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 June 30, 2005

Commission file number 1-82

PHELPS DODGE CORPORATION

(a New York corporation)

13-1808503

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

One North Central Avenue, Phoenix, AZ 85004

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

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 in the Exchange Act). Yes þ No o.

Number of Common Shares outstanding at July 26, 2005: 96,951,907 shares.

-i-

PHELPS DODGE CORPORATION

Quarterly Report on Form 10-Q

For the Quarter Ended June 30, 2005

Table of Contents

	Page
Part I. Financial Information
Item 1. Financial Statements (unaudited)
Consolidated Statement of Income		1
Consolidated Balance Sheet		2
Consolidated Statement of Cash Flows		3
Consolidated Statement of Shareholders’ Equity		4
Financial Data by Business Segment		5
Notes to Consolidated Financial Information		7
Review by Independent Registered Public Accounting Firm		19
Report of Independent Registered Public Accounting Firm		19
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations		20
Results of Phelps Dodge Mining Company		23
Results of Phelps Dodge Industries		43
Other Matters Relating to the Consolidated Statement of Income		45
Changes in Financial Condition		46
Item 3. Quantitative and Qualitative Disclosure About Market Risk		50
Item 4. Controls and Procedures		50
Part II. Other Information
Item 1. Legal Proceedings		50
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		51
Item 4. Submission of Matters to a Vote of Security Holders		52
Item 6. Exhibits		52
Signatures		52
Index to Exhibits		52
Exhibit 3.2
Exhibit 11
Exhibit 12
Exhibit 15
Exhibit 31
Exhibit 32

-1-

PHELPS DODGE CORPORATION AND SUBSIDIARIES

Part I. Financial Information

Item 1. Financial Statements

PHELPS DODGE CORPORATION

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

							Six Months Ended
	Second Quarter						June 30,
	2005			2004			2005			2004
Sales and other operating revenues	$	2,151.6			1,650.9			4,218.1			3,247.9
Operating costs and expenses
Cost of products sold (exclusive of items shown separately below)		1,346.5			1,133.6			2,669.4			2,232.0
Depreciation, depletion and amortization		127.0			124.4			256.4			249.3
Selling and general administrative expense		40.5			34.2			87.8			72.7
Exploration and research expense		26.7			15.5			45.5			29.1
Special items and provisions, net (see Note 3)		437.2			(11.5	)		436.3			(4.7	)
		1,977.9			1,296.2			3,495.4			2,578.4
Operating income		173.7			354.7			722.7			669.5
Interest expense		(23.4	)		(32.3	)		(47.1	)		(71.3	)
Capitalized interest		2.1			0.2			2.9			0.3
Early debt extinguishment costs		—			(15.2	)		—			(37.6	)
Gain on sale of cost-basis investment (see Note 3)		438.4			—			438.4			—
Change in interest gain from Cerro Verde stock issuance (see Note 3)		159.5			—			159.5			—
Miscellaneous income and expense, net		44.4			1.3			62.5			3.5
Income before taxes, minority interests in consolidated subsidiaries and equity in net earnings (losses) of affiliated companies		794.7			308.7			1,338.9			564.4
Provision for taxes on income (see Note 8)		(74.6	)		(40.7	)		(205.8	)		(46.9	)
Minority interests in consolidated subsidiaries		(38.5	)		(42.0	)		(65.5	)		(105.6	)
Equity in net earnings (losses) of affiliated companies		0.7			0.6			1.4			0.4
Net income		682.3			226.6			1,069.0			412.3
Preferred stock dividends		(3.4	)		(3.4	)		(6.8	)		(6.8	)
Net income applicable to common shares	$	678.9			223.2			1,062.2			405.5
Weighted average number of common shares outstanding — basic		96.2			92.9			96.0			92.3
Basic earnings per common share	$	7.06			2.40			11.07			4.39
Weighted average number of common shares outstanding — diluted		101.1			98.4			101.0			98.2
Diluted earnings per common share	$	6.75			2.30			10.59			4.20

See Notes to Consolidated Financial Information.

-2-

PHELPS DODGE CORPORATION

CONSOLIDATED BALANCE SHEET
(Unaudited; in millions except per share prices)

	June 30,			December 31,
	2005			2004
Assets
Current assets:
Cash and cash equivalents	$	2,595.6			1,200.1
Restricted cash		168.3			—
Accounts receivable, less allowance for doubtful accounts (2005 — $16.9; 2004 — $17.4)		982.8			761.5
Mill and leach stockpiles		28.1			26.2
Inventories		430.8			392.1
Supplies		206.2			192.7
Prepaid expenses and other current assets		73.8			46.0
Deferred income taxes		54.2			43.1
Current assets		4,539.8			2,661.7
Investments and long-term receivables		124.6			120.7
Property, plant and equipment, net		4,903.8			5,318.9
Long-term mill and leach stockpiles		132.3			131.0
Deferred income taxes		46.4			61.8
Goodwill		110.3			103.5
Intangible assets, net		5.2			5.3
Other assets and deferred charges		196.5			191.2
	$	10,058.9			8,594.1
Liabilities
Current liabilities:
Short-term debt	$	30.3			78.8
Current portion of long-term debt		43.6			45.9
Accounts payable and accrued expenses		1,255.8			972.1
Dividends payable		39.7			3.4
Accrued income taxes		128.8			67.8
Current liabilities		1,498.2			1,168.0
Long-term debt		970.3			972.2
Deferred income taxes		388.9			448.4
Other liabilities and deferred credits		956.7			1,107.3
		3,814.1			3,695.9
Commitments and contingencies (see Notes 5, 6 and 8)
Minority interests in consolidated subsidiaries		844.9			555.1
Shareholders’ equity
Common shares, par value $6.25; 300.0 shares authorized; 96.9 outstanding (2004 — 95.9) after deducting 8.9 shares (2004 — 9.9) held in treasury, at cost		605.5			599.5
Cumulative preferred shares, par value $1.00; 6.0 shares authorized; 2.0 outstanding in 2005 and 2004		2.0			2.0
Capital in excess of par value		1,981.2			1,906.4
Retained earnings		3,217.5			2,239.9
Accumulated other comprehensive loss		(372.0	)		(384.2	)
Other		(34.3	)		(20.5	)
		5,399.9			4,343.1
	$	10,058.9			8,594.1

See Notes to Consolidated Financial Information.

-3-

PHELPS DODGE CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited; in millions)

	Six Months Ended
	June 30,
	2005			2004
Operating activities
Net income	$	1,069.0			412.3
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization		256.4			249.3
Deferred income tax provision (benefit)		(54.0	)		(21.1	)
Equity in net earnings (losses) of affiliated companies, net of dividends received		0.5			1.9
Gain on sale of cost-basis investment		(438.4	)		—
Change in interest gain from Cerro Verde stock issuance		(159.5	)		—
Special items and provisions		436.3			6.2
Early debt extinguishment costs		—			37.6
Minority interests in consolidated subsidiaries		65.5			105.6
Changes in current assets and liabilities:
Accounts receivable		(144.0	)		(161.1	)
Repayment of securitized accounts receivable		(85.0	)		—
Mill and leach stockpiles		(1.8	)		5.5
Inventories		(41.7	)		(31.2	)
Supplies		(20.3	)		(6.7	)
Prepaid expenses and other current assets		(27.3	)		(20.7	)
Interest payable		1.2			(4.0	)
Other accounts payable		23.0			115.9
Accrued income taxes		73.8			(6.6	)
Other accrued expenses		23.9			14.2
Other operating, net		(32.9	)		(18.0	)
Net cash provided by operating activities		944.7			679.1
Investing activities
Capital outlays		(179.5	)		(96.4	)
Capitalized interest		(2.9	)		(0.3	)
Investments in subsidiaries and other, net of cash received and acquired		(0.1	)		(0.2	)
Proceeds from asset dispositions		4.6			1.7
Proceeds from sale of cost-basis investment		451.6			—
Restricted cash		(168.3	)		—
Other investing, net		(1.6	)		2.8
Net cash provided by (used in) investing activities		103.8			(92.4	)
Financing activities
Proceeds from issuance of debt		—			149.8
Payment of debt		(51.3	)		(714.1	)
Common dividends		(48.3	)		—
Preferred dividends		(6.8	)		(6.8	)
Issuance of shares, net		33.2			167.1
Debt issue costs		(0.7	)		(7.2	)
Proceeds from issuance of Cerro Verde stock		441.8			—
Other financing, net		(28.2	)		(57.3	)
Net cash provided in (used in) financing activities		339.7			(468.5	)
Effect of exchange rate impact on cash and cash equivalents		7.3			0.5
Increase in cash and cash equivalents		1,395.5			118.7
Increase at beginning of 2004 from consolidating El Abra and Candelaria		—			28.3
Cash and cash equivalents at beginning of period		1,200.1			683.8
Cash and cash equivalents at end of period	$	2,595.6			830.8

See Notes to Consolidated Financial Information.

-4-

PHELPS DODGE CORPORATION

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

																Accumulated
	Common Shares					Preferred Shares				Capital in						Other
	Number		At Par			Number		At Par		Excess of			Retained			Comprehensive						Shareholders’
	of Shares		Value			of Shares		Value		Par Value			Earnings			Income (Loss)*			Other			Equity
Balance at December 31, 2004		95.9	$	599.5			2.0	$	2.0	$	1,906.4		$	2,239.9		$	(384.2	)	$	(20.5	)	$	4,343.1
Stock options exercised		0.8		4.9							58.3												63.2
Restricted shares issued/cancelled, net		0.2		1.3							18.5									(13.8	)		6.0
Common shares purchased				(0.2	)						(2.0	)											(2.2	)
Dividends on preferred shares														(6.8	)								(6.8	)
Dividends on common shares														(84.6	)								(84.6	)
Comprehensive income (loss):
Net income														1,069.0									1,069.0
Other comprehensive income (loss), net of tax:
Translation adjustment																	(1.6	)					(1.6	)
Net loss on derivative instruments																	(0.7	)					(0.7	)
Other investment adjustments																	0.5						0.5
Unrealized gains on securities																	2.2						2.2
Minimum pension liability																	11.8						11.8
Other comprehensive income																	12.2						12.2
Comprehensive income																							1,081.2
Balance at June 30, 2005		96.9	$	605.5			2.0	$	2.0	$	1,981.2		$	3,217.5		$	(372.0	)	$	(34.3	)	$	5,399.9

* As of June 30, 2005, this balance comprised $(217.8) million of cumulative minimum pension liability adjustments, $(173.4) million of cumulative translation adjustments and $(0.2) million of cumulative other investment adjustments; partially offset by $19.0 million of cumulative unrealized gains on securities and $0.4 million of cumulative unrealized gains on derivative instruments.

See Notes to Consolidated Financial Information.

-5-

FINANCIAL DATA BY BUSINESS SEGMENT
(Unaudited; $ in millions)

	U.S. Mines																South American Mines
																	Candelaria/
								Miami/			Chino/						Ojos del			Cerro						Primary
	Morenci			Bagdad		Sierrita		Bisbee			Cobre			Tyrone			Salado			Verde			El Abra			Molybdenum
Second Quarter 2005
Sales and other operating revenues:
Unaffiliated customers	$	—			—		4.9		—			5.8			—			100.5			16.8			88.2			526.1
Intersegment		263.3			190.2		204.0		10.6			78.8			32.7			63.6			64.5			72.4			—
Depreciation, depletion and amortization		16.1			7.9		3.8		1.3			5.1			3.0			9.3			7.3			28.1			13.0
Operating income (loss) before special items and provisions		114.5			116.5		135.6		2.1			12.9			3.2			64.6			39.6			63.8			98.9
Special items and provisions, net		(0.3	)		—		—		—			(63.9	)		(211.5	)		—			—			—			—
Operating income (loss)		114.2			116.5		135.6		2.1			(51.0	)		(208.3	)		64.6			39.6			63.8			98.9
Interest income		—			—		—		—			0.4			—			1.4			1.5			0.4			0.1
Interest expense		—			—		—		—			—			—			—			—			(2.3	)		—
Gain on sale of cost-basis investment		—			—		—		—			—			—			—			—			—			87.2
Change in interest gain from Cerro Verde stock issuance		—			—		—		—			—			—			—			159.5			—			—
Benefit (provision) for taxes on income		—			—		—		—			—			—			(10.8	)		11.0			(23.8	)		—
Minority interests in consolidated subsidiaries		—			—		—		—			—			—			(9.8	)		(9.3	)		(18.4	)		—
Equity in net earnings (losses) of affiliated companies		—			—		—		(0.1	)		—			—			—			—			—			—
Equity basis investments at June 30		—			—		0.2		0.8			—			—			0.3			—			—			—
Assets at June 30		914.9			440.6		322.1		99.0			421.6			51.1			964.2			884.1			1,059.1			904.8
Expenditures for segment assets		10.8			6.2		3.7		0.1			4.2			1.3			4.0			41.7			7.4			5.3
Second Quarter 2004*
Sales and other operating revenues:
Unaffiliated customers	$	—			—		—		—			0.1			—			95.3			28.0			97.1			225.1
Intersegment		219.6			72.4		129.1		2.6			45.9			25.5			46.5			33.5			66.0			—
Depreciation, depletion and amortization		19.2			5.4		2.6		1.2			2.8			3.0			12.3			8.1			30.9			7.9
Operating income (loss) before special items and provisions		86.9			21.3		70.1		(3.1	)		10.4			8.4			49.3			25.1			64.6			29.5
Special items and provisions, net		(0.4	)		—		—		—			(0.4	)		(1.8	)		—			—			—			0.3
Operating income (loss)		86.5			21.3		70.1		(3.1	)		10.0			6.6			49.3			25.1			64.6			29.8
Interest income		—			—		—		—			0.2			—			0.3			0.1			0.2			0.1
Interest expense		—			—		—		—			—			—			(2.6	)		(0.4	)		(4.3	)		—
Benefit (provision) for taxes on income		—			—		—		—			—			—			(3.5	)		(9.3	)		0.8			—
Minority interests in consolidated subsidiaries		—			—		—		—			—			—			(7.3	)		(3.0	)		(30.1	)		—
Equity in net earnings (losses) of affiliated companies		—			—		—		—			—			—			—			—			—			—
Equity basis investments at June 30		—			—		0.2		1.0			—			—			0.3			—			—			—
Assets at June 30		967.0			439.5		303.8		108.4			425.8			174.2			728.4			491.4			1,080.5			814.9
Expenditures for segment assets		3.4			3.0		4.4		0.2			5.2			1.9			5.3			0.9			1.2			3.8

													PDMC															Corporate,
	Manufac-						PDMC						Elimi-			PDMC			Specialty			Wire &			PDI			Other &
	turing			Sales			Segments			Other			nations			Subtotal			Chemicals			Cable			Subtotal			Eliminations			Totals
Second Quarter 2005
Sales and other operating revenues:
Unaffiliated customers	$	747.4			188.4			1,678.1			6.3			—			1,684.4			185.6			281.6			467.2			—			2,151.6
Intersegment		47.9			64.8			1,092.8			20.9			(1,047.1	)		66.6			—			0.2			0.2			(66.8	)		—
Depreciation, depletion and amortization		6.9			—			101.8			1.5			—			103.3			14.4			7.6			22.0			1.7			127.0
Operating income (loss) before special items and provisions		6.8			3.3			661.8			(42.1	)		—			619.7			8.9			7.2			16.1			(24.9	)		610.9
Special items and provisions, net		(148.7	)		—			(424.4	)		9.4			—			(415.0	)		—			(1.9	)		(1.9	)		(20.3	)		(437.2	)
Operating income (loss)		(141.9	)		3.3			237.4			(32.7	)		—			204.7			8.9			5.3			14.2			(45.2	)		173.7
Interest income		—			—			3.8			1.1			(0.8	)		4.1			4.1			0.5			4.6			7.3			16.0
Interest expense		(0.7	)		(0.2	)		(3.2	)		(0.1	)		0.8			(2.5	)		(3.6	)		(1.9	)		(5.5	)		(15.4	)		(23.4	)
Gain on sale of cost-basis investment		—			—			87.2			351.2			—			438.4			—			—			—			—			438.4
Change in interest gain from Cerro Verde stock issuance		—			—			159.5			—			—			159.5			—			—			—			—			159.5
Benefit (provision) for taxes on income		—			—			(23.6	)		—			—			(23.6	)		—			—			—			(51.0	)		(74.6	)
Minority interests in consolidated subsidiaries		—			—			(37.5	)		—			—			(37.5	)		(0.2	)		(0.8	)		(1.0	)		—			(38.5	)
Equity in net earnings (losses) of affiliated companies		—			—			(0.1	)		0.1			—			—			—			0.1			0.1			0.6			0.7
Equity basis investments at June 30		—			—			1.3			0.2			—			1.5			—			5.9			5.9			24.1			31.5
Assets at June 30		314.8			31.4			6,407.7			1,341.7			(1,449.5	)		6,299.9			815.3			649.9			1,465.2			2,293.8			10,058.9
Expenditures for segment assets		4.5			—			89.2			34.0			(26.5	)		96.7			5.7			4.4			10.1			4.5			111.3
Second Quarter 2004*
Sales and other operating revenues:
Unaffiliated customers	$	603.7			199.7			1,249.0			5.5			—			1,254.5			165.2			231.2			396.4			—			1,650.9
Intersegment		60.4			50.5			752.0			17.3			(714.6	)		54.7			—			0.1			0.1			(54.8	)		—
Depreciation, depletion and amortization		5.6			—			99.0			1.1			—			100.1			11.8			9.1			20.9			3.4			124.4
Operating income (loss) before special items and provisions		7.4			1.5			371.4			(32.2	)		—			339.2			15.9			8.8			24.7			(20.7	)		343.2
Special items and provisions, net		—			—			(2.3	)		(0.2	)		—			(2.5	)		—			(2.5	)		(2.5	)		16.5			11.5
Operating income (loss)		7.4			1.5			369.1			(32.4	)		—			336.7			15.9			6.3			22.2			(4.2	)		354.7
Interest income		—			—			0.9			1.3			(1.1	)		1.1			2.1			0.1			2.2			0.5			3.8
Interest expense		(1.1	)		(0.2	)		(8.6	)		—			1.1			(7.5	)		(3.9	)		(1.4	)		(5.3	)		(19.5	)		(32.3	)
Benefit (provision) for taxes on income		—			—			(12.0	)		—			—			(12.0	)		—			—			—			(28.7	)		(40.7	)
Minority interests in consolidated subsidiaries		—			—			(40.4	)		(0.2	)		—			(40.6	)		(0.4	)		(1.0	)		(1.4	)		—			(42.0	)
Equity in net earnings (losses) of affiliated companies		—			—			—			—			—			—			—			0.1			0.1			0.5			0.6
Equity basis investments at June 30		—			—			1.5			—			—			1.5			—			5.6			5.6			24.1			31.2
Assets at June 30		475.7			(3.6	)		6,006.0			1,277.1			(1,384.2	)		5,898.9			753.9			582.4			1,336.3			826.1			8,061.3
Expenditures for segment assets		3.1			—			32.4			6.5			(0.4	)		38.5			3.5			7.3			10.8			0.6			49.9

* In the 2004 fourth quarter, the Company reassessed its reportable segments. The reassessment considered the significant increase in copper and molybdenum prices. Based on our assessment, we are separately disclosing Bagdad, Sierrita, Manufacturing and Sales as individual reportable segments, whereas, in 2004 Bagdad and Sierrita, and Manufacturing and Sales were aggregated. Segment information for 2004 has been revised to conform with the 2005 presentation.

-6-

FINANCIAL DATA BY BUSINESS SEGMENT
(Unaudited; $ in millions)

	U.S. Mines																	South American Mines
																		Candelaria/
									Miami/			Chino/						Ojos del			Cerro						Primary
	Morenci			Bagdad		Sierrita			Bisbee			Cobre			Tyrone			Salado			Verde			El Abra			Molybdenum
Six Months Ended June 30, 2005
Sales and other operating revenues:
Unaffiliated customers	$	—			—		5.3			—			5.8			—			222.4			33.3			160.4			1,002.9
Intersegment		490.3			346.7		411.9			20.1			164.5			62.8			95.6			116.1			153.0			—
Depreciation, depletion and amortization		31.2			15.7		7.7			2.2			10.4			7.0			19.2			13.2			61.5			21.9
Operating income (loss) before special items and provisions		200.7			200.9		270.1			3.2			30.6			4.5			140.0			75.6			108.3			185.5
Special items and provisions, net		(0.6	)		—		—			—			(64.5	)		(215.7	)		—			—			—			—
Operating income (loss)		200.1			200.9		270.1			3.2			(33.9	)		(211.2	)		140.0			75.6			108.3			185.5
Interest income		—			—		—			—			1.0			—			2.2			2.3			0.4			0.2
Interest expense		—			—		—			—			—			—			—			—			(4.6	)		—
Gain on sale of cost-basis investment		—			—		—			—			—			—			—			—			—			87.2
Change in interest gain from Cerro Verde stock issuance		—			—		—			—			—			—			—			159.5			—			—
Benefit (provision) for taxes on income		—			—		—			—			—			—			(29.1	)		4.2			(38.4	)		—
Minority interests in consolidated subsidiaries		—			—		—			—			—			—			(16.4	)		(15.0	)		(31.7	)		—
Equity in net earnings (losses) of affiliated companies		—			—		—			(0.2	)		—			—			—			—			—			—
Equity basis investments at June 30		—			—		0.2			0.8			—			—			0.3			—			—			—
Assets at June 30		914.9			440.6		322.1			99.0			421.6			51.1			964.2			884.1			1,059.1			904.8
Expenditures for segment assets		6.9			11.3		6.6			—			9.0			1.8			7.9			71.4			9.4			7.0
Six Months Ended June 30, 2004*
Sales and other operating revenues:
Unaffiliated customers	$	—			—		—			—			0.2			—			181.6			44.6			196.3			375.1
Intersegment		430.5			152.7		219.6			11.4			82.6			53.0			118.9			85.1			140.3			—
Depreciation, depletion and amortization		37.3			11.3		5.9			2.4			5.3			6.0			25.4			16.3			62.5			15.2
Operating income (loss) before special items and provisions		164.8			46.2		100.1			(3.8	)		25.4			10.8			118.1			62.9			139.2			45.1
Special items and provisions, net		(0.4	)		—		—			—			(0.4	)		(1.8	)		—			—			—			0.3
Operating income (loss)		164.4			46.2		100.1			(3.8	)		25.0			9.0			118.1			62.9			139.2			45.4
Interest income		—			—		—			—			0.5			—			0.7			0.2			0.2			0.1
Interest expense		—			—		—			—			—			—			(6.3	)		(1.8	)		(8.8	)		—
Benefit (provision) for taxes on income		—			—		—			—			—			—			(23.0	)		(22.6	)		31.7			—
Minority interests in consolidated subsidiaries		—			—		—			—			—			—			(16.2	)		(7.9	)		(79.6	)		—
Equity in net earnings (losses) of affiliated companies		—			—		(0.1	)		—			—			—			—			—			—			—
Equity basis investments at June 30		—			—		0.2			1.0			—			—			0.3			—			—			—
Assets at June 30		967.0			439.5		303.8			108.4			425.8			174.2			728.4			491.4			1,080.5			814.9
Expenditures for segment assets		7.0			4.7		7.2			0.2			6.1			2.2			10.3			1.8			2.6			6.1

													PDMC															Corporate,
	Manufac-						PDMC						Elimi-			PDMC			Specialty			Wire &			PDI			Other &
	turing			Sales			Segments			Other			nations			Subtotal			Chemicals			Cable			Subtotal			Eliminations			Totals
Six Months Ended June 30, 2005
Sales and other operating revenues:
Unaffiliated customers	$	1,422.4			438.3			3,290.8			11.7			—			3,302.5			365.6			550.0			915.6			—			4,218.1
Intersegment		105.8			118.6			2,085.4			40.0			(2,003.6	)		121.8			—			0.4			0.4			(122.2	)		—
Depreciation, depletion and amortization		12.5			—			202.5			2.8			—			205.3			32.0			15.7			47.7			3.4			256.4
Operating income (loss) before special items and provisions		11.0			(0.5	)		1,229.9			(53.9	)		—			1,176.0			22.1			18.8			40.9			(57.9	)		1,159.0
Special items and provisions, net		(148.7	)		—			(429.5	)		8.6			—			(420.9	)		—			(1.5	)		(1.5	)		(13.9	)		(436.3	)
Operating income (loss)		(137.7	)		(0.5	)		800.4			(45.3	)		—			755.1			22.1			17.3			39.4			(71.8	)		722.7
Interest income		—			—			6.1			2.0			(1.6	)		6.5			7.6			0.7			8.3			10.7			25.5
Interest expense		(1.5	)		(0.5	)		(6.6	)		(0.1	)		1.6			(5.1	)		(7.2	)		(3.9	)		(11.1	)		(30.9	)		(47.1	)
Gain on sale of cost-basis investment		—			—			87.2			351.2			—			438.4			—			—			—			—			438.4
Change in interest gain from Cerro Verde stock issuance		—			—			159.5			—			—			159.5			—			—			—			—			159.5
Benefit (provision) for taxes on income		—			—			(63.3	)		—			—			(63.3	)		—			—			—			(142.5	)		(205.8	)
Minority interests in consolidated subsidiaries		—			—			(63.1	)		—			—			(63.1	)		(0.6	)		(1.8	)		(2.4	)		—			(65.5	)
Equity in net earnings (losses) of affiliated companies		—			—			(0.2	)		(0.3	)		—			(0.5	)		—			0.8			0.8			1.1			1.4
Equity basis investments at June 30		—			—			1.3			0.2			—			1.5			—			5.9			5.9			24.1			31.5
Assets at June 30		314.8			31.4			6,407.7			1,341.7			(1,449.5	)		6,299.9			815.3			649.9			1,465.2			2,293.8			10,058.9
Expenditures for segment assets		9.4			—			140.7			42.9			(26.6	)		157.0			10.3			7.3			17.6			5.0			179.6
Six Months Ended June 30, 2004*
Sales and other operating revenues:
Unaffiliated customers	$	1,205.8			454.8			2,458.4			10.6			—			2,469.0			329.1			449.8			778.9			—			3,247.9
Intersegment		116.3			102.1			1,512.5			33.4			(1,435.8	)		110.1			—			0.1			0.1			(110.2	)		—
Depreciation, depletion and amortization		10.8			—			198.4			2.2			—			200.6			24.9			18.1			43.0			5.7			249.3
Operating income (loss) before special items and provisions		11.5			1.2			721.5			(52.1	)		—			669.4			27.1			12.9			40.0			(44.6	)		664.8
Special items and provisions, net		—			—			(2.3	)		(0.2	)		—			(2.5	)		—			(4.3	)		(4.3	)		11.5			4.7
Operating income (loss)		11.5			1.2			719.2			(52.3	)		—			666.9			27.1			8.6			35.7			(33.1	)		669.5
Interest income		—			—			1.7			2.6			(2.1	)		2.2			4.2			0.4			4.6			1.2			8.0
Interest expense		(2.1	)		(0.3	)		(19.3	)		—			2.1			(17.2	)		(7.8	)		(2.4	)		(10.2	)		(43.9	)		(71.3	)
Benefit (provision) for taxes on income		—			—			(13.9	)		—			—			(13.9	)		—			—			—			(33.0	)		(46.9	)
Minority interests in consolidated subsidiaries		—			—			(103.7	)		—			—			(103.7	)		(0.5	)		(1.4	)		(1.9	)		—			(105.6	)
Equity in net earnings (losses) of affiliated companies		—			—			(0.1	)		(0.9	)		—			(1.0	)		—			0.3			0.3			1.1			0.4
Equity basis investments at June 30		—			—			1.5			—			—			1.5			—			5.6			5.6			24.1			31.2
Assets at June 30		475.7			(3.6	)		6,006.0			1,277.1			(1,384.2	)		5,898.9			753.9			582.4			1,336.3			826.1			8,061.3
Expenditures for segment assets		6.2			—			54.4			13.0			(0.9	)		66.5			5.8			13.9			19.7			10.4			96.6

* In the 2004 fourth quarter, the Company reassessed its reportable segments. The reassessment considered the significant increase in copper and molybdenum prices. Based on our assessment, we are separately disclosing Bagdad, Sierrita, Manufacturing and Sales as individual reportable segments, whereas, in 2004 Bagdad and Sierrita, and Manufacturing and Sales were aggregated. Segment information for 2004 has been revised to conform with the 2005 presentation.

