-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IZrGdLel4dYvHEkZD7NRJ+h+vd+PNfp/CLcE2W4LEoSSdyil2xeMGoVz88rHS8pJ eAzMQZvVCbWcfA69wlIKNQ== 0000950147-96-000527.txt : 19961113 0000950147-96-000527.hdr.sgml : 19961113 ACCESSION NUMBER: 0000950147-96-000527 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961112 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PHELPS DODGE CORP CENTRAL INDEX KEY: 0000078066 STANDARD INDUSTRIAL CLASSIFICATION: PRIMARY SMELTING & REFINING OF NONFERROUS METALS [3330] IRS NUMBER: 131808503 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-00082 FILM NUMBER: 96658880 BUSINESS ADDRESS: STREET 1: 2600 NORTH CENTRAL AVE CITY: PHOENIX STATE: AZ ZIP: 85004 BUSINESS PHONE: 6022348100 MAIL ADDRESS: STREET 1: 2600 NORTH CENTRAL AVENUE CITY: PHOENIX STATE: AZ ZIP: 85004-3089 10-Q 1 QUARTERLY REPORT ================================================================================ 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, 1996 Commission file number 1-82 PHELPS DODGE CORPORATION (a New York corporation) 13-1808503 (I.R.S. Employer Identification No.) 2600 N. 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 x No . Number of Common Shares outstanding at November 8, 1996: 64,832,837 shares. ================================================================================ PHELPS DODGE CORPORATION Quarterly Report on Form 10-Q For the Quarter Ended September 30, 1996 TABLE OF CONTENTS Statement of Consolidated Income Consolidated Balance Sheet Consolidated Statement of Cash Flows Statement of Common Shareholders' Equity Notes to Consolidated Financial Information Review by Independent Accountants Report of Independent Accountants on Review of Interim Financial Information Management's Discussion and Analysis Legal Proceedings Exhibits and Reports on Form 8-K Signatures Index to Exhibits PHELPS DODGE CORPORATION AND SUBSIDIARIES Part I. Financial Information Item 1. Financial Statements STATEMENT OF CONSOLIDATED INCOME (Unaudited; in millions except per share data) First Nine Third Quarter Months -------------- ---------------- 1996 1995 1996 1995 ---- ---- ---- ---- SALES AND OTHER OPERATING REVENUES $ 853.6 1,076.7 2,816.0 3,134.4 ------- ------- ------- ------- OPERATING COSTS AND EXPENSES Cost of products sold 613.4 664.2 1,924.8 2,033.5 Depreciation, depletion and amortization 61.9 54.9 185.8 166.3 Selling and general administrative expense 29.4 27.5 91.1 89.1 Exploration and research expense 22.2 18.7 62.3 50.5 Gain on asset dispositions - - - (26.8) ------- ------- ------- ------- 726.9 765.3 2,264.0 2,312.6 ------- ------- ------- ------- OPERATING INCOME 126.7 311.4 552.0 821.8 Interest expense (17.5) (19.0) (45.0) (53.8) Capitalized interest 0.5 1.3 1.0 2.8 Miscellaneous income and expense, net 11.4 10.4 28.6 28.8 ------- ------- ------- ------- INCOME BEFORE TAXES, MINORITY INTERESTS AND EQUITY IN NET EARNINGS OF AFFILIATED COMPANIES 121.1 304.1 536.6 799.6 Provision for taxes on income (39.3) (91.2) (174.4) (239.9) Minority interests in consolidated subsidiaries (3.9) (3.1) (10.3) (8.4) Equity in net earnings of affiliated companies 2.3 2.0 7.7 5.3 ------- ------- ------- ------- NET INCOME $ 80.2 211.8 359.6 556.6 ======= ======= ======= ======= EARNINGS PER SHARE $ 1.22 3.03 5.40 7.92 ======= ======= ======= ======= AVERAGE NUMBER OF SHARES OUTSTANDING 65.7 69.9 66.6 70.3 BUSINESS SEGMENTS (Unaudited; in millions) SALES AND OTHER OPERATING REVENUES Phelps Dodge Mining Company $ 437.2 659.9 1,551.1 1,856.0 Phelps Dodge Industries 416.4 416.8 1,264.9 1,278.4 ------- ------- ------- ------- $ 853.6 1,076.7 2,816.0 3,134.4 ======= ======= ======= ======= OPERATING INCOME (LOSS) Phelps Dodge Mining Company $ 76.5 266.8 407.4 656.8 Phelps Dodge Industries 58.8 55.4 173.3 193.4 Corporate and other (8.6) (10.8) (28.7) (28.4) ------- ------- ------- ------- $ 126.7 311.4 552.0 821.8 ======= ======= ======= ======= See Notes to Consolidated Financial Information. CONSOLIDATED BALANCE SHEET (Unaudited; in millions) Sept. 30, Dec. 31, 1996 1995 ---- ---- ASSETS Cash and short-term investments, at cost $ 567.7 608.5 Accounts receivable, net 445.4 483.7 Inventories 282.1 281.5 Supplies 119.2 121.4 Prepaid expenses 19.4 15.5 Deferred income taxes 43.4 44.6 -------- ------- Current assets 1,477.2 1,555.2 Investments and long-term accounts receivable 89.1 79.0 Property, plant and equipment, net 2,917.5 2,728.7 Other assets and deferred charges 293.4 283.0 -------- -------- $ 4,777.2 4,645.9 ======== ======== LIABILITIES Short-term debt $ 66.9 66.6 Current portion of long-term debt 29.4 16.8 Accounts payable and accrued expenses 535.5 504.8 Income taxes 18.7 16.8 -------- -------- Current liabilities 650.5 605.0 Long-term debt 600.7 613.1 Deferred income taxes 422.2 358.1 Other liabilities and deferred credits 318.5 318.7 -------- -------- 1,991.9 1,894.9 -------- -------- MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES 81.4 73.3 -------- -------- COMMON SHAREHOLDERS' EQUITY Common shares, 65.0 outstanding (12/31/95 - 68.6) 406.5 428.7 Retained earnings 2,410.9 2,360.1 Cumulative translation adjustments (98.3) (93.9) Other (15.2) (17.2) -------- -------- 2,703.9 2,677.7 -------- -------- $ 4,777.2 4,645.9 ======== ======== See Notes to Consolidated Financial Information. CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited; in millions) Nine months ended September 30, --------------- 1996 1995 ---- ---- OPERATING ACTIVITIES Net income $ 359.6 556.6 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 185.8 166.3 Deferred income taxes 56.3 79.9 Equity earnings net of dividends received (3.9) (5.1) Changes in current assets and liabilities: (Increase) decrease in accounts receivable 39.0 (51.2) (Increase) decrease in inventories 13.8 (7.5) (Increase) decrease in supplies 2.1 (15.1) (Increase) decrease in prepaid expenses (3.6) (2.8) (Increase) decrease in deferred income taxes 1.3 (5.7) Increase (decrease) in interest payable 4.2 3.9 Increase (decrease) in other accounts payable 2.3 (50.6) Increase (decrease) in income taxes 1.6 (27.8) Increase (decrease) in other accrued expenses 14.0 25.6 Gain on asset dispositions - (26.8) Other adjustments, net 4.6 2.6 -------- -------- Net cash provided by operating activities 677.1 642.3 -------- -------- INVESTING ACTIVITIES Capital outlays (338.8) (273.6) Capitalized interest (1.0) (2.8) Investment in subsidiaries (47.3) (0.2) Proceeds from asset dispositions and other 3.6 40.3 -------- -------- Net cash used in investing activities (383.5) (236.3) -------- -------- FINANCING ACTIVITIES Increase in debt 15.7 36.7 Payment of debt (17.6) (18.6) Common dividends (96.2) (94.5) Purchase of common shares (247.0) (93.7) Other 10.7 6.9 -------- -------- Net cash used in financing activities (334.4) (163.2) -------- -------- INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS (40.8) 242.8 CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD 608.5 286.9 -------- -------- CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 567.7 529.7 ======== ======== See Notes to Consolidated Financial Information. STATEMENT OF COMMON SHAREHOLDERS' EQUITY (Unaudited; in millions) Common Shares Cumulative --------------- Translation Number Adjustments Common of At Par Retained and Shareholders' shares Value Earnings Other Equity ------ ----- -------- ----- ------ BALANCE AT DECEMBER 31, 1995 68.6 $ 428.7 $ 2,360.1 $ (111.1) $ 2,677.7 Stock options exercised 0.3 2.2 10.0 12.2 Common shares purchased (3.9) (24.4) (222.6) (247.0) Net income 359.6 359.6 Dividends on common shares (96.2) (96.2) Translation adjustment (4.4) (4.4) Other 2.0 2.0 ----- ------ ------- ------- ------- BALANCE AT SEPTEMBER 30, 1996 65.0 $ 406.5 $ 2,410.9 $ (113.5) $ 2,703.9 ===== ====== ======= ======= ======= See Notes to Consolidated Financial Information. NOTES TO CONSOLIDATED FINANCIAL INFORMATION (Unaudited) 1. 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 the Corporation's Form 10-K for the year ended December 31, 1995. 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. 2. The results of operations for the three-month and nine-month periods ended September 30, 1996, are not necessarily indicative of the results to be expected for the full year. 3. Depending on market circumstances, the Corporation may periodically purchase or liquidate various copper price protection contracts to mitigate the risk of adverse price fluctuations on a portion of its expected future mine production. During the 1996 third quarter, the Corporation liquidated a portion of its copper price protection contracts that covered anticipated mine production in the fourth quarter of 1996 and the first quarter of 1997. This resulted in cash payments to the Corporation of $15.6 million. The related gains, $8.8 million for the 1996 fourth quarter contracts and $6.8 million for the 1997 first quarter contracts, will be deferred and recognized in income during the periods to which the original contracts were applicable. Contracts ensuring minimum prices for 185 million pounds of 1996 third quarter copper production resulted in payments of $3.1 million to Phelps Dodge. Similar contracts covering 600 million pounds of 1996 first half copper production expired without payment. As of November 8, 1996, the Corporation had net positions in place with several financial institutions that provide for a minimum 1996 fourth quarter average price of 95 cents per pound for 95 million pounds of copper cathode and a minimum 1997 first quarter average price of 90 cents per pound for 85 million pounds of copper cathode. These minimum prices are based on average London Metal Exchange (LME) prices. If average quarterly LME prices fall below the minimum prices, the financial institutions will be obligated to pay Phelps Dodge the difference. REVIEW BY INDEPENDENT ACCOUNTANTS The financial information as of September 30, 1996, and for the three-month and nine-month periods ended September 30, 1996 and 1995, included in Part I pursuant to Rule 10-01 of Regulation S-X has been reviewed by Price Waterhouse LLP (Price Waterhouse), the Corporation's independent accountants, in accordance with standards established by the American Institute of Certified Public Accountants. Price Waterhouse's report is included in this quarterly report. Price Waterhouse 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. PRICE WATERHOUSE LLP 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, 