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 March 31, 2002

Commission file number 1-82

PHELPS DODGE CORPORATION

(a New York corporation)

13-1808503

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

One North Central Avenue, Phoenix, AZ 85004-4416

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.   Yes     No  .

Number of Common Shares outstanding at May 10, 2002: 78,717,316 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-10.14
EX-12
EX-15

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PHELPS DODGE CORPORATION

Quarterly Report on Form 10-Q

For the Quarter Ended March 31, 2002

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		10
		Report of Independent Accountants		11
	Item 2. Management’s Discussion and Analysis
		Results of Operations		12
		Results of Phelps Dodge Mining Company		13
		Results of Phelps Dodge Industries		14
		Other Matters Relating to the Statement of Consolidated Operations		15
		Changes in Financial Condition		15
Part II. Other Information
	Item 1. Legal Proceedings			16
	Item 6. Exhibits and Reports on Form 8-K			16
	Signatures			16
	Index to Exhibits			16

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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)

		First Quarter
		2002			2001
Sales and other operating revenues		$	918.5			1,100.7
Operating costs and expenses
	Cost of products sold		768.8			933.7
	Depreciation, depletion and amortization		105.6			116.5
	Selling and general administrative expense		32.2			32.2
	Exploration and research expense		8.7			14.8
	Special items and provisions (see Note 2)		(3.8	)		(30.9	)
			911.5			1,066.3
Operating income			7.0			34.4
	Interest expense		(52.8	)		(53.4	)
	Capitalized interest		—			0.6
	Miscellaneous income and expense, net		2.0			3.7
Loss before taxes, minority interests, equity in net earnings (loss) of affiliated companies and cumulative effect of accounting change			(43.8	)		(14.7	)
	Benefit for taxes on income (see Note 8)		39.7			33.3
	Minority interests in consolidated subsidiaries		(1.2	)		(1.6	)
	Equity in net earnings (loss) of affiliated companies		0.5			(0.8	)
Income (loss) before cumulative effect of accounting change			(4.8	)		16.2
	Cumulative effect of accounting change, net of taxes of $10.1 in 2002		(22.9	)		(2.0	)
Net income (loss)		$	(27.7	)		14.2
Average number of shares outstanding — basic			78.5			78.5
Basic earnings (loss) per share before cumulative effect of accounting change		$	(0.06	)		0.21
	Cumulative effect of accounting change		(0.29	)		(0.03	)
Basic earnings (loss) per share		$	(0.35	)		0.18
Average number of shares outstanding — diluted			78.5			78.8
Diluted earnings (loss) per share before cumulative effect of accounting change		$	(0.06	)		0.21
	Cumulative effect of accounting change		(0.29	)		(0.03	)
Diluted earnings (loss) per share		$	(0.35	)		0.18

See Notes to Consolidated Financial Information.

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CONSOLIDATED BALANCE SHEET
(Unaudited; in millions)

			March 31,			December 31,
			2002			2001
Assets
	Cash and cash equivalents		$	454.3			386.9
	Accounts receivable, net			440.0			398.8
	Inventories and supplies			562.3			602.1
	Prepaid expenses and other current assets			126.5			116.4
		Current assets		1,583.1			1,504.2
	Investments and long-term receivables			107.3			105.3
	Property, plant and equipment, net			5,573.5			5,665.6
	Non-current deferred income taxes			68.5			56.3
	Other assets and deferred charges			237.3			287.4
			$	7,569.7			7,618.8
Liabilities
	Short-term debt		$	54.5			59.3
	Current portion of long-term debt			261.3			269.7
	Accounts payable and accrued expenses			640.8			673.7
	Accrued income taxes			12.8			11.5
		Current liabilities		969.4			1,014.2
	Long-term debt			2,515.2			2,522.0
	Deferred income taxes			451.0			441.8
	Other liabilities and deferred credits			895.6			874.2
				4,831.2			4,852.2
Minority interests in consolidated subsidiaries				59.6			59.4
Common shareholders’ equity
	Common shares, par value $6.25; 200.0 shares authorized; 78.7 outstanding in 2002 and 2001			492.0			491.9
	Capital in excess of par value			1,017.4			1,016.8
	Retained earnings			1,469.9			1,497.6
	Accumulated other comprehensive loss			(294.0	)		(292.7	)
	Other			(6.4	)		(6.4	)
				2,678.9			2,707.2
			$	7,569.7			7,618.8

See Notes to Consolidated Financial Information

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CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited; in millions)

					First Quarter
					2002			2001
Operating activities
	Net income (loss)				$	(27.7	)		14.2
	Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
		Depreciation, depletion and amortization				105.6			116.5
		Deferred income taxes				(2.2	)		(18.3	)
		Equity earnings (loss) net of dividends received				(0.5	)		1.3
		Special items and provisions (see Note 2)				29.7			(28.9	)
		Changes in current assets and liabilities:
			Accounts receivable			(50.4	)		(63.9	)
			Proceeds from sale of accounts receivable			4.7			—
			Inventories			40.9			(26.5	)
			Supplies			(1.4	)		(1.8	)
			Prepaid expenses			(10.7	)		(5.7	)
			Deferred income taxes			—			0.2
			Interest payable			43.3			34.1
			Other accounts payable			(50.4	)		10.1
			Accrued income taxes			2.9			(14.5	)
			Other accrued expenses			(27.3	)		(7.9	)
		Other adjustments, net				53.7			(18.8	)
				Net cash provided by (used in) operating activities		110.2			(9.9	)
Investing activities
	Capital outlays					(21.4	)		(77.1	)
	Capitalized interest					—			(0.6	)
	Investment in subsidiaries and other					(1.4	)		(46.4	)
	Proceeds from asset dispositions and other, net					(1.4	)		1.4
				Net cash used in investing activities		(24.2	)		(122.7	)
Financing activities
	Increase in debt					6.8			175.9
	Payment of debt					(24.3	)		(9.6	)
	Common dividends					—			(39.4	)
	Other, net					(1.1	)		(0.1	)
				Net cash provided by (used in) financing activities		(18.6	)		126.8
Increase (decrease) in cash and cash equivalents						67.4			(5.8	)
Cash and cash equivalents at beginning of period						386.9			250.0
Cash and cash equivalents at end of period					$	454.3			244.2

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, 2001						78.7	$	491.9	$	1,016.8	$	1,497.6		$	(292.7	)	$	(6.4	)	$	2,707.2
	Stock options exercised									0.2											0.2
	Restricted shares issued, net							0.1		0.4											0.5
	Comprehensive loss:
		Net loss										(27.7	)								(27.7	)
		Other comprehensive loss, net of tax:
				Translation adjustment											(4.6	)					(4.6	)
				Net gain on derivative instruments											3.5						3.5
				Unrealized loss on securities											(0.2	)					(0.2	)
				Other comprehensive loss											(1.3	)					(1.3	)
			Comprehensive loss																		(29.0	)
Balance at March 31, 2002						78.7	$	492.0	$	1,017.4	$	1,469.9		$	(294.0	)	$	(6.4	)	$	2,678.9

See Notes to Consolidated Financial Information.

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FINANCIAL DATA BY BUSINESS SEGMENT
(Unaudited; in millions)

					Phelps Dodge Industries
		Phelps Dodge
		Mining			Specialty		Wire &				Segment		Corporate, Other
		Company			Chemicals		Cable		Total		Subtotal		& Eliminations			Totals
First Quarter 2002
Sales & other operating revenues:
	Unaffiliated customers	$	611.7			129.3		177.5		306.8		918.5		—			918.5
	Intersegment		37.0			—		0.2		0.2		37.2		(37.2	)		—
Depreciation, depletion and amortization			82.4			10.5		10.7		21.2		103.6		2.0			105.6
Special items and provisions			13.8			—		—		—		13.8		(10.0	)		3.8
Operating income (loss)			21.3			13.2		2.8		16.0		37.3		(30.3	)		7.0
Assets at March 31			5,522.6			674.1		601.5		1,275.6		6,798.2		771.5			7,569.7
Capital outlays and investments			17.4			2.0		1.7		3.7		21.1		1.7			22.8
First Quarter 2001
Sales & other operating revenues:
	Unaffiliated customers	$	726.5			161.5		212.7		374.2		1,100.7		—			1,100.7
	Intersegment		58.3			—		—		—		58.3		(58.3	)		—
Depreciation, depletion and amortization			92.3			11.5		12.1		23.6		115.9		0.6			116.5
Special items and provisions			—			—		—		—		—		30.9			30.9
Operating income (loss)			(5.1	)		20.2		6.5		26.7		21.6		12.8			34.4
Assets at March 31			6,074.9			752.6		699.7		1,452.3		7,527.2		380.4			7,907.6
Capital outlays and investments			63.9			6.2		47.0		53.2		117.1		6.4			123.5

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NOTES TO CONSOLIDATED FINANCIAL INFORMATION
(Unaudited)

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

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

		First Quarter 2002
		Pre-tax			After-tax			$/Share
		Earnings			Earnings			After-tax
Special items and provisions, net:
Phelps Dodge Mining Company -
	Environmental insurance recoveries, net	$	13.8			11.2			0.14
Corporate and other -
	Environmental provisions		(12.1	)		(12.1	)		(0.15	)
	Environmental insurance recoveries, net		2.1			1.9			0.02
			(10.0	)		(10.2	)		(0.13	)
			3.8			1.0			0.01
Miscellaneous income and expense, net:
	Write-off of cost basis investment		(0.5	)		(0.4	)		—
Tax benefit for 2001 net operating loss carryback			—			38.5			0.49
Cumulative effect of accounting change			(33.0	)		(22.9	)		(0.29	)
Total		$	(29.7	)		16.2			0.21

In the 2002 first quarter, a special, net pre-tax loss of $29.7 million was recognized consisting of pre-tax charges of $33.0 million ($22.9 million after-tax) for the cumulative effect of an accounting change (refer to Note 3 for further discussion), $12.1 million (before and after taxes) for environmental provisions (refer to Note 4) and a $0.5 million ($0.4 million after-tax) write-off of a cost basis investment, partially offset by $15.9 million ($13.1 million after-tax), net of fees and expenses, in recoveries associated with insurance settlements reached with companies on historic environmental claims at Phelps Dodge Mining Company and Corporate and other. It is our policy to recognize recoveries of environmental expenditures or costs from insurance companies or other parties when they become probable. In addition, the 2002 first quarter included a tax benefit of $38.5 million for a

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net operating loss carryback prior to 2002 resulting from recent U.S. tax legislation (refer to Note 8).

The following schedule summarizes the special items and provisions for the quarter ended March 31, 2001:

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

		First Quarter 2001
		Pre-tax			After-tax			$/Share
		Earnings			Earnings			After-tax
Special items and provisions, net:
Corporate and other -
	Environmental insurance recoveries, net	$	30.9			30.9			0.40
Cumulative effect of accounting change			(2.0	)		(2.0	)		(0.03	)
Total		$	28.9			28.9			0.37

In the 2001 first quarter, a special, net gain of $28.9 million (before and after taxes) was recognized consisting of $30.9 million (before and after taxes), net of fees and expenses, in recoveries associated with settlements reached with several insurance companies on historic environmental liability claims, partially offset by a $2.0 million (before and after taxes) charge for the cumulative effect of an accounting change (refer to Note 9 for further discussion).

Restructuring Programs

During 2001, two restructuring/operational improvement plans occurred. In the fourth quarter of 2001, Phelps Dodge announced a series of actions to address the economic environment, including changes in copper operations that would lead or have led to temporary curtailment of approximately 220,000 metric tons of copper production annually (including our partner’s share), and the reduction of approximately 1,600 employees in 2002. In the second quarter of 2001, we announced a restructuring of our professional, administrative and operational support functions, as well as various other operational improvements.

In the second quarter of 2000 and 1999, we announced plans to reduce operating costs and restructure operations at our mining and wire and cable segments. Refer to the Company’s Form 10-K for the year ended December 31, 2001, for additional discussion.

The following schedule presents a roll-forward from December 31, 2001, of the liabilities incurred in connection with the 1999, 2000 and 2001 restructuring programs, which were reflected as current liabilities in our consolidated balance sheet:

(Unaudited; $ in millions)

				(Payments/
		12/31/01		Deductions)			3/31/02
Phelps Dodge Mining Company -
	Employee severance and relocation	$	9.6		(3.8	)		5.8
	Mothballing/take-or-pay contracts		9.7		(2.6	)		7.1
			19.3		(6.4	)		12.9
Phelps Dodge Industries -
Specialty Chemicals
	Disposal and dismantling		0.8		—			0.8
	Employee severance and relocation		0.8		(0.4	)		0.4
	Environmental		0.6		—			0.6
			2.2		(0.4	)		1.8
Wire and Cable
	Take-or-pay contracts		1.1		—			1.1
	Plant remodel and dismantling		2.1		(0.2	)		1.9
			3.2		(0.2	)		3.0
			5.4		(0.6	)		4.8
Total		$	24.7		(7.0	)		17.7

3.