-7-

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 U.S. generally accepted accounting principles (GAAP). 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, 2004. 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.

     In accordance with FASB Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51,” (FIN 46) and the revised Interpretation (FIN 46-R), beginning January 1, 2004, we fully consolidated the results of operations for the El Abra and Candelaria mines in Chile, in which we hold 51 percent and 80 percent partnership interests, respectively, with the interest held by our minority shareholders reported as “minority interests in consolidated subsidiaries” in our Consolidated Balance Sheet and Consolidated Statement of Income. Other investments in undivided interests and unincorporated mining joint ventures that are limited to the extraction of minerals are accounted for using the proportional consolidation method. These investments include the Morenci mine, located in Arizona, in which we hold an 85 percent undivided interest. Interest in other majority-owned subsidiaries are reported using the full consolidation method; the Consolidated Financial Statements include 100 percent of the assets and liabilities of these subsidiaries and the ownership interests of minority participants are recorded as “minority interests in consolidated subsidiaries.” All material intercompany balances and transactions are eliminated.

     For comparative purposes, certain amounts for the quarter and six months ended June 30, 2004, have been reclassified to conform with current period presentation.

     Our business consists of two divisions, Phelps Dodge Mining Company (PDMC) and Phelps Dodge Industries (PDI). The results of operations for the quarter and six-month periods ended June 30, 2005, are not necessarily indicative of the results to be expected for the full year.

2. Stock Compensation

     We account for our stock option plans by measuring compensation cost using the intrinsic-value-based method presented by Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. No compensation cost has been reflected in consolidated net income, as all options granted under the plans had an exercise price equal to the market value of the underlying common stock on the date of the grant. The following tables present the effect on net income and earnings per common share as if we had applied the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation,” to compensation cost.

(Unaudited; $ in millions except per share data)

	Second Quarter
	2005			2004
Net income as reported	$	682.3			226.6
Deduct:
Total compensation cost determined under fair value based method for all awards, net of tax		(1.0	)		(1.7	)
Pro forma net income	$	681.3			224.9
Earnings per common share
Basic – as reported	$	7.06			2.40
Basic – pro forma	$	7.05			2.38
Earnings per common share
Diluted – as reported	$	6.75			2.30
Diluted – pro forma	$	6.75			2.28

(Unaudited; $ in millions except per share data)

	Six Months Ended
	June 30,
	2005			2004
Net income as reported	$	1,069.0			412.3
Deduct:
Total compensation cost determined under fair value based method for all awards, net of tax		(1.9	)		(3.4	)
Pro forma net income	$	1,067.1			408.9
Earnings per common share
Basic – as reported	$	11.07			4.39
Basic – pro forma	$	11.05			4.36
Earnings per common share
Diluted – as reported	$	10.59			4.20
Diluted – pro forma	$	10.57			4.17

-8-

3. Special Items and Provisions

     Special items and provisions are unpredictable and atypical of the Company’s operations in a given period. This supplemental information is not a substitute for any U.S. GAAP measure and should be evaluated within the context of our U.S. GAAP results. The tax impacts of the special items were determined at the marginal effective tax rate of the appropriate taxing jurisdiction, including provision for a valuation allowance, if warranted. (All references to per share earnings or losses are based on diluted earnings or losses per share.)

Note: Supplemental Data

     The following schedules summarize the special items and provisions for the quarter and six months ended June 30, 2005:

(Unaudited; $ in millions except per share amounts)

	2005 Second Quarter
Consolidated Statement of Income							$/Share
Line Item	Pre-tax			After-tax			After-tax
Special items and provisions, net:
PDMC –
Asset impairment charges	$	(419.1	)		(320.9	)		(3.18	)
Environmental provisions, net		(10.4	)		(7.9	)		(0.08	)
Environmental insurance recoveries, net		(0.5	)		(0.4	)		—
Historical legal matters		15.0			11.4			0.11
		(415.0	)		(317.8	)		(3.15	)
PDI –
Wire and Cable restructuring programs/closures		(1.5	)		(1.1	)		(0.01	)
Asset impairment charges		(0.4	)		(0.3	)		—
		(1.9	)		(1.4	)		(0.01	)
Corporate and Other – Environmental provisions, net		(20.7	)		(15.7	)		(0.15	)
Environmental insurance recoveries, net		0.5			0.4			—
Historical legal matters		(0.1	)		(0.1	)		—
		(20.3	)		(15.4	)		(0.15	)
		(437.2	)		(334.6	)		(3.31	)
Gain on sale of cost-basis investment		438.4			388.0			3.84
Change in interest gain from Cerro Verde stock issuance		159.5			172.9			1.71
Provision for taxes on income:
Foreign dividend tax		—			(0.5	)		(0.01	)
	$	160.7			225.8			2.23

(Unaudited; $ in millions except per share amounts)

	Six Months Ended
	June 30, 2005
Consolidated Statement of Income							$/Share
Line Item	Pre-tax			After-tax			After-tax
Special items and provisions, net:
PDMC –
Asset impairment charges	$	(419.1	)		(320.9	)		(3.18	)
Environmental provisions, net		(15.7	)		(11.9	)		(0.12	)
Environmental insurance recoveries, net		(1.1	)		(0.9	)		(0.01	)
Historical legal matters		15.0			11.4			0.12
		(420.9	)		(322.3	)		(3.19	)
PDI –
Wire and Cable restructuring programs/closures		(1.1	)		(0.3	)		—
Asset impairment charges		(0.4	)		(0.3	)		—
		(1.5	)		(0.6	)		—
Corporate and Other –
Environmental provisions, net		(19.7	)		(15.0	)		(0.15	)
Environmental insurance recoveries, net		1.1			0.9			0.01
Historical legal matters		4.7			4.4			0.04
		(13.9	)		(9.7	)		(0.10	)
		(436.3	)		(332.6	)		(3.29	)
Gain on sale of cost-basis investment		438.4			388.0			3.84
Change in interest gain from Cerro Verde stock issuance		159.5			172.9			1.71
Provision for taxes on income:
Foreign dividend tax		—			(2.4	)		(0.02	)
	$	161.6			225.9			2.24

     On June 1, 2005, the Company’s board of directors approved expenditures of $210 million to construct a concentrate-leach, direct-electrowinning facility at the Morenci copper mine, and to restart its concentrator, which has been idle since 2001. The new facility will employ proprietary technology that has been developed and is under demonstration at the Bagdad copper mine, and is expected to begin operations in 2007. Concentrate leaching technology, in conjunction with a conventional milling and flotation concentrator, allows copper sulfide ores to be transformed into copper cathode through a pressure leaching and electrowinning process instead of smelting and refining. Historically, sulfide ores have been processed into copper anodes through a smelter. This decision had consequences for several of our other southwest copper operations, resulting in the impairment of certain assets.

     In the 2005 second quarter, PDMC recorded special, pre-tax charges for asset impairments of $419.1 million ($320.9 million after-tax) at the Tyrone and Cobre mines, Chino smelter and Miami refinery. With future Morenci copper concentrate production being fed into the concentrate leach facility, the operating smelter in Miami, Arizona, will be sufficient to treat virtually all remaining concentrate expected to be produced by Phelps Dodge at our operations in the southwestern United States. Accordingly, the Chino smelter located near Silver City, New Mexico, which has been on care-and-maintenance status since 2002, will be closed. With the closing of the Chino smelter, we will have unnecessary refining capacity in the region. Because of its superior capacity and operating

9

flexibility, our refinery in El Paso, Texas, will continue to operate. The El Paso refinery is over twice the size of our refinery in Miami, Arizona, and has sufficient capacity to refine all anodes expected to be produced from our operations in the southwestern United States given the changes brought about by the Morenci project. Accordingly, the Miami refinery, which has been on care-and-maintenance status since 2002, also will be closed. As a result of the decision to close the Chino smelter and the Miami refinery, we recorded pre-tax asset impairment charges during the 2005 second quarter of $89.6 million ($68.6 million after-tax) and $59.1 million ($45.2 million after-tax), respectively, to reduce the related carrying values of these properties to their respective salvage values.

     The steps being taken at Morenci also will impact our Tyrone and Cobre mines in New Mexico. The Tyrone mine has been partially curtailed since 2003, while activities at the Cobre mine were suspended in 1999, with the exception of limited activities. Future economics of these mines likely will be affected by significantly higher acid costs resulting from their inability to obtain low-cost acid from the Chino smelter. These factors caused Phelps Dodge to reassess the recoverability of the long-lived assets at both the Tyrone and Cobre mines. This reassessment, which was based on an analysis of cash flows associated with the related assets, indicated that the assets were not recoverable and that asset impairment charges were required.

     Tyrone’s pre-tax impairment of $210.5 million ($161.2 million after-tax) primarily resulted from fundamental changes to its life-of-mine cash flows. In addition to higher expected acid costs, we decided to accelerate reclamation of portions of stockpiles around the mine perimeter. As a result of this accelerated plan, the estimated cost associated with reclaiming the perimeter stockpiles increased. These factors increased costs and also decreased Tyrone’s copper ore reserves by approximately 155 million pounds, or 14 percent.

     Cobre’s pre-tax impairment of $59.9 million ($45.9 million after-tax) primarily resulted from projected higher acid, external smelting and freight costs as a result of the Chino smelter being permanently closed. It also reflected estimated higher restart and operating costs of running the Cobre mill reflecting our recent experience with restarting the Chino mill. Additionally, the cost for building a tailing pipeline from Cobre to the Chino mine has increased based upon a recent detailed engineering evaluation recommending (i) extending the pipeline an additional nine miles, (ii) adding a new thickener and booster pump station, and (iii) requiring larger pipe size.

     For the six months ended June 30, 2005, a net charge for environmental provisions of $35.4 million ($26.9 million after-tax) was recognized for closed facilities and closed portions of operating facilities. (Refer to Note 5, Environmental, and Reclamation and Closure Matters, for further discussion of environmental matters.)

     For the six months ended June 30, 2005, a net charge of $1.1 million ($0.3 million after-tax) was recognized for Phelps Dodge Magnet Wire’s restructuring programs and facility closures. (Refer to the Company’s Form 10-K for the year ended December 31, 2004, for additional discussion.)

     For the six months ended June 30, 2005, a gain of $19.7 million ($15.8 million after-tax) was recognized for legal matters. This included $14.9 million ($11.3 million after-tax) of net settlements on historical legal matters, a $3.6 million (before and after taxes) adjustment related to an historical Cyprus Amax Minerals Company lawsuit and a net settlement of $1.2 million ($0.9 million after-tax) reached with one of our insurance carriers associated with potential future legal matters.

     On June 9, 2005, the Company entered into an Underwriting Agreement with Citigroup Global Markets, Inc., UBS Securities LLC, Southern Peru Copper Corporation (SPCC), Cerro Trading Company, Inc. and SPC Investors, LLC. On June 15, 2005, pursuant to the Underwriting Agreement, the Company sold all of its SPCC common shares to the underwriters for a net purchase price of $40.635 per share (based on a market purchase price of $42.00 per share less underwriting fees). This transaction resulted in a special, pre-tax gain of $438.4 million ($388.0 million after-tax). The after-tax gain increased by approximately $18 million from the amount disclosed in our June 9, 2005, Form 8-K filing primarily due to the recognition of additional capital loss carryforwards resulting from subsequent developments in the tax audits of years 2000 through 2002.

     In the 2005 second quarter, we recognized a gain of $159.5 million ($172.9 million after-tax) associated with the change of ownership interest in our Cerro Verde copper mine in Peru. This action resulted from the inflow of new capital for our Cerro Verde copper mine, which resulted in our ownership interest decreasing from 82.5 percent to 53.6 percent. The $13.4 million tax benefit related to this transaction included a reduction in deferred tax liabilities ($16.1 million) resulting from the recognition of certain book adjustments to reflect the dilution of our ownership interest; partially offset by taxes charged ($2.7 million) on the transfer of stock subscription rights to Compañia de Minas Buenaventura S.A.A. and Sumitomo Metal Co. Ltd. and Sumitomo Corp., known collectively as Sumitomo. This inflow of new capital will be used as partial financing of the $850 million expansion to mine a primary sulfide ore body beneath the leachable ore body currently in production.

     For the six months ended June 30, 2005, an additional tax charge of $2.4 million was recognized for U.S. taxes incurred with respect to dividends received from Cerro Verde in 2005.

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Note: Supplemental Data

     The following schedules summarize the special items and provisions for the quarter and six months ended June 30, 2004:

(Unaudited; $ in millions except per share amounts)

	2004 Second Quarter
Consolidated Statement of Income							$/Share
Line Item	Pre-tax			After-tax			After-tax
Special items and provisions, net:
PDMC —
Environmental provisions, net	$	(2.3	)		(1.8	)		(0.02	)
Environmental insurance recoveries, net		(0.2	)		(0.1	)		—
		(2.5	)		(1.9	)		(0.02	)
PDI —
Wire and Cable restructuring programs/closures		(1.9	)		(1.4	)		(0.01	)
Asset impairment charges		(0.6	)		(0.5	)		(0.01	)
		(2.5	)		(1.9	)		(0.02	)
Corporate and Other —
Environmental provisions, net		0.5			0.4			—
Environmental insurance recoveries, net		0.1			0.1			—
Historical legal matters		15.9			12.8			0.13
		16.5			13.3			0.13
		11.5			9.5			0.09
Early debt extinguishment costs		(15.2	)		(12.6	)		(0.13	)
Miscellaneous income and expense, net:
Cost-basis investment write-down		(6.4	)		(6.4	)		(0.06	)
Provision for taxes on income:
PD Brazil deferred tax asset valuation allowance		—			(9.0	)		(0.09	)
Minority interests in consolidated subsidiaries:
Candelaria early debt extinguishment costs		—			2.5			0.03
	$	(10.1	)		(16.0	)		(0.16	)

(Unaudited; $ in millions except per share amounts)

	Six Months Ended
	June 30, 2004
Consolidated Statement of Income							$/Share
Line Item	Pre-tax			After-tax			After-tax
Special items and provisions, net:
PDMC —
Environmental provisions, net	$	(2.3	)		(1.8	)		(0.02	)
Environmental insurance recoveries, net		(0.2	)		(0.1	)		—
		(2.5	)		(1.9	)		(0.02	)
PDI —
Wire and Cable restructuring programs/closures		(3.6	)		(2.5	)		(0.02	)
Environmental provisions, net		(0.1	)		(0.1	)		—
Asset impairment charges		(0.6	)		(0.5	)		(0.01	)
		(4.3	)		(3.1	)		(0.03	)
Corporate and Other —
Environmental provisions, net		(4.1	)		(3.1	)		(0.03	)
Environmental insurance recoveries, net		0.1			0.1			—
Historical legal matters		15.5			12.4			0.13
		11.5			9.4			0.10
		4.7			4.4			0.05
Interest expense:
Texas franchise tax matter		(0.9	)		(0.7	)		(0.01	)
Early debt extinguishment costs		(37.6	)		(30.2	)		(0.31	)
Miscellaneous income and expense, net:
Cost-basis investment write-downs		(10.0	)		(9.1	)		(0.09	)
Provision for taxes on income:
Reversal of El Abra deferred tax asset valuation allowance		—			30.8			0.31
PD Brazil deferred tax asset valuation allowance		—			(9.0	)		(0.09	)
		—			21.8			0.22
Minority interests in consolidated subsidiaries:
Reversal of El Abra deferred tax asset valuation allowance		—			(15.1	)		(0.15	)
Candelaria early debt extinguishment costs		—			2.5			0.02
		—			(12.6	)		(0.13	)
	$	(43.8	)		(26.4	)		(0.27	)

4. New Accounting Pronouncements

     In May 2005, the Financial Accounting Standards Board (FASB) issued SFAS No. 154, “Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3.” SFAS No. 154 requires retrospective application to prior periods’ financial statements for changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. This Statement applies to all voluntary changes in accounting principle as well as to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. SFAS No. 154 further requires a change in depreciation, amortization or depletion method for long-lived, non-financial assets to be accounted for as a change in accounting estimate effected by a

11

change in accounting principle. Corrections of errors in the application of accounting principles will continue to be reported by retroactively restating the affected financial statements. The provisions of this Statement are effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005. The adoption of this Statement is not expected to have a material impact on our reporting and disclosures.

     In March 2005, FASB issued FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations—an interpretation of FASB Statement No. 143” (FIN 47). FIN 47 clarifies the term conditional asset retirement obligation as used in SFAS No. 143, “Accounting for Asset Retirement Obligations,” and requires an entity to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value can be reasonably estimated. Any uncertainty about the amount and/or timing of future settlement of a conditional asset retirement obligation should be factored into the measurement of the liability when sufficient information exists. FIN 47 also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN 47 is effective for fiscal years ending after December 15, 2005. The Company is currently determining the impact of FIN 47 on its financial reporting and disclosures.

     In March 2005, FASB ratified the consensus reached by the Emerging Issues Task Force (EITF) on Issue No. 04-6, “Accounting for Stripping Costs Incurred during Production in the Mining Industry.” The consensus reached provides that stripping costs incurred during the production phase of a mine are variable production costs that should be included in the cost of inventory produced during the period. The consensus reached on EITF Issue No. 04-6 is effective for the first reporting period in fiscal years beginning after December 15, 2005. The Company is currently determining the impact of this Issue on its financial reporting and disclosures.

     In December 2004, FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment” (SFAS No. 123-R), which amends SFAS No. 123, to require companies to recognize, in their financial statements, the cost of employee services received in exchange for equity instruments issued, and liabilities incurred, to employees in share-based payment transactions, such as employee stock options and similar awards. On April 14, 2005, the Securities and Exchange Commission delayed the effective date to annual periods, rather than interim periods beginning after June 15, 2005. We have evaluated SFAS No. 123-R and determined that adoption of this Statement will not have a material impact on our financial reporting and disclosures. Upon adoption of this Statement, the modified prospective application will be utilized to account for share-based payment transactions.

     In December 2004, FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets, an Amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions.” SFAS No. 153 eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29 and replaces it with an exception for exchanges that do not have commercial substance. SFAS No. 153 specifies that a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. This Statement is effective for fiscal years beginning after June 15, 2005. The adoption of SFAS No. 153 is not expected to have a material impact on our financial reporting and disclosures.

     In December 2004, FASB issued FASB Staff Position (FSP) No. FAS 109-1, “Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004,” and FSP No. FAS 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004,” to address the accounting implications associated with the American Jobs Creation Act of 2004 (the Act), enacted in October 2004. FSP No. FAS 109-1 clarifies how to apply SFAS No. 109 to the new law’s tax deduction for income attributable to qualified domestic production activities. The staff proposal would require that the deduction be accounted for as a special deduction in the period earned, not as a tax-rate reduction. FSP No. FAS 109-2 provides guidance with respect to recording the potential impact of the repatriation provisions of the Act on a company’s income tax expense and deferred tax liabilities. FSP No. FAS 109-2 states that an enterprise is permitted time beyond the financial reporting period of enactment to evaluate the effect of the Act on its plan for reinvestment or repatriation of foreign earnings for purposes of applying SFAS No. 109. (Refer to Note 8, Provision for Taxes on Income, for further discussion of the impact of the Act.)

     In November 2004, FASB issued SFAS No. 151, “Inventory Costs, an Amendment of ARB No. 43, Chapter 4.” SFAS No. 151 clarifies that abnormal amounts of idle facility expense, freight, handling costs and wasted materials (spoilage) should be recognized as current-period charges and requires the allocation of fixed production overhead to inventory based on the normal capacity of the production facilities. The guidance in this Statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The adoption of this Statement is not expected to have a material impact on our financial reporting and disclosures.

5. Environmental, and Reclamation and Closure Matters

     As of December 31, 2004, environmental reserves totaled $303.6 million for estimated future costs associated with environmental matters at closed facilities and closed portions of certain operating facilities. The following table summarizes our environmental reserve activities for the quarter and six months ended June 30, 2005:

(Unaudited; $ in millions)

				Six Months
	2005			Ended
	Second Quarter			June 30, 2005
Balance, beginning of period	$	297.8			303.6
Additions to reserves		31.1			37.0
Reductions in reserve estimates		—			(1.6	)
Spending against reserves		(9.4	)		(19.5	)
Balance, end of period	$	319.5			319.5

     The site currently considered to be most significant is the Pinal Creek site near Miami, Arizona, where $108.5 million remained in the environmental reserve at June 30, 2005. Phelps Dodge Miami, Inc. and the other members of the Pinal Creek Group (PCG) settled their contribution claims against one defendant in April 2005, which will result in cancellation of the Phase I trial. While the terms of the

12

settlement are confidential, the proceeds of the settlement will be used to address remediation at the Pinal Creek site. The Phase II trial, which will allocate liability, has not been scheduled.

     At June 30, 2005, the cost range for reasonably possible outcomes for all reservable remediation sites (including Pinal Creek’s estimate of $105 million to $211 million) was estimated to be from $287 million to $571 million (of which $320 million has been reserved).

     Phelps Dodge has a number of sites that are not the subject of an environmental reserve because it is not probable that a successful claim will be made against the Company for those sites, but for which there is a reasonably possible likelihood of an environmental remediation liability. As of June 30, 2005, the cost range for reasonably possible outcomes for all such sites was estimated to be from $3 million to $17 million. The liabilities arising from potential environmental obligations that have not been reserved at this time may be material to the operating results of any single quarter or year in the future. Management, however, believes the liability arising from potential environmental obligations is not likely to have a material adverse effect on the Company’s liquidity or financial position as such obligations could be satisfied over a period of years.

     We recognize asset retirement obligations (AROs) as liabilities when incurred, with initial measurement at fair value. These liabilities are accreted to full value over time through charges to income. In addition, asset retirement costs (ARCs) are capitalized as part of the related asset’s carrying value and are depreciated primarily on a units-of-production basis over the asset’s useful life. Reclamation costs for future disturbances are recognized as an ARO and as a related ARC in the period incurred. The Company’s cost estimates are reflected on a third-party cost basis and comply with the Company’s legal obligation to retire long-lived assets as defined by SFAS No. 143. These cost estimates may differ from financial assurance cost estimates due to a variety of factors, including obtaining updated cost estimates for reclamation activities, the timing of reclamation activities, changes in the scope of reclamation activities and the exclusion of certain costs not accounted for under SFAS No. 143.

     The following tables summarize our asset retirement obligations and asset retirement cost activities for the quarter and six months ended June 30, 2005:

Asset Retirement Obligations
(Unaudited; $ in millions)

				Six Months
	2005			Ended
	Second Quarter			June 30, 2005
Balance, beginning of period	$	292.6			275.2
New liabilities during the period		0.7			1.6
Accretion expense		5.5			10.9
Payments		(8.6	)		(15.2	)
Revisions in estimated cash flows		38.9			56.8
Foreign currency translation adjustments		(0.2	)		(0.4	)
Balance, end of period	$	328.9			328.9

Asset Retirement Costs
(Unaudited; $ in millions)

				Six Months
	2005			Ended
	Second Quarter			June 30, 2005
Gross balance, beginning of period	$	214.9			196.3
New assets during the period		0.7			1.6
Revisions in estimated cash flows		38.9			56.8
Impairment of assets		(129.7	)		(129.7	)
Foreign currency translation adjustments		(0.1	)		(0.3	)
Gross balance, end of period		124.7			124.7
Less accumulated depreciation, depletion and amortization		80.0			80.0
Balance, end of period	$	44.7			44.7

     In the 2005 first quarter, we revised our estimated cash flows for the Tyrone mine, resulting in an increase of $16.9 million (discounted). The revision recognized adjusted timing of reclamation activities for an inactive portion of the tailing operations as a result of receiving a permit modification from the Mining and Minerals Division (MMD) of the New Mexico Energy, Minerals and Natural Resources Department in March 2005, coupled with obtaining new cost estimates to perform the closure activities. We also revised our estimated cash flows for the Cobre mine, resulting in an increase of $1.0 million (discounted), for timing and cost estimate changes resulting from MMD issuing a permit revision approving the closeout plan in March 2005.

     In the 2005 second quarter, we revised estimated cash flows for the Tyrone mine, resulting in an increase of $35.8 million (discounted). The revision recognized management’s decision to move up the timing of reclamation activities for stockpile work and tailings work. We also revised estimated cash flows for the Climax mine, resulting in an increase of $3.1 million (discounted), for timing and cost estimate changes resulting from Climax receiving permit modifications from the Colorado Division of Minerals and Geology.

     Additionally, in the 2005 second quarter, Tyrone and Cobre mines recorded impairments of asset retirement costs of $124.5 million and $5.2 million, respectively. (Refer to Note 3, Special Items and Provisions, for additional discussion.)

     We have estimated our share of the total cost of our AROs, including anticipated future disturbances, at approximately $1.3 billion (unescalated, undiscounted and on a third-party cost basis), leaving approximately $1.0 billion remaining to be accreted over time. These aggregate costs may increase or decrease materially in the future as a result of changes in regulations, technology, mine plans or other factors, and as actual reclamation spending occurs. ARO activities and expenditures generally are made over an extended period of time commencing near the end of a mine’s life; however, certain reclamation activities could be accelerated if they are determined to be economically beneficial.

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6. Contingencies

Significant New Mexico Closure and Reclamation Programs

     Background

     The Company’s New Mexico operations, Chino, Tyrone, Cobre and Hidalgo, each are subject to regulation under the New Mexico Water Quality Act and the Water Quality Control Commission (WQCC) regulations adopted under that Act. The New Mexico Environment Department (NMED) has required each of these operations to submit closure plans for approval. The closure plans must describe the measures to be taken to prevent groundwater quality standards from being exceeded following closure of the discharging facilities and to abate any groundwater or surface water contamination.