1996 and the statement of consolidated income for the three-month and nine-month periods ended September 30, 1996 and 1995 and the consolidated statements of cash flows and of common shareholders' equity for the nine-month periods ended September 30, 1996 and 1995. These financial statements are 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 generally accepted auditing standards, 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 consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We previously audited in accordance with generally accepted auditing standards, the consolidated balance sheet as of December 31, 1995, and the related consolidated statements of income, of cash flows and of common shareholders' equity for the year then ended (not presented herein), and in our report dated January 22, 1996 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, 1995, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived. Price Waterhouse LLP Phoenix, Arizona October 9, 1996 Item 2. Management's Discussion and Analysis RESULTS OF OPERATIONS Phelps Dodge Corporation had consolidated net income of $80.2 million, or $1.22 per common share, in the third quarter of 1996, compared with $211.8 million, or $3.03 per common share, in the 1995 third quarter. Net income for the nine months ended September 30, 1996, was $359.6 million, or $5.40 per common share, compared with $556.6 million, or $7.92 per common share, in the corresponding 1995 period. Net income in the 1995 nine-month period included a first quarter after-tax gain of $16.6 million, or 24 cents per common share, from the sale of Columbian Chemicals Company's MAPICO division. Earnings in the three-month and nine-month periods ended September 30, 1996, were lower than those reported in the corresponding 1995 periods principally as a result of lower average copper prices. Average spot prices per pound of cathode copper on the New York Commodity Exchange (COMEX) decreased approximately 45 cents and 28 cents in the third quarter and first nine months of 1996, respectively, from the average prices in the corresponding 1995 periods. Any material change in the price the Corporation receives for copper, or in its unit production costs, has a significant effect on the Corporation's results. The Corporation's present share of annual production is approximately 1.5 billion pounds of copper. Accordingly, each 1 cent per pound change in the average annual copper price received by the Corporation, or in average annual unit production costs, causes a variation in annual operating income before taxes of approximately $15 million. The COMEX spot price per pound of copper cathode, upon which the Corporation bases its selling price, averaged 91 cents in the third quarter and $1.08 in the first nine months of 1996, compared with an average of $1.36 in each of the corresponding 1995 periods. From October 1 to November 8, 1996, the average price was 94 cents, closing at 96 cents on November 8, 1996. The Corporation enters into price protection arrangements from time to time, depending on market circumstances, to ensure a minimum price for a portion of the copper it expects from future mine production. For further discussion of the Corporation's price protection arrangements for 1996 and 1997 production, see Note 3 to Consolidated Financial Information. Sales were $853.6 million in the 1996 third quarter, compared with $1,076.7 million in the corresponding 1995 period. The 1996 decrease primarily was a result of lower average copper prices and lower sales volumes of wheels and rims. The decrease was offset partially by higher sales volumes of wire and cable products. Sales were $2,816.0 million in the first nine months of 1996, compared with $3,134.4 million in the corresponding 1995 period. This decrease also primarily was the result of lower average copper prices and lower sales volumes of wheels and rims, and was partially offset by greater sales volumes of copper and higher sales volumes of wire and cable products. PHELPS DODGE MINING COMPANY Phelps Dodge Mining Company is an international business comprising a group of companies involved in vertically integrated copper operations including mining, concentrating, electrowinning, smelting and refining, rod production, marketing and sales, and related activities. Copper is sold primarily to others as rod, cathode or concentrates, and as rod to the Phelps Dodge Industries segment. In addition, Phelps Dodge Mining Company at times smelts and refines copper and produces copper rod for others on a toll basis. Phelps Dodge Mining Company also produces gold, silver, molybdenum and copper chemicals, principally as by-products, and sulfuric acid from its air quality control facilities. This segment also includes the Corporation's other mining operations and investments (including fluorspar, silver, lead and zinc operations) and its worldwide mineral exploration and development programs. ================================================================================ First Nine Third Quarter Months -------------- --------------- 1996 1995 1996 1995 ---- ---- ---- ---- Copper production (short tons): Total production 227,000 221,800 694,400 624,600 Less minority participants' shares * 39,100 39,500 121,100 111,600 ------- ------- ------- ------- Net Phelps Dodge share 187,900 182,300 573,300 513,000 ======= ======= ======= ======= Copper sales (short tons): Net Phelps Dodge share from own mines 194,500 196,600 573,900 512,300 Purchased copper 43,900 49,300 163,500 179,900 ------- ------- ------- ------- Total copper sales 238,400 245,900 737,400 692,200 ======= ======= ======= ======= New York Commodity Exchange average spot price per pound - copper cathodes $ 0.91 1.36 1.08 1.36 (in millions) Sales and other operating revenues $ 437.2 659.9 1,551.1 1,856.0 Operating income $ 76.5 266.8 407.4 656.8 - ------------------------- * 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, and (iii) a 20 percent interest in Candelaria held by SMMA Candelaria, Inc., a jointly owned subsidiary of Sumitomo Metal Mining Co., Ltd. and Sumitomo Corporation. ================================================================================ Phelps Dodge Mining Company's 1996 third quarter sales of $437.2 million were 34 percent lower than in the third quarter of 1995. This decrease principally resulted from a 45 cents per pound decrease in average copper prices. Sales of $1,551.1 million in the first nine months of 1996 were 16 percent lower than in the corresponding 1995 period. This decrease primarily resulted from a 28 cents per pound decrease in average copper prices, partially offset by a 61,600 ton or 12 percent increase in copper sales from mine production. The primary contributor to 1996 production and sales volume increases for the first nine months was the Morenci mine, which included production from its Southside solution extraction/electrowinning (SX/EW) project that commenced operations in the third quarter of 1995. Phelps Dodge Mining Company recorded operating income of $76.5 million in the 1996 third quarter and $407.4 million in the first nine months of 1996, compared with $266.8 million and $656.8 million in the corresponding 1995 periods. The 1996 third quarter decrease from the corresponding 1995 period resulted from the lower average copper prices already discussed. The decrease in operating income in the first nine months of 1996 from the corresponding 1995 period resulted principally from the lower average copper prices, and was partially offset by the higher volumes of copper sold from mine production already discussed. The 1996 first nine months also reflected an $18.0 million reduction of pre-tax earnings in the second quarter for adjustments during June to mark to market concentrate transactions that had been recorded in prior months at provisional forward prices. These adjustments primarily reflected a sharp drop in copper futures prices in the month of June. On May 1, 1996, the Corporation announced plans to expand concentrator throughput at its Candelaria copper mining complex in northern Chile (the Corporation owns an 80 percent interest in Candelaria). At full capacity, the $337 million expansion will result in copper production of more than 400 million pounds in each of the first two years of operations, although, under the current operating plan, annual copper production will average approximately 380 million pounds during the post-expansion mine life. The expansion will include increased mining activity, the installation of a second semi-autogenous (SAG) mill and new and expanded concentrating facilities, and the addition of more than 200 employees. Construction began in the third quarter of 1996, with new production scheduled to come on line in mid-1998. As a result of the expansion, the estimated mine life of Candelaria will be reduced from 35 years of production to 19 years. The collective bargaining agreements covering approximately 700 employees at Phelps Dodge Mining Company's Chino operations in New Mexico expired on June 30, 1996. As of November 8, 1996, employees who were covered by the agreements have continued to work without a contract. PHELPS DODGE INDUSTRIES Phelps Dodge Industries is a business segment comprising a group of companies that manufacture engineered products principally for the transportation, energy and telecommunications sectors worldwide. Its operations are characterized by products with significant market share, internationally competitive cost and quality, and specialized engineering capabilities. This business segment includes the Corporation's specialty chemicals operations through Columbian Chemicals Company and its subsidiaries; its wheel and rim operations through Accuride Corporation and its subsidiaries; and its wire and cable and specialty conductor operations through Phelps Dodge International Corporation and Phelps Dodge Magnet Wire Company and their subsidiaries and affiliates. ================================================================================ First Nine Third Quarter Months -------------- ------------- 1996 1995 1996 1995 ---- ---- ---- ---- (in millions) Sales and other operating revenues: Specialty chemicals $ 105.1 99.5 327.4 319.2 Wheels and rims 71.3 84.5 235.2 277.1 Wire and cable 240.0 232.8 702.3 682.1 ------- ------- ------- ------- $ 416.4 416.8 1,264.9 1,278.4 ======= ======= ======= ======= Operating