Accounting Standards

Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets.” Under SFAS No. 142, goodwill and intangible assets that have indefinite useful lives will not be amortized but rather will be tested at least annually for impairment. Intangible assets that have finite useful lives will continue to be amortized over their useful lives. As of December 31, 2001, the Company had goodwill of $115.2 million less accumulated amortization of $26.7 million associated with the specialty chemicals segment and goodwill of $70.8 million less accumulated amortization of $16.2 million associated with the wire and cable segment, for a total of $143.1 million, net. Upon completion of the transitional impairment tests, the implied fair value of goodwill at three of the Company’s international wire and cable reporting units was determined to be less than the reporting units’ carrying amount. The impairment loss recognized upon adoption of SFAS No. 142 was $33.0 million, pre-tax ($22.9 million, after-

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	tax), and has been recognized as a cumulative effect of a change in accounting principle. The pro forma effect of not amortizing goodwill on the first quarter of 2001 would have reduced goodwill amortization expense $1.9 million, increased net income $1.5 million, and increased basic and diluted earnings per share by 2 cents.
	In August 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” This Statement supersedes SFAS No. 121 and the accounting and reporting provisions of Accounting Principles Board (APB) Opinion No. 30, and also amends Accounting Research Bulletin (ARB) No. 51. This Statement requires that one accounting model be used for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired, and will broaden the presentation of discontinued operations to include more disposal transactions. This Statement was adopted by the Company on January 1, 2002, with no significant effect on our financial reporting or disclosures.
	In June 2001, FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” With the adoption of this Statement, retirement obligations will be recognized when they are incurred and displayed as liabilities and the initial measurement will be at fair value. In addition, the asset retirement cost will be capitalized as part of the asset’s carrying value and subsequently allocated to expense over the asset’s useful life. This Statement is required to be adopted by the Company on January 1, 2003. We are in the process of evaluating the effect that SFAS No. 143 will have on our financial reporting and disclosures and are developing procedures to effect its implementation.
4.	Environmental Matters
	As of December 31, 2001, we had a reserve balance of $311.2 million for estimated future costs associated with environmental matters. During the first three months of 2002, we had a $12.1 million increase in the reserve and $4.0 million net spending against that reserve. As of March 31, 2002, the reserve balance was $319.3 million.
	We have contingencies regarding environmental, closure and other matters. For a further discussion of these contingencies, please refer to our Form 10-K for the year ended December 31, 2001, and Note 18 to the consolidated financial statements included therein.
5.	Acquisitions
	In January 2001, Alcoa Aluminio, S.A. exercised a put option that required Phelps Dodge to acquire an additional 40 percent interest in Alcoa Fios e Cabos Electricos, S.A., our wire and cable facility in Brazil, in which we already held a 60 percent interest. The final settlement price of $44.8 million was allocated to goodwill ($13.0 million), fixed assets ($3.2 million), other net assets ($1.3 million) and minority interests in consolidated subsidiaries ($27.3 million).
6.	Contingencies
	Our mining operations are subject to laws and regulations establishing new requirements for mined land reclamation and financial assurance. New Mexico passed a mined land reclamation law in 1993 authorizing regulations that were adopted in 1994. The permitting process for New Mexico mining operations commenced in December 1994. Approval of “closeout plans” describing the reclamation planned for the Chino, Tyrone and Cobre mines currently is due by October 1, 2002. Two New Mexico State agencies currently are reviewing the permit applications for facility closure and reclamation, and one public hearing was held on Chino’s plan to protect water quality in August 2001. A second public hearing was held in February 2002 on the Chino plan to discuss a draft permit proposed jointly by Chino and the New Mexico Environment Department (NMED). The Company is awaiting the hearing officer’s decision. The cost estimate to carry out this plan, including water treatment for 100 years, if needed, is $386 million in current dollars (i.e., on an undiscounted basis). This figure compares to Chino’s previous estimate of approximately $100 million. The final cost estimate is subject to the results of the hearing and any subsequent judicial appeals. Actual reclamation costs may differ significantly from the cost estimate based on a variety of factors including possible changes in legal standards over time and potential cost savings from use of the Company’s own personnel and equipment at each site versus third-party contractor costs (under New Mexico law, financial assurance requirements are calculated based on estimated third-party costs), advances in technology and reclamation techniques, and opportunities to prepare each site for more efficient reclamation through careful development of the site over time. The plan also calls for studies over the next four to five years to refine the plan.

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	The Company is continuing to negotiate with the State regarding the amount of financial assurance required to cover the $386 million cost estimate. Based upon our current understanding of the State’s position, the net present value of the obligation when adjusted to reflect the appropriate escalation and discount rates, is approximately $180 million to $200 million. The final permits are subject to the public hearing process and consideration of public comments, and a portion of the plan will require the issuance of a waiver of certain standards as authorized by the New Mexico Mining Act.
	The Company expects the next hearing on the Tyrone plan in May 2002. In anticipation of the hearing, the State has proposed a plan with a cost estimate of $440 million with a financial assurance estimate based on an adjusted net present value of $267 million. The Company believes the cost estimate, financial assurance requirement, and actual reclamation costs for the Tyrone plan should more appropriately be comparable to the Chino plan and the differences in valuation will be a subject of the upcoming hearing. The initial hearing for the Cobre plan will likely occur in the summer of 2002. The Company expects the cost estimate for the Cobre plan to be approximately $40 million.
	The Company’s accounting policy is to recognize estimated final reclamation costs over the life of active mining properties on a units-of-production basis. Non-operating sites that are currently on care-and-maintenance status suspend accruing mine closure costs until the site resumes production. When management determines a mine should be permanently closed, any unrecognized closure obligation is recognized immediately.
	In September 2000, RAG American Coal Company (RAG) filed a complaint against Cyprus Amax Minerals Company and Amax Energy Inc. (collectively, “Cyprus”). The complaint alleges claims relating to breach of contract, fraud, negligent misrepresentation, and negligence arising from alleged inaccuracies in financial statements relating to the sale by Cyprus of its coal subsidiary to RAG in June 1999. The complaint seeks damages in the amount of $115 million under four different legal theories (breach of contract, fraud, negligent misrepresentation and negligence). On April 18, 2002, the court issued its decision on the motion to dismiss filed by Cyprus. The Court granted Cyprus’ motion to dismiss with respect to the negligent misrepresentation and negligence claims, and denied Cyprus’ motion with respect to the contract and fraud claims.
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 basic common shares outstanding for each of the three-months periods ended March 31, 2002 and 2001, excluded 0.2 million shares, primarily attributable to restricted stock issued to employees. The average number of diluted common shares outstanding for the three-month period ended March 31, 2002, excluded 0.3 million shares for restricted stock and stock options issued to employees and for the three-month period ended March 31, 2001, included 0.3 million shares for restricted stock and stock options issued to employees. 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)

	First Quarter
	2002		2001
Outstanding options		7.5		7.6
Average option price	$	36.49		46.66

8.	Benefit for Taxes on Income
	The Company’s income tax benefit for the 2002 first quarter comprised the following: (i) a $38.5 million tax benefit, recorded as a special item, associated with the carryback of 2001 net operating losses resulting from the March enactment of the Job Creation and Worker Assistance Act of 2002; (ii) a $12.9 million benefit recognized for first quarter 2002 net operating losses that, based on the new tax legislation, may also be carried back to recover prior years’ taxes paid; and (iii) an $11.7 million expense for taxes on earnings at international operations.
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

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market risk. We do not enter into any contracts for speculative purposes. We use various strategies to manage our market risk, including the use of derivative contracts to limit, offset or reduce our market exposure. Derivative instruments are used to manage well-defined commodity price, energy, foreign exchange and interest rate risks from our primary business activities. The fair values of our derivative instruments are based on quoted market prices for similar instruments and on market closing prices at period end. Please refer to the Management’s Discussion and Analysis and Note 19 of Form 10-K for the year ended December 31, 2001, for a discussion on our derivative instruments.

During the first quarter of 2002, we reclassified approximately $3.6 million of other comprehensive losses to earnings, which was principally related to our floating-to-fixed interest rate swaps.

On January 1, 2001, Phelps Dodge adopted SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” (as amended by SFAS No. 137) and SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities.” The implementation resulted in a cumulative reduction to income of $2.0 million (before and after taxes), or 3 cents per share, and a cumulative reduction to other comprehensive income of $7.1 million (before and after taxes).

REVIEW BY INDEPENDENT ACCOUNTANTS

The financial information as of March 31, 2002, and for the three-month periods ended March 31, 2002 and 2001, included in Part I pursuant to Rule 10-01 of Regulation S-X has been reviewed by PricewaterhouseCoopers LLP (PricewaterhouseCoopers), the Company’s independent accountants, in accordance with standards established by the American Institute of Certified Public Accountants. PricewaterhouseCoopers’ report is included in this quarterly report.

PricewaterhouseCoopers does not carry out any significant or additional 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 March 31, 2002, and the related consolidated statements of operations, of cash flows and of common shareholders’ equity for the three-month periods ended March 31, 2002 and March 31, 2001. These financial statements are the responsibility of the Corporation’s management.

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

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

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

/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Phoenix, Arizona
April 19, 2002

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Item 2.   Management’s Discussion and Analysis

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

RESULTS OF OPERATIONS

         Consolidated Results

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

	First Quarter
	2002			2001
Sales and other operating revenues	$	918.5			1,100.7
Operating income before special items	$	3.2			3.5
Operating income	$	7.0			34.4
Net loss before special items	$	(43.9	)		(14.7	)
Net income (loss)	$	(27.7	)		14.2
Loss per common share, basic and diluted, before special items	$	(0.56	)		(0.19	)
Net income (loss) per common share, basic and diluted	$	(0.35	)		0.18

         The Company had a consolidated loss in the 2002 first quarter of $43.9 million, or 56 cents per share, before a net special gain of $16.2 million, or 21 cents per share, after-tax. The net special gain included (i) a $33.0 million pre-tax charge for the cumulative effect of adopting SFAS No. 142 ($22.9 million after-tax, or 29 cents per share); (ii) a $15.9 million pre-tax net gain in recoveries associated with insurance settlements reached with companies on historic environmental liability claims ($13.1 million after-tax, or 16 cents per share); (iii) a $12.1 million (before and after taxes, or 15 cents per share) charge for environmental provisions; (iv) a $0.5 million ($0.4 million after-tax) charge to write-off a cost basis investment; and (v) a $38.5 million, or 49 cents per share, tax benefit associated with 2001 operating losses resulting from the March enactment of the Job Creation and Worker Assistance Act of 2002. (Refer to Notes 2 and 8 to the consolidated financial statements for further discussion of these special items.) By comparison, the loss in the 2001 first quarter was $14.7 million, or 19 cents per common share, before a special net pre-tax gain of $28.9 million ($28.9 million, or 37 cents per share, after-tax). The special net gain consisted of $30.9 million in net insurance recoveries (refer to Note 2) and a cumulative loss of $2.0 million from the adoption of SFAS No. 133 (refer to Note 9).

         The loss in the 2002 first quarter including special items was $27.7 million, or 35 cents per share, compared with 2001 first quarter earnings including special items of $14.2 million, or 18 cents per share.

         The New York Commodity Exchange (COMEX) spot price per pound of copper cathode, primarily upon which we base our U.S. sales, averaged 72 cents in the 2002 first quarter, compared with 82 cents in the corresponding 2001 period. The London Metal Exchange (LME) spot price per pound of copper cathode, primarily upon which we base our international sales, averaged 71 cents in the 2002 first quarter, compared with 80 cents in the corresponding 2001 period.

         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 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 March 31, 2002.

         Quest for Zero Operational Improvement Program

         In May 2001, Phelps Dodge commenced Quest for Zero, our company-wide, comprehensive, lean-production program designed to deliver $400 million of annual operating income improvements by the end of 2003. During the 2002 first quarter, we achieved $44 million in improvements, bringing the total to $99 million since the program was announced. Phelps Dodge Mining Company is pursuing aggressively its Quest for Zero target of all-in 60 cents per pound implied unit cost of copper production by the end of 2003. This target is the heart of our Quest for

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Zero program, and should enhance the tremendous leverage we have to rising copper prices.

         Business Segments

         Results for 2002 and 2001 can be meaningfully compared by separate reference to our reporting divisions, Phelps Dodge Mining Company and Phelps Dodge Industries. Phelps Dodge Mining Company is a business segment that includes our worldwide copper operations from mining through rod production, marketing and sales; molybdenum operations from mining through manufacturing, marketing and sales; other mining operations and investments; and worldwide mineral exploration and development programs. Phelps Dodge Industries includes our specialty chemicals segment and our wire and cable segment.