     Chino, Tyrone and Cobre also are subject to regulation under the New Mexico Mining Act (the Mining Act), which was enacted in 1993, and the Mining Act Rules, which are administered by MMD. Under the Mining Act, Chino, Tyrone and Cobre are required to submit and obtain approval of closeout plans describing the reclamation to be performed following closure of the mines or portions of the mines.

     Financial assurance is required to ensure that funding will be available to perform both the closure and the closeout plans if the operator is not able to perform the work required by the plans. The amount of the financial assurance is based upon the estimated cost for a third party to complete the work specified in the plans, including any long-term operation and maintenance, such as operation of water treatment systems. NMED and MMD calculate the required amount of financial assurance using a “net present value” (NPV) method, based upon approved discount and escalation rates, when the closure plan and/or closeout plan require performance over a long period of time.

     In April 2005, the governor of New Mexico signed Senate Bill 986, effective June 17, 2005, that removes the requirement to provide financial assurance for the gross receipts tax levied on closure work. Eliminating this requirement is expected to reduce our New Mexico financial assurance by approximately $27 million (NPV basis).

     The Company’s cost estimates to perform the work itself (internal cost basis) generally are substantially lower than the cost estimates used for financial assurance due to the Company’s historical cost advantages, savings from the use of the Company’s own personnel and equipment as opposed to third-party contractor costs, and opportunities to prepare the site for more efficient reclamation as mining progresses.

     Chino Mines Company

     NMED issued Chino’s closure permit on February 24, 2003. The closure permit was appealed by a third party. WQCC dismissed the appeal, and that dismissal was appealed to the New Mexico Court of Appeals. On June 15, 2005, the Court of Appeals issued a decision that overturns the WQCC’s dismissal of the third party appeal of Chino’s closure permit. Chino is evaluating its options to respond to this decision. Under the decision, Chino’s closure permit would be remanded to the WQCC for a hearing.

     MMD issued a permit revision approving Chino’s closeout plan, subject to conditions, on December 18, 2003. MMD’s permit revision was not appealed. The third-party cost estimate is approximately $395 million (undiscounted and unescalated) over the 100-year period of the closure and closeout plans. Chino has provided financial assurance to NMED and MMD for approximately $192 million (NPV basis), including a trust fund initially containing approximately $64 million and a third-party performance guarantee for approximately $128 million provided by Phelps Dodge. The guarantee is subject to a financial test that, in part, requires Phelps Dodge to maintain an investment-grade rating on its senior unsecured debt. Phelps Dodge’s senior unsecured debt currently carries an investment-grade rating.

     The terms of the NMED and MMD permits require Chino to conduct supplemental studies concerning closure and closeout, including a feasibility study. The terms of the NMED permit also require Chino to prepare and submit an abatement plan. Chino is complying with those requirements. The studies and abatement plan are due to be submitted to NMED before an application for renewal of the closure permit is due in August 2007. Changes to the closure permit, which could increase or decrease the estimated cost of closure and closeout, will be considered when the permit is renewed. The permits also contain requirements and a schedule for Chino to commence closure and reclamation of inactive portions of the operations, subject to Chino’s ability to seek “standby status” for portions of the operations anticipated to resume operation in the future.

     The Company estimates its cost, on an internal cost basis, to perform the requirements of the approved Chino closure and closeout permits to be approximately $293 million (undiscounted and unescalated) over the 100-year period of the closure and closeout plans. That estimate is lower than the estimated cost used as the basis for the financial assurance amount due to the factors discussed above, and reflects our internal cost estimate. Our cost estimate, on a third-party cost basis, used to determine the fair value of our closure and closeout accrual for SFAS No. 143 was approximately $393 million (undiscounted and unescalated). This cost estimate excludes approximately $2 million of net environmental costs from the financial assurance cost estimate that are primarily not within the scope of SFAS No. 143. At June 30, 2005, and December 31, 2004, we had accrued approximately $53 million and $52 million, respectively, for closure and closeout at Chino.

     In December 1994, Chino entered into an Administrative Order on Consent (AOC) with NMED. The AOC requires Chino to perform a Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) quality investigation of environmental impacts and potential risks to human health and the environment associated with portions of the Chino property affected by historical mining operations. The remedial investigations began in 1995 and are still under way, although substantial portions of the remedial investigations are near completion. The Company expects that some remediation will be required, although no feasibility studies have yet been completed. NMED has not yet issued a record of decision regarding any remediation that may be required under the AOC. The Company’s estimated cost for all aspects of the AOC, as of June 30, 2005, is $21.7 million. In addition to work under the AOC, Chino is continuing ongoing projects to control blowing dust from tailing impoundments at an estimated cost of $4.8 million. Chino initiated work on excavating and removing copper-bearing material from an area known as “Lake One” for copper recovery in existing leach

14

stockpiles at the mine. The Company’s estimated cost, as of June 30, 2005, for the remaining work at Lake One is $4.4 million. The Company’s aggregate environmental reserve for liability under the Chino AOC, the interim work on the tailing impoundments and Lake One, as described above, is $30.9 million at June 30, 2005.

     Phelps Dodge Tyrone, Inc.

     NMED issued Tyrone’s closure permit on April 8, 2003. Tyrone appealed to the WQCC, which upheld NMED’s permit conditions. Tyrone has appealed the WQCC’s decision to the New Mexico Court of Appeals.

     MMD issued a permit revision approving Tyrone’s closeout plan, subject to conditions, on April 12, 2004. MMD’s permit revision was not appealed. The third-party cost estimate is approximately $439 million (undiscounted and unescalated) over the 100-year period of the closure and closeout plans. Tyrone has provided financial assurance to NMED and MMD for approximately $271 million (NPV basis). The financial assurance includes a trust fund initially funded in the amount of approximately $17 million, to increase to approximately $27 million over five years, a letter of credit for approximately $6 million, a surety bond for approximately $58 million, and a third-party performance guarantee for approximately $190 million provided by Phelps Dodge. Tyrone expects to replace the surety bond over the next several months with a reduction in financial assurance for closure work already completed, adjustments for recently passed legislation, collateral approved by MMD and NMED and an additional letter of credit. The guarantee is subject to a financial test that, in part, requires Phelps Dodge to maintain an investment-grade rating on its senior unsecured debt. Phelps Dodge’s senior unsecured debt currently carries an investment-grade rating.

     The terms of the NMED and MMD permits require Tyrone to conduct supplemental studies concerning closure and closeout plans, including a feasibility study. The terms of the NMED permit also require Tyrone to prepare and submit an abatement plan. Tyrone is complying with those requirements. The studies and abatement plan are due to be submitted to NMED before an application for renewal of the closure permit is due in October 2007. Changes to the closure permit, which could increase or decrease the estimated cost of closure and closeout, will be considered when the permit is renewed. The permits also contain requirements and a schedule for Tyrone to commence closure and reclamation of inactive portions of the operations, subject to Tyrone’s ability to seek “standby status” for portions of the operations anticipated to resume operation in the future.

     During 2004, Tyrone commenced certain closure activities with the mining of its 1C Stockpile and placement of re-mined material on existing leach stockpiles for recovery of residual copper. Through June 30, 2005, approximately $19 million has been spent on the 1C Stockpile removal action. Once removal activities are completed in 2005, the remaining material will be graded and capped to meet stipulated closure requirements. As a result of management’s decision, Tyrone is also accelerating reclamation of tailing and stockpile facilities. Tyrone also initiated planning for accelerated reclamation of tailing impoundments located within the Mangas Valley, with initial earthwork commencing in November 2004. The project is expected to be completed in 2008. Additionally, as of June 30, 2005, Tyrone substantially completed reclamation of the Burro Mountain tailing area at an approximate cost of $1 million. Tyrone plans to seek reductions in the required amount of financial assurance based upon the closure and reclamation work that has been and is being performed.

     The Company estimates its costs, on an internal cost basis, to perform the requirements of Tyrone’s closure and closeout permits to be approximately $337 million (undiscounted and unescalated) over the 100-year period of the closure and closeout plans. That estimate does not yet reflect reductions for work performed in 2004 through June 30, 2005, and is lower than the estimated cost used as the basis for the financial assurance amount due to the factors discussed above. Our cost estimate, on a third-party cost basis, used to determine the fair value of our closure and closeout accrual for SFAS No. 143 was approximately $458 million (undiscounted and unescalated). This cost estimate includes approximately $19 million of net costs in addition to the financial assurance cost estimate that primarily relate to an increased scope of work for the tailings, stockpiles and other projects, and updated estimates for actual closure expenditures. At June 30, 2005 and December 31, 2004, we had accrued approximately $148 million and $99 million, respectively, for closure and closeout at Tyrone.

     Cobre Mining Company

     NMED issued Cobre’s closure permit on December 10, 2004. On March 3, 2005, MMD issued a permit revision approving Cobre’s closeout plan, subject to conditions. The third-party cost estimate is approximately $45 million (undiscounted and unescalated) over the 100-year period of the closure and closeout plans. Cobre has provided financial assurance to NMED and MMD for approximately $29 million (NPV basis). The financial assurance includes a trust initially funded in the amount of at least $1 million, to increase to $3 million over five years, real estate collateral for approximately $8 million, and a third-party performance guarantee for approximately $20 million provided by Phelps Dodge.

     The terms of the NMED and MMD permits require Cobre to conduct supplemental studies concerning closure and closeout, including a feasibility study. Cobre is complying with those requirements. The terms of the NMED permit also require Cobre to prepare and submit an abatement plan. The studies and abatement plan are due to be submitted to NMED before an application to renew the closure permit is due in 2009. Changes to the closure permit, which could increase or decrease the estimated cost of closure and closeout, will be considered when the permit is renewed. The permits also contain requirements and a schedule for Cobre to commence closure and reclamation of inactive portions of the operations, subject to Cobre’s ability to seek “standby status” for portions of the operations anticipated to resume operation in the future.

     The Company estimates its costs, on an internal cost basis, to perform the requirements of Cobre’s closure and closeout permits to be approximately $39 million (undiscounted and unescalated) over the 100-year period of the closure and closeout plans. That estimate is lower than the estimated cost used as the basis for the financial assurance amount due to the factors discussed above. Our cost estimate, on a third-party cost basis, used to determine the fair value of our closure and closeout accrual for SFAS No. 143 was approximately $46 million (undiscounted and unescalated). This cost estimate includes approximately $1 million of costs in addition to the

15

financial assurance cost estimate that primarily relates to construction of test plots for stockpile studies. At June 30, 2005 and December 31, 2004, we had accrued approximately $8 million and $7 million, respectively, for closure and closeout at Cobre.

     Phelps Dodge Hidalgo, Inc.

     Hidalgo obtained approval of a closure plan under a discharge permit issued by NMED in 2000. In accordance with the permit, Hidalgo provided financial assurance to NMED in the form of surety bonds for approximately $11 million. Since obtaining approval of the closure plan, Hidalgo has completed the closure of a former wastewater evaporation pond by construction of a soil cap approved by NMED. The discharge permit under which the closure plan was approved also requires corrective action for contaminated groundwater near the smelter’s closed former wastewater evaporation pond. Impacted groundwater is pumped from a series of wells, treated in a neutralization facility, and discharged to a series of lined impoundments or to an irrigation system. The discharge permit requires comprehensive studies to characterize soil and groundwater at this site. NMED could require soil remediation and future enhancement of the existing groundwater containment system based upon the results of the ongoing studies. A discharge permit renewal application was submitted in February 2005. As part of this permit process, Hidalgo and NMED will update the closure plan and address remedial requirements, if warranted. Hidalgo is not subject to the Mining Act and, consequently, does not require a closeout plan. Our cost estimate used to determine the fair value of our reclamation obligation was approximately $7 million (undiscounted and unescalated). At both June 30, 2005, and December 31, 2004, we had accrued approximately $4 million for closure at Hidalgo.

7. Earnings Per Share

     Basic earnings per share are computed by dividing net income available to common shares by the weighted average number of common shares outstanding for the period. Diluted earnings per share are computed similarly 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 potentially dilutive common shares had been issued, and the numerator is based on total net income. Restricted stock is unvested; accordingly, these shares are included only in the computation of diluted earnings per share as they are contingent only upon vesting.

     Common shares relating to stock options where the exercise prices exceeded the average market price of the Company’s common shares during the period were also excluded from the diluted earnings per share calculation as the related impact was anti-dilutive.

(Unaudited; $ in millions except per share data)

	Second Quarter
	2005			2004
Basic Earnings Per Share Computation
Numerator:
Net income	$	682.3			226.6
Preferred stock dividends		(3.4	)		(3.4	)
Net income applicable to common shares	$	678.9			223.2
Denominator:
Weighted average common shares outstanding		96.2			92.9
Basic earnings per common share	$	7.06			2.40
Diluted Earnings Per Share Computation
Numerator:
Net income	$	682.3			226.6
Denominator:
Weighted average common shares outstanding		96.2			92.9
Weighted average employee stock options		0.3			1.0
Weighted average restricted stock issued to employees		0.4			0.3
Weighted average mandatory convertible preferred shares		4.2			4.2
Total weighted average common shares outstanding		101.1			98.4
Diluted earnings per common share	$	6.75			2.30

(Unaudited; $ in millions except per share data)

	Six Months Ended
	June 30,
	2005			2004
Basic Earnings Per Share Computation
Numerator:
Net income	$	1,069.0			412.3
Preferred stock dividends		(6.8	)		(6.8	)
Net income applicable to common shares	$	1,062.2			405.5
Denominator:
Weighted average common shares outstanding		96.0			92.3
Basic earnings per common share	$	11.07			4.39
Diluted Earnings Per Share Computation
Numerator:
Net income	$	1,069.0			412.3
Denominator:
Weighted average common shares outstanding		96.0			92.3
Weighted average employee stock options		0.4			1.4
Weighted average restricted stock issued to employees		0.4			0.3
Weighted average mandatory convertible preferred shares		4.2			4.2
Weighted average common shares outstanding		101.0			98.2
Diluted earnings per common share	$	10.59			4.20

16

8. Provision for Taxes on Income

     The Company’s income tax provision for the 2005 second quarter resulted from taxes on earnings at international operations ($35.4 million) including recognition of valuation allowances ($1.1 million), and taxes on earnings at U.S. operations ($39.2 million) including benefits from the release of valuation allowances ($10.6 million).

     The Company’s income tax provision for the six months ended June 30, 2005, resulted from taxes on earnings at international operations ($83.7 million) including recognition of valuation allowances ($1.5 million), and taxes on earnings at U.S. operations ($122.1 million) including benefits from the release of valuation allowances ($31.9 million).

     The release in our domestic valuation allowances for the quarter and six months ended June 30, 2005, was attributable to a portion of our U.S. federal minimum tax credits, as well as our state net operating loss (NOL) carryforwards.

     The Company’s income tax provision for the 2004 second quarter resulted from (i) taxes on earnings at international operations ($18.9 million) including benefits from the release of valuation allowances ($21.3 million), (ii) taxes on earnings at U.S. operations ($12.8 million) including benefits from the release of valuation allowances ($41.9 million) and (iii) the recognition of a valuation allowance for deferred tax assets at our Brazilian wire and cable operation ($9.0 million).

     The Company’s income tax provision for the six months ended June 30, 2004, resulted from (i) taxes on earnings at international operations ($55.8 million) including benefits from the release of valuation allowances ($45.8 million), (ii) taxes on earnings at U.S. operations ($12.9 million) including benefits from the release of valuation allowances ($66.2 million) and (iii) the recognition of a valuation allowance for deferred tax assets at our Brazilian wire and cable operation ($9.0 million); partially offset by the reversal of the valuation allowance associated with deferred tax assets that were expected to be realized after 2004 at our 51 percent-owned El Abra copper mine ($30.8 million). The release of both the domestic and international valuation allowances reflects NOLs and other tax credits that were expected to be utilized.

     The Company’s effective income tax rate for the six months ended June 30, 2005, was 15.4 percent, compared with 8.3 percent for the corresponding 2004 period. The difference between our effective income tax rate for the six months ended June 30, 2005, and the U.S. federal statutory tax rate (35 percent) primarily was due to (i) deferred income taxes not being provided on the change in interest gain from the Cerro Verde stock issuance (refer to Note 3, Special Items and Provisions, to our unaudited June 30, 2005, Consolidated Financial Information, for further discussion of the tax benefit), as we expect to permanently reinvest our portion of the proceeds in that entity, (ii) a portion of the gain on the sale of our investment in SPCC, being offset by previously unrecognized capital loss carryovers, and (iii) percentage depletion deductions for regular tax purposes in the United States. The difference between the effective income tax rate for the six months ended June 30, 2004, and the U.S. federal statutory tax rate primarily was due to percentage depletion deductions for regular tax purposes in the U.S. and the release of valuation allowances related to certain of our deferred tax assets.

     The recent enactment of the American Jobs Creation Act of 2004 (the Act) has caused us to begin the process of re-evaluating our current policy with respect to the repatriation of foreign earnings. The Act provides an effective U.S. federal tax rate of 5.25 percent on certain foreign earnings repatriated during a one-year period (2005 for Phelps Dodge), but also results in the loss of any foreign tax credits associated with these earnings. The maximum amount of the Company’s foreign earnings that qualify for this one-time deduction is approximately $638 million. At the present time, other than the amount provided for dividends received in 2005 from Cerro Verde, we do not have enough information to determine whether and to what extent we might repatriate foreign earnings or the related income tax effect of such repatriation. We expect to finalize our assessment by the end of the 2005 third quarter, at which time any tax impact would be recognized.

9. Accounting for Derivative Instruments and Hedging Activities

     The Company does not purchase, hold or sell derivative financial contracts unless we have an existing asset or obligation or we anticipate a future activity that is likely to occur and will result in exposing us to market risk. We do not enter into any contracts for speculative purposes. We use various strategies to manage our market risk, including the use of derivative contracts to limit, offset or reduce our market exposure. Derivative instruments are used to manage well-defined commodity price, energy, foreign exchange and interest rate risks from our primary business activities. The fair values of our derivative instruments are based on valuations provided by third parties or widely published market closing prices at period end. Refer to Management’s Discussion and Analysis of Financial Condition and Results of Operation and Note 21, Derivative Financial Instruments and Fair Value of Financial Instruments, to the Consolidated Financial Statements included in the Company’s Form 10-K for the year ended December 31, 2004, for a discussion of our derivative instruments.

     During the 2005 first quarter, Phelps Dodge entered into a program to protect a portion of Phelps Dodge’s share of expected 2006 global production by purchasing zero-premium copper collars (approximately 564 million pounds) and copper put options (approximately 564 million pounds). The copper collars have an average LME put strike price (floor) of 95.4 cents per pound (settled against the monthly average LME price) and an average LME call strike price (ceiling) of $1.632 per pound (settled against an annual average LME price). The copper put options establish a floor price of 95.0 cents per pound (settled against the monthly average LME price). The put options were purchased for a 2 cents per pound premium. Phelps Dodge entered into the program as insurance to provide cash flows to help ameliorate the effects of unanticipated copper price decreases.

     During the second half of 2004, Phelps Dodge entered into programs to purchase zero-premium copper collars on approximately 97 percent of El Abra’s expected 2005 total production (approximately 452 million pounds) and 10 percent of PDMC’s expected remaining 2005 consolidated production (approximately 198 million pounds). The copper collars at El Abra have an average LME put strike price (floor) of $1.00 per pound (settled against the monthly average LME price) and an average LME call strike price (ceiling) of $1.376 per

17

pound (settled against an annual average LME price). The copper collars on PDMC’s expected remaining consolidated production have an average LME put strike price (floor) of 94.3 cents per pound (settled against the monthly average LME price) and an average LME call strike price (ceiling) of $1.40 per pound (settled against an annual average LME price).

     Transactions under these copper price protection programs do not qualify as hedges for SFAS No. 133 hedge accounting treatment and will be adjusted to fair market value each reporting period with the offset recorded in earnings. For the six months ended June 30, 2005, as a result of market prices ($1.504 per pound) exceeding the ceiling of our 2005 zero-premium collars ($1.376 per pound for El Abra and $1.40 per pound for PDMC), we recorded unrealized pre-tax losses for our zero-premium collar programs of approximately $57 million for El Abra (approximately $29 million for PD’s share) and $21 million for a small portion of PDMC’s remaining production. El Abra entered into its program in order to ensure a copper price sufficient to provide the necessary cash to repay its short-term borrowings arising from the 2004 fourth quarter prepayment of its senior debt obligations, repay sponsor support and to ensure financial flexibility. The other program covers a small portion of PDMC’s remaining production ensuring a minimum copper price for the restarted Chino facility to operate comfortably throughout 2005.

     The actual impact of our 2005 zero-premium collar program will not be fully determinable until the maturity of the collars at year-end. The unrealized losses for our 2005 zero-premium collars were based on a projected full-year average LME futures price (including actual monthly average LME prices for the first six months of 2005) at June 30, 2005, compared with the average LME call protection price per pound of $1.376 for El Abra and $1.40 for a small portion of PDMC’s remaining production. The average LME price differences per pound were multiplied by the annual contract amounts of approximately 650 million pounds combined.

     During the quarter and six months ended June 30, 2005, we reclassified approximately $1.4 million and $1.6 million, respectively, of other comprehensive gains to the Consolidated Statement of Income, primarily as a result of our South American metal swap contracts.

     During the quarter and six months ended June 30, 2004, we reclassified approximately $10.7 million and $12.3 million, respectively, of other comprehensive losses to the Consolidated Statement of Income, principally as a result of the unwinding of our floating-to-fixed interest rate swaps.

10. Pension and Postretirement Benefits

     The following tables present the components of net periodic benefit cost for pension benefits and postretirement benefits for the quarters and six months ended June 30, 2005 and 2004:

Pension Benefits
(Unaudited; $ in millions)

	Second Quarter
	2005			2004
Service cost	$	7.0			5.9
Interest cost		18.6			18.1
Expected return on plan assets		(21.5	)		(21.2	)
Amortization of prior service cost		0.8			0.9
Amortization of actuarial loss		3.5			0.8
Curtailment and special retirement benefits		—			0.1
Net periodic benefit cost	$	8.4			4.6

	Six Months Ended
	June 30,
	2005			2004
Service cost	$	14.0			11.8
Interest cost		37.3			36.0
Expected return on plan assets		(43.1	)		(42.1	)
Amortization of prior service cost		1.6			1.8
Amortization of actuarial loss		7.1			1.6
Curtailment and special retirement benefits		—			0.6
Net periodic benefit cost	$	16.9			9.7

Postretirement Benefits
(Unaudited; $ in millions)

	Second Quarter
	2005			2004
Service cost	$	1.1			1.3
Interest cost		4.8			5.8
Expected return on plan assets		(0.1	)		—
Amortization of prior service cost		0.1			0.3
Amortization of actuarial loss		—			0.3
Other		—			(1.1	)
Net periodic benefit cost	$	5.9			6.6

	Six Months Ended
	June 30,
	2005			2004
Service cost	$	2.2			2.7
Interest cost		9.6			11.6
Expected return on plan assets		(0.1	)		(0.1	)
Amortization of prior service cost		0.1			0.6
Amortization of actuarial loss		—			0.2
Other		—			(1.1	)
Net periodic benefit cost	$	11.8			13.9

     Our pension expense in the 2005 second quarter was $8.4 million, compared with $4.6 million in the 2004 second quarter. The increase of $3.8 million was primarily due to an increase in service costs ($1.1 million) resulting from the effect of a 50-basis point reduction in the discount rate and amortization of actuarial loss ($2.7 million) resulting from an increase in benefit liability, the reduction in the deferred asset losses and actuarial losses.

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     Our pension expense for the first six months of 2005 was $16.9 million, compared with $9.7 million in the corresponding 2004 period. The increase of $7.2 million was primarily due to an increase in service costs ($2.2 million) resulting from the effect of a 50-basis point reduction in the discount rate, interest costs ($1.3 million) resulting from the effect of a 50-basis point reduction in the discount rate and actuarial losses, and amortization of actuarial loss ($5.5 million) resulting from an increase in benefit liability, the reduction in the deferred asset losses and actuarial losses; partially offset by an increase in expected return on plan assets ($1.0 million) and the absence of special retirement benefits ($0.6 million).

     On July 13, 2005, we made a cash contribution of $250 million to the master trust that funds our U.S. qualified defined benefit pension plans. This action has funded virtually the entire projected benefit obligation for those plans as reported at December 31, 2004.

     Our postretirement expense in the 2005 second quarter was $5.9 million, compared with $6.6 million in the 2004 second quarter. The decrease of $0.7 million was primarily due to a decrease in interest costs ($1.0 million) resulting from a decrease in benefit liability due to the plan amendment associated with employee life insurance, the federal subsidy associated with The Medicare Prescription Drug, Improvement and Modernization Act of 2003, and actuarial gains.

     Our postretirement expense for the first six months of 2005 was $11.8 million, compared with $13.9 million in the corresponding 2004 period. The decrease of $2.1 million was primarily due to a decrease in interest costs ($2.0 million) resulting from a decrease in benefit liability due to the plan amendment associated with employee life insurance, the federal subsidy associated with The Medicare Prescription Drug, Improvement and Modernization Act of 2003, and actuarial gains.

11. Debt and Other Financing

     The Company filed a $1 billion shelf registration statement on Form S-3 with the Securities and Exchange Commission, which was declared effective May 10, 2005, to combine the $400 million shelf registration filed April 15, 2005, and $600 million outstanding under a shelf registration statement that was declared effective on July 15, 2003. The shelf registration provides flexibility to efficiently access capital markets should financial circumstances warrant.

     On April 1, 2005, the Company amended the agreement for its $1.1 billion revolving credit facility, extending its maturity to April 20, 2010, and slightly modifying its fee structure. The facility is to be used for general corporate purposes. The agreement permits borrowings of up to $1.1 billion, with a $300 million sub-limit for letters of credit. This agreement provides for a facility fee (currently 12.5 basis points) ranging from 8 basis points to 20 basis points (depending on the Company’s public debt rating) on total commitments. Under the agreement, interest is payable at a variable rate based on the agent bank’s prime rate or at a fixed rate based on LIBOR or fixed rates offered independently by the several lenders, for maturities of up to 360 days. In addition, if utilization exceeds one-third of total commitments there is a utilization fee ranging from 10 basis points to 25 basis points (depending on the Company’s public debt rating). Fees for letters of credit (currently 50 basis points) range from 27 basis points to 80 basis points (depending on the Company’s public debt rating) on letters of credit issued, plus a 12.5 basis point issuance fee. The agreement requires the Company to maintain a minimum EBITDA (as defined in the agreement) to interest ratio of 2.25 on a rolling four-quarter basis, and limits consolidated indebtedness to 55 percent of total consolidated capitalization (as defined in the agreement).

     At June 30, 2005, there was approximately $74 million of letters of credit issued under the new revolver. Total availability under the revolving credit facility at June 30, 2005, amounted to approximately $1,026 million, of which approximately $226 million could be used for additional letters of credit.

     On July 19, 2005, the Company purchased approximately $280 million (book value) of long-term debt resulting from the completion of tender offers for our 8.75 percent notes due in 2011 (representing approximately 72 percent of the outstanding notes). The cash payment including expenses was approximately $332 million, and will result in an estimated pre-tax charge of approximately $54 million in the 2005 third quarter. This action further enhances the Company’s near- and mid-term financial flexibility.