income: * Specialty chemicals $ 19.4 18.1 64.3 87.7 Wheels and rims 9.5 11.5 33.7 39.0 Wire and cable 29.9 25.8 75.3 66.7 ------- ------- ------- ------- $ 58.8 55.4 173.3 193.4 ======= ======= ======= ======= - ------------------------- * Operating income in the first nine months of 1995 included a pre-tax gain of $26.8 million in specialty chemicals from the sale of a synthetic iron oxide facility in the first quarter. ================================================================================ During the 1996 third quarter, Phelps Dodge Industries recorded operating income of $58.8 million, compared with $55.4 million in the corresponding 1995 period. Operating income in the first nine months of 1996 was $173.3 million, compared with $166.6 million in the first nine months of 1995 before a pre-tax gain of $26.8 million from the sale of Columbian Chemicals Company's MAPICO division in the first quarter. Primarily as a result of benefits from certain manufacturing cost reduction programs instituted during 1995, earnings in the third quarter and first nine months of 1996 were higher than in the 1995 periods (excluding the MAPICO gain) despite an overall decrease in sales. Phelps Dodge Industries' sales of $416.4 million and $1,264.9 million in the third quarter and first nine months of 1996, respectively, were less than 1 percent lower than in the corresponding 1995 periods as continued strength in the specialty chemicals business and higher sales volumes in the wire and cable businesses largely offset a 15 percent decrease in wheel and rim sales. Sales volumes of wire and cable products benefited from the acquisition in May 1996 of Nesor Alloy Corporation, a leading manufacturer of high-performance conductors for the general electronics and aerospace industries. The decrease in wheel and rim sales was driven by lower sales volumes resulting from decreased demand from the major North American manufacturers of medium and heavy trucks and trailers. On August 7, 1996, the Corporation announced plans to construct a magnet wire manufacturing plant in Monterrey, Mexico. Construction of the $42 million project is scheduled to begin in 1996 with commercial production expected in early 1998. This new plant, together with the Corporation's recently expanded facility in El Paso, Texas, is expected to support customer growth in the region while freeing up capacity at existing U.S. plants to meet growing demand for magnet wire in the United States. The collective bargaining agreement covering approximately 360 employees at Phelps Dodge Industries' magnet wire facility in Hopkinsville, Kentucky, expired on October 11, 1996. As of November 8, 1996, employees who were covered by the agreement have continued to work without a contract. OTHER MATTERS RELATING TO THE STATEMENT OF CONSOLIDATED INCOME Interest expense net of capitalized interest was $17.0 million in the third quarter of 1996 and $44.0 million in the first nine months, compared with $17.7 million and $51.0 million in the corresponding periods in 1995. The 1996 nine month period benefited from foreign currency exchange gains of approximately $8.0 million representing the remeasurement of Venezuelan local currency debt after a major devaluation of the Bolivar. These gains were offset by approximately $7.0 million of similar expenses included in miscellaneous income and expense, net, principally reflecting the effect of the devaluation on working capital. Miscellaneous income in the first nine months of 1996, also included an increase of $4.7 million in dividends received from the Corporation's 13.9 percent minority interest in Southern Peru Copper Corporation. CHANGES IN FINANCIAL CONDITION Capital outlays during the first nine months of 1996, were $225.4 million for Phelps Dodge Mining Company and $110.6 million for Phelps Dodge Industries. Capital outlays in the corresponding 1995 period were $218.5 million for Phelps Dodge Mining Company and $54.4 million for Phelps Dodge Industries. The Corporation expects capital outlays for the year 1996, to be approximately $325 million for Phelps Dodge Mining Company, including Phelps Dodge's 80 percent share of amounts to be spent on the recently announced Candelaria expansion. Phelps Dodge Industries is expected to spend approximately $150 million during the year. This amount does not include the $29 million spent in May 1996, for the previously announced acquisition of Nesor Alloy Corporation. At September 30, 1996, the Corporation's total debt was $697.0 million, compared with $696.5 million at year-end 1995. The Corporation's ratio of debt to total capitalization was 20.0 percent at September 30, 1996, compared with 20.2 percent at December 31, 1995. An existing revolving credit agreement between the Corporation and several lenders was amended on June 4, 1996. The agreement, as amended and restated, permits borrowings of up to $500 million from time to time until its scheduled maturity on June 4, 2001. The agreement allows for two one-year renewals beyond the scheduled maturity date if the Corporation requests and receives approval from at least two-thirds of the lenders involved. Interest is payable at a fluctuating rate based on the agent bank's prime rate or a fixed rate, based on the Eurodollar Interbank Offered Rate or at fixed rates offered independently by the several lenders, for maturities of from seven to 360 days. This agreement provides for a facility fee of eight basis points (0.08 percent) on total commitments. The agreement requires the Corporation to maintain a minimum consolidated tangible net worth of $1.1 billion and limits indebtedness to 50 percent of total consolidated capitalization. There were no borrowings under this agreement at either September 30, 1996 or December 31, 1995. On September 6, 1996, the Corporation paid a regular quarterly dividend of 50 cents per share on its common shares for the 1996 third quarter. The amount paid for the third quarter was $32.7 million, bringing total 1996 dividends paid through September 30 to $96.2 million. On November 6, 1996, the Board of Directors declared a 1996 fourth quarter regular dividend of 50 cents per common share to be paid on December 6, 1996, to shareholders of record at the close of business on November 18, 1996. In 1996 through November 8, the Corporation purchased 4,104,300 of its common shares at a total cost of $260.0 million. On March 6, 1996, the Corporation announced that its current share purchase authorization had been increased from 5 million shares to a total of 10 million shares. Through November 8, 1996, the Corporation had purchased 6,779,900 of its common shares under the program at a total cost of $418.1 million, leaving an additional 3,220,100 shares authorized for purchase. There were 65,035,000 common shares outstanding on September 30, 1996. Part II. Other Information Item 1. Legal Proceedings I. Reference is made to Paragraph II, section A.2. (a) of Item 3. Legal Proceedings of the Corporation's Form 10-K for the year ended December 31, 1995, regarding In re the General Adjudication of All Rights to Use Water in the Gila River System and Source, Nos. W-1 (Salt River), W-2 (Verde River), W-3 (Gila River) and W-4 (San Pedro River) (Superior Court of Arizona, Maricopa County). By a letter agreement dated September 7, 1990, the Corporation and the San Carlos Apache Tribe agreed upon principles to settle the water claims of that Tribe and other land use issues involving the Tribe's Reservation. Since that time comprehensive settlement agreements among the Tribe, the Corporation and other parties have been under negotiation. In the more recent phases of the settlement negotiations, the Tribe has sought terms that the Corporation believes are unacceptable and inconsistent with the principles set forth in the September 7, 1990 letter agreement. In July 1996, the Tribe notified the Corporation to make preparations to vacate the Corporation's Black River pump station, which is located on the Tribe's Reservation, by July 1997. Through the Black River pump station the Corporation obtains approximately 10,000 acre feet of water annually for use at the Corporation's Morenci complex. The Corporation believes that it holds valid rights-of-way and easements and has other legal rights sufficient to allow for the continued operation of the Black River pump station on Reservation lands. However, the Corporation has advised the Tribe that, without waiving any such rights, it has begun to consider issues associated with dismantling and removing the Black River pump station and related facilities from the Reservation. The federal legislation authorizing settlement of the Tribe's water rights claims with the Corporation and the other parties to the proceeding has been extended for a six month period expiring June 30, 1997. II. Reference is made to Paragraph III. of Item 3. Legal Proceedings of the Corporation's Form 10-K for the year ended December 31, 1995, regarding the proceedings described below. Prior to the mid-1960s, a predecessor of Phelps Dodge Industries, Inc. (PDI), a subsidiary of the Corporation, manufactured and sold some cable and wire products that were insulated with material containing asbestos. PDI believes that the use of its products did not result in significant releases of airborne asbestos fibers. PDI and the Corporation are collectively referred to below as PDI. Since the late 1980s, PDI has been served with complaints in asbestos-related actions filed on behalf of over 17,200 claimants. In these proceedings, plaintiffs have alleged bodily injury or death caused by purported exposure to asbestos and have claimed damages based on theories of strict liability and negligence. Over 12,500 of those claimants were participants in the Ingalls Shipyard asbestos litigation filed in Pascagoula, Mississippi. Each claimant in that litigation sought from $2 million to $20 million in compensatory and punitive damages from a group of approximately 100 to 150 defendants, which included PDI. Since the beginning of 1993, PDI has obtained dismissal of all but one of the claims brought against it in Mississippi. As of September 30, 1996, a total of 3,276 asbestos-related claims were pending against PDI in 14 jurisdictions. PDI is vigorously contesting and defending these asbestos-related claims. In December 1995, Phelps Dodge and its insurers executed an agreement embodying a cost sharing arrangement for defense and indemnity costs arising out of the asbestos litigation. Based on its experience to date in connection with these asbestos-related claims, and also taking into account the cost-sharing agreement referred to above, Phelps Dodge has concluded that these claims do not involve material legal proceedings requiring disclosure in this report under the applicable regulations of the Securities and Exchange Commission. Accordingly, Phelps Dodge does not intend to describe these claims in future reports on Form 10-Q or Form 10-K unless there is a material change requiring such disclosure. Item 6. Exhibits and Reports on Form 8-K (a) Any exhibits required to be filed by the Corporation are listed in the Index to Exhibits. (b) No reports on Form 8-K were filed by the Corporation during the quarter ended September 30, 1996. 