          |                                         |          |                    |           |   |       |      |      |   |  |       |       |  
|------------------------- | --------------------------------------- | -------- | ------------------ | --------- | - | ----- | ---- | ---- | - |  | ----- | ----- | -
|                          |                                         |          | 2000 Third Quarter
|                          |                                         |          |                   
|Statement of Consolidated |                                         | Pre-tax  |                    | After-tax |   | Per  
|Operations Line Item      |                                         | Earnings |                    | Earnings  |   | Share
|                          |                                         |          |                    |           |   |      
|Non-recurring items, net: |                                         |          |                    |           |   |       |      |      |   |  |       |      
|                         
|                         
|                         
|                         
|                          | PD Mining curtailments                  |          | $                  | (0.7      | ) |       |      | (0.5 | ) |  |       | (0.01 | )
|                         
|                         
|                         
|                         
|                          | Additional wire and cable
restructuring |          |                    | (2.6      | ) |       |      | (1.7 | ) |  |       | (0.02 | )
|                          |                                         |          |                    |           |   |       |      |      |   |  |       |      
|Total                     |                                         | $        | (3.3               | )         |   |       | (2.2 | )    |   |  | (0.03 | )    
|                          |                                         |          |                    |           |   |       |      |      |   |  |       |      
|                         

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

|                                       |       |                                                    |       |                    |       |       |       |       |       |   |       |       |       |  
|-------------------------------------- | ----- | -------------------------------------------------- | ----- | ------------------ | ----- | ----- | ----- | ----- | ----- | - | ----- | ----- | ----- | -
|                                       |       |                                                    |       | Nine Months Ended 
|                                       |       |                                                    |       | September 30, 2000
|                                       |       |                                                    |       |                   
|Statement of Consolidated              |       | Pre-tax                                            |       | After-tax          |       | Per  
|Operations Line Item                   |       | Earnings                                           |       | Earnings           |       | Share
|                                       |       |                                                    |       |                    |       |      
|Cost of products sold:                 |       |                                                    |       |                    |       |       |       |       |       |   |       |      
|                                      
|                                      
|                                      
|                                      
|                                       |       | Wire and cable working
capital write-downs         |       | $                  | (6.4  | )     |       |       | (6.4  | ) |       |       | (0.08 | )
|                                      
|                                      
|                                      
|                                      
|                                       |       |                                                    |       |                    |       |       |       |       |       |   |       |      
|Non-recurring items, net:              |       |                                                    |       |                    |       |       |       |       |       |   |       |      
|                                      
|                                      
|                                      
|                                      
|                                       |       | PD Mining curtailments                             |       |                    | (5.9  | )     |       |       | (3.8  | ) |       |       | (0.05 | )
|                                      
|                                      
|                                      
|                                      
|                                       |       | Wire and cable
closure/impairments                 |       |                    | (36.1 | )     |       |       | (33.6 | ) |       |       | (0.43 | )
|                                      
|                                      
|                                      
|                                      
|                                       |       | Additional wire and cable
restructuring activities |       |                    | (7.6  | )     |       |       | (4.9  | ) |       |       | (0.06 | )
|                                       |       |                                                    |       |                    |       |       |       |       |       |   |       |      
|                                      
|                                      
|                                      
|                                      
|                                       |       |                                                    | (49.6 | )                  |       |       | (42.3 | )     |       |   | (0.54 | )    
|                                       |       |                                                    |       |                    |       |       |       |       |       |   |       |      
|Miscellaneous income
and expense, net: |       |                                                    |       |                    |       |       |       |       |       |   |       |      
|                                      
|                                      
|                                      
|                                      
|                                       |       | Interest income on
prior years tax refunds        |       |                    | 5.8   |       |       |       | 3.6   |   |       |       | 0.04  |  
|                                      
|                                      
|                                      
|                                      
|                                       |       | Philippines investment
impairment                  |       |                    | (7.2  | )     |       |       | (7.2  | ) |       |       | (0.09 | )
|                                       |       |                                                    |       |                    |       |       |       |       |       |   |       |      
|                                       |       |                                                    | (1.4  | )                  |       |       | (3.6  | )     |       |   | (0.05 | )    
|                                       |       |                                                    |       |                    |       |       |       |       |       |   |       |      
|Provision for taxes on income:         |       |                                                    |       |                    |       |       |       |       |       |   |       |      
|                                      
|                                      
|                                      
|                                      
|                                       |       | Income tax refund                                  |       |                    |      |       |       |       | 6.5   |   |       |       | 0.08  |  
|                                       |       |                                                    |       |                    |       |       |       |       |       |   |       |      
|                                       | Total |                                                    | $     | (57.4              | )     |       |       | (45.8 | )     |   |       | (0.59 | )    
|                                       |       |                                                    |       |                    |       |       |       |       |       |   |       |      
|                                      



| |  | On June 30, 1999, we announced a plan to reduce costs and improve
operating performance at all three of our business segments by curtailing
higher-cost copper production, selling a
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-7-



---



##### Table of Contents





| |  | non-core mining unit,
restructuring certain wire and cable assets, and suspending operations of
a carbon black plant.                                                                                                     
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The following table presents a roll-forward of the liabilities incurred in
connection with the 1999, 2000 and 2001 restructuring plans, which were
all reflected as current liabilities in our consolidated balance sheet:
|