12. Shareholders’ Equity

Series A Mandatory Convertible Preferred Stock

     Each share of Series A Mandatory Convertible Preferred Stock (Series A Stock) is convertible into 2.083 shares of Common Stock, subject to certain adjustments, at any time prior to August 15, 2005, and is entitled to an annual dividend of $6.75, paid quarterly. On August 15, 2005, each share of Series A Stock will automatically convert, subject to certain adjustments, into between 2.083 and 2.5 shares of Common Stock depending on the then-current market price of our Common Stock based on the average closing price of the 20-day period preceding the conversion date. Each share of Series A Stock is non-voting and entitled to a liquidation preference of $100 plus any accrued but unpaid dividends. At June 30, 2005, there were 2.0 million preferred shares of designated Series A Stock outstanding; 6.0 million preferred shares are authorized under our Restated Certificate of Incorporation with a par value of $1.00 each.

Stock Options Exercised

     During the 2005 second quarter, 0.1 million stock options were exercised for Phelps Dodge common shares, for which Phelps Dodge received approximately $3.0 million.

     During the six months ended June 30, 2005, 0.8 million stock options were exercised for Phelps Dodge common shares, for which Phelps Dodge received approximately $35.4 million.

19

REVIEW BY INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

     The financial information as of June 30, 2005, and for the three-month and six-month periods ended June 30, 2005 and 2004, included in Part I pursuant to Rule 10-01 of Regulation S-X has been reviewed by PricewaterhouseCoopers LLP (PricewaterhouseCoopers), the Company’s independent registered public accounting firm, in accordance with the standards of the Public Company Accounting Oversight Board (United States). PricewaterhouseCoopers’ report is included below.

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

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Phelps Dodge Corporation:

     We have reviewed the accompanying consolidated balance sheet of Phelps Dodge Corporation and its subsidiaries as of June 30, 2005, and the related consolidated statement of income for each of the three-month and six-month periods ended June 30, 2005 and 2004, the consolidated statement of cash flows for the six-month periods ended June 30, 2005 and 2004, and the consolidated statement of shareholders’ equity for the six-month period ended June 30, 2005. This interim financial information is the responsibility of the Company’s management.

     We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

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

     We previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of December 31, 2004, and the related consolidated statement of income, of cash flows, and of shareholders’ equity for the year then ended, management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004 and the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004; and in our report dated March 7, 2005, we expressed unqualified opinions thereon. The consolidated financial statements and management’s assessment of the effectiveness of internal control over financial reporting referred to above are not presented herein. In our opinion, the information set forth in the accompanying consolidated balance sheet information as of December 31, 2004, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.

/s/ PricewaterhouseCoopers LLP

Phoenix, Arizona

July 27, 2005

20

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     The U.S. securities laws provide a “safe harbor” for certain forward-looking statements. This quarterly report contains forward-looking statements that express expectations of future events or results. All statements based on future expectations rather than historical facts are forward-looking statements that involve a number of risks and uncertainties, and Phelps Dodge 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. Refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s report on Form 10-K for the year ended December 31, 2004, for a further discussion of such risks and uncertainties, our operations, and our critical accounting policies. Refer to Note 1, General Information, to our unaudited June 30, 2005, Consolidated Financial Information, for a discussion of our consolidation policy.

RESULTS OF OPERATIONS

Consolidated Financial Results

(Unaudited; $ in millions)

	Second Quarter
	2005			2004
Sales and other operating revenues	$	2,151.6			1,650.9
Operating income	$	173.7			354.7
Minority interests in consolidated subsidiaries	$	(38.5	)		(42.0	)
Net income	$	682.3			226.6
Basic earnings per common share	$	7.06			2.40
Diluted earnings per common share	$	6.75			2.30

     The Company had consolidated net income for the 2005 second quarter of $682.3 million, or $6.75 per common share, including special, net gains of $225.8 million, or $2.23 per common share, after taxes. (All references to per share earnings or losses are based on diluted earnings or losses per share.) In the 2004 second quarter, consolidated net income was $226.6 million, or $2.30 per common share, including special, net charges of $16.0 million, or 16 cents per common share, after taxes.

     Consolidated net income increased $455.7 million in the 2005 second quarter compared with the 2004 second quarter. The increase primarily included the effects of (i) the gain recognized on the sale of a cost-basis investment ($438.4 million), (ii) the change in interest gain from Cerro Verde stock issuance ($159.5 million), (iii) higher copper prices (approximately $180 million) including premiums and copper pricing adjustments, (iv) higher molybdenum earnings including earnings from primary molybdenum mines (approximately $69 million) and by-product molybdenum contribution (approximately $163 million), and (v) lower interest expense including the absence of early debt extinguishment costs (approximately $24 million). These were partially offset by (i) asset impairment charges recorded at PDMC in the 2005 second quarter ($419.1 million), (ii) higher copper production costs (approximately $130 million), which exclude by-product molybdenum revenues, and (iii) a higher tax provision (approximately $34 million) due to higher earnings.

(Unaudited; $ in millions)

	Six Months Ended
	June 30,
	2005			2004
Sales and other operating revenues	$	4,218.1			3,247.9
Operating income	$	722.7			669.5
Minority interests in consolidated subsidiaries	$	(65.5	)		(105.6	)
Net income	$	1,069.0			412.3
Basic earnings per common share	$	11.07			4.39
Diluted earnings per common share	$	10.59			4.20

     The Company had consolidated net income for the six months ended June 30, 2005, of $1,069.0 million, or $10.59 per common share, including special, net gains of $225.9 million, or $2.24 per common share, after taxes. For the six months ended June 30, 2004, consolidated net income was $412.3 million, or $4.20 per common share, including special, net charges of $26.4 million, or 27 cents per common share, after taxes.

     Consolidated net income increased $656.7 million for the six months ended June 30, 2005, compared with the corresponding 2004 period. The increase primarily included the effects of (i) the gain recognized on the sale of a cost-basis investment ($438.4 million), (ii) the change in interest gain associated with the Cerro Verde stock issuance ($159.5 million), (iii) higher copper prices (approximately $276 million) including premiums and copper pricing adjustments, (iv) higher molybdenum earnings including earnings from primary molybdenum mines (approximately $140 million) and by-product molybdenum contribution (approximately $323 million), (v) lower interest expense including the absence of early debt extinguishment costs (approximately $62 million), (vi) lower minority interests in consolidated subsidiaries (approximately $40 million), (vii) higher dividend income (approximately $31 million) primarily from Southern Peru Copper Corporation, and (viii) higher interest income (approximately $18 million). These were partially offset by (i) asset impairment charges recorded at PDMC in the 2005 second quarter ($419.1 million), (ii) higher copper production costs (approximately $260 million), which exclude by-product molybdenum revenues and (iii) a higher tax provision (approximately $159 million) due to higher earnings.

Special Items and Provisions

     Throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations there is disclosure and discussion of what management believes to be special items and provisions. We view special items as unpredictable and atypical of our operations in the period. We believe consistent identification, disclosure and discussion of such items, both favorable and unfavorable, provide additional information to assess the quality of our performance and our earnings or losses. In addition, management measures the performance of its reportable segments excluding special items. This supplemental information is not a substitute for any U.S. generally accepted accounting principles (GAAP) measure and should be evaluated within the context of our U.S. GAAP results. The tax impacts of the special items were

21

determined at the marginal effective tax rate of the appropriate taxing jurisdiction, including provision for valuation allowance, if warranted. Any supplemental information references to earnings, losses or results excluding special items or before special items is a non-GAAP measure that may not be comparable to similarly titled measures reported by other companies.

Note: Supplemental Data

     The following table summarizes consolidated net income, special items and provisions, and the resultant earnings excluding these special items and provisions for the quarter and six-month periods ended June 30, 2005 and 2004:

(Unaudited; $ in millions)

	Second Quarter
	2005		2004
Net Income	$	682.3		226.6
Special items and provisions, net of taxes		225.8		(16.0	)
Earnings excluding special items and provisions (after taxes)	$	456.5		242.6

(Unaudited; $ in millions)

	Six Months Ended
	June 30,
	2005		2004
Net Income	$	1,069.0		412.3
Special items and provisions, net of taxes		225.9		(26.4	)
Earnings excluding special items and provisions (after taxes)	$	843.1		438.7

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Note: Supplemental Data

     The following schedules summarize the special items and provisions for the quarter and six-month periods ended June 30, 2005 and 2004 (refer to Note 3, Special Items and Provisions, to our unaudited June 30, 2005, Consolidated Financial Information, for additional discussion):

(Unaudited; $ in millions except per share data)

	2005 Second Quarter									2004 Second Quarter
							$/Share									$/Share
Consolidated Statement of Income Line Item	Pre-tax			After-tax			After-tax			Pre-tax			After-tax			After-tax
Special items and provisions, net:
PDMC (see Business Segment disclosure)	$	(415.0	)		(317.8	)		(3.15	)		(2.5	)		(1.9	)		(0.02	)
PDI (see Business Segment disclosure)		(1.9	)		(1.4	)		(0.01	)		(2.5	)		(1.9	)		(0.02	)
Corporate and Other -
Environmental provisions, net		(20.7	)		(15.7	)		(0.15	)		0.5			0.4			—
Environmental insurance recoveries, net		0.5			0.4			—			0.1			0.1			—
Historical legal matters		(0.1	)		(0.1	)		—			15.9			12.8			0.13
		(20.3	)		(15.4	)		(0.15	)		16.5			13.3			0.13
		(437.2	)		(334.6	)		(3.31	)		11.5			9.5			0.09
Early debt extinguishment costs		—			—			—			(15.2	)		(12.6	)		(0.13	)
Gain on sale of cost-basis investment		438.4			388.0			3.84			—			—			—
Change in interest gain from Cerro Verde stock issuance		159.5			172.9			1.71			—			—			—
Miscellaneous income and expense, net:
Cost-basis investment write-down		—			—			—			(6.4	)		(6.4	)		(0.06	)
Provision for taxes on income:
Foreign dividend tax		—			(0.5	)		(0.01	)		—			—			—
PD Brazil deferred tax asset valuation allowance		—			—			—			—			(9.0	)		(0.09	)
		—			(0.5	)		(0.01	)		—			(9.0	)		(0.09	)
Minority interests in consolidated subsidiaries:
Candelaria early debt extinguishment costs		—			—			—			—			2.5			0.03
	$	160.7			225.8			2.23			(10.1	)		(16.0	)		(0.16	)

23

(Unaudited; $ in millions except per share data)

	Six Months Ended									Six Months Ended
	June 30, 2005									June 30, 2004
							$/Share									$/Share
Consolidated Statement of Income Line Item	Pre-tax			After-tax			After-tax			Pre-tax			After-tax			After-tax
Special items and provisions, net:
PDMC (see Business Segment disclosure)	$	(420.9	)		(322.3	)		(3.19	)		(2.5	)		(1.9	)		(0.02	)
PDI (see Business Segment disclosure)		(1.5	)		(0.6	)		—			(4.3	)		(3.1	)		(0.03	)
Corporate and Other —
Environmental provisions, net		(19.7	)		(15.0	)		(0.15	)		(4.1	)		(3.1	)		(0.03	)
Environmental insurance recoveries, net		1.1			0.9			0.01			0.1			0.1			—
Historical legal matters		4.7			4.4			0.04			15.5			12.4			0.13
		(13.9	)		(9.7	)		(0.10	)		11.5			9.4			0.10
		(436.3	)		(332.6	)		(3.29	)		4.7			4.4			0.05
Interest expense:
Texas franchise tax matter		—			—			—			(0.9	)		(0.7	)		(0.01	)
Early debt extinguishment costs		—			—			—			(37.6	)		(30.2	)		(0.31	)
Gain on sale of cost-basis investment		438.4			388.0			3.84			—			—			—
Change in interest gain from Cerro Verde stock issuance		159.5			172.9			1.71			—			—			—
Miscellaneous income and expense, net:
Cost-basis investment write-downs		—			—			—			(10.0	)		(9.1	)		(0.09	)
Provision for taxes on income:
Foreign dividend tax		—			(2.4	)		(0.02	)		—			—			—
Reversal of El Abra deferred tax asset valuation allowance		—			—			—			—			30.8			0.31
PD Brazil deferred tax asset valuation allowance		—			—			—			—			(9.0	)		(0.09	)
		—			(2.4	)		(0.02	)		—			21.8			0.22
Minority interests in consolidated subsidiaries:
Reversal of El Abra deferred tax asset valuation allowance		—			—			—			—			(15.1	)		(0.15	)
Candelaria early debt extinguishment costs		—			—			—			—			2.5			0.02
		—			—			—			—			(12.6	)		(0.13	)
	$	161.6			225.9			2.24			(43.8	)		(26.4	)		(0.27	)

Business Divisions

     Results for 2005 and 2004 can be meaningfully compared by separate reference to our reporting divisions, Phelps Dodge Mining Company (PDMC) and Phelps Dodge Industries (PDI). PDMC is a business division 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, technology and development programs. PDI, our manufacturing division, produces engineered products principally for the global energy, transportation and specialty chemicals sectors. PDI includes our Specialty Chemicals segment and our Wire and Cable segment. Significant events and transactions have occurred within each segment that, as indicated in the separate discussions presented below, are material to an understanding of the particular year’s results and to a comparison with results of the other periods.

     The Company is continuing to explore strategic alternatives for PDI that may include potential subsidiary sales, selective asset sales, restructurings, joint ventures and mergers, or, alternatively, retention and selective growth. We are currently in discussions with certain interested parties whose primary interest is the potential purchase of Specialty Chemicals. No decision has yet been made to proceed with a sale and no assurance can be given that a transaction will be concluded. The book value of Specialty Chemicals was approximately $600 million at June 30, 2005. Whether any such transaction would result in the recognition of a gain or loss depends on the final purchase price and other terms and cannot yet be determined. Pending final approval of the Phelps Dodge board of directors, Specialty Chemicals plans to build a new carbon black manufacturing facility in Bahia, Brazil, at a greenfield location in the Camacari petrochemical complex in the northeastern area of Brazil.

RESULTS OF PHELPS DODGE MINING COMPANY

     PDMC includes 12 reportable segments and other mining activities. In the 2004 fourth quarter, the Company reassessed its reportable segments. The reassessment considered the significant increase in copper and molybdenum prices. Based upon our assessment, we are separately disclosing Bagdad, Sierrita, Manufacturing and Sales as individual reportable segments, whereas

24

in 2004 Bagdad and Sierrita, and Manufacturing and Sales were aggregated. In accordance with Statement of Financial Accounting Standards (SFAS) No. 131, “Disclosures about Segments of an Enterprise and Related Information,” segment information for 2004 has been revised to conform with the 2005 presentation.

     PDMC has six reportable copper production segments in the United States (Morenci, Bagdad, Sierrita, Miami/Bisbee, Chino/Cobre and Tyrone) and three reportable copper production segments in South America (Candelaria/Ojos del Salado, Cerro Verde and El Abra). These segments include open-pit mining, underground mining, sulfide ore concentrating, leaching, solution extraction and electrowinning. In addition, the Candelaria/Ojos del Salado, Bagdad, Sierrita and Chino/Cobre segments produce gold and silver. The Bagdad, Sierrita and Chino mines produce molybdenum and rhenium as by-products.

     The Manufacturing segment consists of conversion facilities including our smelters, refineries and rod mills. The Manufacturing segment processes copper produced at our mining operations and copper purchased from others into copper anode, cathode and rod. In addition, at times it smelts and refines copper and produces copper rod for customers on a toll basis. Toll arrangements require the tolling customer to deliver appropriate copper-bearing material to our facilities, which we then process into a product that is returned to the customer. The customer pays PDMC for processing its material into the specified products.

     The Sales segment functions as an agent to sell copper from our copper production and manufacturing segments. It also purchases and sells any copper not sold by our South American mines to third parties. Copper is sold to others primarily as rod, cathode or concentrate, and as rod to PDI’s Wire and Cable segment.

     The Primary Molybdenum segment consists of the Henderson and Climax mines, related conversion facilities and a technology center. This segment is an integrated producer of molybdenum, with mining, roasting and processing facilities producing high-purity, molybdenum-based chemicals, molybdenum metal powder and metallurgical products. In addition, at times it roasts and/or processes material on a toll basis. Toll arrangements require the tolling customer to deliver appropriate molybdenum-bearing material to our facilities, which we then process into a product that is returned to the customer. The customer pays PDMC for processing its material into the specified products. This segment also includes a technology center that directs its primary activities at developing, marketing and selling new engineered products and applications.

     Major operating and financial results of PDMC for the quarter and six-month periods ended June 30, 2005 and 2004, are summarized in the following tables:

(Unaudited; $ in millions except per pound amounts)

	Second Quarter
	2005			2004
Sales and other operating revenues to unaffiliated customers	$	1,684.4			1,254.5
Operating income	$	204.7			336.7
Operating income before special items and provisions	$	619.7			339.2
Minority interests in consolidated subsidiaries	$	(37.5	)		(40.6	)
Copper production (thousand short tons):
Total copper production		321.7			321.4
Less undivided interest (A)		15.5			15.7
Copper production on a consolidated basis		306.2			305.7
Less minority participants’ shares (B)		42.5			44.6
Copper production on a pro rata basis		263.7			261.1
Copper sales (thousand short tons):
Total copper sales from own mines		328.0			321.8
Less undivided interest (A)		15.5			15.7
Copper sales from own mines on a consolidated basis		312.5			306.1
Less minority participants’ shares (B)		44.0			47.4
Copper sales from own mines on a pro rata basis		268.5			258.7
Purchased copper (thousand short tons)		78.6			116.7
Total copper sales on a consolidated basis		391.1			422.8
LME average spot copper price per pound — cathodes	$	1.537			1.265
COMEX average spot copper price per pound — cathodes	$	1.532			1.234
Molybdenum production (million pounds)		16.7			14.8
Molybdenum sales (million pounds):
Net Phelps Dodge share from own mines		15.5			16.0
Purchased molybdenum		3.2			3.1
Total molybdenum sales		18.7			19.1
Metals Week:
Molybdenum Dealer Oxide mean price per pound	$	35.27			14.57

25

(Unaudited; $ in millions except per pound amounts)

	Six Months Ended
	June 30,
	2005			2004
Sales and other operating revenues to unaffiliated customers	$	3,302.5			2,469.0
Operating income	$	755.1			666.9
Operating income before special items and provisions	$	1,176.0			669.4
Minority interests in consolidated subsidiaries	$	(63.1	)		(103.7	)
Copper production (thousand short tons):
Total copper production		646.7			639.0
Less undivided interest (A)		29.3			31.1
Copper production on a consolidated basis		617.4			607.9
Less minority participants’ shares (B)		86.0			90.9
Copper production on a pro rata basis		531.4			517.0
Copper sales (thousand short tons):
Total copper sales from own mines		653.0			645.1
Less undivided interest (A)		29.3			31.1
Copper sales from own mines on a consolidated basis		623.7			614.0
Less minority participants’ shares (B)		87.8			93.7
Copper sales from own mines on a pro rata basis		535.9			520.3
Purchased copper (thousand short tons)		171.2			231.8
Total copper sales on a consolidated basis		794.9			845.8
LME average spot copper price per pound — cathodes	$	1.510			1.252
COMEX average spot copper price per pound — cathodes	$	1.500			1.233
Molybdenum production (million pounds)		31.4			28.3
Molybdenum sales (million pounds):
Net Phelps Dodge share from own mines		30.4			31.2
Purchased molybdenum		6.9			6.5
Total molybdenum sales		37.3			37.7
Metals Week:
Molybdenum Dealer Oxide mean price per pound	$	33.29			11.42

(A)

Represents a 15 percent undivided interest in Morenci, Arizona, copper mining complex held by Sumitomo Metal Mining Arizona, Inc.

(B)

Minority participant interests include (i) a 20 percent partnership interest in Candelaria in Chile held by SMMA Candelaria, Inc., a jointly owned indirect subsidiary of Sumitomo Metal Mining Co., Ltd., and Sumitomo Corporation, (ii) a 49 percent partnership interest in the El Abra copper mining operation in Chile held by Corporación Nacional del Cobre de Chile (CODELCO), and (iii) a 17.5 percent partnership interest through May 31, 2005, and a 46.4 percent partnership interest in the Cerro Verde copper mining operation in Peru held primarily by Sumitomo Metal Mining Co., Ltd. and Sumitomo Corporation, and Compañia de Minas Buenaventura S.A.A.

(thousand short tons)

	Second Quarter
	2005		2004
Minority participants’ share of copper production:
Candelaria		8.6		10.3
Cerro Verde		7.1		4.3
El Abra		26.8		30.0
		42.5		44.6

	Six Months Ended
	June 30,
	2005		2004
Minority participants’ share of copper production:
Candelaria		18.9		21.4
Cerro Verde		11.3		8.7
El Abra		55.8		60.8
		86.0		90.9

Total PDMC Division — Sales

     PDMC’s sales and other operating revenues to unaffiliated customers increased $429.9 million, or 34 percent, in the 2005 second quarter compared with the 2004 second quarter. The increase reflected higher average molybdenum realizations (approximately $297 million) and higher average copper realizations (approximately $220 million); partially offset by lower copper sales volumes, including purchased copper (approximately $77 million).

     PDMC’s sales and other operating revenues to unaffiliated customers increased $833.5 million, or 34 percent, in the first six months of 2005 compared with the corresponding 2004 period. The increase reflected higher average molybdenum realizations (approximately $617 million) and higher average copper realizations (approximately $351 million); partially offset by lower copper sales volumes, including purchased copper (approximately $116 million).

Total PDMC — Operating Income

     PDMC reported operating income of $204.7 million for the 2005 second quarter, including special, net pre-tax charges of $415.0 million, compared with operating income of $336.7 million for the 2004 second quarter, including special, net pre-tax charges of $2.5 million. The decrease in operating income of $132.0 million, or 39 percent, primarily was due to higher special, net pre-tax charges of $412.5 million mostly associated with asset impairment charges recorded in the 2005 second quarter ($419.1 million) and higher copper production costs (approximately $130 million); partially offset by the effects of higher copper prices (approximately $180 million) including premiums and copper pricing adjustments, and higher molybdenum earnings, including earnings from primary molybdenum mines (approximately $69 million) and by-product molybdenum contribution (approximately $163 million) primarily due to higher prices. Higher copper production costs, which exclude by-product molybdenum revenues, were primarily due to (i) higher mining and milling costs due generally to higher mining rates and repairs and maintenance (approximately $72 million), (ii) higher energy costs (approximately $31 million), and (iii) higher smelting, refining and freight costs (approximately $30 million).

     PDMC reported operating income of $755.1 million for the first six months of 2005, including special, net pre-tax charges of $420.9 million, compared with operating income of $666.9 million for the first six months of 2004, including special, net pre-tax charges of $2.5 million. The increase in operating income of $88.2 million, or 13 percent, primarily included the effects of (i) higher copper prices (approximately $276 million) including premiums and copper pricing adjustments, (ii) higher molybdenum earnings, including earnings from primary molybdenum mines (approximately $140 million) and by-product molybdenum contribution (approximately $323 million) primarily due to higher prices, (iii) higher copper sales volumes

26

(approximately $11 million), and (iv) a gain on the sale of exploration properties (approximately $11 million). These were partially offset by higher special, net pre-tax charges of $418.4 million mostly associated with asset impairment charges recorded in the 2005 second quarter ($419.1 million), and higher copper production costs (approximately $260 million). Higher copper production costs, which exclude by-product molybdenum revenues, were primarily due to (i) higher mining and milling costs due generally to higher mining rates, repairs and maintenance and the operational impacts of unusually heavy rainfall in the southwest United States (approximately $144 million), (ii) higher energy costs (approximately $52 million), and (iii) higher smelting, refining and freight costs (approximately $62 million).

     For both 2005 and 2004, the higher average copper prices including premiums reflected strong copper fundamentals and a favorable economic environment.

     The New York Commodity Exchange (COMEX) spot price per pound of copper cathode, upon which we primarily base our U.S. sales, averaged $1.532 and $1.234 in the second quarters of 2005 and 2004, respectively, and $1.500 and $1.233 for the first six months of 2005 and 2004, respectively. The LME spot price per pound of copper cathode, upon which we primarily base our international sales, averaged $1.537 and $1.265 in the second quarters of 2005 and 2004, respectively, and $1.510 and $1.252 for the first six months of 2005 and 2004, respectively.

     Any material change in the price we receive for copper, or in PDMC’s cost of copper production, has a significant effect on our results. Based on expected 2005 annual production of approximately 2.5 billion pounds of copper, each 1 cent per pound change in the average annual copper price, or in average annual cost of copper production, causes a variation in annual operating income, excluding the impact of our copper collars as discussed below and before taxes and adjustment for minority interest, of approximately $25 million.

     Certain of PDMC’s sales agreements provide for provisional pricing based on either COMEX or LME (as specified in the contract) when shipped. Final settlement is based on the average applicable price for a specified future period (quotational period or QP), generally from one to three months after arrival at the customer’s facility. PDMC records revenues upon passage of title using the forward rate in place for the QP. For accounting purposes, these revenues are adjusted to fair value through earnings each period until the date of final copper pricing. At June 30, 2005, approximately 239 million pounds of copper sales were provisionally priced at an average of $1.542 per pound with final QP periods of July to November 2005. Candelaria accounted for approximately 67 percent of the outstanding, provisionally priced sales at June 30, 2005.

     Phelps Dodge has entered into copper swap contracts to protect certain provisionally priced sales exposure in a manner that is designed to allow us to receive the average LME price for the month of shipment while our Candelaria customers receive the QP price they requested (i.e., one to three months after month of arrival at the customer’s facility). As of July 27, 2005, we had in place copper swap contracts for approximately 78 percent of Candelaria’s provisionally priced copper sales outstanding at June 30, 2005, at an average of $1.509 per pound. This program is expected to substantially alleviate the volatility that provisionally priced copper sales could have on our revenues.

     During the 2005 first quarter, Phelps Dodge entered into a program to protect a portion of Phelps Dodge’s share of expected 2006 global production by purchasing zero-premium copper collars (approximately 564 million pounds) and copper put options (approximately 564 million pounds). The copper collars have an average LME put strike price (floor) of 95.4 cents per pound (settled against the monthly average LME price) and an average LME call strike price (ceiling) of $1.632 per pound (settled against an annual average LME price). The copper put options establish a floor price of 95.0 cents per pound (settled against the monthly average LME price). The put options were purchased for a 2 cents per pound premium. Phelps Dodge entered into the program as insurance to provide cash flows to help ameliorate the effects of unanticipated copper price decreases.

     During the second half of 2004, Phelps Dodge entered into programs to purchase zero-premium copper collars on approximately 97 percent of El Abra’s expected 2005 total production (approximately 452 million pounds) and 10 percent of PDMC’s expected remaining 2005 consolidated production (approximately 198 million pounds). The copper collars at El Abra have an average LME put strike price (floor) of $1.00 per pound (settled against the monthly average LME price) and an average LME call strike price (ceiling) of $1.376 per pound (settled against an annual average LME price). The copper collars on PDMC’s expected remaining consolidated production have an average LME put strike price (floor) of 94.3 cents per pound (settled against the monthly average LME price) and an average LME call strike price (ceiling) of $1.40 per pound (settled against an annual average LME price).