RESULTS OF PHELPS DODGE MINING COMPANY

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

(Unaudited)

		First Quarter
		2002		2001
Copper production (thousand short tons):
	Total production		321.9		359.2
	Less minority participants’ shares (A)		64.7		65.0
	Net Phelps Dodge share		257.2		294.2
Copper sales (thousand short tons):
	Net Phelps Dodge share from own mines		268.5		289.7
	Purchased copper		112.2		113.8
	Total copper sales		380.7		403.5
LME average spot copper price per pound — cathodes		$	0.71		0.80
COMEX average spot copper price per pound — cathodes		$	0.72		0.82
Implied full unit cost of copper production (B)		$	0.69		0.81
Implied cash unit cost of copper production (B)		$	0.53		0.65
Molybdenum production (million pounds)			10.6		14.7
Molybdenum sales (million pounds):
	Net Phelps Dodge share from own mines		12.8		15.0
	Purchased molybdenum		2.6		0.1
			15.4		15.1
Metals Week:
Molybdenum oxide price per pound		$	2.74		2.25
($ in millions)
Sales and other operating revenues to unaffiliated customers		$	611.7		726.5
Operating income (loss) (C)		$	21.3		(5.1	)

(A)	Minority participant interests include (i) a 15 percent undivided interest in Morenci, Arizona, copper mining complex held by Sumitomo Metal Mining Arizona, Inc., (ii) a one-third partnership interest in Chino Mines Company in New Mexico held by Heisei Minerals Corporation, (iii) a 20 percent interest in Candelaria in Chile held by SMMA Candelaria, Inc., a jointly owned indirect subsidiary of Sumitomo Metal Mining Co., Ltd., and Sumitomo Corporation, and (iv) a 49 percent interest in the El Abra copper mining operation in Chile held by Corporación Nacional del Cobre de Chile (CODELCO).
(B)	Implied full unit cost of copper production is based on PDMC’s all-in operating margin per pound of copper sold (i.e., PDMC operating income (loss) before special items, divided by pounds of PD-mined copper sold, plus or minus the LME copper price). Implied cash unit cost of copper production excludes PDMC’s segment depreciation, depletion and amortization and copper mine closure expense, from its all-in operating margin in the above calculation.
(C)	Includes a special, pre-tax gain of $13.8 million in the 2002 first quarter for recoveries associated with settlements reached with insurance companies on historic environmental liability claims. Refer to Note 2.

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         PDMC — Sales

         In the 2002 first quarter, PDMC’s sales and other operating revenues to unaffiliated customers decreased by $114.8 million, or 16 percent, compared with the corresponding 2001 period. The variance primarily reflected lower copper prices and lower PD-mined sales volumes.

         PDMC — Operating Income (Loss)

         PDMC reported operating income of $7.5 million in the 2002 first quarter before a special, net pre-tax gain of $13.8 million, compared with an operating loss of $5.1 million in the corresponding 2001 period. This increase primarily reflected a lower implied unit cost of copper production ($63 million), partially offset by lower copper prices ($51 million) and slightly lower sales volumes of PD-mined copper.

         The 2002 first quarter included a special, net pre-tax gain of $13.8 million for recoveries associated with settlements reached with insurance companies on historic environmental liability claims.

         In the 2002 first quarter, the implied unit cost of copper production, both full and cash, decreased by 12 cents per pound to 69 cents and 53 cents per pound, respectively, compared with the corresponding 2001 quarter despite the inefficiencies associated with the production curtailments initiated at the beginning of the quarter. Approximately one-half of the cost improvement was due to lower energy costs. The other half was due to full operation of the Morenci mine-for-leach process and general operational improvements associated with the Company’s Quest for Zero program.

         Energy, including electricity, diesel fuel and natural gas, represents a significant portion of the production costs for our operations. During the first quarter of 2001, our Arizona and New Mexico operations were affected adversely by significantly higher costs for all three. In response, the Company implemented a power cost stabilization plan in March 2001. As a result, in the 2002 first quarter Phelps Dodge was able to reduce and mitigate the impacts of volatile electricity markets, diesel fuel and natural gas prices.

         PDMC — Other Matters

         On February 6, 2002, we announced that our Bagdad mine will begin construction in the 2002 second quarter of a $40 million copper concentrate leaching demonstration plant that is designed to recover commercial-grade copper cathode from chalcopyrite concentrates. It is expected to begin operating during the first half of 2003. At full capacity, it is expected to produce 35 million pounds of copper cathode from concentrate annually. If successful, this technique could assist in our long-term cost reduction strategy.

RESULTS OF PHELPS DODGE INDUSTRIES

         Phelps Dodge Industries (PDI), our manufacturing division, produces engineered products principally for the global energy, telecommunications, transportation and specialty chemicals sectors. Its operations are characterized by products with significant market share, internationally competitive cost and quality, and specialized engineering capabilities. The manufacturing division includes our specialty chemicals segment and our wire and cable segment. Our specialty chemicals segment includes Columbian Chemicals Company and its subsidiaries (Columbian Chemicals or Columbian). Our wire and cable segment consists of three worldwide product line businesses including magnet wire, energy and telecommunications cables, and specialty conductors.

(Unaudited; $ in millions)

		First Quarter
		2002		2001
Sales and other operating revenues to unaffiliated customers:
	Specialty chemicals	$	129.3		161.5
	Wire and cable		177.5		212.7
		$	306.8		374.2
Operating income:
	Specialty chemicals	$	13.2		20.2
	Wire and cable		2.8		6.5
		$	16.0		26.7

         PDI — Sales

         PDI reported sales to unaffiliated customers of $306.8 million in the 2002 first quarter, compared with sales of $374.2 million in the corresponding 2001 period. The decrease of 20 percent in specialty chemicals sales was the result of lower average unit selling prices and lower sales volumes. The decrease of 17 percent in wire and cable sales was primarily the result of lower sales volumes due to continued economic weakness principally in the United States.

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         PDI — Operating Income

         PDI reported 2002 first quarter operating income of $16.0 million, compared with $26.7 million in the 2001 first quarter. The decrease was primarily due to the weak economic conditions globally. This resulted in lower sales volumes in the specialty chemicals segment and additional softness in the U.S. aerospace market for the wire and cable segment.

OTHER MATTERS RELATING TO THE STATEMENT OF CONSOLIDATED OPERATIONS

         Depreciation, Depletion and Amortization Expense

         Depreciation, depletion and amortization expense was $105.6 million in the 2002 first quarter, compared with $116.5 million in the corresponding 2001 period. The decrease was primarily due to the temporary shutdowns and production curtailments at PDMC and the $1.9 million reduction of goodwill amortization expense at PDI resulting from the adoption of SFAS No. 142.

         Exploration and Research and Development Expense

         Our exploration and research expense was $8.7 million in the 2002 first quarter, a decrease of $6.1 million from the corresponding period in 2001. The decrease primarily resulted from lower spending at most of our locations and the absence of expenditures at the Sossego joint venture in Brazil, which was sold in October 2001.

         Benefit for Taxes on Income

         The Company’s income tax benefit for the 2002 first quarter comprised the following: (i) a $38.5 million tax benefit, recorded as a special item, associated with the carryback of 2001 net operating losses resulting from the March enactment of the Job Creation and Worker Assistance Act of 2002; (ii) a $12.9 million benefit recognized for the first quarter 2002 net operating losses that, based on the new tax legislation, may also be carried back to recover prior years’ taxes paid; and (iii) an $11.7 million expense for taxes on earnings at international operations.

CHANGES IN FINANCIAL CONDITION

         Working Capital

         During the 2002 first quarter, net working capital balances (excluding cash and cash equivalents and debt) increased $43.1 million. This increase resulted primarily from:

• a $41.2 million increase in accounts receivable primarily due to a $51.4 million increase associated with the tax benefit to carryback the 2001 and the 2002 first quarter net operating losses resulting from the March enactment of the Job Creation and Worker Assistance Act of 2002 (refer to Note 8), partially offset by $11 million of collections for environmental insurance recoveries;

• a $39.8 million decrease in inventories and supplies primarily due to a $34.7 million decrease in copper, gold and molybdenum inventories at mining operations and a $5.5 million decrease at PDI primarily associated with seasonally high levels of inventory at year-end 2001;

• a $10.1 million increase in prepaid expenses and other current assets primarily due to the prepayment of insurance premiums that will be amortized over the remaining portion of the year; and

• a $32.9 million decrease in accounts payable and accrued expenses primarily due to the production curtailments, shutdown of facilities, staff reductions and payments of environmental costs, partially offset by a $43.3 million increase in interest payable associated with debt for which semi-annual payments are made in the second and fourth quarters.

         Debt

         At March 31, 2002, our total debt was $2,831.0 million, compared with $2,851.0 million at year-end 2001. Our ratio of debt to total capitalization was 50.8 percent at March 31, 2002 and December 31, 2001. On April 1, 2002, the Company paid the $150 million of principal on its 10.125 percent notes then due from cash on hand.

         As of March 31, 2002, the Company had no borrowings against its $1 billion revolving credit facility which is available, provided compliance with the

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covenant requirements, until its scheduled maturity on May 10, 2005.

         On April 15, 2002, Standard and Poor’s confirmed its BBB– credit rating on our senior debt, but will continue to assess our credit rating based on the economic environment in the 2002 second half.

         Capital Expenditures and Investments

         Capital expenditures and investments during the 2002 first quarter were $17.4 million for PDMC, $3.7 million for PDI and $1.7 million for Corporate and other. Capital expenditures and investments in the corresponding 2001 period were $63.9 million for PDMC, $53.2 million for PDI (including $44.8 million for the contractually obligated acquisition of the remaining 40 percent minority share of our wire and cable manufacturing operation in Brazil — refer to Note 5) and $6.4 million for Corporate and other. We expect capital expenditures and investments for the year 2002 to be approximately $185 million, including $130 million for PDMC, approximately $45 million for PDI, and approximately $10 million for Corporate and other. These capital expenditures and investments are expected to be funded primarily from operating cash flows and cash reserves.

         Dividends

         Due to economic conditions and continuing unsatisfactory copper prices, the Company eliminated the dividend on its common shares in the fourth quarter of 2001. Accordingly, there were no dividends declared or paid in the 2002 first quarter.

         Other Matters

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

Part II.   Other Information

Item 1.   Legal Proceedings

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

         On April 18, 2002, the court issued its decision on the motion to dismiss filed by Cyprus Amax Minerals Company and Amax Energy Inc. (collectively, “Cyprus”). The Court granted Cyprus’ motion to dismiss with respect to the negligent misrepresentation and negligence claims, and denied Cyprus’ motion with respect to the contract and fraud claims.

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 by us during the quarter ended March 31, 2002.

Signatures

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

PHELPS DODGE CORPORATION
(Corporation or Registrant)

Date: May 14, 2002	By:	/s/ Stanton K. Rideout
		Stanton K. Rideout Vice President and Controller (Principal Accounting Officer)

Index to Exhibits

10.14	Retirement Agreement, dated March 6, 2002, between the Company and Manuel J. Iraola (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.