|                                                 |  |          |      |            |  |               |     |         |  |            |      |   |  |  |     | 
|------------------------------------------------ |  | -------- | ---- | ---------- |  | ------------- | --- | ------- |  | ---------- | ---- | - |  |  | --- | 
|                                                 |  |          |      |            |  |               |     |         |  | (Payments/ |      |   |  | 
|                                                 |  | 12/31/00 |      | Additions* |  | Deductions)** |     | 9/30/01
|                                                 |  |          |      |            |  |               |     |        
|PD Mining:                                       |  |          |      |            |  |               |     |         |  |            |      |   |  |  |     | 
|                                                
|                                                
|                                                
|                                                
|Employee severance
and relocation                |  | $        | 2.0  |            |  |               | 4.1 |         |  |            | (4.3 | ) |  |  | 1.8 | 
|                                                
|                                                
|                                                
|                                                
|Mothballing/take or
pay contracts                |  |          | 2.5  |            |  |               |     |         |  |            | (0.8 | ) |  |  | 1.7 | 
|                                                 |  |          |      |            |  |               |     |         |  |            |      |   |  |  |     | 
|                                                 |  |          | 4.5  |            |  |               | 4.1 |         |  |            | (5.1 | ) |  |  | 3.5 | 
|                                                 |  |          |      |            |  |               |     |         |  |            |      |   |  |  |     | 
|PD Industries:                                   |  |          |      |            |  |               |     |         |  |            |      |   |  |  |     | 
|                                                
|                                                
|                                                
|                                                
|Wire and Cable
Employee severance
and relocation |  |          | 0.4  |            |  |               |     |         |  |            | (0.4 | ) |  |  |    | 
|                                                
|                                                
|                                                
|                                                
|Take or pay contracts                            |  |          | 2.0  |            |  |               |     |         |  |            | (0.9 | ) |  |  | 1.1 | 
|                                                
|                                                
|                                                
|                                                
|Plant removal
& dismantling                      |  |          | 3.8  |            |  |               |     |         |  |            | (1.5 | ) |  |  | 2.3 | 
|                                                 |  |          |      |            |  |               |     |         |  |            |      |   |  |  |     | 
|                                                 |  |          | 6.2  |            |  |               |    |         |  |            | (2.8 | ) |  |  | 3.4 | 
|                                                 |  |          |      |            |  |               |     |         |  |            |      |   |  |  |     | 
|Specialty Chemicals                              |  |          |      |            |  |               |     |         |  |            |      |   |  |  |     | 
|                                                
|                                                
|                                                
|                                                
|Disposal &
dismantling                           |  |          | 1.3  |            |  |               |     |         |  |            | (1.0 | ) |  |  | 0.3 | 
|                                                
|                                                
|                                                
|                                                
|Environmental                                    |  |          | 0.7  |            |  |               |     |         |  |            | (0.1 | ) |  |  | 0.6 | 
|                                                 |  |          |      |            |  |               |     |         |  |            |      |   |  |  |     | 
|                                                 |  |          | 2.0  |            |  |               |    |         |  |            | (1.1 | ) |  |  | 0.9 | 
|                                                 |  |          |      |            |  |               |     |         |  |            |      |   |  |  |     | 
|                                                 |  |          | 8.2  |            |  |               |    |         |  |            | (3.9 | ) |  |  | 4.3 | 
|                                                 |  |          |      |            |  |               |     |         |  |            |      |   |  |  |     | 
|Corporate & Other:                               |  |          |      |            |  |               |     |         |  |            |      |   |  |  |     | 
|                                                
|                                                
|                                                
|                                                
|Employee severance
and relocation                |  |          |     |            |  |               | 0.9 |         |  |            | (0.8 | ) |  |  | 0.1 | 
|                                                 |  |          |      |            |  |               |     |         |  |            |      |   |  |  |     | 
|                                                 |  |          |     |            |  |               | 0.9 |         |  |            | (0.8 | ) |  |  | 0.1 | 
|                                                 |  |          |      |            |  |               |     |         |  |            |      |   |  |  |     | 
|Total                                            |  | $        | 12.7 |            |  |               | 5.0 |         |  |            | (9.8 | ) |  |  | 7.9 | 
|                                                 |  |          |      |            |  |               |     |         |  |            |      |   |  |  |     | 



---

|*  |  | Additions exclude $6.3 million of pension and other post retirement charges
for the 2001 restructuring, included in long-term liabilities.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------
|  
|  
|  
|  
|** |  | Of the $9.8 million in payments, $6.5 million relates to payments for the
1999 and 2000 restructuring.                                    
|  



|3. |  | Accounting Standards                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | In August 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets. This Statement
supersedes SFAS No. 121 and the accounting and reporting provisions of APB
Opinion No. 30, and also amends ARB No. 51. This Statement will require
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 is required to be adopted by the Company on
January 1, 2002. We are in the process of evaluating the effect that SFAS
No. 144 will have on our financial reporting and disclosures and are
developing procedures to effect its implementation.                                                                                                                        
|  
|   |  | 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 addition, in June 2001, FASB issued SFAS No. 141, Business
Combinations and SFAS No. 142, Goodwill and Other Intangible Assets.
With the adoption of SFAS Nos. 141 and 142, business combinations
initiated after June 30, 2001, will be required to be accounted for using
the purchase method, and 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, but without
the constraint of the 40 year ceiling. SFAS No. 142 is required to be
adopted by the Company on January 1, 2002. We are in the process of
evaluating the effect that SFAS No. 142 will have on our financial
reporting and disclosures and are developing procedures to effect its
implementation. As of September 30, 2001, we had goodwill of $133.5
million net of accumulated amortization of $39.9 million.