     Transactions under these copper price protection programs do not qualify as hedges for SFAS No. 133 hedge accounting treatment and will be adjusted to fair market value each reporting period with the offset recorded in earnings. For the six months ended June 30, 2005, as a result of market prices ($1.504 per pound) exceeding the ceiling of our 2005 zero-premium collars ($1.376 per pound for El Abra and $1.40 per pound for PDMC), we recorded unrealized pre-tax losses for our zero-premium collar programs of approximately $57 million for El Abra (approximately $29 million for PD’s share) and $21 million for a small portion of PDMC’s remaining production. El Abra entered into its program in order to ensure a copper price sufficient to provide the necessary cash to repay its short-term borrowings arising from the 2004 fourth quarter prepayment of its senior debt obligations, repay sponsor support and to ensure financial flexibility. The other program covers a small portion of PDMC’s remaining production ensuring a minimum copper price for the restarted Chino facility to operate comfortably throughout 2005.

     The actual impact of our 2005 zero-premium collar program will not be fully determinable until the maturity of the collars at year end. The unrealized losses for our 2005 zero-premium collars were based on a projected full-year average LME futures price (including actual monthly average LME prices for the first six months of 2005) at June 30, 2005, compared with the average LME call protection price per pound of $1.376 for El Abra and $1.40 for a small portion of PDMC’s remaining production. The average LME price differences per pound were multiplied by the annual contract amounts of approximately 650

27

million pounds combined. Each 1 cent per pound increase in the full-year 2005 monthly average LME future price above that projected as of June 30, 2005, will decrease operating income by approximately $6.5 million. Each 1 cent per pound decrease in the full-year 2005 monthly average LME future price from that projected as of June 30, 2005, will increase operating income by approximately $6.5 million, except that there would be no incremental effect for average prices between $1.00 per pound and $1.376 per pound for El Abra and between 94.3 cents per pound and $1.40 per pound for a small portion of PDMC’s remaining production.

     Increasing energy prices are continuing to impact our costs. Although we mitigate extreme increases in energy costs with long-term power contracts and market hedging, we nevertheless do pay more for our energy needs during these times of progressively higher energy prices. Energy accounted for 19.2 cents per pound of our production costs in the 2005 second quarter, compared with 14.2 cents per pound in the 2004 second quarter and 16.6 cents in the 2005 first quarter. In the second half of 2005, if the base price of oil were to increase by a hypothetical $20 per barrel from $60 per barrel, our unit cost of copper production would increase by approximately 3.0 to 3.5 cents per pound.

Note: Supplemental Data

     The following tables summarize PDMC’s special items and provisions in operating income for the quarter and six-month periods ended June 30, 2005 and 2004:

(Unaudited; $ in millions)

	2005 Second Quarter
	U.S.			South		Primary
	Mining			American		Molyb-
	Operations			Mines		denum
Asset impairment charges	$	(419.1	)		—		—
Environmental provisions, net		(10.4	)		—		—
Environmental insurance recoveries, net		(0.5	)		—		—
Historical legal matters		15.0			—		—
	$	(415.0	)		—		—

(Unaudited; $ in millions)

	Six Months Ended
	June 30, 2005
	U.S.			South		Primary
	Mining			American		Molyb-
	Operations			Mines		denum
Asset impairment charges	$	(419.1	)		—		—
Environmental provisions, net		(15.7	)		—		—
Environmental insurance recoveries, net		(1.1	)		—		—
Historical legal matters		15.0			—		—
	$	(420.9	)		—		—

(Unaudited; $ in millions)

	Second Quarter and
	Six Months Ended
	June 30, 2004
	U.S.			South		Primary
	Mining			American		Molyb-
	Operations			Mines		denum
Environmental provisions, net	$	(2.6	)		—		0.3
Environmental insurance recoveries, net		(0.2	)		—		—
	$	(2.8	)		—		0.3

Note: Our non-GAAP measure of special items may not be comparable to similarly titled measures reported by other companies.

- 28 -

PDMC RESULTS BY REPORTABLE SEGMENTS
(Unaudited)

The following tables summarize, on a segment basis, production and sales statistics, operating income (loss), special items and provisions, net, and operating income (loss) excluding special items and provisions for the second quarters 2005 and 2004:

	U.S. Mines
								Miami/			Chino/
	Morenci			Bagdad		Sierrita		Bisbee			Cobre			Tyrone			Subtotal
Second Quarter 2005
Copper production (thousand short tons):
Total production		103.0			27.1		19.9		3.4			24.7			10.9			189.0
Less undivided interest		15.5			—		—		—			—			—			15.5
Copper production on a consolidated basis		87.5			27.1		19.9		3.4			24.7			10.9			173.5
Less minority participants’ shares		—			—		—		—			—			—			—
Copper production on a pro rata basis		87.5			27.1		19.9		3.4			24.7			10.9			173.5
Copper sales (thousand short tons):
Total copper sales from own mines		103.0			27.2		20.1		3.5			24.7			10.9			189.4
Less undivided interest		15.5			—		—		—			—			—			15.5
Copper sales from own mines on a consolidated basis		87.5			27.2		20.1		3.5			24.7			10.9			173.9
Less minority participants’ shares		—			—		—		—			—			—			—
Copper sales from own mines on a pro rata basis		87.5			27.2		20.1		3.5			24.7			10.9			173.9
Total purchased copper (thousand short tons)		—			—		—		—			—			—			—
Total copper sales on a consolidated basis		87.5			27.2		20.1		3.5			24.7			10.9			173.9
($ in millions)
Operating income (loss)	$	114.2			116.5		135.6		2.1			(51.0	)		(208.3	)		109.1
Special items and provisions, net		(0.3	)		—		—		—			(63.9	)		(211.5	)		(275.7	)
Operating income (loss) excluding special items and provisions	$	114.5			116.5		135.6		2.1			12.9			3.2			384.8
Second Quarter 2004
Copper production (thousand short tons):
Total production		105.0			26.8		18.6		2.4			18.5			10.5			181.8
Less undivided interest		15.7			—		—		—			—			—			15.7
Copper production on a consolidated basis		89.3			26.8		18.6		2.4			18.5			10.5			166.1
Less minority participants’ shares		—			—		—		—			—			—			—
Copper production on a pro rata basis		89.3			26.8		18.6		2.4			18.5			10.5			166.1
Copper sales (thousand short tons):
Total copper sales from own mines		104.7			24.4		16.4		1.0			18.5			10.5			175.5
Less undivided interest		15.7			—		—		—			—			—			15.7
Copper sales from own mines on a consolidated basis		89.0			24.4		16.4		1.0			18.5			10.5			159.8
Less minority participants’ shares		—			—		—		—			—			—			—
Copper sales from own mines on a pro rata basis		89.0			24.4		16.4		1.0			18.5			10.5			159.8
Total purchased copper (thousand short tons)		—			—		—		—			—			—			—
Total copper sales on a consolidated basis		89.0			24.4		16.4		1.0			18.5			10.5			159.8
($ in millions)
Operating income (loss)	$	86.5			21.3		70.1		(3.1	)		10.0			6.6			191.4
Special items and provisions, net		(0.4	)		—		—		—			(0.4	)		(1.8	)		(2.6	)
Operating income (loss) excluding special items and provisions	$	86.9			21.3		70.1		(3.1	)		10.4			8.4			194.0

Refer to segment discussion on pages 36 through 41.

Revenues, operating costs and expenses of PDMC’s segments include allocations that may not be reflective of market conditions. Additionally, certain costs are not allocated to the reportable segments. (Refer to pages 36 and 37 for further discussion.)

- 29 -

PDMC RESULTS BY REPORTABLE SEGMENTS
(Unaudited)

	South American Mines
	Candelaria/
	Ojos del
	Salado		Cerro Verde		El Abra		Subtotal
Second Quarter 2005
Copper production (thousand short tons):
Total production		50.2		26.1		54.8		131.1
Less undivided interest		—		—		—		—
Copper production on a consolidated basis		50.2		26.1		54.8		131.1
Less minority participants’ shares		8.6		7.1		26.8		42.5
Copper production on a pro rata basis		41.6		19.0		28.0		88.6
Copper sales (thousand short tons):
Total copper sales from own mines		55.9		25.8		55.3		137.0
Less undivided interest		—		—		—		—
Copper sales from own mines on a consolidated basis		55.9		25.8		55.3		137.0
Less minority participants’ shares		9.7		7.2		27.1		44.0
Copper sales from own mines on a pro rata basis		46.2		18.6		28.2		93.0
Total purchased copper (thousand short tons)		3.2		—		—		3.2
Total copper sales on a consolidated basis		59.1		25.8		55.3		140.2
($ in millions)
Operating income (loss)	$	64.6		39.6		63.8		168.0
Special items and provisions, net		—		—		—		—
Operating income (loss) excluding special items and provisions	$	64.6		39.6		63.8		168.0
Second Quarter 2004
Copper production (thousand short tons):
Total production		53.0		24.5		61.3		138.8
Less undivided interest		—		—		—		—
Copper production on a consolidated basis		53.0		24.5		61.3		138.8
Less minority participants’ shares		10.3		4.3		30.0		44.6
Copper production on a pro rata basis		42.7		20.2		31.3		94.2
Copper sales (thousand short tons):
Total copper sales from own mines		53.7		25.5		66.3		145.5
Less undivided interest		—		—		—		—
Copper sales from own mines on a consolidated basis		53.7		25.5		66.3		145.5
Less minority participants’ shares		10.5		4.4		32.5		47.4
Copper sales from own mines on a pro rata basis		43.2		21.1		33.8		98.1
Total purchased copper (thousand short tons)		9.2		—		—		9.2
Total copper sales on a consolidated basis		62.9		25.5		66.3		154.7
($ in millions)
Operating income (loss)	$	49.3		25.1		64.6		139.0
Special items and provisions, net		—		—		—		—
Operating income (loss) excluding special items and provisions	$	49.3		25.1		64.6		139.0

Refer to segment discussion on pages 36 through 41.

Revenues, operating costs and expenses of PDMC’s segments include allocations that may not be reflective of market conditions. Additionally, certain costs are not allocated to the reportable segments. (Refer to pages 36 and 37 for further discussion.)

-30-

PDMC RESULTS BY REPORTABLE SEGMENTS
(Unaudited)

	Primary							PDMC
	Molybdenum		Manufacturing			Sales		Segments			Other			Total PDMC
Second Quarter 2005
Copper production (thousand short tons):
Total production		—		0.9			—		321.0			0.7			321.7
Less undivided interest		—		—			—		15.5			—			15.5
Copper production on a consolidated basis		—		0.9			—		305.5			0.7			306.2
Less minority participants’ shares		—		—			—		42.5			—			42.5
Copper production on a pro rata basis		—		0.9			—		263.0			0.7			263.7
Copper sales (thousand short tons):
Total copper sales from own mines		—		0.9			—		327.3			0.7			328.0
Less undivided interest		—		—			—		15.5			—			15.5
Copper sales from own mines on a consolidated basis		—		0.9			—		311.8			0.7			312.5
Less minority participants’ shares		—		—			—		44.0			—			44.0
Copper sales from own mines on a pro rata basis		—		0.9			—		267.8			0.7			268.5
Total purchased copper (thousand short tons)		—		75.2			0.2		78.6			—			78.6
Total copper sales on a consolidated basis		—		76.1			0.2		390.4			0.7			391.1
Molybdenum production (thousand pounds):
Primary — Henderson		9,040		—			—		9,040			—			9,040
By-product		7,624		—			—		7,624			—			7,624
Total production		16,664		—			—		16,664			—			16,664
Molybdenum sales (thousand pounds):
Net Phelps Dodge share from own mines		15,497		—			—		15,497			—			15,497
Purchased molybdenum		3,169		—			—		3,169			—			3,169
Total molybdenum sales		18,666		—			—		18,666			—			18,666
($ in millions)
Operating income (loss)	$	98.9		(141.9	)		3.3		237.4			(32.7	)		204.7
Special items and provisions, net		—		(148.7	)		—		(424.4	)		9.4			(415.0	)
Operating income (loss) excluding special items and provisions	$	98.9		6.8			3.3		661.8			(42.1	)		619.7

Refer to segment discussion on pages 36 through 41.

Revenues, operating costs and expenses of PDMC’s segments include allocations that may not be reflective of market conditions. Additionally, certain costs are not allocated to the reportable segments. (Refer to pages 36 and 37 for further discussion.)

- 31 -

PDMC RESULTS BY REPORTABLE SEGMENTS
(Unaudited)

	Primary						PDMC						Total
	Molybdenum		Manufacturing		Sales		Segments			Other			PDMC
Second Quarter 2004
Copper production (thousand short tons):
Total production		—		0.8		—		321.4			—			321.4
Less undivided interest		—		—		—		15.7			—			15.7
Copper production on a consolidated basis		—		0.8		—		305.7			—			305.7
Less minority participants’ shares		—		—		—		44.6			—			44.6
Copper production on a pro rata basis		—		0.8		—		261.1			—			261.1
Copper sales (thousand short tons):
Total copper sales from own mines		—		0.8		—		321.8			—			321.8
Less undivided interest		—		—		—		15.7			—			15.7
Copper sales from own mines on a consolidated basis		—		0.8		—		306.1			—			306.1
Less minority participants’ shares		—		—		—		47.4			—			47.4
Copper sales from own mines on a pro rata basis		—		0.8		—		258.7			—			258.7
Total purchased copper (thousand short tons)		—		106.9		0.6		116.7			—			116.7
Total copper sales on a consolidated basis		—		107.7		0.6		422.8			—			422.8
Molybdenum production (thousand pounds):
Primary — Henderson		7,057		—		—		7,057			—			7,057
By-product		7,779		—		—		7,779			—			7,779
Total production		14,836		—		—		14,836			—			14,836
Molybdenum sales (thousand pounds):
Net Phelps Dodge share from own mines		15,991		—		—		15,991			—			15,991
Purchased molybdenum		3,108		—		—		3,108			—			3,108
Total molybdenum sales		19,099		—		—		19,099			—			19,099
($ in millions)
Operating income (loss)	$	29.8		7.4		1.5		369.1			(32.4	)		336.7
Special items and provisions, net		0.3		—		—		(2.3	)		(0.2	)		(2.5	)
Operating income (loss) excluding special items and provisions	$	29.5		7.4		1.5		371.4			(32.2	)		339.2

Refer to segment discussion on pages 36 through 41.

Revenues, operating costs and expenses of PDMC’s segments include allocations that may not be reflective of market conditions. Additionally, certain costs are not allocated to the reportable segments. (Refer to pages 36 and 37 for further discussion.)

- 32 -

PDMC RESULTS BY REPORTABLE SEGMENTS
(Unaudited)

The following tables summarize, on a segment basis, production and sales statistics, operating income (loss), special items and provisions, net, and operating income (loss) excluding special items and provisions for the six months ended June 30, 2005 and 2004.

		U.S. Mines
									Miami/			Chino/
		Morenci			Bagdad		Sierrita		Bisbee			Cobre			Tyrone			Subtotal
Six Months Ended June 30, 2005
Copper production (thousand short tons):
Total production			195.1			55.0		41.4		6.0			53.4			21.3			372.2
Less undivided interest			29.3			—		—		—			—			—			29.3
Copper production on a consolidated basis			165.8			55.0		41.4		6.0			53.4			21.3			342.9
Less minority participants’ shares			—			—		—		—			—			—			—
Copper production on a pro rata basis			165.8			55.0		41.4		6.0			53.4			21.3			342.9
Copper sales (thousand short tons):
Total copper sales from own mines			195.1			56.3		42.7		6.8			53.4			21.3			375.6
Less undivided interest			29.3			—		—		—			—			—			29.3
Copper sales from own mines on a consolidated basis			165.8			56.3		42.7		6.8			53.4			21.3			346.3
Less minority participants’ shares			—			—		—		—			—			—			—
Copper sales from own mines on a pro rata basis			165.8			56.3		42.7		6.8			53.4			21.3			346.3
Total purchased copper (thousand short tons)			—			—		—		—			—			—			—
Total copper sales on a consolidated basis			165.8			56.3		42.7		6.8			53.4			21.3			346.3
($ in millions)
Operating income (loss)	$		200.1			200.9		270.1		3.2			(33.9	)		(211.2	)		429.2
Special items and provisions, net			(0.6	)		—		—		—			(64.5	)		(215.7	)		(280.8	)
Operating income (loss) excluding special items and provisions	$		200.7			200.9		270.1		3.2			30.6			4.5			710.0
Six Months Ended June 30, 2004
Copper production (thousand short tons):
Total production			207.3			51.5		36.6		4.7			33.7			21.7			355.5
Less undivided interest			31.1			—		—		—			—			—			31.1
Copper production on a consolidated basis			176.2			51.5		36.6		4.7			33.7			21.7			324.4
Less minority participants’ shares			—			—		—		—			—			—			—
Copper production on a pro rata basis			176.2			51.5		36.6		4.7			33.7			21.7			324.4
Copper sales (thousand short tons):
Total copper sales from own mines			207.0			51.4		36.5		4.7			33.7			21.7			355.0
Less undivided interest			31.1			—		—		—			—			—			31.1
Copper sales from own mines on a consolidated basis			175.9			51.4		36.5		4.7			33.7			21.7			323.9
Less minority participants’ shares			—			—		—		—			—			—			—
Copper sales from own mines on a pro rata basis			175.9			51.4		36.5		4.7			33.7			21.7			323.9
Total purchased copper (thousand short tons)			—			—		—		—			—			—			—
Total copper sales on a consolidated basis			175.9			51.4		36.5		4.7			33.7			21.7			323.9
($ in millions)
Operating income (loss)	$		164.4			46.2		100.1		(3.8	)		25.0			9.0			340.9
Special items and provisions, net			(0.4	)		—		—		—			(0.4	)		(1.8	)		(2.6	)
Operating income (loss) excluding special items and provisions	$		164.8			46.2		100.1		(3.8	)		25.4			10.8			343.5

Refer to segment discussion on pages 36 through 41.

Revenues, operating costs and expenses of PDMC’s segments include allocations that may not be reflective of market conditions. Additionally, certain costs are not allocated to the reportable segments. (Refer to pages 36 and 37 for further discussion.)

- 33 -

PDMC RESULTS BY REPORTABLE SEGMENTS
(Unaudited)

		South American Mines
		Candelaria/
		Ojos del
		Salado		Cerro Verde		El Abra		Subtotal
Six Months Ended June 30, 2005
Copper production (thousand short tons):
Total production			107.5		50.0		113.9		271.4
Less undivided interest			—		—		—		—
Copper production on a consolidated basis			107.5		50.0		113.9		271.4
Less minority participants’ shares			18.9		11.3		55.8		86.0
Copper production on a pro rata basis			88.6		38.7		58.1		185.4
Copper sales (thousand short tons):
Total copper sales from own mines			108.7		48.1		117.5		274.3
Less undivided interest			—		—		—		—
Copper sales from own mines on a consolidated basis			108.7		48.1		117.5		274.3
Less minority participants’ shares			19.1		11.1		57.6		87.8
Copper sales from own mines on a pro rata basis			89.6		37.0		59.9		186.5
Total purchased copper (thousand short tons)			6.4		—		—		6.4
Total copper sales on a consolidated basis			115.1		48.1		117.5		280.7
($ in millions)
Operating income (loss)	$		140.0		75.6		108.3		323.9
Special items and provisions, net			—		—		—		—
Operating income (loss) excluding special items and provisions	$		140.0		75.6		108.3		323.9
Six Months Ended June 30, 2004
Copper production (thousand short tons):
Total production			108.5		49.7		124.2		282.4
Less undivided interest			—		—		—		—
Copper production on a consolidated basis			108.5		49.7		124.2		282.4
Less minority participants’ shares			21.4		8.7		60.8		90.9
Copper production on a pro rata basis			87.1		41.0		63.4		191.5
Copper sales (thousand short tons):
Total copper sales from own mines			108.5		51.1		129.4		289.0
Less undivided interest			—		—		—		—
Copper sales from own mines on a consolidated basis			108.5		51.1		129.4		289.0
Less minority participants’ shares			21.4		8.9		63.4		93.7
Copper sales from own mines on a pro rata basis			87.1		42.2		66.0		195.3
Total purchased copper (thousand short tons)			20.1		—		—		20.1
Total copper sales on a consolidated basis			128.6		51.1		129.4		309.1
($ in millions)
Operating income (loss)	$		118.1		62.9		139.2		320.2
Special items and provisions, net			—		—		—		—
Operating income (loss) excluding special items and provisions	$		118.1		62.9		139.2		320.2

Refer to segment discussion on pages 36 through 41.

Revenues, operating costs and expenses of PDMC’s segments include allocations that may not be reflective of market conditions. Additionally, certain costs are not allocated to the reportable segments. (Refer to pages 36 and 37 for further discussion.)

- 34 -

PDMC RESULTS BY REPORTABLE SEGMENTS
(Unaudited)

		Primary								PDMC
		Molybdenum		Manufacturing			Sales			Segments			Other			Total PDMC
Six Months Ended June 30, 2005
Copper production (thousand short tons):
Total production			—		1.8			—			645.4			1.3			646.7
Less undivided interest			—		—			—			29.3			—			29.3
Copper production on a consolidated basis			—		1.8			—			616.1			1.3			617.4
Less minority participants’ shares			—		—			—			86.0			—			86.0
Copper production on a pro rata basis			—		1.8			—			530.1			1.3			531.4
Copper sales (thousand short tons):
Total copper sales from own mines			—		1.8			—			651.7			1.3			653.0
Less undivided interest			—		—			—			29.3			—			29.3
Copper sales from own mines on a consolidated basis			—		1.8			—			622.4			1.3			623.7
Less minority participants’ shares			—		—			—			87.8			—			87.8
Copper sales from own mines on a pro rata basis			—		1.8			—			534.6			1.3			535.9
Total purchased copper (thousand short tons)			—		157.6			7.2			171.2			—			171.2
Total copper sales on a consolidated basis			—		159.4			7.2			793.6			1.3			794.9
Molybdenum production (thousand pounds):
Primary — Henderson			16,893		—			—			16,893			—			16,893
By-product			14,486		—			—			14,486			—			14,486
Total production			31,379		—			—			31,379			—			31,379
Molybdenum sales (thousand pounds):
Net Phelps Dodge share from own mines			30,430		—			—			30,430			—			30,430
Purchased molybdenum			6,831		—			—			6,831			—			6,831
Total molybdenum sales			37,261		—			—			37,261			—			37,261
($ in millions)
Operating income (loss)	$		185.5		(137.7	)		(0.5	)		800.4			(45.3	)		755.1
Special items and provisions, net			—		(148.7	)		—			(429.5	)		8.6			(420.9	)
Operating income (loss) excluding special items and provisions	$		185.5		11.0			(0.5	)		1,229.9			(53.9	)		1,176.0

Refer to segment discussion on pages 36 through 41.

Revenues, operating costs and expenses of PDMC’s segments include allocations that may not be reflective of market conditions. Additionally, certain costs are not allocated to the reportable segments. (Refer to pages 36 and 37 for further discussion.)

- 35 -

PDMC RESULTS BY REPORTABLE SEGMENTS
(Unaudited)

	Primary						PDMC						Total
	Molybdenum		Manufacturing		Sales		Segments			Other			PDMC
Six Months Ended June 30, 2004
Copper production (thousand short tons):
Total production		—		1.1		—		639.0			—			639.0
Less undivided interest		—		—		—		31.1			—			31.1
Copper production on a consolidated basis		—		1.1		—		607.9			—			607.9
Less minority participants’ shares		—		—		—		90.9			—			90.9
Copper production on a pro rata basis		—		1.1		—		517.0			—			517.0
Copper sales (thousand short tons):
Total copper sales from own mines		—		1.1		—		645.1			—			645.1
Less undivided interest		—		—		—		31.1			—			31.1
Copper sales from own mines on a consolidated basis		—		1.1		—		614.0			—			614.0
Less minority participants’ shares		—		—		—		93.7			—			93.7
Copper sales from own mines on a pro rata basis		—		1.1		—		520.3			—			520.3
Total purchased copper (thousand short tons)		—		210.6		1.1		231.8			—			231.8
Total copper sales on a consolidated basis		—		211.7		1.1		845.8			—			845.8
Molybdenum production (thousand pounds):
Primary — Henderson		13,513		—		—		13,513			—			13,513
By-product		14,798		—		—		14,798			—			14,798
Total production		28,311		—		—		28,311			—			28,311
Molybdenum sales (thousand pounds):
Net Phelps Dodge share from own mines		31,148		—		—		31,148			—			31,148
Purchased molybdenum		6,532		—		—		6,532			—			6,532
Total molybdenum sales		37,680		—		—		37,680			—			37,680
($ in millions)
Operating income (loss)	$	45.4		11.5		1.2		719.2			(52.3	)		666.9
Special items and provisions, net		0.3		—		—		(2.3	)		(0.2	)		(2.5	)
Operating income (loss) excluding special items and provisions	$	45.1		11.5		1.2		721.5			(52.1	)		669.4

Refer to segment discussion on pages 36 through 41.

Revenues, operating costs and expenses of PDMC’s segments include allocations that may not be reflective of market conditions. Additionally, certain costs are not allocated to the reportable segments. (Refer to pages 36 and 37 for further discussion.)

36

Sales of Copper (U.S. and South America) and Molybdenum

     The Manufacturing and Sales segments are responsible for selling all copper produced at the U.S. mines. Intersegment revenues of the individual U.S. mines represent an internal allocation based on PDMC’s sales to unaffiliated customers. Therefore, the following discussion and analysis combines the U.S. Mine segments with the Manufacturing and Sales segments, along with other mining activities. The Sales segment purchases and sells any copper not sold by the South American mines to third parties. The South American mines sold approximately 49 percent and 40 percent of their copper to the Sales segment in the second quarters of 2005 and 2004, respectively, and 47 percent and 45 percent for the first six months of 2005 and 2004, respectively. Intersegment sales by the South American mines are based upon arms-length prices at the time of the sale. Intersegment sales of any individual mine may not be reflective of the actual prices PDMC ultimately receives due to a variety of factors including additional processing, timing of sales to unaffiliated customers and transportation premiums. These sales are reflected in the Manufacturing and Sales segments.