EX-10.14 3 p66572ex10-14.txt EX-10.14 Exhibit 10.14 RETIREMENT AGREEMENT This Retirement Agreement ("Agreement") is entered into by and between Phelps Dodge Corporation ("Company") and Manuel J. Iraola ("Iraola"). This Agreement is entered into in order to (i) provide Iraola with special pay and benefits upon his retirement from the Company, the payment of which shall be contingent on Iraola executing a waiver and general release on or after his retirement date with the Company; and (ii) resolve all matters relating to Iraola's retirement from the Company. The Company and Iraola, therefore, agree as follows: 1. Company previously announced its intentions to consider various strategic options with respect to Phelps Dodge Industries ("PDI") (the "Strategic Options"). After carefully evaluating those options Company has determined that at the present time it will discontinue the process of soliciting Strategic Option proposals with respect to PDI. Based on these circumstances and Iraola's expressed desire to spend more time on personal matters, Iraola has elected to retire from the Company on June 30, 2002 (the "Retirement Date"). As of the Retirement Date, Iraola will resign from all positions he holds with the Company, and, as may be applicable, with each of the Company's subsidiaries and affiliated entities. At the request of the Company, Iraola agrees to execute any documents to effectuate or to facilitate his resignations. Iraola acknowledges and agrees that all of the special benefits he will receive under this Agreement are specifically contingent on him executing a waiver and general release agreement, and otherwise meeting his obligations under this Agreement. In addition, Iraola agrees that the benefits provided under this Agreement are in lieu of any and all benefits he may have been entitled to under the terms and conditions of that certain Severance Agreement entered into by and between Iraola and the Company dated October 27, 1997 ("Severance Agreement"). Iraola acknowledges and agrees that upon the effective date of this Agreement (as set forth in Paragraph 19 below), the Severance Agreement will terminate and that neither he nor the Company will have any further rights or obligations under that agreement. 2. Iraola agrees that until his Retirement Date he will continue to carry out his duties for the Company faithfully, industriously, and to the best of his ability, experience, and talents, and that he will otherwise perform his duties and responsibilities to the reasonable satisfaction of the Company. Except as otherwise modified by Paragraph 7 of this Agreement, between the execution date of this Agreement (as set forth below) and the Retirement Date, Iraola will be entitled to receive any salary increases, and stock option grants, to which he may be entitled based on his service and performance and as are consistent with Company's consistently applied plans, policies and procedures for similarly situated AICP participants. 3. The Company will pay Iraola a special payment in the gross amount of $859,947.50. In addition, the gross amount of this payment is subject to further adjustment, either as an increase or decrease, based on the actual Fair Market Value, as of the Retirement Date, of the 2,500 Iraola Agreement Page 2 shares of Restricted Stock referenced in Paragraph 8 below. To the extent the Fair Market value of the 2,500 shares of Restricted Stock is greater than $137,500.00, then the gross amount of this special payment will be decreased from the $859,947.50 amount set forth above in an amount equal to the excess. [EXAMPLE: If as of the Retirement Date, the Fair Market Value of the 2,500 Restricted Shares is $138,750 then the gross amount of this special payment will be reduced by $1,250.00 ($138,750 - $137,500 = $1,250.00). In this example this would result in the gross amount of the special payment being $858,697.50 ($859,947.50 - $1,250 = $858,697.50).] To the extent the Fair Market Value of the 2,500 shares of Restricted Stock is less than $137,500.00, then the gross amount of the special payment will be increased from the $859,947.50 amount set forth above in an amount equal to the shortfall. [EXAMPLE: If as of the Retirement Date, the Fair Market Value of the 2,500 Restricted Shares is $136,250 then the gross amount of this special payment will be increased by $1,250.00 ($137,500 - $136,250 = $1,250.00). In this example this would result in the gross amount of the special payment being $861,197.50 ($859,947.50 + $1,250 = $861,197.50).] All necessary taxes and withholdings will be deducted from this amount. This special payment will be paid to Iraola within 15 calendar days after his Retirement Date or the effective date of that certain Waiver and Release Agreement ("Waiver and Release") described in Paragraph 19 below, whichever is later. 4. Until Iraola reaches age 65, and subject to him making those contributions, if any, required of employees to participate in the Company's medical and dental plans for active employees, Iraola and his eligible dependents will be eligible to participate in the similar group health and dental plans sponsored by the Company ("Similar Active Plan"). At age 65, Iraola may elect, for himself and his eligible dependents, to continue participation in a group medical plan sponsored by Company, which is similar to the Company's retiree medical plan then in effect (if the Company continues such a plan for retirees) ("Similar Retiree Plan"), and subject to any changes in the retiree medical plan that may be adopted from time to time. Any election to participate in the Similar Retiree Plan is subject to Iraola making the required payments to participate in the plan. Iraola's cost to participate in the Similar Retiree Plan shall be determined by the provisions and costs of the applicable retiree medical plan in which he would have participated had he remained in the employ of the Company until such time as he reached age 65. To the extent Iraola, prior to age 65, is required to make contributions to the Similar Active Plan, Company will notify him in writing of his obligation to do so and the amount of the monthly contribution. Company and Iraola agree that should Iraola predecease his spouse, she may continue to participate in the similar plans contemplated by this Paragraph 4. Iraola, upon his retirement, will have all of the rights to which he is entitled under COBRA, including the election of up to 18 months of continuation coverage for himself, his spouse, and eligible dependents. To obtain his COBRA continuation coverage he must elect such coverage in accordance with the election notices provided to him and he must be eligible for the coverage elected under the rules of COBRA. Iraola will be responsible for making the monthly premium payments required for any elected COBRA continuation coverage and the cost of any other benefits he desires to continue. Iraola Agreement Page 3 5. Until Iraola reaches age 55, the Company will provide him with a special, nonqualified monthly retirement benefit of $24,000.00, subject to all applicable tax and other withholdings. When Iraola reaches age 55 he will retire under the Phelps Dodge Retirement Plan and he will receive the qualified monthly retirement benefit to which he is entitled under that plan. In addition, he will receive a special, nonqualified monthly retirement benefit in an amount sufficient to bring his combined qualified and nonqualified monthly retirement benefit after age 55 to $24,000.00, subject to all applicable tax and other withholdings. (The retirement benefit amounts set forth in this Paragraph have been calculated on the basis of a single life annuity. Should Iraola elect a payment option other than as a single life annuity this monthly amount will be reduced in accordance with the applicable provisions of the Phelps Dodge Retirement Plan.) Monthly payment of this special, nonqualified monthly retirement benefit will begin the month following Iraola's Retirement Date or the effective date of the Waiver and Release, whichever is later. 6. In accordance with the terms of the Annual Incentive Compensation Plan ("AICP"), Iraola shall receive an AICP payment for the calendar year in which his Retirement Date occurs. This payment will be calculated based upon Iraola's salary earned through his Retirement Date, the actual performance level of the Company and Phelps Dodge Industries, and the target performance level for Iraola's support goals. This AICP payment will be paid to Iraola in the calendar year following the year in which his Retirement Date occurs at the same time that the AICP payments are made to other AICP eligible individuals. Any AICP payment made under this Paragraph 6 shall be subject to all applicable tax and other withholdings. 7. In accordance with the Phelps Dodge 1998 Stock Option and Restricted Stock Plan, as amended ("Restricted Stock Plan") and notwithstanding Iraola's election to retire as of the Retirement Date, each of Iraola's currently outstanding stock options that is exercisable as of his Retirement Date will remain exercisable until the earlier of the option's expiration date or one month after his Retirement Date. Any of his exercisable options that are not exercised as of the date specified above will terminate, and any of his outstanding stock options that are not exercisable as of his Retirement Date will terminate on that date (collectively, the "Cancelled Options"). To compensate Iraola for the loss of value associated with his Cancelled Options, the Company hereby grants to him a number of stock appreciation units (the "Units") equal to the number of Cancelled Options. The "Expiration Date" of the particular Units shall be the earlier of the expiration dates of the Cancelled Options that were the basis for the issuance of the particular Units or five years after his Retirement Date ("Retirement Date + 5"). At any time prior to the occurrence of an Expiration Date, Iraola may notify the Company of his desire to "exercise" all or part of the Units. Any Units that he does not exercise as of the Expiration Date for the applicable Units will be deemed to be exercised for him on the applicable Expiration Date. Each such Unit shall entitle Iraola to receive, upon the exercise thereof, a lump-sum cash payment, less any required tax withholdings, equal to the excess, if any, of (i) the Fair Market Value (as defined below) of a Common Share on the date of exercise over (ii) the Base Value (as defined below) for such Unit. For purposes of this Agreement: Iraola Agreement Page 4 The "Base Value" of each Unit shall be an amount equal to the per share exercise price of the Cancelled Option to which such Unit corresponds. Because he has more than one Option Agreement, the Base Value of his Units will vary as shown in the following table:

--------------------------------------------------- Units Base Value Expiration Date --------------------------------------------------- 6,567 $47.1250 December 2, 2002 15,000 $57.8750 December 7, 2004 15,000 $53.1250 February 1, 2005 35,000 $67.3750 December 6, 2005 30,000 $71.6250 December 4, 2006 4,933 $82.1250 December 1, 2003 32,000 $65.3750 June 30, 2007 4,204 $66.5000 December 2, 2002 3,210 $66.5000 December 1, 2003 45,000 $55.2500 June 30, 2007 63,000 $51.8125 June 30, 2007 60,000 $51.9375 June 30, 2007 55,000 $34.6700 June 30, 2007