-8-



---



##### Table of Contents





|   |  | See Note 9 for discussion on the adoption of SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|4. |  | Environmental Matters                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|   |  | As of December 31, 2000, we had a reserve balance of $307.1 million for
estimated future costs associated with environmental matters. During the
first nine months of 2001, net spending against that reserve totaled $22.3
million. As of September 30, 2001, the reserve balance was $284.8
million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|   |  | We have contingencies regarding environmental, closure and other matters.
For a further discussion of these contingencies, please see our Form 10-K
for the year ended December 31, 2000, and Note 18 to the Consolidated
Financial Statements included therein.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|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 transaction closed in March 2001.
The final settlement price of $44.8 million has been 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|   |  | On July 6, 2001, the New Mexico Environment Department and the Mining and
Minerals Division of the Energy, Minerals and Natural Resources Department
(the State) publicly released their respective draft permit conditions for
proposed closure and closeout plans for our Chino Mines (Hurley, New
Mexico) operation. The Company believes the scope of work in the States
draft permit conditions significantly exceeds that necessary to ensure
environmental protection and public health and safety as required by State
law, and fails to recognize appropriate waiver provisions available under
the New Mexico Mining Act for existing operations. As such, the
reclamation work proposed by the State is significantly greater in scope
than that proposed by the Company and, therefore, the associated costs
estimated by the State of $759 million (assuming use of third-party
contractors) far exceed the Companys estimates of $99 million (assuming
use of third-party contractors), which are based on many years of
technical and engineering studies. Under State law, the Company must
provide financial assurance for the estimated reclamation costs as set
forth in the final plan by December 31, 2001. The State and the Company
have jointly requested a change in the regulations to extend this deadline
until July 1, 2002. Any potential change would be recognized
prospectively in accordance with the Companys accounting policy.
|  
|   |  | During August 2001, the State held a public hearing and received public
comments on the draft closure permit for Chino Mines. Since then, the
Company and the State have engaged in negotiations in an attempt to
resolve the differences between the Companys plan and the States plan.
Negotiations also have begun regarding similar requirements for the Tyrone
operations. The Company will continue to explore all available avenues
and processes to obtain reasonable and final closure and closeout plans
that are based on a sound understanding of the applicable science and
regulations, and that consider the specific characteristics of the sites
as required by law.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|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
nine-month period ended September 30, 2001, excludes 0.2 million of
restricted stock issued to employees as these shares were anti-dilutive.
The average number of diluted common shares outstanding for the quarter
ended September 30, 2000, included 0.3 million for the dilutive impact of
restricted stock issued to employees. The average number of diluted
common shares out
standing for the nine-month period ended September 30, 2000, included 0.3
million for the dilutive impact of                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

-9-



---



##### Table of Contents





| |  | restricted stock issued to employees
and 0.1 million for the dilutive impact of employee stock options.                                                                                                 
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | 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):
|

|                     |  |               |       |                   |  |      |       |      |  |  |       |  |  |  |       | 
|-------------------- |  | ------------- | ----- | ----------------- |  | ---- | ----- | ---- |  |  | ----- |  |  |  | ----- | 
|                     |  | Third Quarter |       | First Nine Months
|                     |  |               |       |                  
|                     |  | 2001          |       | 2000              |  | 2001 |       | 2000
|                     |  |               |       |                   |  |      |       |     
|Outstanding options  |  |               | 7.7   |                   |  |      | 6.7   |      |  |  | 7.8   |  |  |  | 6.5   | 
|                    
|                    
|                    
|                    
|Average option price |  | $             | 37.86 |                   |  |      | 41.81 |      |  |  | 42.86 |  |  |  | 47.59 | 
|                    



|8. |  | Provision for Taxes on Income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Currently, the Companys estimated income tax expense principally results
from taxes on earnings at international operations that cannot be offset
by losses at domestic operations. Based on our full-year New York
Commodity Exchange (COMEX) copper price outlook and the mix of taxes and
earnings, the Company is only providing income taxes on net earnings at
its international operations at an effective 31 percent tax rate for the
first nine months of 2001.                                                                                                                                                                          
|  
|   |  | Our forecast for the average COMEX copper price and other factors will be
reviewed from time to time, which may result in changes to the projected
full-year earnings and associated income tax estimates. Such changes and
estimates may also result in significant adjustments to the effective tax
rate that we recognize in any subsequent period.                                                                                                                                                                                                                                                                                             
|  
|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 result in exposing us to market risk. 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,
foreign exchange and interest rate risks from our primary business
activities.                                                                                                                        
|  
|   |  | Effective January 1, 2001, Phelps Dodge adopted SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities, as amended. The fair
values of outstanding derivative instruments are recorded on the balance
sheet. The adoption of SFAS No. 133 on January 1, 2001, resulted in a
cumulative pre-tax reduction to income of $2.0 million ($2.0 million
after-tax) and a cumulative pre-tax reduction to Other Comprehensive
Income (OCI) of $7.1 million ($7.1 million after-tax).                                                                                                                                                 
|  
|   |  | Phelps Dodge evaluates hedge effectiveness by formally measuring, at least
quarterly, the correlation of changes in the fair value or expected future
cash flows of the hedged risk between the hedged item and the hedge
instrument. The ineffective portions are recorded in earnings in the
current period (which were not material in the third quarter or first nine
months of 2001). If the hedging relationship ceases to be highly
effective or it becomes probable that an expected transaction will no
longer occur, gains or losses on the derivative are recorded in earnings
(none in the third quarter or first nine months of 2001).
|  
|   |  | Changes in the fair value of derivatives are recorded in current earnings
or in other comprehensive income, depending on whether a derivative is
designated as a fair value or cash flow hedge and the effectiveness of the
hedge. A summary of the derivative instruments we hold follows.                                                                                                                                                                                                                                                                                                                                                        
|  
|   |  | Fair Value Hedges                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|   |  | The following hedges qualify as fair value hedges. As a result, the
fair values of derivatives and changes in the fair values of the
underlying hedged items are reported in the balance sheet. Changes in the
fair values of
these derivatives and underlying hedged items are recorded to other income
and expense or sales each period and generally offset one another. There
were no existing arrangements that ceased to qualify as a fair value hedge
in the third quarter of 2001.                                                                                                                                                       