(Unaudited; $ in millions)

	Second Quarter
	2005			2004
U.S. Mining Operations*
Unaffiliated customers	$	952.8			809.0
Intersegment elimination		(200.5	)		(146.0	)
		––––––			––––––
		752.3			663.0
		––––––			––––––
South American Mines**
Unaffiliated customers		205.5			220.4
Intersegment		200.5			146.0
		––––––			––––––
		406.0			366.4
		––––––			––––––
Primary Molybdenum
Unaffiliated customers		526.1			225.1
Intersegment		—			—
		––––––			––––––
		526.1			225.1
		––––––			––––––
Total PDMC
Unaffiliated customers	$	1,684.4			1,254.5

(Unaudited; $ in millions)

	Six Months Ended
	June 30,
	2005			2004
U.S. Mining Operations*
Unaffiliated customers	$	1,883.5			1,671.4
Intersegment elimination		(364.7	)		(344.3	)
		––––––			––––––
		1,518.8			1,327.1
		––––––			––––––
South American Mines**
Unaffiliated customers		416.1			422.5
Intersegment		364.7			344.3
		––––––			––––––
		780.8			766.8
		––––––			––––––
Primary Molybdenum
Unaffiliated customers		1,002.9			375.1
Intersegment		—			—
		––––––			––––––
		1,002.9			375.1
		––––––			––––––
Total PDMC
Unaffiliated customers	$	3,302.5			2,469.0

*	U.S. Mining Operations comprised the following reportable segments: Morenci, Bagdad, Sierrita, Miami/Bisbee, Chino/Cobre, Tyrone, Manufacturing and Sales, along with other mining activities.
**	South American Mines comprised the following segments: Candelaria/Ojos del Salado, Cerro Verde and El Abra.

U.S. Mines, Manufacturing, Sales Segments and Other – Sales

     Sales and other operating revenues by U.S. Mining Operations increased $89.3 million, or 13 percent, in the 2005 second quarter compared with the 2004 second quarter. This increase primarily was due to higher realized copper prices (approximately $133 million); partially offset by lower copper sales volumes (approximately $43 million).

     Sales and other operating revenues by U.S. Mining Operations increased $191.7 million, or 14 percent, in the first six months of 2005 compared with the corresponding 2004 period. This increase primarily was due to higher realized copper prices (approximately $248 million); partially offset by lower copper sales volumes (approximately $48 million).

South American Mines Segment – Sales

     South American Mines sales and other operating revenues increased $39.6 million, or 11 percent, in the 2005 second quarter compared with the 2004 second quarter. This increase was due to higher realized copper prices (approximately $87 million) partially offset by lower copper sales volumes (approximately $33 million), higher treatment and refining allowances resulting from sales volumes (approximately $8 million) and lower precious metal sales (approximately $3 million).

     South American Mines sales and other operating revenues increased $14.0 million, or 2 percent, in the first six months of 2005 compared with the corresponding 2004 period. This increase was due to higher realized copper prices (approximately $103 million) partially offset by lower copper sales volumes ($68 million) and higher treatment and refining allowances resulting from sales volumes (approximately $21 million).

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Primary Molybdenum Segment – Sales

     Primary Molybdenum sales and other operating revenues to unaffiliated customers increased $301.0 million, or 134 percent, in the 2005 second quarter compared with the 2004 second quarter. This increase primarily was due to higher average molybdenum realizations (approximately $297 million) and higher molybdenum tolling revenue (approximately $8 million); partially offset by slightly lower molybdenum sales volumes (approximately $5 million).

     Primary Molybdenum sales and other operating revenues to unaffiliated customers increased $627.8 million, or 167 percent, in the first six months of 2005 compared with the corresponding 2004 period. This increase primarily was due to higher average molybdenum realizations (approximately $617 million) and higher molybdenum tolling revenue (approximately $13 million); partially offset by slightly lower molybdenum sales volumes (approximately $4 million).

Operating Income (Loss) for Copper (U.S. and South America) and Molybdenum

     In addition to the allocation of revenues, management allocates certain operating costs, expenses and capital to PDMC’s segments that may not be reflective of market conditions. We also do not allocate all costs and expenses applicable to a mine or operation from the division or corporate offices. Accordingly, the segment information reflects management determinations that may not be indicative of actual financial performance of each segment as if it was an independent entity.

Note: Supplemental Data

     The following tables summarize PDMC’s operating income (loss), special pre-tax items and provisions, and the resultant earnings excluding these special items and provisions for the quarter and six-month periods ended June 30, 2005 and 2004:

(Unaudited; $ in millions)

	Second Quarter
	2005			2004
Segment operating income (loss):
U.S. Mining Operations*	$	(62.2	)		167.9
South American Mines**		168.0			139.0
Primary Molybdenum		98.9			29.8
	$	204.7			336.7
Special, pre-tax items and provisions:
U.S. Mining Operations*	$	(415.0	)		(2.8	)
South American Mines**		—			—
Primary Molybdenum		—			0.3
	$	(415.0	)		(2.5	)
Segment operating income
excluding special items and provisions:
U.S. Mining Operations*	$	352.8			170.7
South American Mines**		168.0			139.0
Primary Molybdenum		98.9			29.5
	$	619.7			339.2

(Unaudited; $ in millions)

	Six Months Ended
	June 30,
	2005			2004
Segment operating income:
U.S. Mining Operations*	$	245.7			301.3
South American Mines**		323.9			320.2
Primary Molybdenum		185.5			45.4
	$	755.1			666.9
Special, pre-tax items and provisions:
U.S. Mining Operations*	$	(420.9	)		(2.8	)
South American Mines**		—			—
Primary Molybdenum		—			0.3
	$	(420.9	)		(2.5	)
Segment operating income
excluding special items and provisions:
U.S. Mining Operations*	$	666.6			304.1
South American Mines**		323.9			320.2
Primary Molybdenum		185.5			45.1
	$	1,176.0			669.4

*	U.S. Mining Operations comprised the following reportable segments: Morenci, Bagdad, Sierrita, Miami/Bisbee, Chino/Cobre, Tyrone, Manufacturing and Sales, along with other mining activities.
**	South American Mines comprised the following segments: Candelaria/Ojos del Salado, Cerro Verde and El Abra.

Note: Our non-GAAP measure of special items and provisions may not be comparable to similarly titled measures reported by other companies.

U.S. Mining Operations – Operating Income (Loss)

     U.S. Mining Operations reported an operating loss of $62.2 million including special, net pre-tax charges of $415.0 million for the 2005 second quarter, compared with operating income of $167.9 million including special, net charges of $2.8 million for the 2004 second quarter.

     U.S. Mining Operations reported operating income of $245.7 million including special, net pre-tax charges of $420.9 million for the first six months of 2005, compared with operating income of $301.3 million including special, net pre-tax charges of $2.8 million in the corresponding 2004 period. (Refer to the separate discussion of PDMC’s segments below for further detail.)

Morenci Segment – Operating Income

     The Morenci open-pit mine, located in southeastern Arizona, primarily produces electrowon copper cathodes. We own an 85 percent undivided interest in Morenci and apply the proportional consolidation method of accounting.

     On June 1, 2005, the Company’s board of directors approved expenditures of $210 million to construct a concentrate-leach, direct electrowinning facility at the Morenci copper mine, and to restart its concentrator, which has been idle since 2001. The new facility will employ proprietary technology that has been developed and is under demonstration at the Bagdad copper mine, and is expected to begin operations in 2007. Concentrate leach technology, in conjunction with a conventional milling and flotation concentrator, allows copper sulfide ores to be transformed into copper cathode through the efficient pressure leaching and electrowinning process instead of smelting and refining. Historically, sulfide ores have been processed

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into copper anodes through a smelter. This decision had consequences for several of our other southwest copper operations, resulting in the impairment of certain assets. (Refer to Note 3, Special Items and Provisions, to our unaudited June 30, 2005, Consolidated Financial Information, for additional discussion.)

     Operating income of $114.2 million for the 2005 second quarter increased $27.7 million compared with the 2004 second quarter primarily due to higher average copper prices (approximately $46 million); partially offset by lower sales volume (approximately $4 million) and higher cost of copper production (approximately $17 million) primarily due to higher operating and repair costs associated with higher supply costs and the initial preparations for the restart of milling operations.

     Operating income of $200.1 million for the first six months of 2005 increased $35.7 million compared with the corresponding 2004 period primarily due to higher average copper prices (approximately $84 million); partially offset by lower sales volume (approximately $25 million) and higher cost of copper production (approximately $27 million). Higher cost of copper production primarily was due to higher operating and repair costs (approximately $32 million) primarily associated with higher supply costs, 2005 first quarter weather-related events, the initial preparations for the restart of milling operations and higher cathode freight costs (approximately $3 million); partially offset by a decrease in work-in-process inventories (approximately $6 million) and lower depreciation expense (approximately $6 million) primarily associated with lower production and depreciation rates.

Bagdad Segment – Operating Income

     Our wholly owned Bagdad open-pit mine, located in northwest Arizona, produces copper and molybdenum concentrates and electrowon copper cathodes.

     Operating income of $116.5 million for the 2005 second quarter increased $95.2 million compared with the 2004 second quarter primarily due to higher by-product molybdenum revenues resulting from higher average prices and volume (approximately $96 million), higher average copper prices (approximately $15 million) and higher sales volume (approximately $3 million); partially offset by higher cost of copper production (approximately $18 million), which excludes by-product molybdenum revenues. Higher cost of copper production, which excludes by-product molybdenum revenues, primarily was due to (i) higher mining and milling rates (approximately $9 million) associated with ramped-up capacity, (ii) higher smelting and refining costs (approximately $3 million) resulting from higher concentrate production volume, (iii) higher depreciation expense (approximately $3 million) due to higher production volumes and depreciation rates, and (iv) higher severance and property taxes resulting from higher copper and molybdenum prices (approximately $2 million).

     Operating income of $200.9 million for the first six months of 2005 increased $154.7 million compared with the corresponding 2004 period primarily due to higher by-product molybdenum revenues resulting from higher average prices and volume (approximately $154 million), higher average copper prices (approximately $29 million) and higher sales volume (approximately $10 million); partially offset by higher cost of copper production (approximately $37 million), which excludes by-product molybdenum revenues. Higher cost of copper production, which excludes by-product molybdenum revenues, primarily was due to (i) higher mining and milling rates (approximately $17 million) associated with ramped-up capacity, (ii) higher smelting, refining and freight costs (approximately $9 million) resulting from higher concentrate production volume, (iii) higher depreciation expense (approximately $4 million) due to higher production volumes and depreciation rates, (iv) higher severance and property taxes (approximately $3 million) resulting from higher copper and molybdenum prices, and (v) mitigation of damage and additional costs necessitated by record rainfall (approximately $4 million).

Sierrita Segment – Operating Income

     Our wholly owned Sierrita open-pit mine, located near Green Valley, Arizona, produces copper concentrates, electrowon copper cathodes and molybdenum products.

     Operating income of $135.6 million for the 2005 second quarter increased $65.5 million compared with the 2004 second quarter primarily due to higher by-product molybdenum revenues resulting from higher average prices and volume (approximately $58 million), higher average copper prices (approximately $11 million) and higher sales volume (approximately $5 million); partially offset by higher cost of copper production (approximately $9 million), which excludes by-product molybdenum revenues, primarily due to higher mining and milling rates associated with ramped-up capacity.

     Operating income of $270.1 million for the first six months of 2005 increased $170.0 million compared with the corresponding 2004 period primarily due to higher by-product molybdenum revenues resulting from higher average prices and volume (approximately $158 million), higher average copper prices (approximately $22 million) and higher sales volume (approximately $13 million); partially offset by higher cost of copper production (approximately $22 million), which excludes by-product molybdenum revenues. Higher cost of copper production, which excludes by-product molybdenum revenues, primarily was due to (i) higher mining and milling rates (approximately $10 million) associated with ramped-up capacity, (ii) higher smelting and refining costs (approximately $3 million) related to higher concentrate production volume, (iii) costs associated with increased copper cathode production volume (approximately $2 million), and (iv) higher severance and property taxes (approximately $3 million) resulting from higher copper and molybdenum prices.

Miami/Bisbee Segment – Operating Income (Loss)

     Our wholly owned Miami open-pit mine, located in Miami, Arizona, produces electrowon copper cathodes. The Company’s interest in the Copreco venture that operates the water treatment/copper recovery facility in Bisbee, located in southern Arizona, is accounted for on an equity basis.

     Operating income of $2.1 million for the 2005 second quarter increased $5.2 million compared with the 2004 second quarter primarily due to higher sales volumes (approximately $4 million) and higher average copper prices (approximately $2 million).

     Operating income of $3.2 million for the first six months of 2005 increased $7.0 million compared with the corresponding 2004 period primarily due to higher sales volumes (approximately $4 million) and higher average copper prices (approximately $3 million).

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Chino/Cobre Segment – Operating Income (Loss)

     Our wholly owned Chino open-pit mine, located near Silver City, New Mexico, produces electrowon copper cathodes and copper concentrates. The segment also includes our wholly owned Cobre mine, which is adjacent to the Chino mine. Our Cobre mine is on care-and-maintenance status with the exception of certain limited mining activities.

     An operating loss of $51.0 million for the 2005 second quarter was unfavorable by $61.0 million compared with the 2004 second quarter primarily due to higher special, net pre-tax charges ($63.5 million) primarily associated with asset impairment charges of $59.9 million recorded at Cobre in the 2005 second quarter (refer to Note 3, Special Items and Provisions, to our unaudited June 30, 2005, Consolidated Financial Information, for additional discussion) and higher cost of copper production (approximately $36 million), which excludes by-product molybdenum revenues; partially offset by higher copper sales volumes (approximately $15 million), higher average copper prices (approximately $14 million) and by-product molybdenum revenues resulting from higher average prices and volume (approximately $10 million). Higher cost of copper production, which excludes by-product molybdenum revenues, primarily was due to (i) higher mining and milling costs (approximately $22 million) due to the restart of milling operations and ramp-up of mining operations including increased stripping, (ii) higher smelting and refining costs related to increased concentrate production (approximately $6 million), (iii) the impact of changes in heap-leach and work-in-process inventories (approximately $7 million), and (iv) higher depreciation expense (approximately $3 million) due to higher straight-line depreciation of equipment and higher production volumes.

     An operating loss of $33.9 million for the first six months of 2005 was unfavorable by $58.9 million compared with the corresponding 2004 period primarily due to higher special, net pre-tax charges ($64.1 million) primarily associated with asset impairment charges of $59.9 million recorded at Cobre in the 2005 second quarter (refer to Note 3, Special Items and Provisions, to our unaudited June 30, 2005, Consolidated Financial Information, for additional discussion) and higher cost of copper production (approximately $80 million), which excludes by-product molybdenum revenues; partially offset by higher copper sales volumes (approximately $48 million), higher average copper prices (approximately $27 million) and by-product molybdenum revenues resulting from higher average prices and volume (approximately $10 million). Higher cost of copper production, which excludes by-product molybdenum revenues, primarily was due to (i) higher mining and milling costs (approximately $46 million) resulting from the restart of milling operations and ramp-up of mining operations including increased stripping, (ii) higher smelting and refining costs related to increased concentrate production (approximately $16 million), (iii) the impact of changes in heap-leach and work-in-process inventories (approximately $15 million), and (iv) higher depreciation expense (approximately $5 million) due to higher straight-line depreciation of equipment and production volumes.

Tyrone Segment – Operating Income (Loss)

     Our wholly owned Tyrone open-pit mine, located near Tyrone, New Mexico, produces electrowon copper cathodes.

     An operating loss of $208.3 million for the 2005 second quarter was unfavorable by $214.9 million compared with the 2004 second quarter primarily due to higher special, net pre-tax charges ($209.7 million) primarily associated with asset impairment charges of $210.5 million recorded in the 2005 second quarter (refer to Note 3, Special Items and Provisions, to our unaudited June 30, 2005, Consolidated Financial Information, for additional discussion) and higher mining costs due to an increase in tons mined (approximately $11 million); partially offset by the effect of higher average copper prices (approximately $6 million).

     An operating loss of $211.2 million for the first six months of 2005 was unfavorable by $220.2 million compared with the corresponding 2004 period primarily due to higher special, net pre-tax charges ($213.9 million) primarily associated with asset impairment charges of $210.5 million recorded in the 2005 second quarter (refer to Note 3, Special Items and Provisions, to our unaudited June 30, 2005, Consolidated Financial Information, for additional discussion) and higher mining costs due to an increase in tons mined (approximately $18 million); partially offset by the effect of higher average copper prices (approximately $11 million) and the impact of changes in heap-leach and work-in-process inventories (approximately $5 million).

Manufacturing Segment – Operating Income (Loss)

     An operating loss of $141.9 million for the 2005 second quarter was unfavorable by $149.3 million compared with the 2004 second quarter primarily due to higher special, net pre-tax charges ($148.7 million) associated with asset impairment charges of $89.6 million and $59.1 million recorded at the Chino smelter and Miami refinery, respectively, in the 2005 second quarter (refer to Note 3, Special Items and Provisions, to our unaudited June 30, 2005, Consolidated Financial Information, for additional discussion).

     An operating loss of $137.7 million for the first six months of 2005 was unfavorable by $149.2 million compared with the corresponding 2004 period primarily due to higher special, net pre-tax charges ($148.7 million) associated with asset impairment charges of $89.6 million and $59.1 million recorded at the Chino smelter and Miami refinery, respectively, in the 2005 second quarter (refer to Note 3, Special Items and Provisions, to our unaudited June 30, 2005, Consolidated Financial Information, for additional discussion) and higher costs associated with a fire at our Norwich rod mill on January 7, 2005 (approximately $4 million). These were offset primarily by increases related to higher smelting revenues (approximately $5 million) resulting from higher tons processed through the smelter and higher rod premiums.

     Our other rod mills increased production to compensate for the production loss associated with the fire at our Norwich rod mill, at which production resumed in late January 2005.

South American Mines – Operating Income

     South American Mines reported operating income in the 2005 second quarter of $168.0 million, compared with operating income of $139.0 million in the 2004 second quarter.

     South American Mines reported operating income of $323.9 million for the first six months of 2005, compared with operating income of $320.2 million for the corresponding 2004 period. (Refer to

40

the separate discussion of PDMC’s segments below for further detail.)

Candelaria/Ojos del Salado Segment – Operating Income

     The Candelaria open-pit mine, located near Copiapó in northern Chile, produces copper concentrates. The segment also includes the wholly owned, nearby Ojos del Salado underground mines that produce copper concentrates. We own an 80 percent partnership interest in Candelaria, a Chilean contractual mining company, which we fully consolidate (and report minority interest).

     Operating income of $64.6 million for the 2005 second quarter increased $15.3 million compared with the 2004 second quarter primarily due to higher average copper prices (approximately $42 million); partially offset by higher cost of copper production (approximately $26 million). Higher cost of copper production primarily was due to the ramp-up of production at Ojos del Salado (approximately $12 million), lower precious metal by-product revenues (approximately $7 million) and higher smelting and refining costs (approximately $5 million).

     Operating income of $140.0 million for the first six months of 2005 increased $21.9 million compared with the corresponding 2004 period primarily due to higher average copper prices (approximately $66 million); partially offset by higher cost of copper production (approximately $42 million). Higher cost of copper production primarily was due to the ramp-up of production at Ojos del Salado (approximately $21 million), higher smelting and refining costs (approximately $13 million) and higher mining costs (approximately $14 million) associated with higher mining rates, energy and supply costs; partially offset by lower depreciation expense (approximately $6 million) primarily due to increased ore reserves.

Cerro Verde Segment – Operating Income

     The Cerro Verde open-pit mine, located near Arequipa, Peru, produces electrowon copper cathodes. On June 1, 2005, Sociedad Minera Cerro Verde S.A.A. (Cerro Verde) completed its general capital increase transaction, permitting Sumitomo Metal Mining Co. Ltd. and Sumitomo Corp., known collectively as Sumitomo, to acquire an equity position in Cerro Verde. The transaction resulted in Sumitomo acquiring an equity position in Cerro Verde totaling 21.0 percent. In addition, Compañia de Minas Buenaventura S.A.A. (Buenaventura) increased its ownership position in Cerro Verde to 18.2 percent. The remaining minority shareholders who own shares publicly traded on the Lima Stock Exchange own 7.2 percent of Cerro Verde. As a result of the transaction, Cerro Verde received cash of $441.8 million (net of $1.0 million of expenses) and Phelps Dodge’s interest in Cerro Verde was reduced to 53.6 percent from 82.5 percent. Phelps Dodge continues to maintain a majority interest in Cerro Verde, which we fully consolidate (and report minority interest). (Refer to Change in Interest Gain from Cerro Verde Stock Issuance at page 46 for additional discussion.)

     Operating income of $39.6 million for the 2005 second quarter increased $14.5 million compared with the 2004 second quarter due to higher average copper prices (approximately $19 million) and higher sales volumes (approximately $3 million); partially offset by higher cost of copper production (approximately $6 million) primarily due to higher mining repair and maintenance costs and higher acid and energy costs.

     Operating income of $75.6 million for the first six months of 2005 increased $12.7 million compared with the corresponding 2004 period primarily due to higher average copper prices (approximately $27 million); partially offset by lower sales volumes (approximately $3 million) and higher cost of copper production (approximately $11 million) primarily due to higher mining repair and maintenance costs and higher acid and energy costs.

     On October 11, 2004, the Phelps Dodge board of directors announced conditional approval of an $850 million expansion of the Cerro Verde mine. In early February 2005, the board unconditionally approved proceeding with project development simultaneously with the financing efforts. (Refer to PDMC – Other Matters on page 42 for additional discussion of the Cerro Verde mine expansion.)

El Abra Segment – Operating Income

     The El Abra open-pit mine, located in northern Chile, produces electrowon copper cathodes. We own a 51 percent partnership interest in El Abra, a Chilean contractual mining company, and the remaining 49 percent interest is owned by Corporación Nacional del Cobre de Chile (CODELCO), a Chilean state-owned company. We fully consolidate El Abra (and report minority interest).

     Operating income of $63.8 million for the 2005 second quarter decreased $0.8 million compared with the 2004 second quarter primarily due to lower sales volumes (approximately $22 million) and higher production costs (approximately $5 million). Higher production costs were primarily due to higher acid and energy costs (approximately $4 million), leased equipment and maintenance cost (approximately $3 million) and the unfavorable effect of exchange rates (approximately $2 million); partially offset by the impact of changes in heap-leach and work-in-process inventories (approximately $5 million). These were partially offset by net higher average copper prices (approximately $25 million). Average copper prices benefited from higher LME prices (approximately $41 million), but were offset by the mark-to-market effects of copper collars related to 2005 production (approximately $16 million).

     Operating income of $108.3 million for the first six months of 2005 decreased $30.9 million compared with the corresponding 2004 period primarily due to lower sales volumes (approximately $30 million) and higher production costs (approximately $10 million). Higher production costs were primarily due to higher acid, energy costs and contracted services (approximately $10 million), leased equipment and maintenance costs (approximately $8 million), and the unfavorable impact of exchange rates (approximately $2 million); partially offset by the impact of changes in heap-leach and work-in-process inventories (approximately $12 million). These were partially offset by net higher average copper prices (approximately $8 million). Average copper prices benefited from higher LME prices (approximately $65 million), but were offset by the mark-to-market effects of copper collars related to 2005 production (approximately $57 million).

Primary Molybdenum – Operating Income

     Primary Molybdenum includes our wholly owned Henderson and Climax molybdenum mines in Colorado and conversion facilities in the United States and Europe. Henderson produces high-purity, chemical-grade molybdenum concentrates, which are further processed into value-added molybdenum chemical products. The Climax mine is currently on care-and-maintenance status. We expect

41

to bring it into production concurrent with the exhaustion of the Henderson molybdenum mine reserves for continued long-term primary molybdenum supply for the chemicals business. Nonetheless, we continue to evaluate short-and mid-term production opportunities for the Climax mine based on market conditions and projects as well as manage the facility in a manner that allows its production to commence in a timely and efficient manner.

     Our expected 2005 molybdenum production is approximately 64 million pounds (approximately 33 million pounds from primary mines and 31 million pounds from by-product mines). Approximately 70 percent of our molybdenum sales are priced based on published prices (i.e., Platts Metals Week, Ryan’s Notes, or Metal Bulletin), plus premiums. The majority of these sales use the average of the previous 30 days (i.e., price quotation period is the month prior to shipment, or M-1). The other sales generally have pricing that is either based on a fixed price or adjusts within certain price ranges. Based upon the assumption that approximately 70 percent of our molybdenum sales, depending on customer and product mix at the time, adjusted based on the underlying published prices, each $1.00 per pound change in our average annual realized molybdenum price causes a variation in annual operating income before taxes of approximately $45 million.

     Primary Molybdenum plans to increase production capacity at the Henderson mine to 40 million pounds per year by mid-2006. The cost to add the increased capacity is expected to total $20 million to $24 million. Primary Molybdenum is also evaluating the possibility of bringing the Climax mine on line in response to market conditions. If it is brought on line, production from the Climax mine could range from 10 million to 20 million pounds a year.

     Operating income for the 2005 second quarter of $98.9 million increased $69.1 million compared with the second quarter of 2004 primarily due to higher average molybdenum realizations (approximately $297 million), higher tolling revenue due to volume and price (approximately $8 million) and lower net production costs (approximately $2 million); partially offset by higher cost of molybdenum purchased from third parties as well as by-product molybdenum purchased from certain of our U.S. copper operations (approximately $228 million) and higher care and maintenance cost (approximately $5 million) primarily associated with the Climax mine. Lower production costs primarily resulted from decreased cost of material drawn from inventory (approximately $19 million); partially offset by higher labor and maintenance costs (approximately $4 million), higher conversion costs (approximately $3 million), higher outside service costs (approximately $2 million), higher tolling costs due to increased volume (approximately $3 million), and higher depreciation expense (approximately $2 million) due to higher production volumes.

     Operating income of $185.5 million for the first six months of 2005 increased $140.1 million compared with the corresponding 2004 period primarily due to higher average molybdenum realizations (approximately $617 million) and higher tolling revenue due to volume and price (approximately $13 million); partially offset by higher cost of molybdenum purchased from third parties as well as by-product molybdenum purchased from certain of our U.S. copper operations (approximately $469 million), higher net production costs (approximately $9 million), higher care and maintenance cost (approximately $6 million) primarily associated with the Climax mine and lower molybdenum sales volumes (approximately $4 million). Higher production costs resulted from increased volumes and included higher labor and maintenance costs (approximately $9 million), higher conversion costs (approximately $7 million), higher outside service costs (approximately $4 million), higher tolling costs due to increased volume (approximately $5 million), higher freight and warehousing costs (approximately $3 million), higher energy costs (approximately $2 million) and higher depreciation expense (approximately $3 million); partially offset by decreased cost of material drawn from inventory ($25 million).

2004 Recommencement of Previously Curtailed Properties

     In January 2004, we resumed production at certain of our previously curtailed properties. This decision was based on the rapid increase in copper prices, our view of market fundamentals for copper and molybdenum over the next several years, and our internal concentrate and sulfuric acid balance. The actual production ramp-ups and timing occurred as follows:

• Our Bagdad mine in Arizona began increasing production in January 2004 and resumed producing at full capacity in the 2004 second quarter.

• Our Sierrita mine in Arizona began increasing production in January 2004 and resumed producing at full capacity in the 2004 fourth quarter.

• Our Chino mine in New Mexico began increasing production in the 2003 fourth quarter as it resumed full mine-for-leach operations. The Chino milling operation increased to approximately 80 percent of capacity in the 2004 third quarter, which better balances our concentrate and acid production in the southwest.

• Our Ojos del Salado mine in Chile, which had been curtailed since 1998, resumed underground mining and milling operations during the 2004 second quarter.