The "Fair Market Value" of a Common Share on any date shall mean the mean of the high and low prices thereof on such date as reported on the New York Stock Exchange Consolidated Trading Tape (or if there are no reported trades on such date, on the next preceding day on which such trades are reported). If the Base Value for a Unit exceeds the Fair Market Value, the value of the Unit will be zero. Iraola may exercise his Units by written notice to the Company (which shall be delivered to the attention of Manager - Executive Compensation, Phelps Dodge Corporation, One North Central Avenue, Phoenix, Arizona 85004), specifically identifying the Unit being exercised and the date as of which such Unit is to be exercised (which may not be earlier than the date of such notice). A Unit does not entitle Iraola to receive shares of the Company's stock as a result of an exercise. Rather, the Company will only pay him in cash any difference between the Fair Market Value and the Base Value of a Unit, less any required tax withholdings. Iraola acknowledges that Company may take action that reprices or otherwise affects the price of the stock options of those individuals participating in the Restricted Stock Plan Iraola Agreement Page 5 ("Repricing Action"). Company agrees that if such action materially affects the Base Value of the Units prior to the their respective Expiration Date, it will take such action with respect to those Units, for which the Expiration Date has not passed, consistent with the affect that the Repricing Action had on the outstanding stock options of those individuals participating in the Restricted Stock Plan. Iraola understands that the Company is considering whether it is appropriate for the Company to adopt a plan or program (which may include an amendment to the Restricted Stock Plan), that may allow participants in the Restricted Stock Plan to possibly exchange certain of their current exercisable stock options for restricted stock of the Company (the "Exchange Program"). Iraola understands that the Company has made no final determination on whether it may adopt any such Exchange Program and that this Agreement has been negotiated based on certain specific terms of understanding between the parties, which are not speculative. Iraola also understands that those terms of understanding did not include the consideration of any speculative economic value that may be related to any Exchange Program that may be under consideration by the Company, and that the consideration of any such speculative economic benefit for purposes of this Agreement would directly affect the other terms and conditions of this Agreement. Therefore, Company and Iraola acknowledge and agree that, notwithstanding any other provision of this Agreement or any of the terms and conditions that may be included in any Exchange Program that may be adopted by Company (if any), Iraola will not be entitled to participate in any manner in any such Exchange Program if adopted. Company and Iraola acknowledge and agree that, should the Company eventually determine that it is appropriate to adopt any such Exchange Program, such action shall not be deemed to be a Repricing Action for purposes of this Agreement and as defined above. 8. In accordance with the terms and conditions of the Restricted Stock Plan and notwithstanding his election to retire as of the Retirement Date, Iraola's 2,500 shares of Restricted Stock (as that term is defined in the Restricted Stock Plan) will revert to the Company on the Retirement Date. To compensate Iraola for the value of this Restricted Stock, Company agrees to pay Iraola a cash amount equal to the Fair Market Value (as that phrase is defined in Paragraph 7 above) of these 2,500 shares of Restricted Stock as of his Retirement Date. Iraola acknowledges and agrees that this payment will be subject to all applicable tax and other withholdings. This payment will be made to Iraola within 15 calendar days after his Retirement Date or the effective date of the Waiver and Release, whichever is later. 9. The Company will, at its cost, provide Iraola with a reasonable amount of the services of AYCO Corporation through April 15 of the calendar year following Iraola's Retirement Date. The services of AYCO will be provided to Iraola under the same conditions and at the same level as those services are provided to similarly situated active employees of the Company during that time. 10. The Company will provide Iraola with sufficient payments to fund an ELIP death benefit equal to one-times his annual base salary. These payments will be as required following his Retirement Date and shall be reduced by required tax and other withholdings. Iraola Agreement Page 6 11. Company will make a special cash payment to Iraola with respect to his contributions to the Strategic Options process in the gross amount of $532,000. This cash payment amount will be subject to all applicable tax and other withholdings and will be paid to Iraola in the same manner as the payment described in Paragraph 3 above. 12. Iraola shall deliver to the Company (a) any and all documents, materials, files, or computer files, or copies, reproductions, duplicates, transcriptions, or replicas thereof, relating to the Company's business or affairs, which are in Iraola's possession or control, or of which Iraola is aware, and (b) any and all documents, materials, files, computer files or copies, reproductions, duplicates, transcriptions or replicas thereof, which are in Iraola's possession or control, or of which Iraola is aware, belonging to the Company or any other affiliated entities. Iraola will make a diligent search for such documents, materials, files, computer files and other property. Iraola will deliver these items to the Company by his Retirement Date. 13. Iraola agrees that during the course of his employment with the Company, he had access to confidential and proprietary information concerning the Company including but not limited to such matters as the Company's trade secrets, strategic plans, financial data, programs (including, without limitation, the Company's computer software programs), procedures, manuals, confidential reports and communications, lists of customers, sources of supply, patents, and new technology developments. That information was disclosed to Iraola in confidence and solely for use by or on behalf of the Company. Iraola has no ownership right or interest in that confidential and proprietary information. Iraola agrees that he will keep that information confidential at all times after his employment, and that he will not, directly or indirectly, disclose, divulge, reveal, report, publish, transfer, or use, for any purpose whatsoever, that information on his own behalf or on behalf of any other person or entity. This obligation is in addition to any other obligation that Iraola, by virtue of his position with the Company, may have under the applicable law to not disclose confidential, trade secret, or proprietary information of the Company. 14. Iraola acknowledges that all of the following information and materials are "Protected Information" belonging to the Company and shall be subject to the provisions of Paragraph 13 of this Agreement and shall be kept strictly confidential, even if not physically marked as such: a. Production processes, strategic plans, marketing techniques and arrangements, mailing lists, purchasing information, pricing policies, quoting procedures, financial information, customer and prospect names and requirements, employee, customer, supplier and distributor data, and other materials and information relating to the Company's business and activities and the manner in which the Company does business; b. Discoveries, concepts, and ideas including, without limitation, the nature and Iraola Agreement Page 7 results of research and development activities, processes, formulas, inventions, equipment or technology, techniques, "know-how," designs, drawings and specifications, and patent applications; c. Any other materials or information related to the Company's business or activities which are not generally known to others engaged in similar businesses or activities and which are not in the public domain; and d. All ideas which are derived from or relate to Iraola's access to or knowledge of any of the above enumerated materials and information. 15. Iraola acknowledges that in the course of his employment with the Company, he has had direct or indirect contact with the Company's existing and prospective customers and others having business dealings with the Company and has thereby had the opportunity to meet and develop, on the Company's behalf, goodwill and working relationships with those persons, firms, or entities. Iraola acknowledges that such goodwill and relationships are valuable assets of the Company, and he understands and agrees that, because of the nature of the Company's business, it is necessary to afford fair protection to the Company for those assets. Therefore, Iraola covenants and agrees that, for the period beginning on the date of this Agreement and ending two (2) years after his Retirement Date, he shall not compete with the business of the Company by: (i) engaging in the business of copper mining; molybdenum mining; the milling, smelting, or refining of copper or molybdenum; the producing of copper rod or molybdenum products; energy wire and cable; magnet wire; high performance conductor; or carbon black, whether international or domestic, whether as a proprietor, partner, co-venturer, director, officer, employer, employee, servant, agent, or representative of an operation engaging in such business; (ii) soliciting, directly or indirectly, any existing or prospective customer of the Company with whom he has gained significant business contacts while employed by the Company; (iii) advising, directly or indirectly, any existing or prospective customer of the Company with whom he has gained significant business contacts while employed by the Company, to withdraw, curtail, or cancel business or negotiations with the Company; or (iv) serving as a consultant or contractor to any entity engaged in the business of copper mining; molybdenum mining; the milling, smelting, refining of copper or molybdenum; the producing of copper rod or molybdenum products; energy wire and cable; magnet wire; high performance conductor; or carbon black, whether international or domestic. Iraola acknowledges and agrees that the geographic scope of this provision has not been limited because the Company's business and customers are worldwide and the Company has a legitimate, protectible business interest in its goodwill and relationships with its customers in preventing the solicitation of its customers regardless of the geographical location of its customers or where Iraola is employed. Company and Iraola acknowledge that in the event of the closing of a Strategic Option, the entity entering into that transaction with Company may request that Iraola consult with it on a periodic basis with respect to the continued operations of the business. In the event Iraola wishes to provide such services, Iraola agrees to submit a written request to Company asking for a waiver of the provisions of Iraola Agreement Page 8 this Paragraph. This request will include a full disclosure of the facts related to the consulting opportunity for which he is seeking a waiver. The granting of any waiver contemplated by this Paragraph shall be at Company's sole discretion; provided, however, that the granting of any such waiver by Company shall not be unreasonably withheld. Notwithstanding any other provision of this Paragraph 15 to the contrary, Company and Iraola agree that in the event of a Change of Control (as defined in Paragraph 26 below) occurring after the effective date of this Agreement, Iraola shall not be bound by any of the non-compete provisions of this Paragraph 15. 16. Iraola acknowledges that the Company's employees are an integral part of the Company's business, and he understands and agrees that, because of the nature of the Company's business, it is necessary to afford fair protection to the Company from the loss of any such employees. Therefore, Iraola agrees that, for the period beginning on his Retirement Date and ending two years after his Retirement Date, he shall not, directly or indirectly, hire or engage, or attempt to hire or engage any individual who shall have been an employee of the Company at any time during the one-year period before the date of this Agreement, whether for or on his behalf or for any entity in which he shall have a direct or indirect interest (or any subsidiary or affiliate of any such entity), whether as a proprietor, partner, co-venturer, financier, investor or stockholder, director, officer, employer, employee, servant, agent, representative, or otherwise. Any failure by Iraola to comply with this provision, after receiving written notice from Company of any violation, or potential violation, of this provision and giving Iraola a reasonable opportunity to correct any such violation (not to exceed 15 days), shall constitute a material breach of this Agreement and shall entitle the Company to full reimbursement of the pay and benefits he received pursuant to this Agreement, in addition to any other damages and relief to which the Company may be entitled. Notwithstanding any other provision of this Paragraph 16 to the contrary, Company and Iraola agree that in the event of a Change of Control (as defined in Paragraph 26 below) occurring after the effective date of this Agreement, Iraola shall not be bound by any of the prohibitions on hiring set forth in this Paragraph 16. 17. Iraola understands that the special pay and benefits he will receive by this Agreement are not required by the Company's policies. Iraola also understands that if he and the Company had not entered into this Agreement, and do not enter into the contemplated Waiver and Release, he will not receive the special pay and benefits set forth in this Agreement. Iraola and the Company agree that the fact that they are making this Agreement and the Agreement and General release does not mean that the Company had any obligation or liability to Iraola. 18. Iraola will keep this Agreement confidential. He will only talk about it with his immediate family, his attorney, and his accountant or tax and financial advisor, and they will not discuss it with anyone else. 19. Company and Iraola acknowledge and agree that this Agreement, and the obligations of the parties pursuant to this Agreement, shall not become effective unless and until such time as Iraola Agreement Page 9 Company and Iraola execute and deliver the Waiver and Release contemplated by this Agreement, and the Waiver and Release becomes effective pursuant to its terms and conditions. Company and Iraola agree that this Waiver and Release will not be executed by the parties until his Retirement Date or thereafter. This Waiver and Release shall be in substantially such form as is attached hereto as Exhibit 1. Company and Iraola acknowledge and agree that this Agreement will not become effective should he die after execution of this Agreement, but before his Retirement Date and this Agreement becomes effective as described above. Accordingly, in the event of such death no benefits will be paid under this Agreement to any person or entity, including his estate, spouse, beneficiaries, heirs, executors, or personal administrators. 20. This Agreement may not be changed orally, but only by a written agreement signed by Iraola and the Company. 21. Iraola understands and agrees that the Company will suffer irreparable harm in the event that he breaches any of his obligations under this Agreement and that monetary damages will be inadequate to compensate the Company for such breach. Accordingly, Iraola agrees that, in the event of his breach or threatened breach of any of the provisions of this Agreement, the Company, after providing Iraola written notice of any breach or threatened breach of this Agreement and giving Iraola a reasonable period of time to correct any such breach or threatened breach (not to exceed 15 days), in addition to and not in limitation of any other rights, remedies, or damages available to the Company at law or in equity, shall be entitled to a temporary restraining order, preliminary injunction, and permanent injunction in order to prevent or to restrain any such breach by Iraola or by any or all of his partners, co-venturers, employers, employees, servants, agents, representatives, and any and all persons directly or indirectly acting for, or on behalf of, or with him. The Company may seek such relief pursuant to a court action notwithstanding the arbitration provision set forth in Paragraph 24 of this Agreement. 22. The provisions of this Agreement are severable. This means that if any provision is invalid, it will not affect the validity of the other provisions. If the scope of any restrictions of this Agreement should ever be deemed to exceed that permitted by applicable law or be otherwise overbroad, Iraola agrees that a court of competent jurisdiction shall enforce that restriction to the maximum scope permitted by law under the circumstances. 23. The laws of the State of Arizona will apply to this Agreement. 24. Any disputes arising in connection with this Agreement, other than disputes arising under Paragraphs 13, 14, 15, 16, 17, and 24 shall be resolved by binding arbitration in accordance with the rules and procedures of the American Arbitration Association. Judgment upon any award rendered by the arbitrator may be entered in any court having jurisdiction of this matter. Costs of the arbitration shall be borne equally by the parties. Unless the arbitrator otherwise determines, the party that does not prevail in any such action shall reimburse the Iraola Agreement Page 10 other party for his or its reasonable attorneys' fees incurred with respect to such arbitration. 25. This agreement supercedes and replaces all prior discussions, understandings, and agreements between the parties, whether oral or written, and contains the entire agreement between them on the matters herein contained. 26. Iraola acknowledges that he has entered in to that certain Change of Control Agreement dated January 16, 1999 ("Change of Control Agreement"), by which he will receive certain benefits and payments in the event of a change of control as that term is defined in that agreement (a "Change of Control"). Iraola understands and agrees that it is the intent of the parties to this Agreement that he shall not be entitled to receive, and the Company shall not be obligated to pay, benefits and payments under both this Agreement and his Change of Control Agreement. Therefore, Company and Iraola agree that upon the effective date of this Agreement (as described in Paragraph 19 above), his Change of Control Agreement shall terminate, be of no further force and effect, and the Company shall have no further obligation to pay him any amounts under his Change of Control Agreement. In the event of a Change of Control prior to the effective date of this Agreement (as described in Paragraph 19 above), Company and Iraola acknowledge and agree that this Agreement shall be immediately terminated on such Change of Control, be of no further force and effect, and Company shall have no obligation to pay him any of the special pay and benefits provided by this Agreement. Company, by and through its duly authorized representative, and Iraola have executed this Agreement on the 6 day of March, 2002. Manuel J. Iraola Phelps Dodge Corporation --------------------------- --------------------------- David L. Pulatie Senior Vice President, Human Resources EXHIBIT 1 WAIVER AND RELEASE AGREEMENT This Waiver and Release Agreement ("Agreement") is entered into by and between Phelps Dodge Corporation ("Company") and Manuel J. Iraola ("Iraola"). This Agreement is entered into for the purpose of providing Company with protection against any claims by Iraola. WHEREAS, Company and Iraola have entered into that certain Retirement Agreement, dated ______________, 2002; and WHEREAS, among other things, the Retirement Agreement provides that Company will pay Iraola certain special pay and benefits as a result of Iraola's retirement from the Company; and WHEREAS, pursuant to the terms and conditions of the Retirement Agreement, the Company's payment of any such special pay and benefits to Iraola, and all other obligations of the parties under the Retirement Agreement, are specifically contingent on Company and Iraola executing and delivering this Agreement. NOW THEREFORE, in consideration of the obligations set forth in the Retirement Agreement, the payment of the special pay and benefits described therein, and such other good and valuable consideration, the adequacy and sufficiency of which are hereby acknowledged by the parties, Company and Iraola agree as follows: 1. Consideration for Agreement. Iraola acknowledges and agrees that the payment of the special pay and benefits as provided for under the terms and conditions of the Retirement Agreement are fair and adequate consideration for this waiver, release, agreement not to sue, and other obligations of Iraola under this Agreement. Iraola acknowledges and agrees that the special pay and benefits to be provided under the terms and conditions of the Retirement Agreement are not required by Company policy and that Iraola is not otherwise entitled to the receipt of any such special pay and benefits. 2. Waiver and Release. Iraola agrees not to bring any suit or claim against the Company or any of its related entities or individuals with respect to any matter, including those related to his employment with the Company or his retirement from the Company . Therefore, Iraola, for himself and his heirs, executors, administrators, representatives, agents, and assigns, forever releases the Company and its parents, subsidiaries, successors, predecessors, and affiliated entities, and their officers, directors, agents, employees, shareholders, attorneys, and representatives, from any and all claims, demands, liabilities, obligations, suits, charges, actions, and causes of action, whether known or unknown, past or present, accrued or not accrued, as of the date Iraola signs this Agreement. The items released include, but are not limited to, matters relating to or arising out of his employment or retirement from the Company . Some examples of items released are claims under federal, state, or local laws, such as the Age Discrimination in Employment Act, as amended; Title VII of the Civil Rights Act of 1964, as amended; the Employee Retirement Income Security Act of 1974, as amended; the Americans with Disabilities Act, the Family and Medical Leave Act, the Arizona Civil Rights Act (or any similar statute of any other jurisdiction that may be applicable in this case), any common law, tort, or contract claims, and any claims for attorneys' fees and costs. This provision, of course, does not affect Iraola's rights, if any, to benefits under the Company's benefit plans in accordance with the terms of those plans, or to make a complaint to any state or federal agency with respect to issues related to his employment with the Company. 3. Agreement not to Challenge. Iraola agrees not to challenge this Agreement. If he attempts to do so, he must first return to the Company all of the pay and benefits he received as consideration for entering into this Agreement within 14 days of the Company's written demand for payment. Notwithstanding any other provision of this Paragraph 3 to the contrary, the parties acknowledge and agree that Iraola's rights to challenge the validity of this Agreement under the ADEA, as amended by the Older Workers Benefit Protection Act, including any challenge of the knowing and voluntary nature of this Agreement, are not otherwise affected by the above provisions of this Paragraph 3 or any other provision of this Agreement. Company and Iraola acknowledge and agree that Iraola is not required to return or tender back any consideration received for this Agreement in the event he brings a claim challenging the validity of this Agreement under the ADEA, as amended. In the event Iraola successfully challenges the validity of this Agreement and prevails on the merits of any ADEA claim, the Company is entitled to set-off, recoupment, or restitution against any consideration paid Iraola under this Agreement or the Retirement Agreement to the extent of the consideration paid or the damages awarded, whichever is the lesser. 4. Consultation with an Attorney. Iraola has been advised by the Company to talk with an attorney of his choice before signing this Agreement. He has been given a period of at least 21 days to consider this Agreement, and he has had an opportunity to talk with an attorney about this Agreement. 5. Revocation of Agreement. Iraola may revoke this Agreement. Iraola may do so during the seven calendar days after the date he signs it. The Agreement will not become effective until the eighth calendar day after Iraola signs it. If Iraola wishes to revoke the Agreement, he must do so in writing and his written notice of revocation must be sent to David L. Pulatie ("Pulatie"), Senior Vice President, Human Resources, Phelps 2 Dodge Corporation, One North Central Avenue, Phoenix, AZ 85004. To be effective, Pulatie must receive the revocation of the Agreement during the seven calendar days after the day Iraola signs it. 6. Understanding of Purpose. Iraola has carefully considered his obligations as stated in this Agreement and agrees that the restrictions contained in this Agreement are fair and reasonable and are reasonably required for the Company's protection. Iraola has carefully read this Agreement, he has had an opportunity to ask questions about it, he understands it, and he agrees to all of its provisions. Iraola understands that by signing this Agreement, he agrees not to sue or bring any claim against the Company or any other entity or person he has released from claims. Iraola has made this Agreement voluntarily and without any duress. 7. Miscellaneous. a. The provisions of this Agreement are severable. This means that if any provision is invalid, it will not affect the validity of the other provisions. If the scope of any restrictions of this Agreement should ever be deemed to exceed that permitted by applicable law or be otherwise overbroad, Iraola agrees that a court of competent jurisdiction shall enforce that restriction to the maximum scope permitted by law under the circumstances. b. The laws of the State of Arizona will apply to this Agreement. c. This agreement supercedes and replaces all prior discussions, understandings, and oral agreements between the parties and contains the entire agreement between them on the matters herein contained. d. This Agreement may not be changed orally, but only by a written agreement signed by Iraola and Company. Manuel J. Iraola Phelps Dodge Corporation --------------------------- --------------------------- David L. Pulatie Senior Vice President --------------------------- --------------------------- Date Date 3 EX-12 4 p66572ex12.htm EX-12