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| |  | Copper                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Some of our wire, cathode and rod (collectively, copper) customers request
a fixed sales price instead of the COMEX or London Metal Exchange (LME)
average price in the month of shipment or receipt. As a convenience to
these customers, we enter into copper swap and futures contracts to hedge
the sales in a manner that will allow us to receive the COMEX or LME
average price in the month of shipment or receipt while our customers
receive the agreed upon fixed price. A portion of our copper contracts
did not meet all of the required criteria to be designated as fixed
commitments under SFAS No. 133; therefore, a portion of our copper swap
and futures contracts were not designated as hedging instruments.
|
| |  | Foreign Currency                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | Foreign currency transactions increase our risks because exchange rates
can change between the time agreements are made and the time foreign
currency related transactions are actually settled. One of the ways we
manage these exposures is by entering into forward exchange contracts in
the same currency as the transaction to lock in or minimize the effects of
changes in exchange rates. With regard to foreign currency transactions,
we may hedge or protect transactions for which we have a firm legal
obligation. We do not enter into foreign exchange contracts for
speculative purposes. In the process of protecting our transactions, we
may use a number of offsetting currency contracts.                    
|
| |  | Interest Rates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | During May 2001, we entered into interest rate swap contracts to convert
$900 million of newly closed notes to floating-rate debt in order to take
advantage of lower short-term interest rates then available. On August
10, 2001, we unwound those interest rate swap agreements, resulting in a
positive cash flow of $23.2 million of which $4.7 million related to
reduced interest expense. The remaining $18.5 million will be amortized
into earnings over the remaining life of the respective notes and is
reflected in the Consolidated Statement of Cash Flows as a financing
activity. We do not enter into interest rate swap contracts for
speculative purposes.                                                    
|
| |  | Cash Flow Hedges                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | The following hedges qualify as cash flow hedges. As a result, the fair
values of the derivatives are recorded on the balance sheet. The
effective portion of the changes in the fair values of these derivatives
are recorded in other comprehensive income and are reclassified to cost of
goods sold or interest expense in the period in which earnings are
impacted by the hedged items or in the period that the transaction no
longer qualifies as a cash flow hedge (there were no existing arrangements
that ceased to qualify as a cash flow hedge in the third quarter of 2001).                                                                                                                                      
|
| |  | As of September 30, 2001, we had $26.1 million of accumulated derivative
losses included in OCI. For the nine months ended September 30, 2001, we
incurred $19.0 million in net derivative losses and reclassified $3.6
million into earnings.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | Commodities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | Phelps Dodge purchases diesel fuel and natural gas to supply our mine
operations. The objective of the energy commodity price protection
program is to minimize the effects of significant upward movement in
energy commodity prices while retaining the opportunity to benefit from
downward price movements. To implement these objectives, we may purchase
and/or sell energy commodity option contracts. We do not purchase or sell
energy commodity options for speculative purposes. In addition to hedging
energy commodities, Phelps Dodge enters into aluminum swap contracts to
hedge aluminum ingot purchases needed in manufacturing cable contracted by
customers.                                                   
|
| |  | Interest Rates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | In some situations, we may enter into interest rate swap contracts to
manage interest expense costs associated with floating-rate debt. We do
not enter into interest rate swap contracts for speculative purposes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

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|10. |  | Subsequent Events                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | On October 23, 2001, Phelps Dodge announced a series of actions to address
the current economic environment, including changes in copper operations
that will lead to curtailment of approximately 220,000 metric tons of
copper production annually (including our partners share) and curtailment
of 54,000 metric tons of North American carbon black production annually.
These actions will result in the layoff of approximately 1,500 employees,
with actions to be completed by mid-January 2002.                                                                                                                                                                                                        
|   
|    |  | These curtailment actions are expected to result in one-time, pre-tax
charges of approximately $25 million in the fourth quarter of 2001,
associated with employee reductions and facility closures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|    |  | In addition, the Company has determined to eliminate the quarterly
dividend on its common shares. This action was prompted by current
economic conditions and continuing unsatisfactory copper prices. The
elimination of the dividend will result in net cash savings of
approximately $40 million annually.                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|    |  | On October 24, 2001, Phelps Dodge and Companhia Vale do Rio Doce (CVRD)
announced they had entered into an agreement in which Phelps Dodge would
sell to CVRD, through CVRDs subsidiary, Itabira Rio Doce Company Limited
(ITACO), its 50 percent stake in the joint-venture company, Mineracão
Serra do Sossego S.A., for $42.5 million. The joint venture, in which
CVRD currently holds 50% ownership, has conducted exploration and
feasibility studies for the potential development of the Sossego
copper-gold deposit in the Carajás region of Brazil. The transaction was
completed in late October 2001 and the Company expects to recognize a gain
of approximately $39 million before and after taxes.




REVIEW BY INDEPENDENT ACCOUNTANTS

The financial information as of September 30, 2001, and for the
three-month and nine-month periods ended September 30, 2001 and 2000, 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
audit tests 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






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 September 30, 2001, and the related
consolidated statements of operations, for each of the three-month and
nine-month periods ended September 30, 2001 and 2000, and the consolidated statement of cash flows for the nine-month periods ended September
30, 2001 and 2000 and consolidated statement of common shareholders equity for
the nine-month period ended September 30, 2001. 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, 2000, and the related consolidated statements of operations, of cash flows
and of common shareholders equity for the year then ended (not presented
herein), and in our report dated January 24, 2001 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, 2000, is fairly stated in all material respects
in relation to the consolidated balance sheet from which it has been derived.

/s/ PricewaterhouseCoopers LLP
Phoenix, Arizona
October 16, 2001

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Item 2. Managements Discussion and Analysis

The U.S. 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 cannot give assurance that such statements will prove to be
correct. Please refer to the Managements Discussion and Analysis sections of
the Companys report on Form 10-K for the year ended December 31, 2000.




RESULTS OF OPERATIONS

Earnings

The Company had a consolidated loss in the 2001 third quarter of $100.6
million, or $1.28 per share, before non-recurring gains of $0.2 million
associated with insurance settlements. Earnings for the third quarter of 2000
were $41.5 million, or 53 cents per share, before non-recurring, pre-tax
charges of $3.3 million ($2.2 million, or 3 cents per share, after taxes).
After non-recurring items, the 2001 third quarter net loss was $100.4 million,
or $1.28 per share, compared with 2000 third quarter net income of $39.3
million, or 50 cents per share.

Earnings before non-recurring items were lower in the third quarter of
2001 than in the third quarter of 2000 principally as a result of the effect of
lower copper prices (approximately $128 million pre-tax) and a decrease in our
wire and cable and specialty chemicals operating earnings due to continued
economic weakness in North America (approximately $18 million).

The Company had a consolidated loss for the nine months ended September
30, 2001, of $218.3 million, or $2.78 per share, before a non-recurring net
gain of $21.6 million ($21.6 million, or 27 cents per share, after taxes).
Earnings for the nine months ended September 30, 2000, were $66.7 million, or
85 cents per share, before non-recurring, after-tax charges of $45.8 million,
or 58 cents per share, as a result of the June 2000 Restructuring Plan. After
restructuring charges and non-recurring items, the consolidated loss for the
nine months ended September 30, 2001, was $196.7 million, or $2.51 per share,
compared with consolidated earnings of $20.9 million, or 27 cents per share, in
the corresponding 2000 period.