• Our Miami smelter in Arizona resumed operating at full capacity in the 2004 second quarter.

     Including the effect of the above-mentioned recommencements, we expect our pro rata share of copper production in 2005 to be 2.2 billion pounds (2.5 billion pounds on a consolidated basis); our 2005 molybdenum production is expected to total 64 million pounds.

     Even though we continue to be optimistic about the strong copper and molybdenum markets, we will remain disciplined with our production profile. We will continue to configure our operations so that we can quickly respond to both positive and negative market demand and price swings.

     At June 30, 2005, excluding the Morenci mill, we had approximately 100 million to 150 million pounds of curtailed annual copper production capacity (both our share and 100 percent basis), that could be brought to market depending on equipment availability and near-term mine plans within one to three years. This reflects a reduction from previously disclosed amounts due to Tyrone and Cobre, as these mines were impaired in the 2005 second quarter (refer to PDMC — Other Matters below for further discussion). This curtailed capacity is located at our U.S. mine sites, all with existing

42

infrastructures. However, additional mining equipment may be required at a cost of approximately $100 million to $150 million.

     We have additional sources of copper that could be developed; however, such additional sources would require the development of greenfield projects or major brownfield expansions that would involve significantly greater capital expenditures and far longer lead-times than would be the case for facilities on care-and-maintenance status. The capital expenditures required to develop such additional production capacity include the costs of necessary infrastructure and would be substantial. In addition, significant lead-time would be required for permitting and construction.

PDMC — Other Matters

     On June 1, 2005, the Company’s board of directors approved expenditures of $210 million to construct the first-ever, commercial-scale copper concentrate leaching and direct electrowinning facility. It will be built at the Morenci copper mine, and is expected to begin operations in 2007. The Morenci project resulted in the Company reassessing its operating capacity, flexibility, efficiencies, and costs at its Chino smelter and Miami refinery. Accordingly, the Chino smelter and Miami refinery, which have been on care-and-maintenance status since 2002, will be closed. As a result of the decision to close the Chino smelter and the Miami refinery, the Company recognized special, pre-tax impairment charges of $89.6 million and $59.1 million respectively ($68.6 million and $45.2 million, respectively, after-tax), to reduce the related carrying values of these properties to their respective salvage values. In addition, the steps taken at Morenci prompted the Company to reassess the recoverability of the long-lived assets at both our Tyrone and Cobre mines in New Mexico. This reassessment indicated that the assets were not recoverable and that asset impairment charges were required; accordingly, the Company recognized special, pre-tax impairment charges of $210.5 million ($161.2 million after-tax) at its Tyrone mine and $59.9 million ($45.9 million after-tax) at its Cobre mine. (Refer to Note 3, Special Items and Provisions, to our unaudited June 30, 2005, Consolidated Financial Information, for additional discussion.)

     On July 8, 2005, the Miami smelter was shutdown to perform maintenance and repair on its furnace lining, as well as other routine maintenance. The shutdown impacted our copper production slightly and the smelter restarted on July 25, 2005.

     On October 11, 2004, the Phelps Dodge board of directors announced conditional approval of an $850 million expansion of the Cerro Verde mine near Arequipa, Peru. Final approval was contingent upon obtaining financing and obtaining certain key permits and government approvals. The required permits and approvals were obtained in the 2004 fourth quarter, and in early February 2005, the board unconditionally approved proceeding with project development simultaneously with the financing efforts. We expect to finalize financing arrangements during 2005.

     The expansion, which will be financed with a combination of Cerro Verde cash (including cash from the issuance of shares) and new project debt, permits the mining of a primary sulfide ore body beneath the leachable ore body currently in production. Through the expansion, approximately 1.4 billion tons of sulfide ore reserves averaging 0.49 percent copper and 0.02 percent molybdenum will be processed through a new concentrator. Processing of the sulfide ore is expected to begin in late 2006 and the expanded production rate should be achieved in the first half of 2007. The current copper production at Cerro Verde is approximately 100,000 tons per year. After completion of the expansion, copper production is initially expected to approximate 300,000 tons per year (PD’s share would be approximately 160,700 tons per year).

     For the six months ended June 30, 2005, approximately $84 million has been spent on the Cerro Verde expansion.

     Sumitomo has agreed in principle to purchase a 20 percent interest in Ojos del Salado for approximately $25 million, including exploration properties and interests in the Punta del Cobre exploration district. This transaction is expected to close in the 2005 third quarter. Phelps Dodge will continue to retain a majority interest in the operation.

     On April 13, 2005, the U.S. Department of the Interior affirmed the Bureau of Land Management’s Record of Decision issued in mid-2004 supporting a land exchange with the Company. This action permits us to advance development of the proposed copper mining operation near Safford, Arizona. The proposed project includes development of the Dos Pobres and San Juan copper ore bodies, about eight miles north of Safford in southeastern Arizona.

     In July 2005, the Henderson mine and mill, the Miami mine, smelter, refinery and rod plant, the El Paso refinery and rod plant, and the Norwich rod and wire plant received the International Organization for Standardization (ISO) 14001 environmental certification. The ISO is a worldwide federation of national standards bodies. The International Environmental Management System Standard, also known as 14001, is the recognized standard for environmental management as well as a benchmark for environmental excellence.

Significant New Mexico Environmental and Reclamation Programs

     The Company’s New Mexico operations, Chino, Tyrone, Cobre and Hildalgo, each are subject to regulation under the New Mexico Water Quality Act and the Water Quality Control Commission (WQCC) regulations adopted under that Act. The New Mexico Environment Department (NMED) has required each of these operations to submit closure plans for approval. The closure plans must describe the measures to be taken to prevent groundwater quality standards from being exceeded following closure of the discharging facilities and to abate any groundwater or surface water contamination.

     Chino, Tyrone and Cobre also are subject to regulation under the New Mexico Mining Act (the Mining Act), which was enacted in 1993, and the Mining Act Rules, which are administered by the Mining and Minerals Division (MMD) of the New Mexico Energy, Minerals and Natural Resources Department. Under the Mining Act, Chino, Tyrone and Cobre are required to submit and obtain approval of closeout plans describing the reclamation to be performed following closure of the mines or portions of the mines.

     Financial assurance is required to ensure that funding will be available to perform both the closure plans and the closeout plans if the operator is not able to perform the work required by the plans.

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The amount of the financial assurance is based upon the estimated cost for a third party to complete the work specified in the plans, including any long-term operation and maintenance, such as operation of water treatment systems. NMED and MMD calculate the required amount of financial assurance based upon a “net present value” (NPV) method, based upon approved discount and escalation rates, when the closure plan and/or closeout plan require performance over a long period of time.

     In April 2005, the governor of New Mexico signed Senate Bill 986, effective June 17, 2005, that removes the requirement to provide financial assurance for the gross receipts tax levied on closure work. Eliminating this requirement is expected to reduce our New Mexico financial assurance by approximately $27 million (NPV basis).

     The Company’s cost estimates to perform the work itself (internal cost basis) generally are substantially lower than the cost estimates used for financial assurance due to the Company’s historical cost advantages, savings from the use of the Company’s own personnel and equipment as opposed to third-party contractor costs, and opportunities to prepare the site for more efficient reclamation as mining progresses.

     Refer to Note 6, Contingencies, to our unaudited June 30, 2005, Consolidated Financial Information, for additional information on significant New Mexico Environmental and Reclamation Programs.

RESULTS OF PHELPS DODGE INDUSTRIES

     PDI, our manufacturing division, produces engineered products principally for the global energy, 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 cables, and specialty conductors.

     The Company is continuing to explore strategic alternatives for PDI that may include potential subsidiary sales, selective asset sales, restructurings, joint ventures and mergers, or, alternatively, retention and selective growth. We are currently in discussions with certain interested parties whose primary interest is the potential purchase of Specialty Chemicals. No decision has yet been made to proceed with a sale and no assurance can be given that a transaction will be concluded. The book value of Specialty Chemicals was approximately $600 million at June 30, 2005. Whether any such transaction would result in the recognition of a gain or loss depends on the final purchase price and other terms and cannot yet be determined. Pending final approval of the Phelps Dodge board of directors, Specialty Chemicals plans to build a new carbon black manufacturing facility in Bahia, Brazil, at a greenfield location in the Camacari petrochemical complex in the northeastern area of Brazil.

(Unaudited; $ in millions)
	Second Quarter
	2005		2004
Sales and other operating revenues to unaffiliated customers:
Specialty Chemicals	$	185.6		165.2
Wire and Cable		281.6		231.2
	$	467.2		396.4
Operating income:
Specialty Chemicals	$	8.9		15.9
Wire and Cable		5.3		6.3
	$	14.2		22.2

(Unaudited; $ in millions)
	Six Months Ended
	June 30,
	2005		2004
Sales and other operating revenues to unaffiliated customers:
Specialty Chemicals	$	365.6		329.1
Wire and Cable		550.0		449.8
	$	915.6		778.9
Operating income:
Specialty Chemicals	$	22.1		27.1
Wire and Cable		17.3		8.6
	$	39.4		35.7

PDI — Sales

     PDI reported sales to unaffiliated customers of $467.2 million for the 2005 second quarter, compared with sales of $396.4 million for the 2004 second quarter. The increase of $70.8 million was due to higher Wire and Cable sales that increased $50.4 million primarily as a result of increased metal prices and increased demand for energy cables and building wire in the international and domestic markets (approximately $44 million) and favorable foreign exchange rate impacts (approximately $6 million). Additionally, Specialty Chemicals sales increased $20.4 million primarily as a result of favorable foreign exchange rate impacts (approximately $13 million) and improved pricing primarily due to the pass-through of a portion of higher feedstock oil costs to customers and negotiated price increases (approximately $12 million); partially offset by lower sales volumes (approximately $5 million) primarily in Europe.

     PDI reported sales to unaffiliated customers of $915.6 million for the first six months of 2005, compared with sales of $778.9 million in the corresponding 2004 period. The increase of $136.7 million was due to higher Wire and Cable sales that increased $100.2 million primarily as a result of increased metal prices and increased demand for energy cables and building wire in the international markets (approximately $94 million) and favorable foreign exchange rate impacts (approximately $7 million). Additionally, Specialty Chemicals sales increased $36.5 million primarily as a result of foreign exchange impacts (approximately $23 million) and improved pricing primarily due to the pass-through of a portion of higher feedstock oil costs to customers and negotiated price increases (approximately $19 million); partially offset by lower sales volumes (approximately $6 million) primarily in Europe.

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PDI — Operating Income

     PDI reported operating income of $14.2 million for the 2005 second quarter, including special, net pre-tax charges of $1.9 million, compared with operating income of $22.2 million for the 2004 second quarter including special, net pre-tax charges of $2.5 million.

     PDI reported operating income of $39.4 million for the first six months of 2005, including special, net pre-tax charges of $1.5 million, compared with operating income of $35.7 million for the first six months of 2004, including special, net pre-tax charges of $4.3 million. (Refer to the separate discussion of PDI’s Specialty Chemicals and Wire and Cable segments below for further detail.)

Note: Supplemental Data

     The following tables summarize PDI’s operating income, special items and provisions and the resultant earnings excluding these special items and provisions for the quarter and six-month periods ended June 30, 2005 and 2004:

(Unaudited; $ in millions)
	Second Quarter
	2005			2004
Operating income	$	14.2			22.2
Special, pre-tax items and provisions		(1.9	)		(2.5	)
Segment operating income excluding special items and provisions	$	16.1			24.7

(Unaudited; $ in millions)
	Six Months Ended
	June 30,
	2005			2004
Operating income	$	39.4			35.7
Special, pre-tax items and provisions		(1.5	)		(4.3	)
Segment operating income excluding special items and provisions	$	40.9			40.0

Note: Our non-GAAP measure of special items and provisions may not be comparable to similarly titled measures reported by other companies.

Note: Supplemental Data

     The following tables summarize PDI’s special items and provisions, all of which related to Wire and Cable, for the quarter and six-month periods ended June 30, 2005 and 2004:

(Unaudited; $ in millions)
	Second Quarter
	2005			2004
Wire and Cable restructuring programs/closures	$	(1.5	)		(1.9	)
Asset impairment charges		(0.4	)		(0.6	)
	$	(1.9	)		(2.5	)

(Unaudited; $ in millions)
	Six Months Ended
	June 30,
	2005			2004
Wire and Cable restructuring programs/closures	$	(1.1	)		(3.6	)
Environmental provisions, net		—			(0.1	)
Asset impairment charges		(0.4	)		(0.6	)
	$	(1.5	)		(4.3	)

Specialty Chemicals — Operating Income

     Specialty Chemicals reported operating income of $8.9 million for the 2005 second quarter, compared with operating income of $15.9 million for the 2004 second quarter. The decrease of $7.0 million primarily was due to lower variable margins driven by higher feedstock costs (approximately $2 million) from the rise of oil prices, lower sales volumes (approximately $2 million) primarily in Europe and higher costs associated with accelerated depreciation (approximately $3 million) for 2005 operational restructuring activities in the United Kingdom.

     Specialty Chemicals reported operating income of $22.1 million for the first six months of 2005, compared with operating income of $27.1 million for the first six months of 2004. The decrease of $5.0 million primarily was due to higher costs associated with accelerated depreciation (approximately $7 million) for 2005 operational restructuring activities and lower sales volumes (approximately $3 million); partially offset by improved variable margins (approximately $6 million) reflecting higher prices, the pass-through of a portion of higher feedstock costs and stronger foreign currencies.

Wire and Cable — Operating Income

     Wire and Cable reported operating income of $5.3 million, including special, net pre-tax charges of $1.9 million for the 2005 second quarter, compared with operating income of $6.3 million, including special, net pre-tax charges of $2.5 million for the 2004 second quarter. The decrease of $1.0 million primarily was due to lower sales volumes and margins for magnet wire and specialty conductors (approximately $5 million); partially offset by improved margins and higher sales volumes for energy cables and building wire in the international markets (approximately $3 million) and lower depreciation expense (approximately $1 million).

     Wire and Cable reported operating income of $17.3 million, including special, net pre-tax charges of $1.5 million for the first six months of 2005, compared with operating income of $8.6 million, including special, net pre-tax charges of $4.3 million for the corresponding 2004 period. The increase of $8.7 million primarily was due to improved margins and higher sales volumes for energy cables and building wire in the international markets (approximately $9 million), the impact of lower special, net pre-tax charges ($2.8 million) and lower depreciation expense (approximately $2 million) primarily associated with its magnet wire restructuring plan; partially offset by lower sales volumes and margins for magnet wire and specialty conductors (approximately $4 million).

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OTHER MATTERS RELATING TO THE CONSOLIDATED STATEMENT OF INCOME

Cost of Products Sold

     Cost of products sold was $1,346.5 million for the 2005 second quarter, compared with $1,133.6 million for the 2004 second quarter. The increase of $212.9 million primarily was attributable to an increase in copper and molybdenum production costs (approximately $136 million - refer to PDMC’s segments on pages 36 to 41 for further discussion), higher costs of molybdenum purchased from third parties (approximately $65 million) and increases at our Wire and Cable segment for third-party raw material purchases and higher sales volumes (approximately $41 million); partially offset by lower purchased cathode and concentrate (approximately $44 million) due to lower volumes.

     Cost of products sold was $2,669.4 million for the first six months of 2005, compared with $2,232.0 million for the corresponding 2004 period. The increase of $437.4 million primarily was attributable to an increase in copper and molybdenum production costs (approximately $275 million - refer to PDMC’s segments on pages 36 to 41 for further discussion), higher costs of molybdenum purchased from third parties (approximately $146 million) and increases at our Wire and Cable segment for third-party raw material purchases and higher sales volumes (approximately $85 million); partially offset by lower purchased cathode and concentrate (approximately $77 million) due to lower volumes.

Selling and General Administrative Expense

     Selling and general administrative expense was $40.5 million for the 2005 second quarter, compared with $34.2 million for the 2004 second quarter. The increase of $6.3 million primarily resulted from mark-to-market adjustments of stock appreciation rights (approximately $2 million), higher employee incentive and variable compensation expense (approximately $1 million) and higher restricted stock amortization (approximately $1 million).

     Selling and general administrative expense was $87.8 million for the first six months of 2005, compared with $72.7 million for the corresponding 2004 period. The increase of $15.1 million primarily resulted from a contribution to the Phelps Dodge Foundation (approximately $6 million) to fund charitable contributions, higher employee incentive and variable compensation expense (approximately $4 million) and higher restricted stock amortization (approximately $2 million).

Exploration and Research Expense

     Net exploration and research expense was $26.7 million for the 2005 second quarter, compared with $15.5 million for the 2004 second quarter. The increase of $11.2 million resulted from higher PDMC research expense (approximately $6 million) primarily due to increased project development work by the Process Technology Center in Safford, Arizona, and higher exploration spending (approximately $5 million) primarily in central Africa and at U.S. mines.

     Net exploration and research expense was $45.5 million for the first six months of 2005, compared with $29.1 million for the corresponding 2004 period. The increase of $16.4 million resulted from higher PDMC research expense (approximately $11 million) primarily due to increased project development work by the Process Technology Center in Safford, Arizona, and higher exploration spending (approximately $5 million) primarily in central Africa and at U.S. mines.

Interest Expense

     Interest expense, net of capitalized interest, was $21.3 million for the 2005 second quarter compared with $32.1 million for the 2004 second quarter. The decrease of $10.8 million primarily was attributable to net reductions associated with the repayment of long-term debt during 2004.

     Interest expense, net of capitalized interest, was $44.2 million for the first six months of 2005 compared with $71.0 million for the corresponding 2004 period. The decrease of $26.8 million primarily was attributable to net reductions associated with the repayment of long-term debt during 2004.

Early Debt Extinguishment Costs

     In June 2004, the Company completed the full repayment of Candelaria’s senior debt and executed the termination and release of the existing financing obligations and associated security package with the bank group. The full repayment of long-term debt with a book value of approximately $166 million, including the June 2004 scheduled payment, resulted in a 2004 special pre-tax charge of $15.2 million before minority interest ($10.1 million after-tax and net of minority interest impact) for early debt extinguishment costs, including unamortized issuance costs and the unwinding of associated floating-to-fixed interest rate swaps.

     In March 2004, the Company redeemed its 8.375 percent debentures due in 2023. These debentures had a book value of approximately $149 million and were redeemed for a total of $152.7 million, plus accrued interest. This resulted in a 2004 first quarter special, pre-tax charge of $3.9 million ($3.1 million after-tax) for early debt extinguishment costs, including purchase premiums.

     In March 2004, the Company completed tender offers for its 6.625 percent Notes due in 2005 and its 7.375 percent Notes due in 2007. The tender offers resulted in the retirement of long-term debt with a book value of approximately $305 million, which resulted in a 2004 first quarter special, pre-tax charge of $18.5 million ($14.5 million after-tax) for early debt extinguishment costs, including purchase premiums.

Gain on Sale of Cost-Basis Investment

     On June 9, 2005, the Company entered into an Underwriting Agreement with Citigroup Global Markets, Inc., UBS Securities LLC, Southern Peru Copper Corporation (SPCC), Cerro Trading Company, Inc. and SPC Investors, LLC. On June 15, 2005, pursuant to the Underwriting Agreement, the Company sold all of its SPCC common shares to the underwriters for a net purchase price of $40.635 per share (based on a market purchase price of $42.00 per share less underwriting fees). This transaction resulted in a special, pre-tax gain of $438.4 million ($388.0 million after-tax). The after-tax gain increased by approximately $18 million from the amount disclosed in our June 9, 2005, Form 8-K filing primarily due to the recognition of additional capital loss carryforwards resulting from subsequent developments in the tax audits of years 2000 through 2002.

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Change in Interest Gain from Cerro Verde Stock Issuance

     In the 2005 second quarter, Cerro Verde completed its general capital increase transaction, permitting Sumitomo to acquire an equity position in Cerro Verde. The transaction resulted in Sumitomo acquiring an equity position in Cerro Verde totaling 21.0 percent. In addition, Buenaventura increased its ownership position in Cerro Verde to 18.2 percent. The remaining minority shareholders who own shares publicly traded on the Lima Stock Exchange own 7.2 percent of Cerro Verde. As a result of the transaction, Phelps Dodge’s interest in Cerro Verde was reduced to 53.6 percent from 82.5 percent.

     In connection with the transaction, Cerro Verde issued 122.7 million of its common shares at $3.6074 per share to Sumitomo, Buenaventura and the remaining minority shareholders, and received $441.8 million in cash (net of $1.0 million of expenses). The stock issuance transactions resulted in a special, pre-tax gain of $159.5 million ($172.9 million after-tax) for Phelps Dodge associated with our change of interest. The $13.4 million tax benefit related to this transaction included a reduction in deferred tax liabilities ($16.1 million) resulting from the recognition of certain book adjustments to reflect dilution of our ownership interest; partially offset by taxes charged ($2.7 million) on the transfer of stock subscription rights to Buenaventura and Sumitomo. The capital increase will be used to partially finance an $850 million expansion to mine a primary sulfide ore body beneath the leachable ore body currently in production at Cerro Verde. The cash received in this transaction from Sumitomo may only be used for the sulfide project and is reflected as restricted cash for reporting purposes. (Refer to PDMC — Other Matters on page 42 for additional discussion.)

Miscellaneous Income and Expense, Net

     Miscellaneous income and expense, net was $44.4 million for the 2005 second quarter compared with $1.3 million for the 2004 second quarter. The increase of $43.1 million resulted primarily from higher dividend income ($19.8 million), which was primarily from SPCC, higher interest income ($12.2 million), the absence of the 2004 second quarter write-down of a cost-basis investment ($6.4 million) and higher mark-to-market benefits on the Chino and Tyrone financial assurance trusts ($3.9 million).

     Miscellaneous income and expense, net was $62.5 million for the first six months of 2005 compared with $3.5 million for the corresponding 2004 period. The increase of $59.0 million resulted primarily from higher dividend income ($30.7 million), which was primarily from SPCC, higher interest income ($17.5 million) and the absence of the 2004 write-downs of cost-basis investments ($10.0 million).

Provision for Taxes on Income

     The Company’s income tax provision for the 2005 second quarter resulted from taxes on earnings at international operations ($35.4 million) including recognition of valuation allowances ($1.1 million), and taxes on earnings at U.S. operations ($39.2 million) including benefits from the release of valuation allowances ($10.6 million).

     The Company’s income tax provision for the six months ended June 30, 2005, resulted from taxes on earnings at international operations ($83.7 million) including recognition of valuation allowances ($1.5 million), and taxes on earnings at U.S. operations ($122.1 million) including benefits from the release of valuation allowances ($31.9 million).

     The release in our domestic valuation allowances for the quarter and six months ended June 30, 2005, was attributable to a portion of our U.S. federal minimum tax credits, as well as our state net operating loss (NOL) carryforwards.

     The Company’s income tax provision for the 2004 second quarter resulted from (i) taxes on earnings at international operations ($18.9 million) including benefits from the release of valuation allowances ($21.3 million), (ii) taxes on earnings at U.S. operations ($12.8 million) including benefits from the release of valuation allowances ($41.9 million) and (iii) the recognition of a valuation allowance for deferred tax assets at our Brazilian wire and cable operation ($9.0 million).

     The Company’s income tax provision for the six months ended June 30, 2004, resulted from (i) taxes on earnings at international operations ($55.8 million) including benefits from the release of valuation allowances ($45.8 million), (ii) taxes on earnings at U.S. operations ($12.9 million) including benefits from the release of valuation allowances ($66.2 million) and (iii) the recognition of a valuation allowance for deferred tax assets at our Brazilian wire and cable operation ($9.0 million); partially offset by the reversal of the valuation allowance associated with deferred tax assets that were expected to be realized after 2004 at our 51 percent-owned El Abra copper mine ($30.8 million). The release of both the domestic and international valuation allowances reflects NOLs and other tax credits that were expected to be utilized.

     (Refer to Note 8, Provision for Taxes on Income, to our unaudited June 30, 2005, Consolidated Financial Information, for additional discussion of the Company’s effective income tax rate.)

CHANGES IN FINANCIAL CONDITION

Working Capital

     During the first six months of 2005, net working capital balances (excluding cash and cash equivalents and debt) decreased $66.7 million. This decrease resulted primarily from:

• a $283.7 million increase in accounts payable and accrued expenses mostly due to the reclassification of pension accruals associated with current year funding of our U.S. qualified defined benefit pension plans (approximately $155 million), higher mark-to-market adjustments on copper collars (approximately $78 million), net increases in asset retirement obligation costs (approximately $46 million) primarily resulting from reclassification of the current portion and higher cathode and concentrate purchases (approximately $28 million); partially offset by net reductions in employee incentive and variable compensation plans (approximately $31 million) primarily due to current year payments;

• a $61.0 million increase in accrued income taxes primarily due to higher foreign, federal and state income tax provisions (approximately $260 million); partially offset by payments, net of refunds (approximately $163 million) and a tax benefit associated with stock options (approximately $28 million); and

• a $36.3 million increase in dividends payable associated with common stock dividends; partially offset by

• a $221.3 million increase in accounts receivable primarily due to higher copper prices and sales volumes (approximately $95 million), repayment of securitization program (approximately $85

47

	million), higher molybdenum prices (approximately $54 million) and a receivable due for the settlement of legal matters (approximately $10 million); partially offset by decreases associated with the impact of forward prices on provisionally priced copper sales (approximately $28 million);
•	a $38.7 million increase in inventories primarily due to higher purchases at Wire and Cable in anticipation of increased sales volumes (approximately $31 million);
•	a $27.8 million increase in prepaid expenses and other current assets primarily due to the timing of major activities associated with the Cerro Verde sulfide project (approximately $19 million) and timing of payments for insurance (approximately $9 million);
•	a $13.5 million increase in supplies due to a build-up primarily associated with anticipated market shortages for certain supplies and parts and production increases (approximately $8 million), and higher prices for acid (approximately $3 million); and
•	an $11.1 million increase in current deferred tax assets primarily due to reclassification from non-current deferred income taxes.

Cash and Cash Equivalents

     We manage our cash on a global basis and maintain cash at our international operations to fund local operating needs, fulfill local debt requirements and, in some cases, fund local growth opportunities or lend cash to other international operations. At June 30, 2005, international operations held approximately $992.4 million, including $168.3 million of restricted cash, of the Company’s $2,763.9 million of total cash. Should the current favorable copper and molybdenum price environment continue for the foreseeable future, it is likely that our operations will continue to generate significant cash flows and cash balances.

Capital Expenditures and Investments

     Capital expenditures and investments in subsidiaries for the six months ended June 30, 2005, totaled $179.6 million including $157.0 million for PDMC, $17.6 million for PDI and $5.0 million for other corporate-related activities. Capital expenditures and investments in subsidiaries for the corresponding 2004 period totaled $96.6 million including $66.5 million for PDMC, $19.7 million for PDI and $10.4 million for other corporate-related activities. Capital expenditures and investments in subsidiaries for the year 2005 are expected to be approximately $750 million to $850 million including approximately $730 million for PDMC, approximately $70 million for PDI, and approximately $10 million for other corporate-related activities. The increase from the $317.3 million for 2004 is primarily due to the $350 million Cerro Verde expects to spend on its expansion project in 2005, approximately $25 million for our share of the construction costs for the Luna power plant, and $10 million for expansion of our magnet wire plant in China. These capital expenditures and investments are expected to be funded primarily from operating cash flows and cash reserves. The 2005 capital expenditures for the Cerro Verde expansion project will be funded by the cash proceeds received from its equity partners, with the remainder of the project expenditures expected to be funded by Cerro Verde cash reserves, project financing and operating cash flows.