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 8, 1996 By: Thomas M. Foster ---------------- Thomas M. Foster Vice President and Controller (Principal Accounting Officer) PHELPS DODGE CORPORATION AND SUBSIDIARIES INDEX TO EXHIBITS 3.2 By-Laws of the Corporation, as amended effective September 4, 1996. 12 Computation of ratios of total debt to total capitalization. 15 Letter from Price Waterhouse LLP with respect to unaudited interim financial information. EX-3.2 2 BY-LAWS OF THE CORPORATION Exhibit 3.2 Amended Effective September 4, 1996 B Y - L A W S PHELPS DODGE CORPORATION ARTICLE I. NAME, LOCATION and CORPORATE SEAL Sec. 1. The name of this Corporation is PHELPS DODGE CORPORATION. Sec. 2. The principal office of the Company shall be in the City of Phoenix, County of Maricopa, State of Arizona. The Company shall also have such other offices, either within or without the United States, and may transact its business at such other places, as the Board of Directors may appoint. Sec. 3. The corporate seal of the Company shall have inscribed thereon the name of the corporation, and the year of its creation. It shall be of the form impressed upon the margin hereof. It shall be in charge of the Secretary. A duplicate of the seal may be kept and used by the Treasurer or by any Assistant Secretary or Assistant Treasurer, when so ordered by the Board of Directors. (Imprint of corporate seal) ARTICLE II. SHAREHOLDERS Sec. 1. Annual Meeting. The annual meeting of shareholders shall be held at 12:00 noon on the first Wednesday in May of each year, or at such other time on that day or at such time on such other day as the Board of Directors shall from time to time determine, at the principal office of the Company in the City of Phoenix, County of Maricopa, State of Arizona, or at such other place within or without the State of New York as the Board of Directors shall from time to time determine, for the purpose of electing Directors and for the transaction of such other business as may properly be brought before the meeting. The Secretary shall cause to be sent by first class mail not less than ten nor more than fifty days before the date of such meeting, a notice thereof addressed to each shareholder of record entitled to vote at such meeting at his or her address as it appears on the books of the Company. Notice may also be sent by third class mail not less than twenty-four nor more than fifty days before the date of such meeting. Any previously scheduled annual meeting of shareholders may be postponed by resolution of the Board of Directors upon public announcement of the postponement on or prior to the date previously scheduled for such annual meeting of shareholders. Sec. 2. Special Meetings. Special meetings of the shareholders may be held at the principal office of the Company in the City of Phoenix, County of Maricopa, State of Arizona, or at such other place within or without the State of New York as the Board of Directors or the Chairman of the Board shall from time to time determine, and may be called by vote of a majority of the Board of Directors, or by the Chairman of the Board. Special meetings of the shareholders, or of the holders of a particular class or series of shares, shall also be called when required by the Certificate of Incorporation at the times and in the manner therein set forth. Notice of the time, place and purposes of any such special meeting shall be served personally or sent by first class mail to each shareholder of record entitled to vote at such meeting, not less than ten nor more than fifty days before the date of such meeting, at his or her address as it appears on the books of the Company. Notice may also be sent by third class mail not less than twenty-four nor more than fifty days before the date of such meeting. A written waiver of notice of any meeting may be made by any shareholder. Any previously scheduled special meeting of the shareholders may be postponed by resolution of the Board of Directors upon public announcement of the postponement on or prior to the date previously scheduled for such special meeting of shareholders. Sec. 3. Quorum. At any meeting of shareholders, unless otherwise provided by law or by the Certificate of Incorporation, the holders of shares (of any class) aggregating a majority of the total number of shares of all classes of the Company then issued and outstanding and entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum, provided that, unless otherwise provided by law or by the Certificate of Incorporation, when a specified item of business is required to be voted on by any one or more of a particular class or series of shares, voting as a separate class, the holders of a majority of the shares so eligible to vote as a separate class shall constitute a quorum for the transaction of such specified item of business. The shareholders present at any duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of sufficient shareholders to constitute the remaining shareholders less than a quorum. Whether or not a quorum is present at a meeting, the person presiding at the meeting or the holders of a majority of the shares of all classes of the Company entitled to vote at the meeting so present or represented may adjourn the meeting from time to time. At any such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally called. Sec. 4. Chairman and Secretary. Meetings of shareholders shall be presided over by the Chairman of the Board or, if he is not present, by the President or, if neither of them is present, by a Vice Chairman, or if none of them is present, by a Vice President or, if neither the Chairman of the Board, the President, a Vice Chairman nor a Vice President is present, by a person to be chosen at the meeting. The Secretary of the Company shall act as Secretary at all meetings of the shareholders, but in the absence of the Secretary the presiding officer may appoint any person to act as Secretary of the meeting. Sec. 5. Voting. Except as otherwise provided by law or by the Certificate of Incorporation, each shareholder entitled to vote at a meeting of shareholders shall be entitled to one vote, in person or by proxy, for each share having voting power held by him or her on the record date for such meeting, as appears on the books of the Company. Only the person in whose name shares stand on the books of the Company at the time of closing of the transfer books for such meeting shall be entitled to vote, in person or by proxy, the shares so standing in his or her name. The Board of Directors shall have the power and authority to fix a day not less than ten nor more than fifty days prior to the day of holding any meeting of shareholders, as the day as of which shareholders entitled to notice of and to vote at such meeting shall be determined; and all persons who are holders of record of shares with voting rights on such day, and no others, shall be entitled to notice of and to vote at such meeting. Sec. 6. Inspectors of Election. The Board of Directors, in advance of any shareholders' meeting, may appoint one or more inspectors to act at the meeting or any adjournment thereof. If inspectors are not so appointed, the person presiding at a shareholders' meeting may, and on the request of any shareholder entitled to vote thereat shall, appoint one or more inspectors. In case any person appointed fails to appear or act, the vacancy may be filled by appointment made by the Board of Directors in advance of the meeting or at the meeting by the person presiding thereat. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his or her ability. Thereafter each inspector shall have at such meeting all of the powers and duties provided by law. Sec. 7. Business Conducted at Meetings. At an annual meeting of shareholders, only such business may be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting business must be (a) specified in the notice of meeting (including any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a shareholder of the Company who was a shareholder of record at the time of giving of notice provided for in this Section 7, who is entitled to vote at the meeting and who complies with the notice procedures set forth in this Section 7. For business to be properly brought before an annual meeting by a shareholder, the shareholder must have given timely notice thereof in writing to the Secretary of the Company. To be timely, a shareholder's notice must be delivered to or mailed and received at the principal office of the Company not less than 60 days nor more than 90 days prior to the meeting; provided, however, that in the event that the date of the annual meeting is scheduled for a day other than the first Wednesday in May in such year and less than 70 days' notice or prior public announcement of the new date of the meeting is given or made to shareholders, notice by the shareholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the new date of the annual meeting was mailed or such public announcement was made. A shareholder's notice to the Secretary shall set forth as to each matter the shareholder proposes to bring before the annual meeting (a) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (b) the name and address of the shareholder proposing such business, as they appear on the Company's books, and of the beneficial owner, if any, on whose behalf such notice is being given, (c) the class and number of shares of the Company which are owned beneficially and of record by such shareholder and by such beneficial owner, and (d) any material interest in such