Earnings before non-recurring items were lower in the first nine months of
2001 than in the corresponding 2000 period principally as a result of the
effect of lower copper prices (approximately $166 million pre-tax), higher
energy-related costs (approximately $42 million), combined with the anticipated
temporary impact of lower production volumes and higher costs associated with
the transition to total mine-for-leach production at our Morenci, Arizona,
operation (approximately $20 million) and a decrease in our Phelps Dodge
Industries businesses due to continued economic weakness in North America
(approximately $35 million).

The New York Commodity Exchange (COMEX) spot price per pound of copper
cathode, primarily upon which we base our selling price, averaged 68 cents in
the 2001 third quarter, compared with 87 cents in the corresponding 2000
period. From October 1 to November 8, 2001, the COMEX price averaged 63 cents
per pound, closing at 61 cents on November 8, 2001.

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 recently 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 annual
unit production costs, causes a variation in annual operating income before
taxes of approximately $20 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 September 30, 2001.

In the second quarter of 2001, we announced a plan to improve operating
income by restructuring of our professional, administrative and operations
support functions, as well as various other operational improvements. This
restructuring contemplated the elimination of 500 positions, which as of
September 30, 2001, has been completed. Additionally, we announced and implemented a layoff of approximately 80
employees at our Tyrone, New Mexico operation for an indefinite period. See
Other Matters Related to the Statement of Consolidated Operations for
additional restructuring actions announced in October 2001.

On October 23, 2001, we announced a series of actions to address the
current economic

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environment, including changes in copper operations that will
lead to curtailment of approximately 220,000 metric tons of copper production
annually (including our partners share) and curtailment of 54,000 metric tons
of North American carbon black production annually. These actions will result
in the layoff of approximately 1,500 employees, with actions to be completed by
mid-January 2002.

These curtailment actions are expected to result in one-time, pre-tax
charges of approximately $25 million in the fourth quarter of 2001, associated
with employee reductions and facility closures. For further discussions, see
disclosures in the Results of Phelps Dodge Mining Company and Phelps Dodge
Industries.

In addition, the Company has determined to eliminate the quarterly
dividend on its common shares. This action was prompted by current economic
conditions and continuing unsatisfactory copper prices. The elimination of the
dividend will result in net cash savings of approximately $40 million annually.

Business Segments

Results for 2001 and 2000 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 (PD Mining) 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. PD
Mining sells copper to others primarily as rod, cathode or concentrate, and as
rod to our wire and cable segment. In addition, PD Mining 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.

|                                                           
|-----------------------------------------------------------
|                                                           
|                                                           
|                                                           
|                                                           
|                                                           
|Copper production (thousand short tons):                   
|                                                           
|                                                           
|                                                           
|                                                           
|                                                           
|                                                           
|                                                           
|                                                           
|                                                           
|                                                           
|                                                           
|                                                           
|                                                           
|Copper sales (thousand short tons):                        
|                                                           
|                                                           
|                                                           
|                                                           
|                                                           
|                                                           
|                                                           
|                                                           
|                                                           
|                                                           
|                                                           
|                                                           
|                                                           
|COMEX:                                                     
|                                                           
|                                                           
|                                                           
|                                                           
|                                                           
|                                                           
|                                                           
|                                                           
|                                                           
|Molybdenum concentrate production
(million pounds)         
|                                                           
|                                                           
|                                                           
|                                                           
|Molybdenum sales (million pounds)                          
|                                                           
|                                                           
|                                                           
|                                                           
|Metals Week:                                               
|                                                           
|                                                           
|                                                           
|                                                           
|                                                           
|                                                           
|                                                           
|                                                           
|                                                           
|                                                           
|                                                           
|                                                           
|                                                           
|                                                           
|Sales and other operating revenues
- unaffiliated customers
|                                                           
|                                                           
|                                                           
|                                                           
|Operating income (loss) (A) (B)                            

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|                                                            |                                                |               |                   |         |      |  |         |         | 
|----------------------------------------------------------- | ---------------------------------------------- | ------------- | ----------------- | ------- | ---- |  | ------- | ------- | 
|                                                            |                                                |               | First Nine Months
|                                                            |                                                |               |                  
|                                                            |                                                |               | 2001              |         | 2000
|                                                            |                                                |               |                   |         |     
|Copper production (thousand short tons):                    |                                                |               |                   |         |      |  |         |        
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Total production                               |               |                   | 1,045.4 |      |  |         | 1,104.1 | 
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Less minority participants shares*            |               |                   | 183.7   |      |  |         | 196.3   | 
|                                                            |                                                |               |                   |         |      |  |         |        
|                                                            | Net Phelps Dodge share                         |               |                   | 861.7   |      |  |         | 907.8   | 
|                                                            |                                                |               |                   |         |      |  |         |        
|Copper sales (thousand short tons):                         |                                                |               |                   |         |      |  |         |        
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Net Phelps Dodge share from own mines          |               |                   | 894.7   |      |  |         | 918.1   | 
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Purchased copper                               |               |                   | 308.8   |      |  |         | 318.0   | 
|                                                            |                                                |               |                   |         |      |  |         |        
|                                                            | Total copper sales                             |               |                   | 1,203.5 |      |  |         | 1,236.1 | 
|                                                            |                                                |               |                   |         |      |  |         |        
|COMEX:                                                      |                                                |               |                   |         |      |  |         |        
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Average spot price per pound - copper
cathodes |               | $                 | 0.75    |      |  |         | 0.83    | 
|                                                           
|                                                           
|                                                           
|                                                           
|Molybdenum concentrate production
(million pounds)          |                                                |               | 41.1              |         |      |  | 38.1    |        
|                                                           
|                                                           
|                                                           
|                                                           
|Molybdenum sales (million pounds)                           |                                                |               | 42.9              |         |      |  | 44.9    |        
|                                                           
|                                                           
|                                                           
|                                                           
|Metals Week:                                                |                                                |               |                   |         |      |  |         |        
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Molybdenum oxide price per pound               |               | $                 | 2.37    |      |  |         | 2.62    | 
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            |                                                | (in millions)
|                                                           
|                                                           
|                                                           
|                                                           
|Sales and other operating revenues
- unaffiliated customers |                                                | $             | 2,054.1           |         |      |  | 2,333.1 |        
|                                                           
|                                                           
|                                                           
|                                                           
|Operating income (loss) (A) (B)                             |                                                | $             | (79.1             | )       |      |  | 197.9   |        