PHELPS DODGE CORPORATION AND SUBSIDIARIES

Exhibit 12

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

		March 31,			December 31,
		2002			2001
Short-term debt		$	54.5			59.3
Current portion of long-term debt			261.3			269.7
Long-term debt			2,515.2			2,522.0
	Total debt		2,831.0			2,851.0
Minority interests in consolidated subsidiaries			59.6			59.4
Common shareholders’ equity			2,678.9			2,707.2
	Total capitalization	$	5,569.5			5,617.6
Ratio of total debt to total capitalization			50.8	%		50.8	%

EX-15 5 p66572ex15.txt EX-15 EXHIBIT 15 May 14, 2002 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Commissioners: We are aware that our report dated April 19, 2002 on our review of interim financial information of Phelps Dodge Corporation (the "Corporation") for the period ended March 31, 2002 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 GRAPHIC 6 p66572checkbox.gif GRAPHIC begin 644 p66572checkbox.gif M1TE&.#EA#``,`/?^``````$!`0("`@,#`P0$!`4%!08&!@<'!P@("`D)"0H* M"@L+"PP,#`T-#0X.#@\/#Q`0$!$1$1(2$A,3$Q04%!45%186%A<7%Q@8&!D9 M&1H:&AL;&QP<'!T='1X>'A\?'R`@("$A(2(B(B,C(R0D)"4E)28F)B7IZ>GM[>WQ\?'U]?7Y^?G]_?X"`@(&!@8*" M@H.#@X2$A(6%A8:&AH>'AXB(B(F)B8J*BHN+BXR,C(V-C8Z.CH^/CY"0D)&1 MD9*2DI.3DY24E)65E9:6EI>7EYB8F)F9F9J:FIN;FYRGI^?GZ"@ MH*&AH:*BHJ.CHZ2DI*6EI::FIJ>GIZBHJ*FIJ:JJJJNKJZRLK*VMK:ZNKJ^O MK["PL+&QL;*RLK.SL[2TM+6UM;:VMK>WM[BXN+FYN;JZNKN[N[R\O+V]O;Z^ MOK^_O\#`P,'!P<+"PL/#P\3$Q,7%Q<;&QL?'Q\C(R,G)RWM_?W^#@X.'AX>+BXN/CX^3DY.7EY>;FYN?GY^CHZ.GIZ>KJZNOK MZ^SL[.WM[>[N[N_O[_#P\/'Q\?+R\O/S\_3T]/7U]?;V]O?W]_CX^/GY^?KZ M^OO[^_S\_/W]_?[^_O___R'Y!`$``/X`+``````,``P`!PA7`/]%8T:PH,%_ M&0`H7,@0X;^'$/^ILY;!842)&QQ5K'A1CQ6''"%:H_`.)#UF#\$I:/5P8SX+ CH_X=V0)QXS]K*$;-H%?3XA8`P2+:E!A4*,(,2),F%1`0`#L_ ` end GRAPHIC 7 p66572box.gif GRAPHIC begin 644 p66572box.gif M1TE&.#EA#``,`/?^``````$!`0("`@,#`P0$!`4%!08&!@<'!P@("`D)"0H* M"@L+"PP,#`T-#0X.#@\/#Q`0$!$1$1(2$A,3$Q04%!45%186%A<7%Q@8&!D9 M&1H:&AL;&QP<'!T='1X>'A\?'R`@("$A(2(B(B,C(R0D)"4E)28F)B7IZ>GM[>WQ\?'U]?7Y^?G]_?X"`@(&!@8*" M@H.#@X2$A(6%A8:&AH>'AXB(B(F)B8J*BHN+BXR,C(V-C8Z.CH^/CY"0D)&1 MD9*2DI.3DY24E)65E9:6EI>7EYB8F)F9F9J:FIN;FYRGI^?GZ"@ MH*&AH:*BHJ.CHZ2DI*6EI::FIJ>GIZBHJ*FIJ:JJJJNKJZRLK*VMK:ZNKJ^O MK["PL+&QL;*RLK.SL[2TM+6UM;:VMK>WM[BXN+FYN;JZNKN[N[R\O+V]O;Z^ MOK^_O\#`P,'!P<+"PL/#P\3$Q,7%Q<;&QL?'Q\C(R,G)RWM_?W^#@X.'AX>+BXN/CX^3DY.7EY>;FYN?GY^CHZ.GIZ>KJZNOK MZ^SL[.WM[>[N[N_O[_#P\/'Q\?+R\O/S\_3T]/7U]?;V]O?W]_CX^/GY^?KZ M^OO[^_S\_/W]_?[^_O___R'Y!`$``/X`+``````,``P`!P@Z`/\)'$APX)L? M"!,J_/<#F;B'$!\:8"BNX,`#%"T*Q/BCHD:.'BV"U/AOY,>,)SN2Y&C@@,N7 &+@$$!``[ ` end -----END PRIVACY-ENHANCED MESSAGE-----

EX-10.14

                                                                   Exhibit 10.14


                              RETIREMENT AGREEMENT

     This Retirement Agreement ("Agreement") is entered into by and between
     Phelps Dodge Corporation ("Company") and Manuel J. Iraola ("Iraola"). This
     Agreement is entered into in order to (i) provide Iraola with special pay
     and benefits upon his retirement from the Company, the payment of which
     shall be contingent on Iraola executing a waiver and general release on or
     after his retirement date with the Company; and (ii) resolve all matters
     relating to Iraola's retirement from the Company.

     The Company and Iraola, therefore, agree as follows:

     1.   Company previously announced its intentions to consider various
          strategic options with respect to Phelps Dodge Industries ("PDI") (the
          "Strategic Options"). After carefully evaluating those options Company
          has determined that at the present time it will discontinue the
          process of soliciting Strategic Option proposals with respect to PDI.
          Based on these circumstances and Iraola's expressed desire to spend
          more time on personal matters, Iraola has elected to retire from the
          Company on June 30, 2002 (the "Retirement Date"). As of the Retirement
          Date, Iraola will resign from all positions he holds with the Company,
          and, as may be applicable, with each of the Company's subsidiaries and
          affiliated entities. At the request of the Company, Iraola agrees to
          execute any documents to effectuate or to facilitate his resignations.
          Iraola acknowledges and agrees that all of the special benefits he
          will receive under this Agreement are specifically contingent on him
          executing a waiver and general release agreement, and otherwise
          meeting his obligations under this Agreement. In addition, Iraola
          agrees that the benefits provided under this Agreement are in lieu of
          any and all benefits he may have been entitled to under the terms and
          conditions of that certain Severance Agreement entered into by and
          between Iraola and the Company dated October 27, 1997 ("Severance
          Agreement"). Iraola acknowledges and agrees that upon the effective
          date of this Agreement (as set forth in Paragraph 19 below), the
          Severance Agreement will terminate and that neither he nor the Company
          will have any further rights or obligations under that agreement.

     2.   Iraola agrees that until his Retirement Date he will continue to carry
          out his duties for the Company faithfully, industriously, and to the
          best of his ability, experience, and talents, and that he will
          otherwise perform his duties and responsibilities to the reasonable
          satisfaction of the Company. Except as otherwise modified by Paragraph
          7 of this Agreement, between the execution date of this Agreement (as
          set forth below) and the Retirement Date, Iraola will be entitled to
          receive any salary increases, and stock option grants, to which he may
          be entitled based on his service and performance and as are consistent
          with Company's consistently applied plans, policies and procedures for
          similarly situated AICP participants.

     3.   The Company will pay Iraola a special payment in the gross amount of
          $859,947.50. In addition, the gross amount of this payment is subject
          to further adjustment, either as an increase or decrease, based on the
          actual Fair Market Value, as of the Retirement Date, of the 2,500

Iraola Agreement
Page 2


          shares of Restricted Stock referenced in Paragraph 8 below. To the
          extent the Fair Market value of the 2,500 shares of Restricted Stock
          is greater than $137,500.00, then the gross amount of this special
          payment will be decreased from the $859,947.50 amount set forth above
          in an amount equal to the excess. [EXAMPLE: If as of the Retirement
          Date, the Fair Market Value of the 2,500 Restricted Shares is $138,750
          then the gross amount of this special payment will be reduced by
          $1,250.00 ($138,750 - $137,500 = $1,250.00). In this example this
          would result in the gross amount of the special payment being
          $858,697.50 ($859,947.50 - $1,250 = $858,697.50).] To the extent the
          Fair Market Value of the 2,500 shares of Restricted Stock is less than
          $137,500.00, then the gross amount of the special payment will be
          increased from the $859,947.50 amount set forth above in an amount
          equal to the shortfall. [EXAMPLE: If as of the Retirement Date, the
          Fair Market Value of the 2,500 Restricted Shares is $136,250 then the
          gross amount of this special payment will be increased by $1,250.00
          ($137,500 - $136,250 = $1,250.00). In this example this would result
          in the gross amount of the special payment being $861,197.50
          ($859,947.50 + $1,250 = $861,197.50).] All necessary taxes and
          withholdings will be deducted from this amount. This special payment
          will be paid to Iraola within 15 calendar days after his Retirement
          Date or the effective date of that certain Waiver and Release
          Agreement ("Waiver and Release") described in Paragraph 19 below,
          whichever is later.

     4.   Until Iraola reaches age 65, and subject to him making those
          contributions, if any, required of employees to participate in the
          Company's medical and dental plans for active employees, Iraola and
          his eligible dependents will be eligible to participate in the similar
          group health and dental plans sponsored by the Company ("Similar
          Active Plan"). At age 65, Iraola may elect, for himself and his
          eligible dependents, to continue participation in a group medical plan
          sponsored by Company, which is similar to the Company's retiree
          medical plan then in effect (if the Company continues such a plan for
          retirees) ("Similar Retiree Plan"), and subject to any changes in the
          retiree medical plan that may be adopted from time to time. Any
          election to participate in the Similar Retiree Plan is subject to
          Iraola making the required payments to participate in the plan.
          Iraola's cost to participate in the Similar Retiree Plan shall be
          determined by the provisions and costs of the applicable retiree
          medical plan in which he would have participated had he remained in
          the employ of the Company until such time as he reached age 65. To the
          extent Iraola, prior to age 65, is required to make contributions to
          the Similar Active Plan, Company will notify him in writing of his
          obligation to do so and the amount of the monthly contribution.
          Company and Iraola agree that should Iraola predecease his spouse, she
          may continue to participate in the similar plans contemplated by this
          Paragraph 4. Iraola, upon his retirement, will have all of the rights
          to which he is entitled under COBRA, including the election of up to
          18 months of continuation coverage for himself, his spouse, and
          eligible dependents. To obtain his COBRA continuation coverage he must
          elect such coverage in accordance with the election notices provided
          to him and he must be eligible for the coverage elected under the
          rules of COBRA. Iraola will be responsible for making the monthly
          premium payments required for any elected COBRA continuation coverage
          and the cost of any other benefits he desires to continue.

Iraola Agreement
Page 3


     5.   Until Iraola reaches age 55, the Company will provide him with a
          special, nonqualified monthly retirement benefit of $24,000.00,
          subject to all applicable tax and other withholdings. When Iraola
          reaches age 55 he will retire under the Phelps Dodge Retirement Plan
          and he will receive the qualified monthly retirement benefit to which
          he is entitled under that plan. In addition, he will receive a
          special, nonqualified monthly retirement benefit in an amount
          sufficient to bring his combined qualified and nonqualified monthly
          retirement benefit after age 55 to $24,000.00, subject to all
          applicable tax and other withholdings. (The retirement benefit amounts
          set forth in this Paragraph have been calculated on the basis of a
          single life annuity. Should Iraola elect a payment option other than
          as a single life annuity this monthly amount will be reduced in
          accordance with the applicable provisions of the Phelps Dodge
          Retirement Plan.) Monthly payment of this special, nonqualified
          monthly retirement benefit will begin the month following Iraola's
          Retirement Date or the effective date of the Waiver and Release,
          whichever is later.

     6.   In accordance with the terms of the Annual Incentive Compensation Plan
          ("AICP"), Iraola shall receive an AICP payment for the calendar year
          in which his Retirement Date occurs. This payment will be calculated
          based upon Iraola's salary earned through his Retirement Date, the
          actual performance level of the Company and Phelps Dodge Industries,
          and the target performance level for Iraola's support goals. This AICP
          payment will be paid to Iraola in the calendar year following the year
          in which his Retirement Date occurs at the same time that the AICP
          payments are made to other AICP eligible individuals. Any AICP payment
          made under this Paragraph 6 shall be subject to all applicable tax and
          other withholdings.

