10-Q

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       No       

Number of Common Shares outstanding at November 8, 2001: 78,699,734 shares.

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

PHELPS DODGE CORPORATION

Quarterly Report on Form 10-Q

For the Quarter Ended September 30, 2001

Table of Contents

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

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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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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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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.

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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.

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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

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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

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(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

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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.

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	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

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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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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.

		Third Quarter
		2001			2000
Copper production (thousand short tons):
	Total production		328.3			364.9
	Less minority participants’ shares*		54.6			64.0
	Net Phelps Dodge share		273.7			300.9
Copper sales (thousand short tons):
	Net Phelps Dodge share from own mines		294.7			294.9
	Purchased copper		98.5			112.2
	Total copper sales		393.2			407.1
COMEX:
	Average spot price per pound - copper cathodes	$	0.68			0.87
Molybdenum concentrate production (million pounds)			11.9			12.9
Molybdenum sales (million pounds)			13.1			13.0
Metals Week:
	Molybdenum oxide price per pound	$	2.42			2.66
		(in millions)
Sales and other operating revenues - - unaffiliated customers		$	614.7			825.8
Operating income (loss) (A) (B)		$	(52.7	)		91.5

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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.

		Third Quarter
		2001		2000
		(in millions)
Sales and other operating revenues - unaffiliated customers:
	Specialty Chemicals	$	138.2		148.3
	Wire and Cable		184.1		219.3
		$	322.3		367.6
Operating income (loss):
	Specialty Chemicals	$	10.7		20.7
	Wire and Cable*		2.9		8.4
		$	13.6		29.1

		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.

-21- EX-3.2 3 p65804ex3-2.txt EX-3.2 Exhibit 3.2 Amended Effective September 5, 2001 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 or electronically not less than 10 nor more than 60 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 mailing or electronic address as it appears on the books of the Company. Notice may also be sent by third class mail not less than 24 nor more than 60 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, sent by first class mail or electronically to each shareholder of record entitled to vote at such meeting, not less than 10 nor more than 60 days before the date of such meeting, at his or her mailing or electronic address as it appears on the books of the Company. Notice may also be sent by third class mail not less than 24 nor more than 60 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. -2- The Board of Directors shall have the power and authority to fix a day not less than 10 nor more than 60 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 later than the close of business on the 90th day and not earlier than the close of business on the 120th day prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by the shareholder to be timely must be so received not earlier than the close of business on the 120th day prior to the date of such annual meeting and not later than the close of business on the later of the 90th day prior to the date of such annual meeting or the 10th day following the day on which public announcement of the date of such annual meeting is first made. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a shareholder's notice as described above. 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 -3- 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 (i) if the Election Meeting is the annual meeting of shareholders, not later than the close of business on the 90th day and not earlier than the close of business on the 120th day prior to such Election Meeting; provided, however, that in the event that the date of the Election Meeting is more than 30 days before or more than 60 days after the first anniversary of the preceding year's annual meeting of shareholders, notice by the shareholder to be timely must be so received not earlier than the close of business on the 120th day prior to the date of such Election Meeting and not later than the close of business on the later of the 90th day prior to the date of such Election Meeting or the 10th day following the day on which public announcement of the date of such Election Meeting is first made and (ii) if the Election Meeting is a special meeting of shareholders, not later than the close of business on the 10th day following the day on which public announcement of the date of such Election Meeting is first 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 100 days prior to -4- 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 be considered timely, but only with respect to nominees for any positions created by such increase or vacancy, if it shall be delivered 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. In no event shall the public announcement of an adjournment of an Election Meeting commence a new time period for the giving of a shareholder's notice as described above. 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 -5- 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 twelve 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. -6- 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 Executive Vice President or Senior Vice President, or any member of the Executive Committee of the Board 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. The compensation for Directors of the Company shall be as fixed from time to time by the Board of Directors. 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. -7- (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 -8- 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 -9- 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. -10- 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 Executive Vice President or Senior 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 -11- 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. -12- 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. -13- 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. -14- 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. -15- EX-12 4 p65804ex12.htm EX-12

PHELPS DODGE CORPORATION AND SUBSIDIARIES

Exhibit 12

COMPUTATION OF TOTAL DEBT TO TOTAL CAPITALIZATION
(Unaudited; dollars in millions)