---

|*   |  | Minority participant interests include (i) a 15 percent undivided
interest in the 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) the 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).
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(A) |  | Includes a pre-tax, non-recurring charge of $10.0 million for the
nine months ended September 30, 2001, for the operational
improvement plan announced April 24, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|   
|   
|   
|(B) |  | The 2000 third quarter and the nine months ended September 30,
includes a pre-tax charge of $0.7 million and $5.9 million,
respectively, for the curtailment of copper and molybdenum
mining activities.                                                                                                                                                                                                                                                                                                                                                                                                              
|   

PD Mining  Sales

PD Mining sales and other operating revenues to unaffiliated customers
decreased by $211.1 million, or 25 percent, in the 2001 third quarter and by
$279 million, or 12 percent, in the first nine months of 2001 compared with the
corresponding 2000 periods.

The decrease in the third quarter was primarily a result of lower U.S. and
international copper and molybdenum average selling prices of approximately
$171 million and lower U.S. and international copper sales volumes
(approximately $32 million). The decrease for the nine-month period was
primarily the result of lower U.S. and international copper and molybdenum
average selling prices (approximately $227 million), and lower U.S. and
international copper and molybdenum sales volumes (approximately $29 million)
and lower rod premiums (approximately $6 million).

PD Mining  Operating Income

PD Mining reported an operating loss of $52.7 million in the 2001 third
quarter, compared with operating income of $92.2 million in the 2000 third
quarter before non-recurring, pre-tax charges of $0.7 million. For the first
nine months of 2001, PD Mining reported an operating loss of $69.1 million
before non-recurring, pre-tax charges of $10.0 million, compared with operating
income of $203.8 million before non-recurring, pre-tax charges of $5.9 million
in the first nine months of 2000.

The decrease in the third quarter was primarily a result of lower U.S. and
international copper and molybdenum average selling prices (approximately $136
million). The decrease for the nine-month period was primarily the result of
lower U.S. and international copper and molybdenum average selling prices
(approximately $174 million), higher energy-related costs (approximately $42
million), and the anticipated temporary impact of lower production volumes and
higher costs associated with the transition to total mine-for-leach production
at our Morenci, Arizona, operation (approximately $20 million).

Energy, including electricity, diesel fuel and natural gas, represents a
significant portion of the production costs for our operations. During the
second half of 2000 and through the third quarter of 2001, our Arizona and New
Mexico operations were adversely affected by higher costs for electricity,
diesel fuel and natural gas. However, as a result of the implementation of our
power cost stabilization plan, announced on March 26, 2001, which includes
expansion of internal generating capacity, alternating production curtailments

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at our Tyrone, New Mexico, operation and our Sierrita and Bagdad operations in
Arizona, and curtailments at our Chino, New Mexico, operation, our exposure to
the spot electricity market is not expected to be material and did not have a
significant impact on production costs in the 2001 third quarter.

Additionally, to mitigate our exposure to increases in diesel fuel prices,
we initiated a diesel fuel price protection program in December 2000. The
objective of our program is to protect against a significant upward movement in
diesel fuel prices while retaining the opportunity to benefit from any downward
price movement. Option contracts have been purchased as of September 30, 2001,
to protect approximately 37 percent of our projected October 2001 to March 2002
diesel fuel consumption for the Arizona and New Mexico properties.

To mitigate our exposure to further increases in the price of natural gas,
we initiated a natural gas price protection program during the first quarter of
2001. The objective of our program is to protect against a significant upward
movement in natural gas prices while retaining the opportunity to benefit from
any downward price movement. Option contracts have been purchased as of
September 30, 2001, to protect approximately 49 percent of our projected
October 2001 to March 2002 Arizona, New Mexico, Connecticut and Texas natural
gas consumption.

PD Mining  Other Matters

On October 23, 2001, we announced changes in copper operations, as a
result of the current economic environment, that will lead to the temporary
curtailment of approximately 220,000 metric tons of annual copper production,
including our partners share. By mid-January 2002, we will lay off
approximately 1,440 employees and temporarily suspend operations at the Chino
mine and smelter in New Mexico, and the Miami mine and refinery in Arizona. In
addition, both the Sierrita and Bagdad mines and their concentrating facilities
in Arizona will be operated at half capacity until further notice.

On October 24, 2001, Phelps Dodge and Companhia Vale do Rio Doce (CVRD)
announced they had entered into an agreement in which Phelps Dodge would sell
to CVRD, through CVRDs subsidiary, Itabira Rio Doce Company Limited (ITACO),
its 50 percent stake in the joint-venture company, Mineração Serra do Sossego
S.A., for $42.5 million. The joint venture, in which CVRD currently holds 50
percent ownership, has conducted exploration and feasibility studies for the
potential development of the Sossego copper-gold deposit in the Carajás region
of Brazil. The transaction was completed in late October 2001, and the Company
expects to recognize a gain of approximately $39 million before and after
taxes.

On July 6, 2001, the New Mexico Environment Department and the Mining and
Minerals Division of the Energy, Minerals and Natural Resources Department (the
State) publicly released their respective draft permit conditions for proposed
closure and closeout plans for our Chino Mines (Hurley), New Mexico
operation. The Company believes the scope of work in the States draft permit
conditions significantly exceeds that necessary to ensure environmental
protection and public health and safety as required by State law, and fails to
recognize appropriate waiver provisions available under the New Mexico Mining
Act for existing operations. As such, the reclamation work proposed by the
State is significantly greater in scope than that proposed by the Company and,
therefore, the associated costs estimated by the State of $759 million
(assuming use of third-party contractors) far exceed the Companys estimates of
$99 million (assuming use of third-party contractors), which are based on many
years of technical and engineering studies. Under State law, the Company must
provide financial assurance for the estimated reclamation costs as set forth
in the final plan by December 31, 2001. The State and the Company have jointly
requested a change in the regulations to extend this deadline until July 1,
2002.