     7.   In accordance with the Phelps Dodge 1998 Stock Option and Restricted
          Stock Plan, as amended ("Restricted Stock Plan") and notwithstanding
          Iraola's election to retire as of the Retirement Date, each of
          Iraola's currently outstanding stock options that is exercisable as of
          his Retirement Date will remain exercisable until the earlier of the
          option's expiration date or one month after his Retirement Date. Any
          of his exercisable options that are not exercised as of the date
          specified above will terminate, and any of his outstanding stock
          options that are not exercisable as of his Retirement Date will
          terminate on that date (collectively, the "Cancelled Options"). To
          compensate Iraola for the loss of value associated with his Cancelled
          Options, the Company hereby grants to him a number of stock
          appreciation units (the "Units") equal to the number of Cancelled
          Options. The "Expiration Date" of the particular Units shall be the
          earlier of the expiration dates of the Cancelled Options that were the
          basis for the issuance of the particular Units or five years after his
          Retirement Date ("Retirement Date + 5"). At any time prior to the
          occurrence of an Expiration Date, Iraola may notify the Company of his
          desire to "exercise" all or part of the Units. Any Units that he does
          not exercise as of the Expiration Date for the applicable Units will
          be deemed to be exercised for him on the applicable Expiration Date.
          Each such Unit shall entitle Iraola to receive, upon the exercise
          thereof, a lump-sum cash payment, less any required tax withholdings,
          equal to the excess, if any, of (i) the Fair Market Value (as defined
          below) of a Common Share on the date of exercise over (ii) the Base
          Value (as defined below) for such Unit. For purposes of this
          Agreement:

Iraola Agreement
Page 4


                    The "Base Value" of each Unit shall be an amount equal to
                    the per share exercise price of the Cancelled Option to
                    which such Unit corresponds. Because he has more than one
                    Option Agreement, the Base Value of his Units will vary as
                    shown in the following table:



                       ---------------------------------------------------
                        Units     Base Value     Expiration Date
                       ---------------------------------------------------
                                        
                         6,567    $47.1250       December 2, 2002
                        15,000    $57.8750       December 7, 2004
                        15,000    $53.1250       February 1, 2005
                        35,000    $67.3750       December 6, 2005
                        30,000    $71.6250       December 4, 2006
                         4,933    $82.1250       December 1, 2003
                        32,000    $65.3750       June 30, 2007
                         4,204    $66.5000       December 2, 2002
                         3,210    $66.5000       December 1, 2003
                        45,000    $55.2500       June 30, 2007
                        63,000    $51.8125       June 30, 2007
                        60,000    $51.9375       June 30, 2007
                        55,000    $34.6700       June 30, 2007


                    The "Fair Market Value" of a Common Share on any date shall
                    mean the mean of the high and low prices thereof on such
                    date as reported on the New York Stock Exchange Consolidated
                    Trading Tape (or if there are no reported trades on such
                    date, on the next preceding day on which such trades are
                    reported). If the Base Value for a Unit exceeds the Fair
                    Market Value, the value of the Unit will be zero.

          Iraola may exercise his Units by written notice to the Company (which
          shall be delivered to the attention of Manager - Executive
          Compensation, Phelps Dodge Corporation, One North Central Avenue,
          Phoenix, Arizona 85004), specifically identifying the Unit being
          exercised and the date as of which such Unit is to be exercised (which
          may not be earlier than the date of such notice). A Unit does not
          entitle Iraola to receive shares of the Company's stock as a result of
          an exercise. Rather, the Company will only pay him in cash any
          difference between the Fair Market Value and the Base Value of a Unit,
          less any required tax withholdings. Iraola acknowledges that Company
          may take action that reprices or otherwise affects the price of the
          stock options of those individuals participating in the Restricted
          Stock Plan

Iraola Agreement
Page 5


          ("Repricing Action"). Company agrees that if such action materially
          affects the Base Value of the Units prior to the their respective
          Expiration Date, it will take such action with respect to those Units,
          for which the Expiration Date has not passed, consistent with the
          affect that the Repricing Action had on the outstanding stock options
          of those individuals participating in the Restricted Stock Plan.
          Iraola understands that the Company is considering whether it is
          appropriate for the Company to adopt a plan or program (which may
          include an amendment to the Restricted Stock Plan), that may allow
          participants in the Restricted Stock Plan to possibly exchange certain
          of their current exercisable stock options for restricted stock of the
          Company (the "Exchange Program"). Iraola understands that the Company
          has made no final determination on whether it may adopt any such
          Exchange Program and that this Agreement has been negotiated based on
          certain specific terms of understanding between the parties, which are
          not speculative. Iraola also understands that those terms of
          understanding did not include the consideration of any speculative
          economic value that may be related to any Exchange Program that may be
          under consideration by the Company, and that the consideration of any
          such speculative economic benefit for purposes of this Agreement would
          directly affect the other terms and conditions of this Agreement.
          Therefore, Company and Iraola acknowledge and agree that,
          notwithstanding any other provision of this Agreement or any of the
          terms and conditions that may be included in any Exchange Program that
          may be adopted by Company (if any), Iraola will not be entitled to
          participate in any manner in any such Exchange Program if adopted.
          Company and Iraola acknowledge and agree that, should the Company
          eventually determine that it is appropriate to adopt any such Exchange
          Program, such action shall not be deemed to be a Repricing Action for
          purposes of this Agreement and as defined above.

     8.   In accordance with the terms and conditions of the Restricted Stock
          Plan and notwithstanding his election to retire as of the Retirement
          Date, Iraola's 2,500 shares of Restricted Stock (as that term is
          defined in the Restricted Stock Plan) will revert to the Company on
          the Retirement Date. To compensate Iraola for the value of this
          Restricted Stock, Company agrees to pay Iraola a cash amount equal to
          the Fair Market Value (as that phrase is defined in Paragraph 7 above)
          of these 2,500 shares of Restricted Stock as of his Retirement Date.
          Iraola acknowledges and agrees that this payment will be subject to
          all applicable tax and other withholdings. This payment will be made
          to Iraola within 15 calendar days after his Retirement Date or the
          effective date of the Waiver and Release, whichever is later.

     9.   The Company will, at its cost, provide Iraola with a reasonable amount
          of the services of AYCO Corporation through April 15 of the calendar
          year following Iraola's Retirement Date. The services of AYCO will be
          provided to Iraola under the same conditions and at the same level as
          those services are provided to similarly situated active employees of
          the Company during that time.

     10.  The Company will provide Iraola with sufficient payments to fund an
          ELIP death benefit equal to one-times his annual base salary. These
          payments will be as required following his Retirement Date and shall
          be reduced by required tax and other withholdings.

Iraola Agreement
Page 6


     11.  Company will make a special cash payment to Iraola with respect to his
          contributions to the Strategic Options process in the gross amount of
          $532,000. This cash payment amount will be subject to all applicable
          tax and other withholdings and will be paid to Iraola in the same
          manner as the payment described in Paragraph 3 above.

     12.  Iraola shall deliver to the Company (a) any and all documents,
          materials, files, or computer files, or copies, reproductions,
          duplicates, transcriptions, or replicas thereof, relating to the
          Company's business or affairs, which are in Iraola's possession or
          control, or of which Iraola is aware, and (b) any and all documents,
          materials, files, computer files or copies, reproductions, duplicates,
          transcriptions or replicas thereof, which are in Iraola's possession
          or control, or of which Iraola is aware, belonging to the Company or
          any other affiliated entities. Iraola will make a diligent search for
          such documents, materials, files, computer files and other property.
          Iraola will deliver these items to the Company by his Retirement Date.

     13.  Iraola agrees that during the course of his employment with the
          Company, he had access to confidential and proprietary information
          concerning the Company including but not limited to such matters as
          the Company's trade secrets, strategic plans, financial data, programs
          (including, without limitation, the Company's computer software
          programs), procedures, manuals, confidential reports and
          communications, lists of customers, sources of supply, patents, and
          new technology developments. That information was disclosed to Iraola
          in confidence and solely for use by or on behalf of the Company.
          Iraola has no ownership right or interest in that confidential and
          proprietary information. Iraola agrees that he will keep that
          information confidential at all times after his employment, and that
          he will not, directly or indirectly, disclose, divulge, reveal,
          report, publish, transfer, or use, for any purpose whatsoever, that
          information on his own behalf or on behalf of any other person or
          entity. This obligation is in addition to any other obligation that
          Iraola, by virtue of his position with the Company, may have under the
          applicable law to not disclose confidential, trade secret, or
          proprietary information of the Company.

     14.  Iraola acknowledges that all of the following information and
          materials are "Protected Information" belonging to the Company and
          shall be subject to the provisions of Paragraph 13 of this Agreement
          and shall be kept strictly confidential, even if not physically marked
          as such:

               a.   Production processes, strategic plans, marketing techniques
                    and arrangements, mailing lists, purchasing information,
                    pricing policies, quoting procedures, financial information,
                    customer and prospect names and requirements, employee,
                    customer, supplier and distributor data, and other materials
                    and information relating to the Company's business and
                    activities and the manner in which the Company does
                    business;

               b.   Discoveries, concepts, and ideas including, without
                    limitation, the nature and

Iraola Agreement
Page 7


                    results of research and development activities, processes,
                    formulas, inventions, equipment or technology, techniques,
                    "know-how," designs, drawings and specifications, and patent
                    applications;

                    c. Any other materials or information related to the
                    Company's business or activities which are not generally
                    known to others engaged in similar businesses or activities
                    and which are not in the public domain; and

                    d. All ideas which are derived from or relate to Iraola's
                    access to or knowledge of any of the above enumerated
                    materials and information.

     15.  Iraola acknowledges that in the course of his employment with the
          Company, he has had direct or indirect contact with the Company's
          existing and prospective customers and others having business dealings
          with the Company and has thereby had the opportunity to meet and
          develop, on the Company's behalf, goodwill and working relationships
          with those persons, firms, or entities. Iraola acknowledges that such
          goodwill and relationships are valuable assets of the Company, and he
          understands and agrees that, because of the nature of the Company's
          business, it is necessary to afford fair protection to the Company for
          those assets. Therefore, Iraola covenants and agrees that, for the
          period beginning on the date of this Agreement and ending two (2)
          years after his Retirement Date, he shall not compete with the
          business of the Company by: (i) engaging in the business of copper
          mining; molybdenum mining; the milling, smelting, or refining of
          copper or molybdenum; the producing of copper rod or molybdenum
          products; energy wire and cable; magnet wire; high performance
          conductor; or carbon black, whether international or domestic, whether
          as a proprietor, partner, co-venturer, director, officer, employer,
          employee, servant, agent, or representative of an operation engaging
          in such business; (ii) soliciting, directly or indirectly, any
          existing or prospective customer of the Company with whom he has
          gained significant business contacts while employed by the Company;
          (iii) advising, directly or indirectly, any existing or prospective
          customer of the Company with whom he has gained significant business
          contacts while employed by the Company, to withdraw, curtail, or
          cancel business or negotiations with the Company; or (iv) serving as a
          consultant or contractor to any entity engaged in the business of
          copper mining; molybdenum mining; the milling, smelting, refining of
          copper or molybdenum; the producing of copper rod or molybdenum
          products; energy wire and cable; magnet wire; high performance
          conductor; or carbon black, whether international or domestic. Iraola
          acknowledges and agrees that the geographic scope of this provision
          has not been limited because the Company's business and customers are
          worldwide and the Company has a legitimate, protectible business
          interest in its goodwill and relationships with its customers in
          preventing the solicitation of its customers regardless of the
          geographical location of its customers or where Iraola is employed.
          Company and Iraola acknowledge that in the event of the closing of a
          Strategic Option, the entity entering into that transaction with
          Company may request that Iraola consult with it on a periodic basis
          with respect to the continued operations of the business. In the event
          Iraola wishes to provide such services, Iraola agrees to submit a
          written request to Company asking for a waiver of the provisions of

Iraola Agreement
Page 8


          this Paragraph. This request will include a full disclosure of the
          facts related to the consulting opportunity for which he is seeking a
          waiver. The granting of any waiver contemplated by this Paragraph
          shall be at Company's sole discretion; provided, however, that the
          granting of any such waiver by Company shall not be unreasonably
          withheld. Notwithstanding any other provision of this Paragraph 15 to
          the contrary, Company and Iraola agree that in the event of a Change
          of Control (as defined in Paragraph 26 below) occurring after the
          effective date of this Agreement, Iraola shall not be bound by any of
          the non-compete provisions of this Paragraph 15.