business of such shareholder or of such beneficial owner. At a special meeting of shareholders, only such business may be conducted as shall have been properly brought before the meeting. To be properly brought before a special meeting, business must be related to the purpose or purposes set forth in the notice of the meeting (including any supplement thereto) given by or at the direction of the Board of Directors or the Chairman of the Board. Notwithstanding anything in the By-Laws to the contrary, no business shall be conducted at a meeting of shareholders except in accordance with the procedures set forth in this Section 7. The chairman of a meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 7, and if the chairman should so determine, he or she shall declare to the meeting that any such business not properly brought before the meeting shall not be transacted. In addition to the provisions of this Section 7, a shareholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth herein. Nothing in these By-Laws shall be deemed to affect any rights of shareholders to request inclusion of proposals in the Company's proxy statement pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended from time to time (the "Exchange Act") and to put before such meeting any proposals so included in the Company's proxy statement at his or her request. Sec. 8. Nomination of Directors. Only persons who are nominated in accordance with the procedures set forth in this Section 8 shall be eligible for election as Directors at any meeting of shareholders held for the election of Directors (an "Election Meeting"). Nominations of persons for election to the Board of Directors of the Company may be made at an Election Meeting by or at the direction of the Board of Directors or by a shareholder of the Company who was a shareholder of record at the time of giving of notice provided for in this Section 8, who is entitled to vote for the election of Directors at such Election Meeting and who complies with the notice procedures set forth in this Section 8. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the Company. To be timely, a shareholder's notice must be delivered to or mailed and received at the principal office of the Company not less than 60 days nor more than 90 days prior to such Election Meeting; provided, however, that in the event the date of the Election Meeting is scheduled for a day other than the first Wednesday in May and less than 70 days' notice or prior public announcement of the date of such Election Meeting is given or made to shareholders, notice by the shareholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of such Election Meeting was mailed or such public announcement was made. Notwithstanding anything in the foregoing sentence to the contrary, in the event that the number of Directors to be elected to the Board of Directors of the Company at such Election Meeting is increased or there is a vacancy to be filled at such Election Meeting in a class of Directors whose terms do not expire at such Election Meeting and there is no public announcement at least 70 days prior to such Election Meeting naming all of the nominees for Director or specifying the size of the increased Board of Directors or the number of Directors to be elected, a shareholder's notice required by this Section 8 shall also be considered timely, but only with respect to nominees for any positions created by such increase or vacancy, if it shall be delivered to or mailed and received at the principal office of the Company not later than the close of business on the 10th day following the day on which such public announcement is first made by the Company. Such shareholder's notice to the Secretary shall set forth (a) as to each person whom the shareholder proposes to nominate for election or re-election as a Director, (i) the name, age, business address and residence address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of the Company which are owned beneficially by such person and (iv) any other information concerning such person that is required to be disclosed in connection with the solicitation of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Exchange Act (including without limitation such person's written consent to being named in the proxy statement as a nominee and to serving as a Director if elected); and (b) as to the shareholder giving the notice and the beneficial owner, if any, on whose behalf the nomination is made, (i) the name and address of such shareholder, as they appear on the Company's books, and of such beneficial owner and (ii) the class and number of shares of the Company which are owned beneficially and of record by such shareholder and by such beneficial owner. At the request of the Board of Directors any person nominated by the Board of Directors for election as a Director shall furnish to the Secretary of the Company that information required to be set forth in a shareholder's notice of nomination which pertains to the nominee. No person shall be eligible for election as a Director of the Company unless nominated in accordance with the procedures set forth in this Section 8. In the event that a person is validly designated as a nominee in accordance with the foregoing and shall thereafter become unable or unwilling to stand for election to the Board of Directors, the Board of Directors or the shareholder who proposed such nominee, as the case may be, may designate a substitute nominee. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the provisions of this Section 8, and if the chairman should so determine, he or she shall declare to the meeting that the defective nomination shall be disregarded. In addition to the provisions of this Section 8, a shareholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth herein. Sec. 9. Public Announcement. For purposes of this Article II, "public announcement" shall mean disclosure in a communication sent by first class mail to shareholders, in a press release reported by the Dow Jones News Service, Reuters Information Services, Inc., Associated Press or comparable national news service or in a document filed by the Company with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. ARTICLE III. DIRECTORS Sec. 1. Number; Classification of Board; Newly Created Directorships and Vacancies. The business of the Company shall be managed under the direction of its Board of Directors, which shall consist of not less than nine nor more than fifteen Directors, provided that whenever the holders of any one or more series of Preferred Shares of the Company become entitled to elect one or more Directors to the Board of Directors in accordance with any applicable provisions of the Certificate of Incorporation, such maximum number of Directors shall be increased automatically by the number of Directors such holders are so entitled to elect. Such increase shall remain in effect until the right of such holders to elect such Director or Directors shall cease and until the Director or Directors elected by such holders shall no longer hold office. The exact number of Directors within the foregoing minimum and maximum limitations shall be determined from time to time by resolution adopted by the affirmative vote of a majority of the entire Board. Except as otherwise provided in any applicable provisions of the Certificate of Incorporation relating to Preferred Shares of the Company, the Directors shall be divided into three classes, designated Class I, Class II and Class III. All classes shall be as nearly equal in number as possible. The terms of office of the Directors initially classified shall be as follows: at the 1988 annual meeting of shareholders, Class I Directors shall be elected for a one-year term expiring at the 1989 annual meeting of shareholders, Class II Directors for a two-year term expiring at the 1990 annual meeting of shareholders, and Class III Directors for a three-year term expiring at the 1991 annual meeting of shareholders. At each annual meeting of shareholders after the 1988 annual meeting, Directors so classified who are elected to replace those whose terms expire at such annual meeting shall be elected to hold office until the third succeeding annual meeting. Each Director so classified shall hold office until the expiration of his term and until his successor has been elected and qualified. Except as otherwise provided in any applicable provisions of the Certificate of Incorporation relating to Preferred Shares of the Company, (a) newly created directorships resulting from an increase in the number of Directors and vacancies occurring on the Board of Directors for any reason may be filled by vote of the Directors (including a majority of Directors then in office if less than a quorum exists), and (b) if the number of Directors is changed, (i) any newly created directorships or any decrease in directorships shall be apportioned by the Board among the classes so as to make all classes as nearly equal as possible, and (ii) when the number of Directors is increased by the Board and any newly created directorships are filled by the Board, there shall be no classification of the additional Directors until the next annual meeting of shareholders. Any Director elected by the Board to fill a newly created directorship or a vacancy shall hold office until the next annual meeting of shareholders and until his successor, classified in accordance with these By-Laws, has been elected and qualified. No decrease in the number of Directors constituting the Board shall shorten the term of any incumbent Director. Sec. 2. Quorum. One-third, but in any event not fewer than five (5) members of the Board of Directors, shall constitute a quorum for transacting business at all meetings. In the event of a quorum not being present, a lesser number may adjourn the meeting to a time not more than twenty (20) days later. Sec. 3. Place of Meetings. The Directors may hold their meetings either within or without the State of New York. Sec. 4. Meetings. Regular and special meetings of the Board of Directors shall be held whenever called by the Chairman of the Board, any Vice Chairman, the President, any Vice President, or any Director, and shall be held at such time and place as the notice of the meeting shall specify. Notice of any such meeting shall be given to each Director (a) personally (either orally or in writing) not less than 12 hours