During August 2001, the State held a public hearing and received public
comments on the draft closure permit for Chino Mines. Since then, the Company
and the State have engaged in negotiations in an attempt to resolve the
differences between the Companys plan and the States plan. Negotiations also
have begun regarding similar requirements for the Tyrone operations. The
Company will continue to explore all available avenues and processes to obtain
reasonable and final closure and closeout plans that are based on a sound
understanding of the applicable science and regulations, and that consider the
specific characteristics of the sites as required by law.




RESULTS OF PHELPS DODGE INDUSTRIES

Phelps Dodge Industries (PD Industries), 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

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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.

|                                                            
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|                                                            
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|                                                            
|                                                            
|                                                            
|                                                            
|Sales and other operating revenues -
unaffiliated customers:
|                                                            
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|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
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|                                                            
|Operating income (loss):                                    
|                                                            
|                                                            
|                                                            
|                                                            
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|                                                            
|                                                            
|                                                            
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|                                                            

|                                                             |                     |   |                   |       |      |  |         |       |  
|------------------------------------------------------------ | ------------------- | - | ----------------- | ----- | ---- |  | ------- | ----- | -
|                                                             |                     |   | First Nine Months
|                                                             |                     |   |                  
|                                                             |                     |   | 2001              |       | 2000
|                                                             |                     |   |                   |       |     
|                                                             |                     |   | (in millions)    
|Sales and other operating revenues -
unaffiliated customers: |                     |   |                   |       |      |  |         |      
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Specialty Chemicals |   | $                 | 447.7 |      |  |         | 453.3 |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Wire and Cable      |   |                   | 599.4 |      |  |         | 639.6 |  
|                                                             |                     |   |                   |       |      |  |         |      
|                                                             |                     | $ | 1,047.1           |       |      |  | 1,092.9 |      
|                                                             |                     |   |                   |       |      |  |         |      
|Operating income (loss):                                     |                     |   |                   |       |      |  |         |      
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Specialty Chemicals |   | $                 | 49.1  |      |  |         | 71.8  |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Wire and Cable*     |   |                   | 13.8  |      |  |         | (27.3 | )
|                                                             |                     |   |                   |       |      |  |         |      
|                                                             |                     | $ | 62.9              |       |      |  | 44.5    |      
|                                                             |                     |   |                   |       |      |  |         |      



---

|* |  | Includes a non-recurring, pre-tax charge of $3.3 million in the
2001 second quarter and nine months ended September 30, to
write-down the value of the closed Hopkinsville, Kentucky,
magnet wire facility. The 2000 third quarter included a pre-tax
charge of $2.6 million for costs associated with the June 30, 1999,
restructuring. The 2000 second quarter included a pre-tax charge
of $45.4 million ($6.4 million in Cost of products sold and $39.0
million in Non-recurring items, net) for costs associated with
restructuring of certain wire and cable assets. An additional
pre-tax charge of $2.1 million was recorded in the 2000 first
quarter from the June 30, 1999, restructuring. Another $7.2
million representing write-down of an equity basis investment
in the Philippines was charged to non-operating expense in
the 2000 second quarter.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 

PD Industries  Sales

PD Industries reported sales to unaffiliated customers of $322.3 million
in the third quarter and $1,047.1 million in the first nine months of 2001,
compared with sales of $367.6 million and $1,092.9 million in the corresponding
2000 periods. Decreases of 7 percent and 1 percent in specialty chemicals
sales for the three- and nine-month periods, respectively, are the result of
lower average unit selling prices and lower sales volumes. Decreases of 16
percent and 6 percent in wire and cable sales for the three- and nine-month
periods, respectively, were primarily the result of lower sales volumes due to
continued economic weakness principally in North America.

PD Industries  Operating Income

PD Industries reported operating income of $13.6 million in the third
quarter, and $66.2 million for the first nine months of 2001 before
non-recurring, pre-tax charges of $3.3 million. Operating income in the third
quarter of 2000 was $31.7 million before non-recurring, pre-tax charges of $2.6
million for wire and cable restructuring activities, and $94.6 million for the
first nine months of 2000 before non-recurring, pre-tax charges of $50.1
million for costs associated with the restructuring plans. The decreases from
the first nine months and third quarter of 2000 were due to reduced earnings in
the specialty chemicals segment primarily as a result of economic weakness in
North America and weaker foreign currencies in Brazil and Korea.

PD Industries  Other Matters

On October 23, 2001, we announced the temporary curtailment of
approximately 54,000 metric tons of North American carbon black production
annually. We will temporarily close Columbian Chemicals Companys El Dorado
carbon black facility at the end of November 2001. This action will result in
the lay off of approximately 50 employees.




OTHER MATTERS RELATING TO THE STATEMENT OF CONSOLIDATED OPERATIONS

Provision for Taxes on Income

Currently, the Companys estimated income tax expense principally results
from taxes on earnings at international operations that cannot be offset by
losses at domestic operations. Based on our full-year COMEX copper price
outlook and the mix of taxes and earnings, the Company is only providing income
taxes on net earnings at its international operations at an effective 31
percent tax rate for the first nine months of 2001.

Our forecast for the average COMEX copper price and other factors will be
reviewed from time to

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time, which may result in changes to the projected
full-year earnings and associated income tax estimates. Such changes and
estimates may also result in significant adjustments to the effective tax rate
that we recognize in any subsequent period.

Selling and General Administrative Expense

Selling and general administrative expense was $25.9 million in the third
quarter and $89.6 million for the first nine months of 2001, compared with
$32.7 million and $99.7 million in the corresponding 2000 periods. The
decreases were primarily due to reduced costs as a result of the April
restructuring plan and reduced professional fees incurred in 2000 for the
merger of the Cyprus and PD benefits/retirements plans.