     16.  Iraola acknowledges that the Company's employees are an integral part
          of the Company's business, and he understands and agrees that, because
          of the nature of the Company's business, it is necessary to afford
          fair protection to the Company from the loss of any such employees.
          Therefore, Iraola agrees that, for the period beginning on his
          Retirement Date and ending two years after his Retirement Date, he
          shall not, directly or indirectly, hire or engage, or attempt to hire
          or engage any individual who shall have been an employee of the
          Company at any time during the one-year period before the date of this
          Agreement, whether for or on his behalf or for any entity in which he
          shall have a direct or indirect interest (or any subsidiary or
          affiliate of any such entity), whether as a proprietor, partner,
          co-venturer, financier, investor or stockholder, director, officer,
          employer, employee, servant, agent, representative, or otherwise. Any
          failure by Iraola to comply with this provision, after receiving
          written notice from Company of any violation, or potential violation,
          of this provision and giving Iraola a reasonable opportunity to
          correct any such violation (not to exceed 15 days), shall constitute a
          material breach of this Agreement and shall entitle the Company to
          full reimbursement of the pay and benefits he received pursuant to
          this Agreement, in addition to any other damages and relief to which
          the Company may be entitled. Notwithstanding any other provision of
          this Paragraph 16 to the contrary, Company and Iraola agree that in
          the event of a Change of Control (as defined in Paragraph 26 below)
          occurring after the effective date of this Agreement, Iraola shall not
          be bound by any of the prohibitions on hiring set forth in this
          Paragraph 16.

     17.  Iraola understands that the special pay and benefits he will receive
          by this Agreement are not required by the Company's policies. Iraola
          also understands that if he and the Company had not entered into this
          Agreement, and do not enter into the contemplated Waiver and Release,
          he will not receive the special pay and benefits set forth in this
          Agreement. Iraola and the Company agree that the fact that they are
          making this Agreement and the Agreement and General release does not
          mean that the Company had any obligation or liability to Iraola.

     18.  Iraola will keep this Agreement confidential. He will only talk about
          it with his immediate family, his attorney, and his accountant or tax
          and financial advisor, and they will not discuss it with anyone else.

     19.  Company and Iraola acknowledge and agree that this Agreement, and the
          obligations of the parties pursuant to this Agreement, shall not
          become effective unless and until such time as

Iraola Agreement
Page 9


          Company and Iraola execute and deliver the Waiver and Release
          contemplated by this Agreement, and the Waiver and Release becomes
          effective pursuant to its terms and conditions. Company and Iraola
          agree that this Waiver and Release will not be executed by the parties
          until his Retirement Date or thereafter. This Waiver and Release shall
          be in substantially such form as is attached hereto as Exhibit 1.
          Company and Iraola acknowledge and agree that this Agreement will not
          become effective should he die after execution of this Agreement, but
          before his Retirement Date and this Agreement becomes effective as
          described above. Accordingly, in the event of such death no benefits
          will be paid under this Agreement to any person or entity, including
          his estate, spouse, beneficiaries, heirs, executors, or personal
          administrators.

     20.  This Agreement may not be changed orally, but only by a written
          agreement signed by Iraola and the Company.

     21.  Iraola understands and agrees that the Company will suffer irreparable
          harm in the event that he breaches any of his obligations under this
          Agreement and that monetary damages will be inadequate to compensate
          the Company for such breach. Accordingly, Iraola agrees that, in the
          event of his breach or threatened breach of any of the provisions of
          this Agreement, the Company, after providing Iraola written notice of
          any breach or threatened breach of this Agreement and giving Iraola a
          reasonable period of time to correct any such breach or threatened
          breach (not to exceed 15 days), in addition to and not in limitation
          of any other rights, remedies, or damages available to the Company at
          law or in equity, shall be entitled to a temporary restraining order,
          preliminary injunction, and permanent injunction in order to prevent
          or to restrain any such breach by Iraola or by any or all of his
          partners, co-venturers, employers, employees, servants, agents,
          representatives, and any and all persons directly or indirectly acting
          for, or on behalf of, or with him. The Company may seek such relief
          pursuant to a court action notwithstanding the arbitration provision
          set forth in Paragraph 24 of this Agreement.

     22.  The provisions of this Agreement are severable. This means that if any
          provision is invalid, it will not affect the validity of the other
          provisions. If the scope of any restrictions of this Agreement should
          ever be deemed to exceed that permitted by applicable law or be
          otherwise overbroad, Iraola agrees that a court of competent
          jurisdiction shall enforce that restriction to the maximum scope
          permitted by law under the circumstances.

     23.  The laws of the State of Arizona will apply to this Agreement.

     24.  Any disputes arising in connection with this Agreement, other than
          disputes arising under Paragraphs 13, 14, 15, 16, 17, and 24 shall be
          resolved by binding arbitration in accordance with the rules and
          procedures of the American Arbitration Association. Judgment upon any
          award rendered by the arbitrator may be entered in any court having
          jurisdiction of this matter. Costs of the arbitration shall be borne
          equally by the parties. Unless the arbitrator otherwise determines,
          the party that does not prevail in any such action shall reimburse the

Iraola Agreement
Page 10


          other party for his or its reasonable attorneys' fees incurred with
          respect to such arbitration.

     25.  This agreement supercedes and replaces all prior discussions,
          understandings, and agreements between the parties, whether oral or
          written, and contains the entire agreement between them on the matters
          herein contained.

     26.  Iraola acknowledges that he has entered in to that certain Change of
          Control Agreement dated January 16, 1999 ("Change of Control
          Agreement"), by which he will receive certain benefits and payments in
          the event of a change of control as that term is defined in that
          agreement (a "Change of Control"). Iraola understands and agrees that
          it is the intent of the parties to this Agreement that he shall not be
          entitled to receive, and the Company shall not be obligated to pay,
          benefits and payments under both this Agreement and his Change of
          Control Agreement. Therefore, Company and Iraola agree that upon the
          effective date of this Agreement (as described in Paragraph 19 above),
          his Change of Control Agreement shall terminate, be of no further
          force and effect, and the Company shall have no further obligation to
          pay him any amounts under his Change of Control Agreement. In the
          event of a Change of Control prior to the effective date of this
          Agreement (as described in Paragraph 19 above), Company and Iraola
          acknowledge and agree that this Agreement shall be immediately
          terminated on such Change of Control, be of no further force and
          effect, and Company shall have no obligation to pay him any of the
          special pay and benefits provided by this Agreement.

     Company, by and through its duly authorized representative, and Iraola have
     executed this Agreement on the 6 day of March, 2002.

     Manuel J. Iraola                     Phelps Dodge Corporation


     ---------------------------          ---------------------------
                                          David L. Pulatie
                                          Senior Vice President, Human Resources

EXHIBIT 1

                          WAIVER AND RELEASE AGREEMENT

         This Waiver and Release Agreement ("Agreement") is entered into by and
between Phelps Dodge Corporation ("Company") and Manuel J. Iraola ("Iraola").
This Agreement is entered into for the purpose of providing Company with
protection against any claims by Iraola.

         WHEREAS, Company and Iraola have entered into that certain Retirement
Agreement, dated ______________, 2002; and

         WHEREAS, among other things, the Retirement Agreement provides that
Company will pay Iraola certain special pay and benefits as a result of Iraola's
retirement from the Company; and

         WHEREAS, pursuant to the terms and conditions of the Retirement
Agreement, the Company's payment of any such special pay and benefits to Iraola,
and all other obligations of the parties under the Retirement Agreement, are
specifically contingent on Company and Iraola executing and delivering this
Agreement.

         NOW THEREFORE, in consideration of the obligations set forth in the
Retirement Agreement, the payment of the special pay and benefits described
therein, and such other good and valuable consideration, the adequacy and
sufficiency of which are hereby acknowledged by the parties, Company and Iraola
agree as follows:

         1.       Consideration for Agreement. Iraola acknowledges and agrees
                  that the payment of the special pay and benefits as provided
                  for under the terms and conditions of the Retirement Agreement
                  are fair and adequate consideration for this waiver, release,
                  agreement not to sue, and other obligations of Iraola under
                  this Agreement. Iraola acknowledges and agrees that the
                  special pay and benefits to be provided under the terms and
                  conditions of the Retirement Agreement are not required by
                  Company policy and that Iraola is not otherwise entitled to
                  the receipt of any such special pay and benefits.

         2.       Waiver and Release. Iraola agrees not to bring any suit or
                  claim against the Company or any of its related entities or
                  individuals with respect to any matter, including those
                  related to his employment with the Company or his retirement
                  from the Company . Therefore, Iraola, for himself and his
                  heirs, executors, administrators, representatives, agents, and
                  assigns, forever releases the Company and its parents,
                  subsidiaries, successors, predecessors, and affiliated
                  entities, and their officers, directors, agents, employees,
                  shareholders, attorneys, and representatives, from any and all
                  claims, demands, liabilities, obligations, suits, charges,
                  actions, and causes of action, whether known or unknown, past
                  or present, accrued or not accrued, as of the date Iraola
                  signs this Agreement. The items released

                  include, but are not limited to, matters relating to or
                  arising out of his employment or retirement from the Company .
                  Some examples of items released are claims under federal,
                  state, or local laws, such as the Age Discrimination in
                  Employment Act, as amended; Title VII of the Civil Rights Act
                  of 1964, as amended; the Employee Retirement Income Security
                  Act of 1974, as amended; the Americans with Disabilities Act,
                  the Family and Medical Leave Act, the Arizona Civil Rights Act
                  (or any similar statute of any other jurisdiction that may be
                  applicable in this case), any common law, tort, or contract
                  claims, and any claims for attorneys' fees and costs. This
                  provision, of course, does not affect Iraola's rights, if any,
                  to benefits under the Company's benefit plans in accordance
                  with the terms of those plans, or to make a complaint to any
                  state or federal agency with respect to issues related to his
                  employment with the Company.

         3.       Agreement not to Challenge. Iraola agrees not to challenge
                  this Agreement. If he attempts to do so, he must first return
                  to the Company all of the pay and benefits he received as
                  consideration for entering into this Agreement within 14 days
                  of the Company's written demand for payment. Notwithstanding
                  any other provision of this Paragraph 3 to the contrary, the
                  parties acknowledge and agree that Iraola's rights to
                  challenge the validity of this Agreement under the ADEA, as
                  amended by the Older Workers Benefit Protection Act, including
                  any challenge of the knowing and voluntary nature of this
                  Agreement, are not otherwise affected by the above provisions
                  of this Paragraph 3 or any other provision of this Agreement.
                  Company and Iraola acknowledge and agree that Iraola is not
                  required to return or tender back any consideration received
                  for this Agreement in the event he brings a claim challenging
                  the validity of this Agreement under the ADEA, as amended. In
                  the event Iraola successfully challenges the validity of this
                  Agreement and prevails on the merits of any ADEA claim, the
                  Company is entitled to set-off, recoupment, or restitution
                  against any consideration paid Iraola under this Agreement or
                  the Retirement Agreement to the extent of the consideration
                  paid or the damages awarded, whichever is the lesser.

         4.       Consultation with an Attorney. Iraola has been advised by the
                  Company to talk with an attorney of his choice before signing
                  this Agreement. He has been given a period of at least 21 days
                  to consider this Agreement, and he has had an opportunity to
                  talk with an attorney about this Agreement.

         5.       Revocation of Agreement. Iraola may revoke this Agreement.
                  Iraola may do so during the seven calendar days after the date
                  he signs it. The Agreement will not become effective until the
                  eighth calendar day after Iraola signs it. If Iraola wishes to
                  revoke the Agreement, he must do so in writing and his written
                  notice of revocation must be sent to David L. Pulatie
                  ("Pulatie"), Senior Vice President, Human Resources, Phelps


                                       2

                  Dodge Corporation, One North Central Avenue, Phoenix, AZ
                  85004. To be effective, Pulatie must receive the revocation of
                  the Agreement during the seven calendar days after the day
                  Iraola signs it.

         6.       Understanding of Purpose. Iraola has carefully considered his
                  obligations as stated in this Agreement and agrees that the
                  restrictions contained in this Agreement are fair and
                  reasonable and are reasonably required for the Company's
                  protection. Iraola has carefully read this Agreement, he has
                  had an opportunity to ask questions about it, he understands
                  it, and he agrees to all of its provisions. Iraola understands
                  that by signing this Agreement, he agrees not to sue or bring
                  any claim against the Company or any other entity or person he
                  has released from claims. Iraola has made this Agreement
                  voluntarily and without any duress.

         7.       Miscellaneous.

                  a.       The provisions of this Agreement are severable. This
                           means that if any provision is invalid, it will not
                           affect the validity of the other provisions. If the
                           scope of any restrictions of this Agreement should
                           ever be deemed to exceed that permitted by applicable
                           law or be otherwise overbroad, Iraola agrees that a
                           court of competent jurisdiction shall enforce that
                           restriction to the maximum scope permitted by law
                           under the circumstances.

                  b.       The laws of the State of Arizona will apply to this
                           Agreement.

                  c.       This agreement supercedes and replaces all prior
                           discussions, understandings, and oral agreements
                           between the parties and contains the entire agreement
                           between them on the matters herein contained.

                  d.       This Agreement may not be changed orally, but only by
                           a written agreement signed by Iraola and Company.


         Manuel J. Iraola                            Phelps Dodge Corporation


         ---------------------------                 ---------------------------
                                                     David L. Pulatie
                                                     Senior Vice President

         ---------------------------                 ---------------------------
                    Date                                        Date


                                       3

EX-12

ex12

EX-15

                                                                      EXHIBIT 15

May 14, 2002



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

Commissioners:

We are aware that our report dated April 19, 2002 on our review of interim
financial information of Phelps Dodge Corporation (the "Corporation") for the
period ended March 31, 2002 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