in advance of such meeting, (b) by telex or similar method of communication dispatched to his usual place of business not less than 24 hours in advance of such meeting, or (c) by mail or telegram dispatched to his address on file at the Company for such purpose not less than two days in advance of such meeting. Such notice shall be given by the Secretary or, if the Secretary is not available, by the individual calling the meeting and, in the case of special meetings, shall also specify the object of the meeting. At any such meeting held without notice at which every member of the Board shall be present or shall waive notice in writing before or after the meeting, any business may be transacted which might have been transacted if notice of the meeting had been duly given. Regular meetings may also be held at such times and places as the Board may designate from time to time, and no notice shall be required for any such regular meeting when held as so designated. Any one or more members of the Board may participate in a meeting of the Board by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at the meeting. Sec. 5. Removal. Any officer elected or appointed by the Board of Directors, may be removed at any time by the affirmative vote of a majority of the whole Board. Sec. 6. Compensation. Each Director of the Company who is neither an officer or employee of the Company or of a subsidiary of the Company nor a Chairman of a Committee of the Board of Directors of the Company shall receive an annual retainer of Twenty-Five Thousand Dollars ($25,000). Each Director of the Company who is not an officer or employee of the Company or of a subsidiary of the Company and who is a Chairman of a Committee of the Board of Directors of the Company shall receive an annual retainer of Twenty-Eight Thousand Dollars ($28,000). In addition, each Director of the Company who is not an officer or employee of the Company or of a subsidiary of the Company shall receive: (i) a fee of One Thousand Dollars ($1,000) per meeting for attendance at any regular or special meeting of the Board or as a member or by invitation at any regular or special meeting of any Committee of the Board and (ii) a fee of One Thousand Dollars ($1,000) for each day (prorated for part of a day) that such Director renders service to the Company in excess of that required by such Director's usual responsibilities either as a member of the Board of Directors of the Company or as a member of a Committee thereof. Sec. 7. Indemnification--Third Party and Derivative Actions. (a) The Company shall indemnify any person made, or threatened to be made, a party to an action or proceeding other than one by or in the right of the Company to procure a judgment in its favor, whether civil or criminal, including an action by or in the right of any other corporation of any type or kind, domestic or foreign, or any partnership, joint venture, trust, employee benefit plan or other enterprise, which any Director or officer of the Company served in any capacity at the request of the Company, by reason of the fact that he, his testator or intestate, is or was a Director or officer of the Company, or is or was serving such other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise in any capacity, against judgments, fines, amounts paid in settlement and expenses (including attorneys' fees) incurred in connection with such action or proceeding, or any appeal therein, provided that no indemnification may be made to or on behalf of such person if (i) his acts were committed in bad faith or were the result of his active and deliberate dishonesty and were material to such action or proceeding or (ii) he personally gained in fact a financial profit or other advantage to which he was not legally entitled. (b) The Company shall indemnify any person made, or threatened to be made, a party to an action by or in the right of the Company to procure a judgment in its favor by reason of the fact that he, his testator or intestate, is or was a Director or officer of the Company, or is or was serving at the request of the Company as a Director or officer of any other corporation of any type or kind, domestic or foreign, or of any partnership, joint venture, trust, employee benefit plan or other enterprise, against judgments, amounts paid in settlement and expenses (including attorneys' fees) incurred in connection with such action, or any appeal therein, provided that no indemnification may be made to or on behalf of such person if (i) his acts were committed in bad faith or were the result of his active and deliberate dishonesty and were material to such action or (ii) he personally gained in fact a financial profit or other advantage to which he was not legally entitled. (c) For the purpose of this Section 7, the Company shall be deemed to have requested a person to serve an employee benefit plan where the performance by such person of his duties to the Company also imposes duties on, or otherwise involves services by, such person to the plan or participants or beneficiaries of the plan; excise taxes assessed on a person with respect to an employee benefit plan pursuant to applicable law shall be considered fines. (d) The termination of any civil or criminal action or proceeding by judgment, settlement, conviction or upon a plea of nolo contendere, or its equivalent, shall not in itself create a presumption that any such Director or officer has not met the standard of conduct set forth in this Section 7. However, no Director or officer shall be entitled to indemnification under this Section 7 if a judgment or other final adjudication adverse to the Director or officer establishes (i) that his acts were committed in bad faith or were the result of active and deliberate dishonesty and were material to the cause of action so adjudicated, or (ii) that he personally gained in fact a financial profit or other advantage to which he was not legally entitled. Sec. 8. Payment of Indemnification; Repayment. (a) A person who has been successful, on the merits or otherwise, in the defense of a civil or criminal action or proceeding of the character described in Section 7 of this Article shall be entitled to indemnification as authorized in such Section. (b) Except as provided in Section 8(a), any indemnification under Section 7 of this Article, unless ordered by a court, shall be made by the Company only if authorized in the specific case: (1) by the Board of Directors acting by a quorum consisting of Directors who are not parties to the action or proceeding giving rise to the indemnity claim upon a finding that the Director or officer has met the standard of conduct set forth in Section 7 of this Article; or (2) if a quorum under the foregoing clause (1) is not obtainable or, even if obtainable, a quorum of disinterested Directors so directs: (i) by the Board of Directors upon the opinion in writing of independent legal counsel (i.e., a reputable lawyer or law firm not under regular retainer from the Company or any subsidiary corporation) that indemnification is proper in the circumstances because the standard of conduct set forth in Section 7 of this Article has been met by such Director or officer, or (ii) by the holders of the Common Shares of the Company upon a finding that the Director or officer has met such standard of conduct. (c) Expenses incurred by a Director or officer in defending a civil or criminal action or proceeding shall be paid by the Company in advance of the final disposition of such action or proceeding upon receipt of an undertaking by or on behalf of such Director or officer to repay such amount in case he is ultimately found, in accordance with this Article, not to be entitled to indemnification or, where indemnity is granted, to the extent the expenses so paid exceed the indemnification to which he is entitled. (d) Any indemnification of a Director or officer of the Company under Section 7 of this Article, or advance of expenses under Section 8(c) of this Article, shall be made promptly, and in any event within 60 days, upon the written request of the Director or officer. Sec. 9. Enforcement; Defenses. The right to indemnification or advances as granted by this Article shall be enforceable by the Director or officer in any court of competent jurisdiction if the Company denies such request, in whole or in part, or if no disposition thereof is made within 60 days. Such person's expenses incurred in connection with successfully establishing his right to indemnification, in whole or in part, in any such action shall also be indemnified by the Company. It shall be a defense to any such action (other than an action brought to enforce a claim for the advance of expenses under Section 8(c) of this Article where the required undertaking, if any, has been received by the Company) that the claimant has not met the standard of conduct set forth in Section 7 of this Article, but the burden of proving such defense shall be on the Company. Neither the failure of the Company (including its Board of Directors, its independent legal counsel, and the holders of its Common Shares), to have made a determination that indemnification of the claimant is proper in the circumstances nor the fact that there has been an actual determination by the Company (including its Board of Directors, its independent legal counsel, and the holders of its Common Shares) that indemnification of the claimant is not proper in the circumstances, shall be a defense to the action or create a presumption that the claimant is not entitled to indemnification. Sec. 10. Contract; Savings Clause; Preservation of Other Rights. (a) The foregoing indemnification provisions shall be deemed to be a contract between the Company and each Director and officer who serves in such capacity at any time while these provisions as well as the relevant provisions of the New York Business Corporation Law are in effect and any repeal or modification thereof shall not affect any right or obligation then existing with respect to any state of facts then or previously existing or any action or proceeding previously or thereafter brought or threatened based in whole or in part upon any such state of facts. Such a contract right may not be modified retroactively without the consent of such Director or officer. (b) If this Article or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify each Director or officer of the