Exploration and Research and Development Expense

Our exploration and research expense was $14.3 million in the third
quarter and $46.2 million for the first nine months of 2001, an increase of
$1.7 million and $6.4 million from the corresponding periods in 2000. The
increases primarily resulted from higher mining-related research spending at
our process technology facility.




CHANGES IN FINANCIAL CONDITION

Working Capital

During the first nine months of 2001, net working capital balances
(excluding cash and cash equivalents and debt) decreased $47.8 million
primarily due to a decrease of $49.1 million in accounts receivable. This
decrease was primarily attributable to a decrease in copper prices and lower
sales volumes.

Debt

The Companys total debt at September 30, 2001, was $2,993.9 million (51.6
percent debt to total capitalization ratio), compared with $2,687.7 million
(45.7 percent debt to total capitalization ratio) at December 31, 2000.

In
May 2001, the Company closed its offering of $625 million in 8-3/4
percent notes due 2011, and $275 million of 9-1/2 percent notes due 2031. The
entire amount of this fixed-rate debt was converted to floating-rate debt with
the use of interest rate swap agreements to take advantage of lower short-term
interest rates then available. The net proceeds were approximately $891
million and were used to repay corporate short-term borrowings and current
maturities of long-term debt. On August 10, 2001, we unwound these interest
rate swap agreements, resulting in a positive cash flow of $23.2 million of
which $4.7 million related to reduced interest expense. The remaining $18.5
million will be amortized into earnings over the remaining life of the
respective notes and is reflected in the Consolidated Statement of Cash Flows
as a financing activity.

The increase in debt was partially offset by higher cash balances
resulting from the May 2001 debt offering proceeds in excess of the pay down of
corporate short-term borrowings and 2001 debt maturities. The Company is
planning to use this additional cash to pay additional current maturities
through the 2002 first quarter.

As of September 30, 2001, the Company had no borrowings against its $1
billion revolving credit facility.

In order to reduce interest costs and better coordinate debt maturities
with potential growth opportunities, we may, from time to time, repurchase or
refinance our debt securities through open market purchases, privately
negotiated transactions or otherwise. Any such repurchases or refinancings
will depend upon market conditions, our cash availability and requirements, and
the availability of replacement debt or equity financing on acceptable terms.

Capital Expenditures and Investments

Capital expenditures and investments during the first nine months of 2001
were $161.8 million for PD Mining, $75.8 million for PD Industries (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 $12.0 million for other Corporate-related activities. Capital
expenditures and investments in the corresponding 2000 period were $222.7
million for PD Mining, $62.5 million for PD Industries (including $19.0 million
for the acquisition of the remaining 40 percent share of the Companys carbon
black manufacturing facility in Hungary) and $5.8 million for other
Corporate-related activities. We expect capital expenditures and investments
for the year 2001 to be approximately $205 million for PD Mining, $85 million
for PD Industries, and $25 million for Corporate and Other.

Dividends

On September 7, 2001, the Company paid a regular quarterly dividend of
12.5 cents per share on its

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common shares for the 2001 third quarter; the
amount paid for the quarter was $9.8 million. Due to current economic
conditions and continuing unsatisfactory copper prices, the Company announced
it had eliminated its quarterly dividend on October 23, 2001. The dividend
elimination will result in net cash savings of approximately $40 million
annually. There were 78.7 million shares outstanding at quarter end.

Other Matters

On October 23, 2001, we announced a series of actions to address the
current economic environment. Among these actions is advancing rapidly our
comprehensive, lean production programs to effect a sustainable improvement in
annual operating income targeted at $400 million, including the $150 million
operational improvement plan announced in the 2001 second quarter. The full
benefits from these programs are expected by year-end 2003.

With the slowdown in the U.S. economy, continued downturn in COMEX copper
prices and higher energy costs, we continue to explore opportunities to reduce
costs and conserve cash. We are continuing to implement quality improvement
programs to increase productivity and reduce costs and we are analyzing the
opportunity of monetizing our copper and carbon black receivables through an
asset securitization in a range of $50 million to $80 million, which is a
reduction from previous estimates due to lower copper prices and reduced sales
volumes. We may also consider other asset securitizations, strategic
arrangements or alternatives that may provide for enhanced liquidity.

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




Part II. Other Information




Item 1. Legal Proceedings

Reference is made to Paragraph II, section A.2.(a) of Item 3, Legal
Proceedings of the Corporations Form 10-K for the period ended December 31,
2000.

On September 19, 2001 the Regional Director of the Bureau of Indian
Affairs issued a decision advising Phelps Dodge that the Bureau of Reclamation
would cease deliveries of water to the Company from the Black River Pump
Station if Phelps Dodge failed to make payment for leased CAP water by
September 24, 2001. Phelps Dodge did not make the payment. The payment for
leased CAP water is not relevant to the delivery of water through the Black
River Pump Station because only water collected in the Companys reservoirs
(and not CAP water) is currently being delivered via exchange through that
facility. Separate exchange and lease agreements (which are not in place) are
required for the delivery of CAP lease water. In addition, specific
legislation governing the operation of the Black River Pump Station provides
that any disputes must be resolved in federal court.

The Company has appealed the decision claiming a lack of jurisdiction and
authority and asserted that the decision is not supported by the relevant law
or other facts. The Company has also requested a stay of the decision pending
the outcome of the appeal.




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) |  | No reports on Form 8-K were filed during the quarter ended
September 30, 2001.       

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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: November 13, 2001 |  | By:                                                  |  | /s/ Stanton K. Rideout                                                         
|                        |  |                                                      |  |                                                                                
|                        |  |                                                      |  | Stanton K. Rideout
Vice President and Controller
(Principal Accounting Officer)




Index to Exhibits



|3.2 |  | Amended and restated Bylaws of the Corporation, as amended effective as
of September 5, 2001 (SEC File No. 1-82).
|--- |  | -----------------------------------------------------------------------------------------------------------------
|   
|12  |  | Computation of ratios of total debt to total capitalization.                                                     
|   
|15  |  | Letter from PricewaterhouseCoopers LLP with respect to unaudited interim
financial information.                  

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