		September 30,			December 31,
		2001			2000
Short-term debt		$	64.3			518.2
Current portion of long-term debt			374.6			206.5
Long-term debt			2,555.0			1,963.0
	Total debt		2,993.9			2,687.7
Minority interests in consolidated subsidiaries			59.9			91.7
Common shareholders’ equity			2,752.7			3,105.0
	Total capitalization	$	5,806.5			5,884.4
Ratio of total debt to total capitalization			51.6	%		45.7	%

EX-15 5 p65804ex15.htm EX-15

Exhibit 15

November 12, 2001

Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549

Commissioners:

We are aware that our report dated October 16, 2001 on our review of interim financial information of Phelps Dodge Corporation (the “Corporation”) as of and for the period ended September 30, 2001 and included in the Corporation’s quarterly report on Form 10-Q for the quarter then ended is incorporated by reference in its Registration Statement on Form S-3 (No. 333-67606), Registration Statement and Post-Effective Amendment No. 1 on Form S-3 (Nos. 333-67606, 333-43890, 33-44380 and 333-36415), Registration Statements on Form S-8 (Nos. 33-26442, 33-6141, 33-26443, 33-29144, 33-19012, 2-67317, 33-34363, 33-34362, 33-62648, 333-42231, and 333-52175) and Post-Effective Amendment No. 4 on Form S-8 to the Registration Statement on Form S-4 (No. 333-86061).

Very truly yours,

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

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EX-3.2

                                                                     Exhibit 3.2

                                             Amended Effective September 5, 2001



                                  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 or
electronically not less than 10 nor more than 60 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 mailing or electronic address as it appears
on the books of the Company. Notice may also be sent by third class mail not
less than 24 nor more than 60 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, sent by first class mail or electronically to each
shareholder of record entitled to vote at such meeting, not less than 10 nor
more than 60 days before the date of such meeting, at his or her mailing or
electronic address as it appears on the books of the Company. Notice may also be
sent by third class mail not less than 24 nor more than 60 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.

                                      -2-

         The Board of Directors shall have the power and authority to fix a day
not less than 10 nor more than 60 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 later than the close of
business on the 90th day and not earlier than the close of business on the 120th
day prior to the first anniversary of the preceding year's annual meeting;
provided, however, that in the event that the date of the annual meeting is more
than 30 days before or more than 60 days after such anniversary date, notice by
the shareholder to be timely must be so received not earlier than the close of
business on the 120th day prior to the date of such annual meeting and not later
than the close of business on the later of the 90th day prior to the date of
such annual meeting or the 10th day following the day on which public
announcement of the date of such annual meeting is first made. In no event shall
the public announcement of an adjournment of an annual meeting commence a new
time period for the giving of a shareholder's notice as described above.

         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

                                      -3-

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 (i) if the
Election Meeting is the annual meeting of shareholders, not later than the close
of business on the 90th day and not earlier than the close of business on the
120th day prior to such Election Meeting; provided, however, that in the event
that the date of the Election Meeting is more than 30 days before or more than
60 days after the first anniversary of the preceding year's annual meeting of
shareholders, notice by the shareholder to be timely must be so received not
earlier than the close of business on the 120th day prior to the date of such
Election Meeting and not later than the close of business on the later of the
90th day prior to the date of such Election Meeting or the 10th day following
the day on which public announcement of the date of such Election Meeting is
first made and (ii) if the Election Meeting is a special meeting of
shareholders, not later than the close of business on the 10th day following the
day on which public announcement of the date of such Election Meeting is first
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 100
days prior to

                                      -4-

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 be considered
timely, but only with respect to nominees for any positions created by such
increase or vacancy, if it shall be delivered 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. In no event shall the public announcement of an adjournment of an
Election Meeting commence a new time period for the giving of a shareholder's
notice as described above.

         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

                                      -5-

         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 twelve 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.

                                      -6-

         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 Executive Vice President or Senior Vice President,
or any member of the Executive Committee of the Board 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. The compensation for Directors of the Company
shall be as fixed from time to time by the Board of Directors.

         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.

                                      -7-

                  (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

                                      -8-

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

                                      -9-

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.

                                      -10-

         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 Executive Vice
President or Senior 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

                                      -11-

         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.

                                      -12-

         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.

                                      -13-

         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.

                                      -14-

         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.



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