Company against judgments, fines, amounts paid in settlement and expenses (including attorneys' fees) incurred in connection with any actual or threatened action or proceeding, whether civil or criminal, including an actual or threatened action by or in the right of the Company, or any appeal therein, to the full extent permitted by any applicable portion of this Article that shall not have been invalidated and to the full extent permitted by applicable law. (c) The indemnification provided by this Article shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any by-law, agreement, vote of shareholders or Directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a Director or officer and shall inure to the benefit of the heirs, executors and administrators of such a person. The Company is hereby authorized to provide further indemnification if it deems it advisable by resolution of shareholders or Directors or by agreement. Sec. 11. Indemnification of Persons Not Directors or Officers of the Company. The Company may, by resolution adopted by the Board of Directors of the Company, indemnify any person not a Director or officer of the Company, who is made, or threatened to be made, a party to an action or proceeding, whether civil or criminal, by reason of the fact that he, his testator or intestate, is or was an employee or other agent of the Company, against judgments, fines, amounts paid in settlement and expenses (including attorneys' fees) incurred in connection with such action or proceeding, or any appeal therein, provided that no indemnification may be made to or on behalf of such person if (i) his acts were committed in bad faith or were the result of active and deliberate dishonesty and were material to such action or proceeding, or (ii) he personally gained in fact a financial profit or other advantage to which he was not legally entitled. ARTICLE IV. EXECUTIVE AND OTHER COMMITTEES Sec. 1. The Board of Directors shall, by an affirmative vote of a majority of the whole Board, appoint from the Directors an Executive Committee not more than nine and not less than three, of which one-third (but not less than two) shall constitute a quorum. Should it be impracticable at any time, due to absence or illness of members or other cause, to obtain a quorum of the members so appointed for any desired meeting, the Secretary, or, if the Secretary is not available, the member calling the meeting, may call upon any other Director or Directors, not members of such Executive Committee but who have been designated by the Board as alternate members of the Executive Committee, to make up a quorum for that particular meeting, which other Director or Directors shall for the time being be members of said Executive Committee, and the acts and proceedings of the Committee as so constituted for such meeting shall have the same force and effect as the acts and proceedings of meetings where a quorum of the regular committee is in attendance. The Board of Directors may from among their number also, by a similar vote, appoint any other committees. The Board of Directors shall fill vacancies in the Executive Committee by election from Directors; and at all times it shall be the duty of the Board of Directors to keep the membership of the Executive Committee up to the required number. Any member of the Executive Committee who shall cease to be a Director shall ipso facto cease to be a member of the Committee. All action by the Executive Committee, or by other committees appointed by the Board of Directors, shall be reported to said Board at its meeting next succeeding such action, and, except to the extent stated in the second sentence of the first paragraph of Section 2 of this Article, shall be subject to revision, alteration, or approval by the Board of Directors. The Executive and other committees shall each fix its own rules of procedure and arrange its own place of meeting; but in every case (except in the case of the Executive Committee) a majority of such committee shall be necessary to constitute a quorum, and in every case (except in the case of the Executive Committee) the affirmative vote of a majority of the members of each of such committees shall be necessary for its adoption of any resolution. Any one or more members of the Executive or any other committee may participate in a meeting of such committee by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at the meeting. Meetings of the Executive Committee shall be held whenever called by the Chairman of the Board, any Vice Chairman, the President, any Vice President or any member of that Committee and shall be held at such time and place as the notice of the meeting shall specify. Notice of any such meeting shall be given to each member of the Committee (a) personally (either orally or in writing) not less than 12 hours in advance of such meeting, (b) by telex or similar method of communication dispatched to his usual place of business not less than 24 hours in advance of such meeting, or (c) by mail or telegram dispatched to his address on file at the Company for such purpose not less than two days in advance of such meeting. Such notice shall be given by the Secretary or, if the Secretary is not available, by the individual calling the meeting and shall also specify the object of the meeting. The Executive Committee shall keep regular minutes and cause them to be recorded in a book to be kept in the principal office of the Company for that purpose. Sec. 2. Powers of Committees. The Executive Committee shall, whenever the Board of Directors is not in session, direct the management of the affairs of the Company in all cases in which specific directions to the contrary shall not have been given, or specific action of the Board of Directors is required by law. Notwithstanding anything to the contrary stated in the fifth paragraph of Section 1 of this Article, the rights of third persons acquired in reliance on an Executive Committee resolution prior to receiving notice of action by the Board of Directors shall not be prejudiced by action by the Board of Directors. Other committees appointed by the Board of Directors shall have such powers as the Board may delegate by resolution. Sec. 3. Compensation. The members of the Executive Committee and the members of any other committee appointed by the Board of Directors shall receive such compensation for their services as from time to time shall be fixed by the Board of Directors. ARTICLE V. OFFICERS AND THEIR DUTIES Sec. 1. Officers. The officers of the Company shall be: Chairman of the Board of Directors, President, Treasurer, Secretary, and Controller, and such Vice Chairmen, such Vice Presidents (one or more of whom may be designated Executive Vice President or Senior Vice President), and such Assistant Vice Presidents, Assistant Treasurers, Assistant Secretaries, and Assistant Controllers as the Board of Directors in its discretion may elect or appoint. No officer other than the Chairman of the Board need be a member of the Board of Directors. Any number of offices may be held by the same person, except that the same person shall not be (i) Treasurer and Controller or (ii) Chairman of the Board or President and Secretary. Officers shall be elected annually at the first meeting of the Board of Directors following the annual meeting of shareholders, subject to the power of the Board of Directors to fill vacancies at any time. All officers shall serve at the pleasure of the Board of Directors and may be removed as provided in Article III, Section 5 of these By-Laws. Sec. 2. Chairman of the Board. The Chairman of the Board of Directors shall be the chief executive officer of the Company and shall be responsible to the Board of Directors for the administration and operations of the Company. He shall preside at all meetings of the Board of Directors and at all meetings of shareholders. By virtue of his office he shall be a member of the Executive Committee of the Board of Directors and shall preside at meetings of the Executive Committee. He shall have such other powers and perform such other duties as from time to time may be assigned to him by, and shall be responsible solely to, the Board of Directors. He may sign, with the Treasurer, all promissory notes of the Company and any guarantees of the Company in respect of borrowed money, and, with the Secretary when the corporate seal is to be affixed, all share certificates, bonds, mortgages and other contracts of the Company. Sec. 2-A. Vice Chairmen. Each Vice Chairman shall have such powers and perform such duties as from time to time may be assigned to him by the Board of Directors or the Chairman of the Board. Any Vice Chairman may sign, with the Treasurer, all promissory notes of the Company and any guarantees of the Company in respect of borrowed money, and, with the Secretary when the corporate seal is to be affixed, all share certificates, bonds, mortgages, and other contracts of the Company. Sec. 3. President. The President shall have such powers and perform such duties as from time to time may be assigned to him by the Board of Directors or by the Chairman of the Board. He may sign, with the Treasurer, all promissory notes of the Company and any guarantees of the Company in respect of borrowed money, and, with the Secretary when the corporate seal is to be affixed, all share certificates, bonds, mortgages, and other contracts of the Company. Sec. 3-A. Vice Presidents. Each Vice President shall have such powers and perform such duties as from time to time may be assigned to him by the Board of Directors, the Chairman of the Board, any Vice Chairman, or the President. Any Vice President may sign, with the Treasurer, all promissory notes of the Company and any guarantees of the Company in respect of borrowed money, and, with the Secretary when the corporate seal is to be affixed, all share certificates, bonds, mortgages, and other contracts of the Company. Sec. 4. Assistant Vice Presidents. The Board of Directors may elect or appoint one or more Assistant Vice Presidents, each of whom shall have such powers and perform such duties as from time to time may be assigned to him by the Board of Directors, the Chairman of the Board, any Vice Chairman, the President, or any Vice President. Sec. 5. Secretary. The Secretary shall keep a record of all proceedings of the Board of Directors, and of all meetings of the shareholders, and of the Executive Committee and of all other committees, in books provided for that purpose, and he shall attend to giving and serving all notices of the Company. The Secretary shall keep in safe custody the seal of the Company and he shall affix such seal on all share certificates, bonds, mortgages, and other contracts of the Company executed under such seal. He shall have charge of the records of shareholders of the Company, including transfer books, and share ledgers, and such other books and papers as the Board of Directors shall direct, and in general shall perform all the duties incident to the office of Secretary. Sec. 6. Assistant Secretaries. The Board of Directors may appoint one or more Assistant Secretaries, who shall have power to sign, with the Chairman of the Board, any Vice Chairman, the President, or any Vice President, share certificates of the Company. In the absence of the Secretary, the Assistant Secretaries shall be vested with the powers of, and any one of them may perform the duties of, the Secretary. Each Assistant Secretary shall perform such other duties as from time to time may be assigned to him by the Board of Directors, the Chairman of the Board, any Vice Chairman, the President, or any Vice President. Sec. 7. Treasurer. The Treasurer shall have in his charge all the funds and securities of the Company. When necessary or proper, he, or such other officer or officers of the Company as may be so duly authorized by the Board of Directors, shall endorse on behalf of the Company for collection checks, notes or other obligations and shall deposit the same to the credit of the Company in such bank or banks or depositories as the Board of Directors may designate or as may be designated by persons authorized by the Board of Directors to make such designations. He, or such other officers or employees of the Company or any of its subsidiaries, acting individually unless otherwise provided, as may from time to time be designated by the Board of Directors or be designated in writing by any officer or officers of the Company duly authorized by the Board of Directors to make such designations, shall sign all receipts and vouchers for payments made to the Company, and shall sign all checks, drafts or bills of exchange, provided that the Board of Directors from time to time may designate other persons as authorized signatories of the Company or authorize other persons to make such designations on behalf of the Company. The Treasurer jointly with the Chairman of the Board, any Vice Chairman, the President, or any Vice President shall sign all promissory notes of the Company and any guarantees of the Company in respect of borrowed money, and shall pay out and dispose of the same under the direction of the Board; he shall keep a complete set of books, showing the financial transactions of the Company, and shall exhibit his books to any Director upon application at the office of the Company, during business hours; he shall make such reports as the Board of Directors or the Executive Committee may from time to time request; and he shall perform all acts incidental to the office of Treasurer, subject, nevertheless, to the control of the Board of Directors. He shall give such bonds for the faithful discharge of his duties as Treasurer as the Board of Directors may require. Sec. 8. Assistant Treasurers. The Board of Directors may appoint one or more Assistant Treasurers. In the absence of the Treasurer, the Assistant Treasurers shall be vested with the powers of, and any one of them may perform the duties of, the Treasurer. Each Assistant Treasurer shall perform such other duties as from time to time may be assigned to him by the Board of Directors, the Chairman of the Board, any Vice Chairman, the President, or any Vice President. Sec. 9. Controller. The Controller shall have supervision and direction of all accounts of the Company, and shall see that the system of accounts is duly enforced and maintained. There shall be kept in his office a general set of books containing a complete set of all the business transactions of the Company, and he shall, as often as necessary, make an examination of the accounts of any officer, agent or employee entrusted with the handling or care of money of the Company. It shall be the duty of the Controller to know that all money belonging to the Company, collected from any source by any officer, agent or employee, is properly accounted for and promptly paid into the treasury, and that all accounts of the Company are properly and promptly settled. It shall be the duty of the Controller to know that all bonds required of officers, agents and employees for the faithful performance of their duties are given. Such bonds shall be transmitted to the Controller for safe custody and shall be released only upon a complete and satisfactory settlement of the accounts covered by them, unless otherwise ordered by the Board. Sec. 10. Additional Officers; Division Officers. In addition to the above officers, the Board of Directors may also appoint one or more general counsel and one or more auditors and such other officers as they may deem wise and advisable for the best interests of the Company, who shall perform such duties as from time to time may be assigned to them by the Board of Directors. If the Board of Directors establishes divisions of the Corporation, the Board may also establish such division offices and appoint such division officers as the Board deems appropriate. Such division officers shall have such powers and perform such duties as from time to time may be assigned to them by the Board of Directors. The Board of Directors shall fix salaries for all officers of the Company, or may delegate, to any committee of the Board or to the Chairman of the Board, the power to fix salaries of officers of the Company in cases where the Board deems it appropriate to so delegate. Sec. 11. Voting upon Stocks. Unless otherwise ordered by the Board of Directors, the Chairman of the Board, any Vice Chairman, the President or any Vice President shall have full power and authority on behalf of the Company to attend, act and vote, or in the name of the Company to execute proxies appointing any person or persons to attend, act and vote on behalf of the Company, at any meeting of stockholders of any corporation in which the Company may hold stock, and at any such meeting such officer or person or persons appointed in any such proxy, as the case may be, shall possess and may exercise on behalf of the Company any and all rights, powers and privileges incident to the ownership of such stock. The Board of Directors may by resolution from time to time confer like powers upon any other person or persons. Sec. 12. Sales of Stock. Neither the corporation of Phelps Dodge Corporation nor any subsidiary company by it controlled, shall speculate in the stock either of Phelps Dodge Corporation or of any subsidiary company, or shall buy or sell same except in the regular course of legitimate business of such company or for the purpose of retirement and this provision shall be unalterable save by the vote of the holders of a majority of the stock of the company voting thereon at a meeting called, as provided by these By-Laws. ARTICLE VI. SHARE CERTIFICATES AND TRANSFERS Sec. 1. Certificates for Shares. The Board of Directors shall prepare, in form according to law, and approve, certificates evidencing shares of the Company. No certificate shall be valid unless it is signed by the Chairman of the Board, any Vice Chairman, the President or any Vice President; and also by the Secretary or an Assistant Secretary. The signatures of the officers upon a certificate may be facsimiles if the certificate is countersigned by a transfer agent or registered by a registrar other than the Company itself or its employee. Sec. 2. Transfer of Shares. Shares of the Company shall be transferred only on the books of the Company by the holder thereof in person or by his or her attorney duly authorized thereto in writing, and by cancellation and surrender of certificates for a like number of shares. ARTICLE VII. AMENDMENTS These By-Laws, with the exception of Section 12 of Article V, may be amended or repealed by a vote of a majority of all the Directors at any regular or special meeting of the Board. ARTICLE VIII. The Company expressly elects not to be governed by the provisions currently designated as Article 2, Chapter 23, Title 10 of the Arizona Revised Statutes. EX-12 3 COMPUTATION OF RATIO PHELPS DODGE CORPORATION AND SUBSIDIARIES Exhibit 12 COMPUTATION OF TOTAL DEBT TO TOTAL CAPITALIZATION (Unaudited; dollars in thousands) September 30, December 31, 1996 1995 ---- ---- Short-term debt $ 66,900 66,600 Current portion of long-term debt 29,400 16,800 Long-term debt 600,700 613,100 ---------- ---------- Total debt 697,000 696,500 Minority interests in subsidiaries 81,400 73,300 Common shareholders' equity 2,703,900 2,677,700 ---------- ---------- Total capitalization $ 3,482,300 3,447,500 ========== ========== Ratio of total debt to total capitalization 20.0% 20.2% ========== ========== EX-15 4 LETTER RE: UNAUDITED INTERIM FINANCIAL INFORMATION Exhibit 15 PRICE WATERHOUSE LLP November 6, 1996 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Ladies and Gentlemen: We are aware that Phelps Dodge Corporation has incorporated by reference our report dated October 9, 1996 (issued pursuant to the provisions of Statements on Auditing Standards No. 71) in the Prospectus constituting part of its Registration Statements on Form S-3 (No. 33-44380) and Form S-8 (Nos. 33-26442, 33-6141, 33-26443, 33-29144, 33-19012, 2-67317, 33-34363, 33-34362, 33-62486). We are also aware of our responsibilities under the Securities Act of 1933. Yours very truly, Price Waterhouse LLP Phoenix, Arizona EX-27 5 ART. 5 FDS FOR 3RD QUARTER 10-Q
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1996 AND THE RELATED CONSOLIDATED STATEMENTS OF INCOME AND OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 OF PHELPS DODGE CORPORATION AND ITS SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S. DOLLARS 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 1 567,700 0 445,400 0 282,100 1,477,200 2,917,500 0 4,777,200 650,500 600,700 0 0 406,500 2,297,400 4,777,200 2,816,000 2,816,000 1,924,800 1,924,800 276,900 0 44,000 536,600 174,400 359,600 0 0 0 359,600 5.40 5.40
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