Debt

     At June 30, 2005, our total debt was $1,044.2 million, compared with $1,046.8 million at March 31, 2005, and $1,096.9 million at December 31, 2004. The $52.7 million decrease in total debt from December 31, 2004, primarily was due to a net decrease in short-term borrowings (approximately $49 million) primarily associated with current year payments made at El Abra. Our ratio of debt to total capitalization was 14.3 percent at June 30, 2005, compared with 16.4 percent at March 31, 2005, and 18.3 percent at December 31, 2004.

     On April 1, 2005, the Company amended the agreement for its $1.1 billion revolving credit facility, extending its maturity to April 20, 2010, and slightly modifying its fee structure. The facility is to be used for general corporate purposes. The agreement permits borrowings of up to $1.1 billion, with a $300 million sub-limit for letters of credit. (Refer to Note 11, Debt and other Financing, to our unaudited June 30, 2005, Consolidated Financial Information, for additional discussion of the credit facility.)

     At June 30, 2005, there was approximately $74 million of letters of credit issued under the new revolver. Total availability under the revolving credit facility at June 30, 2005, amounted to approximately $1,026 million, of which approximately $226 million could be used for additional letters of credit.

     On July 19, 2005, the Company purchased approximately $280 million (book value) of long-term debt resulting from the completion of tender offers for our 8.75 percent notes due in 2011 (representing approximately 72 percent of the outstanding notes). The cash payment including expenses was approximately $332 million, and will result in an estimated pre-tax charge of approximately $54 million in the 2005 third quarter. This reduces our ratio of debt to total capitalization to approximately 11 percent. This action further enhances the Company’s near- and mid-term financial flexibility.

Dividends

     For the first six months of 2005, Phelps Dodge paid regular quarterly dividends of 50 cents per common share amounting to $48.3 million. On June 2, 2005, Phelps Dodge increased the quarterly stock dividend from 25 cents per common share to 37.5 cents per common share. The common stock dividend for the 2005 third quarter will be paid on September 2, 2005, to common shareholders of record at the close of business on August 12, 2005.

     For the first six months of 2005, Phelps Dodge paid regular quarterly dividends of $3.375 per mandatory convertible preferred share amounting to $6.8 million. On June 2, 2005, Phelps Dodge declared a quarterly dividend of $1.6875 per mandatory convertible preferred share to be paid on August 15, 2005, to preferred shareholders of record at the close of business on July 1, 2005.

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Contractual Obligations

     The following table summarizes Phelps Dodge’s contractual obligations at June 30, 2005, and the effect such obligations are expected to have on its liquidity and cash flow in future periods. The following table, as of June 30, 2005, reflects an update of only the major changes to the similar table presented in the Company’s Form 10-K at December 31, 2004:

(Unaudited; $ in millions)
			Less Than						After
	Total		1 Year		1-3 Years		4-5 Years		5 Years
Short-term debt	$	30.3		30.3		—		—		—
Long-term debt		1,013.9		43.6		99.1		24.6		846.6
Scheduled interest payment obligations*		1,151.2		75.9		151.5		139.7		784.1
Asset retirement obligations**		176.1		53.1		75.1		28.8		19.1
Take-or-pay contracts		627.6		297.9		200.1		51.1		78.5

*

Scheduled interest payment obligations were calculated using stated coupon rates for fixed debt and interest rates applicable at June 30, 2005, for variable rate debt.

**

Asset retirement obligations only included our estimated contractual cash payments associated with accelerating reclamation activities at certain sites for which our costs are estimable and the timing of payments is reasonably determinable as of June 30, 2005. The timing and the amount of these payments could change as a result of changes in regulatory requirements, changes in scope of reclamation activities and as actual reclamation spending occurs. Additionally, we have excluded payments for reclamation activities that are expected to occur after five years that are either not estimable and/or for which the timing is not determinable because the majority of these cash flows are expected to occur over an extended period of time commencing near the end of the mine life.

     Our take-or-pay contracts primarily include contracts for electricity (approximately $139.8 million), contracts for petroleum-based feedstock for conversion into carbon black (approximately $176.2 million), transportation and port fee commitments (approximately $80.5 million), contracts for copper anode for deliveries of specified volumes at market-based prices to our El Paso refinery (approximately $62.3 million), contracts for natural gas (approximately $23.2 million), contracts for sulfuric acid for deliveries of specified volumes based primarily on negotiated rates to El Abra (approximately $16.1 million), oxygen obligations for deliveries of specified volumes at fixed prices to Bagdad (approximately $9.4 million) and contracts for other supplies and services (approximately $120.1 million) of which approximately $103 million was associated with the expansion of the Cerro Verde mine. Approximately 59 percent of our take-or-pay electricity obligations are through PD Energy Services, the legal entity used to manage power for PDMC at generally fixed-priced arrangements. PD Energy Services has the right and the ability to resell the electricity as circumstances warrant. Obligations for petroleum-based feedstock for conversion into carbon black are for specific quantities, and ultimately will be purchased based upon prevailing market prices at the time. These petroleum-based products may be re-sold to others if circumstances warrant. Obligations for natural gas provide for deliveries of specified volumes, at market-based prices, primarily due to our carbon black operations in Brazil. Transportation obligations total approximately $62.7 million primarily for Candelaria contracted ocean freight rates and El Abra sulfuric acid freight arrangements. Our carbon black facility in the United Kingdom has port fee commitments of approximately $11.8 million over approximately 43 years. Our copper mine in Peru has port fee commitments of approximately $6 million over approximately 21 years.

Guarantees

     FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (FIN 45), requires that upon issuance of certain guarantees, a guarantor must recognize a liability for the fair value of an obligation assumed under the guarantee. Phelps Dodge Corporation as a guarantor is involved in financial guarantees (including option guarantees and indirect guarantees of the indebtedness of others) and certain indemnity obligations. Refer to Note 19, Guarantees, of the Company’s Form 10-K for the year ended December 31, 2004, for additional discussion regarding our financial guarantee and indemnity obligations. As of June 30, 2005, there have been no significant changes in our financial guarantee obligations and no liabilities recorded in connection with our guarantees that existed as of December 31, 2004. Additionally, there were no guarantees issued in the 2005 second quarter that had a material impact on our consolidated financial statements.

Other Items that May Affect Liquidity

     On May 27, 2005, shareholders approved an amendment to the Company’s Restated Certificate of Incorporation to increase the number of authorized shares of common stock from 200 million shares to 300 million shares. This increase provides additional flexibility for the Company to pursue various corporate objectives.

     On July 13, 2005, the Company made a cash contribution of $250 million to the master trust that funds our U.S. qualified defined benefit pension plans. This action has funded virtually the entire projected benefit obligation for those plans as reported at December 31, 2004.

     The Company filed a $1 billion shelf registration statement on Form S-3 with the Securities and Exchange Commission, which was declared effective May 10, 2005, to combine the $400 million shelf registration filed April 15, 2005, and $600 million outstanding under a shelf registration statement that was declared effective on July 15, 2003. The shelf registration provides flexibility to efficiently access capital markets should financial circumstances warrant.

     On March 24, 2005, Moody’s Investors Service upgraded Phelps Dodge’s senior unsecured ratings to Baa2 (stable outlook) from Baa3 (stable outlook).

     On February 9, 2005, Standard and Poor’s Rating Services raised Phelps Dodge’s senior unsecured debt rating from BBB- (positive outlook) to BBB (positive outlook). S&P also raised the Company’s commercial paper (short-term) rating from A3 to A2.

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     New Mexico and Colorado’s mined-land reclamation laws require financial assurance covering the future cost of reclamation. In contrast, Arizona’s Mine Land Reclamation Act permits a company to satisfy financial assurance requirements by demonstrating it has financial strength to fund future reclamation costs identified in an approved reclamation plan. An investment-grade bond rating is one of the financial strength tests under the Arizona Act. Phelps Dodge’s senior unsecured debt currently carries an investment-grade rating. Additionally, the Company currently meets another financial strength test in Arizona that is not ratings dependent.

     For New Mexico, financial assurance may be provided in several forms, including third-party performance guarantees, collateral bonds, surety bonds, letters of credit and trust funds. Based upon current permit terms and agreements with the state of New Mexico, up to 70 percent of the financial assurance for Chino, Tyrone and Cobre may be provided in the form of third-party performance guarantees. Under the Mining Act Rules and the terms of the guarantees, certain financial soundness tests must be met by the guarantor. A publicly traded company may satisfy these financial tests by showing that its senior unsecured debt rating is investment grade and that it meets certain requirements regarding assets in relation to the required amount of financial assurance. Phelps Dodge has provided performance guarantees for a portion of the financial assurance required for Chino, Tyrone and Cobre. Phelps Dodge’s senior unsecured debt currently carries an investment-grade rating. If the Company’s bond rating falls below investment grade, unless a different financial soundness test is met, the New Mexico mining operations that have a performance guarantee for a portion of their financial assurance would be required to supply financial assurance in another form.

     The cost of surety bonds (the traditional source of financial assurance) has increased significantly in recent years. Also, many surety companies are now requiring an increased level of collateral supporting the bonds. If surety bonds are unavailable at commercially reasonable terms, the Company could be required to post other collateral or possibly cash or cash equivalents directly in support of financial assurance obligations.

     The Company maintains a program whereby it has the ability to sell on a continuous basis an undivided interest in certain eligible accounts receivable. PD Receivables, LLC, a wholly owned, special purpose, bankruptcy-remote subsidiary was formed for the sole purpose of buying and selling receivables generated by the Company and is consolidated with the operations of the Company. PD Receivables, LLC is permitted to receive advances of up to $90 million for the sale of such undivided interest. The transactions are accounted for as a sale of receivables under the provisions of SFAS No. 140, “Accounting for the Transfers and Servicing of Financial Assets and Extinguishment of Liabilities – a replacement of FASB Statement No. 125.” On January 20, 2005, we repaid the outstanding balance on the program of $85 million that was advanced under the Receivables Facility. The program remains in place on an undrawn basis.

     On June 16, 2005, the Chilean government published legislation establishing a progressive tax rate on the operational margin generated on mining activities in Chile (5 percent for companies, including our subsidiaries in Chile, whose annual sales exceed 50,000 metric tons of copper). This law is effective January 1, 2006. The impact of this law on the Company’s Chilean subsidiaries has not yet been determined and is pending issuance of regulations by the Chilean IRS, which is expected in late 2005.

     On June 24, 2004, the Executive Branch of the Peruvian government approved legislation incorporating a royalty on mining activities. If payable by Cerro Verde, the royalty would be assessed at a graduated rate of up to 3 percent on the value of Cerro Verde’s sales, net of certain related expenses. It is not clear what, if any, effect the new royalty law will have on operations at Cerro Verde.

     In late July 2005, the Council of Ministers of the Democratic Republic of the Congo approved the principal commercial terms under which the Tenke Fungerume copper/cobalt mining project will be developed. These terms are to be incorporated into amended project documents, which will allow the project to advance into the development stage. Phelps Dodge has an option which, under the approved terms, will allow it to acquire an effective 57.75 percent interest in the project.

     On October 22, 2004, President Bush signed the American Jobs Creation Act of 2004 (the Act). We currently are considering the impact of the Act on our practice of reinvesting the earnings of our foreign subsidiaries. The Act provides an effective U.S. federal tax rate of 5.25 percent on certain foreign earnings repatriated during a one-year period (2005 for Phelps Dodge), but also results in the loss of any foreign tax credits associated with these earnings. The maximum amount of the Company’s foreign earnings that qualify for this one-time deduction is approximately $638 million. At the present time, other than the amount provided for dividends received in 2005 from Cerro Verde, we do not have enough information to determine whether and to what extent we might repatriate foreign earnings or the related income tax effect of such repatriation. We expect to finalize our assessment by the end of the 2005 third quarter at which time any tax impact would be recognized.

     On August 15, 2005, each share of Mandatory Convertible Preferred Stock will automatically convert, subject to certain adjustments, into between 2.083 and 2.5 shares of Common Stock depending on the then-current market price of our Common Stock based on the average closing price of the 20-day period preceding the conversion date.

Diesel Fuel and Natural Gas Price Protection Programs

     We purchase significant quantities of diesel fuel and natural gas to operate our facilities as inputs to the manufacturing process, electricity generation and copper refining.

     To reduce the Company’s exposure to price increases in these energy products, the Company enters into energy price protection programs for our North American and Chilean operations. Our diesel fuel and natural gas price protection programs consist of purchasing a combination of diesel fuel and natural gas call option contracts and fixed-price swaps. The call option contracts give the holder the right, but not the obligation, to purchase a specific commodity at a pre-determined price, or “strike price.” Call options allow the Company to cap the commodity purchase cost at the strike price of the option while allowing the Company the ability to purchase the commodity at a lower cost when market prices are lower than the strike price. Fixed-price swaps allow us to establish a fixed commodity purchase price for delivery during a specific hedge period.

     Our diesel fuel price protection program began in North America in 2000 and expanded to our Chilean mining operations in 2003. At

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June 30, 2005, we had outstanding diesel fuel option contracts in place to hedge approximately 15 million gallons of diesel fuel through September 2005. As of June 30, 2004, our diesel fuel price protection program had 28 million gallons of diesel fuel hedged. Gains and losses on these hedge transactions were substantially offset by a similar amount of loss or gain on the underlying diesel fuel purchases.

     As of June 30, 2005, our natural gas price protection program, which started in 2001, had outstanding natural gas option contracts in place to hedge approximately 1.8 million decatherms of natural gas through September 2005. As of June 30, 2004, our natural gas price protection program had outstanding natural gas option contracts in place to hedge approximately 3.8 million decatherms of natural gas. Gains on these hedge transactions were substantially offset by a similar amount of loss or gain on the underlying purchases.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

     There have been no material changes in the Company’s market risk during the first six months of 2005. For additional information on market risk, refer to pages 41 through 43 and 78 through 83 of our report on Form 10-K for the year ended December 31, 2004.

Item 4. Controls and Procedures

     The Company maintains a system of disclosure controls and procedures that is designed to ensure information required to be disclosed by the Company is accumulated and communicated to management, including our chief executive officer and chief financial officer, in a timely manner.

     An evaluation of the effectiveness of this system of disclosure controls and procedures was performed under the supervision and with the participation of the Company’s management, including the Company’s chief executive officer and chief financial officer, as of the end of the period covered by this report. Based upon this evaluation, the Company’s management, including the Company’s chief executive officer and chief financial officer, concluded that the current system of controls and procedures is effective.

Changes in Internal Control Over Financial Reporting

     The Company’s management, including the Company’s chief executive officer and chief financial officer, has evaluated the Company’s internal control over financial reporting to determine whether any changes occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Based on that evaluation, there has been no such change in the Company’s internal control over financial reporting that occurred during the first six months of 2005.

Part II. Other Information

Item 1. Legal Proceedings

     I. By letter dated June 21, 2005, the Arizona Department of Environmental Quality (ADEQ) sent a Notice of Violation (NOV) to the Company regarding exceedances of limits for copper and total suspended solids from the permitted surface water discharge at the Christmas, Arizona, facility (a closed mining facility). The Company is in the process of preparing a response to the NOV.

     II. Reference is made to paragraph II of Part II, Item 1, Legal Proceedings, of the Company’s Form 10-Q for the quarter ended March 31, 2005.

     On June 15, 2005, the New Mexico Court of Appeals issued a decision that overturns WQCC’s dismissal of a third party’s appeal of Chino’s closure permit. Chino is evaluating its options to respond to this decision. Under the decision, Chino’s closure permit would be remanded to the WQCC for a hearing.

     III. Reference is made to paragraph XII of Part I, Item 3, Legal Proceedings, of the Company’s Form 10-K for the year ended December 31, 2004.

     The stay of the consolidated litigation among the United States, Western Nuclear, Inc. and other potentially responsible parties concerning the White King / Lucky Lass Uranium Mines has been extended until September 19, 2005.

     IV. Reference is made to paragraph I of Part II, Item I, Legal Proceedings, of the Company’s Form 10-Q for the quarter ended March 31, 2005.

     Phelps Dodge Miami, Inc. (PDMI) and the other members of the Pinal Creek Group (PCG) settled their contribution claims against one defendant in April 2005. In June 2005, the Court issued orders canceling the Phase I trial and rendering the settlement effective. The Phase II trial, which will allocate liability, has not been scheduled.

     V. Reference is made to paragraph VIII of Part 1, Item 3, Legal Proceedings, of the Company’s Form 10-K for the year ended December 31, 2004.

     On June 28, 2005, Columbian filed a Completion Report Certification with the EPA advising that the Supplement Environmental Project has been completed.

     VI. Reference is made to paragraph X of Part 1, Item 3, Legal Proceedings, of the Company’s Form 10-K for the year ended December 31, 2004.

     Columbian Chemicals Company has been informed by both the European Commission and the U.S. Department of Justice that they have closed their investigations regarding alleged price fixing in the carbon black industry.

     VII. Reference is made to paragraph XI of Part 1, Item 3, Legal Proceedings, of the Company’s Form 10-K for the year ended December 31, 2004.

     In the North Carolina class action, the court granted the defendants’ motion to dismiss and the plaintiff dropped his appeal of the decision, so that case has been dismissed. A decision denying the defendants’ motion to dismiss the New Jersey action was reversed on appeal and that action has been dismissed, but the time for the plaintiff to appeal that decision has not expired. One action in Tennessee was voluntarily dismissed, and the court granted in part and denied in part a motion to dismiss a second action. Motions to dismiss are pending in the Florida, Kansas and South Dakota cases.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(e) Issuer Purchases of Equity Securities

     The following table sets forth information with respect to shares of common stock of the Company purchased by the Company during the three months ended June 30, 2005:

					(c) Total Number of		(d) Maximum Number (or
					Shares (or Units)		Approximate Dollar Value)
	(a) Total Number		(b) Average Price		Purchased as Part of		of Shares (or Units) That May
	of Shares (or Units)		Paid Per		Publicly Announced		Yet Be Purchased Under
Period	Purchased*		Share (or Unit)		Plans or Programs		the Plans or Programs
April 1-30, 2005		13,067	$	87.96		—		—
May 1-31, 2005		1,031		86.50		—		—
June 1-30, 2005		287		90.29		—		—
Total		14,385	$	87.91		—		—

* The shares shown have been repurchased under the Company’s applicable restricted stock plans (Plans) and its non-qualified supplemental savings plan (SSP). Through the Plans, certain employees may elect to satisfy their tax obligations on restricted stock awards by having the Company withhold a portion of their shares of restricted stock. Additionally, the Company repurchases shares in the SSP as a result of changes in investment elections by plan participants.

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

     Our annual meeting was held on May 27, 2005. A total of 84,094,140 common shares, or approximately 87 percent of our issued and outstanding common shares, were represented at the meeting. Set forth below is a description of the matters voted upon at the meeting and a summary of the voting regarding each matter:

	For		Withheld
Election of Directors:
Archie W. Dunham		79,060,094		5,034,046
William A. Franke		78,328,887		5,765,253
Robert D. Johnson		79,066,069		5,028,071
J. Steven Whisler		81,906,030		2,188,110

	For		Against		Abstain
Shareholder Proposals:
Approval of the Phelps Dodge Corporation 2006 Executive Performance Incentive Plan		58,270,166		15,503,232		565,927
Authorization to increase the authorized number of common shares		80,691,164		2,836,250		566,726
Ratification of the appointment of independent registered public accountants		82,434,838		1,149,838		509,936

     There were 9,754,815 broker non-votes included in the results of the proposal to approve the Phelps Dodge Corporation 2006 Executive Performance Incentive Plan. There were no broker non-votes included in the results of the election of directors, the proposal for authorization to increase the authorized number of common shares, or the proposal to ratify the appointment of the Company’s independent registered public accountants.

     The proposed date for the 2006 annual meeting of shareholders is May 26, 2006.

Item 6. Exhibits

     Exhibits required to be filed by the Company are listed in the Index to Exhibits.

     Signatures

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

PHELPS DODGE CORPORATION
(Corporation or Registrant)

Date: July 28, 2005	By:	/s/ Denise R. Danner
	Denise R. Danner
	Vice President and Controller
	(Principal Accounting Officer)

Index to Exhibits

3.1	Amendment to Restated Certificate of Incorporation of Phelps Dodge Corporation (incorporated by reference to Appendix B of the Company’s 2005 definitive Proxy Statement filed April 15, 2005 (SEC File No. 1-82)).
3.2	Complete composite copy of the Certificate of Incorporation of the Company as amended to date (filed herewith).
10.1	Underwriting Agreement, dated June 9, 2005, between Southern Peru Copper Corporation, Cerro Trading Company, Inc., SPC Inventors, L.L.C., Phelps Dodge Overseas Capital Corporation, Climax Molybdenum B.V., Citigroup Global Markets Inc. and UBS Securities L.L.C. (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed June 15, 2005 (SEC File No. 1-82)).
10.2	Shareholders Agreement, dated as of June 1, 2005, among Phelps Dodge Corporation, Cyprus Climax Metals Company, a Delaware corporation, Sumitomo Corporation, a Japanese corporation, Summit Global Management B.V., a Dutch corporation, SMM Cerro Verde Netherlands B.V., a Dutch corporation, Compañia de Minas Buenaventura S.A.A., a Peruvian sociedad anonima abierta, and Sociedad Minera Cerro Verde S.A.A., a Peruvian sociedad anonima abierta (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed June 7, 2005 (SEC File No. 1-82)).
10.3	Phelps Dodge Corporation 2006 Executive Performance Incentive Plan (incorporated by reference to Appendix A of the Company’s 2005 definitive Proxy Statement filed April 15, 2005 (SEC File No. 1-82)).
11	Computation of per share earnings.
12	Computation of ratios of total debt to total capitalization.
15	Letter from PricewaterhouseCoopers LLP with respect to unaudited interim financial information.
31	Certifications of J. Steven Whisler, Chairman and Chief Executive Officer of the Company, and Ramiro G. Peru, Executive Vice President and Chief Financial Officer of the Company, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 906 of the Sarbanes-Oxley Act of 2002.
32	Certifications of J. Steven Whisler, Chairman and Chief Executive Officer of the Company, and Ramiro G. Peru, Executive Vice President and Chief Financial Officer of the Company, pursuant to 18 United States Code Section 1350, as enacted by Section 906 of the Sarbanes-Oxley Act of 2002.

EX-3.2

Exhibit 3.2

CERTIFICATE OF INCORPORATION

OF

PHELPS DODGE CORPORATION

(as amended May 27, 2005)

     FIRST: The name of the Corporation is Phelps Dodge Corporation.

     SECOND: The objects for which this Corporation is formed are to do any of the things herein set forth to the same extent as natural born persons might, and in any part of the world and as principal or agent, to wit: To conduct mining operations of all kinds; to explore for, develop and deal in, any natural resources of any kind; to purchase, take, hold, sell, convey, lease, explore, develop, improve or otherwise deal in mining, natural resources, land, town site, building, power, water and other properties of all forms; to mine, extract or otherwise develop minerals, ores, metals, oil and other substances of all kinds; to smelt, reduce and otherwise treat minerals, ores, metals, oil and other substances of all kinds; to sell the product of all the foregoing operations; to undertake and carry on any business and operations incidental to such dealings, exploration, development; mining and treatment.

     To apply for, purchase, or otherwise acquire, and to hold, own, use, operate and to sell, assign or to otherwise dispose of, to grant licenses in respect to or otherwise turn to account letters patent and any and all inventions, improvements and processes used in connection with or secured under letters patent of the United States or elsewhere, or otherwise.

     To build and construct houses, structures, engines, cars, machinery and other equipment, and mining and metallurgical facilities and plants, including plants for the handling, concentrating, smelting, reduction and treatment of minerals, ores, metals, oil and other substances of all kinds, and to operate the same.

     To conduct manufacturing operations of all kinds; to manufacture, purchase or otherwise acquire, hold, own, mortgage, pledge, sell, assign, transfer or otherwise dispose of, invest, trade and deal in goods, wares and merchandise and property of all classes and descriptions; to transact a general mercantile business.

     To act as the agent of others in disposing of their minerals, ores and metals of all kinds or other substances, and to make contracts with others with reference to handling, smelting, treating and disposing of their minerals, ores and metals of all kinds and other substances.

     The Corporation may purchase, acquire, hold and dispose of the stocks, bonds and other evidences of indebtedness of any corporation, domestic or foreign, and issue in exchange therefor its stock, bonds or other obligations.

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     The Corporation may do everything necessary, suitable and proper for the accomplishment of any of the purposes or the attainment of any of the objects or the furtherance of any of the powers hereinabove set forth, either alone or in association with other corporations, firms or individuals, and do every other act or thing incidental or appurtenant to or growing out of or connected with the aforesaid business or powers, or any part thereof.

     THIRD: The total number of shares that the Corporation shall have authority to issue shall be three hundred six million (306,000,000), consisting of six million (6,000,000) Preferred Shares having a par value of one dollar per share and three hundred million (300,000,000) Common Shares having a par value of six dollars and twenty-five cents ($6.25) per share. The designations, relative rights, preferences and limitations of each class of shares of the Corporation shall be as follows:

     A.      The Preferred Shares may be issued from time to time in one or more series, in such number, and with such distinctive serial designations and relative rights, preferences and limitations, as may be fixed by the Board of Directors. Subject to the limitations set forth herein and any limitations prescribed by law, the Board of Directors is expressly authorized, prior to issuance of any series of Preferred Shares, to fix the number of shares included in such series and the designation, relative rights, preferences and limitations of such series and to file a certificate of amendment pursuant to Section 805 of the Business Corporation Law or any statute amendatory thereof or supplemental thereto, establishing or changing the number, designation and relative rights, preferences and limitations of such series. Pursuant to the foregoing general authority vested in the Board of Directors, but not in limitation of the powers conferred on the Board of Directors thereby and by the laws of the State of New York, the Board of Directors is expressly authorized to determine with respect to each series of Preferred Shares:

     (a)      the distinctive designation or designations of such series and the number of shares constituting such series;

     (b)      the rate or amount and times at which, and the preferences and conditions under which, dividends shall be payable on shares of such series, the status of such dividends as cumulative or noncumulative, the date or dates form which dividends, if cumulative, shall accumulate, and the status of such shares as participating or non-participating after the payment of dividends as to which such shares are entitled to any preference;

     (c)      the rights and preferences, if any, of the holders of shares of such series upon the liquidation, dissolution or winding-up of the affairs of, or upon any distribution of the assets of, the Corporation, which amount may vary depending upon whether such liquidation, dissolution or winding-up is voluntary or involuntary and, if voluntary, may vary at different dates, and the status of the shares of such series as participating or non-participating after the satisfaction of any such rights and preferences;

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     (d)      the full or limited voting rights, if any, to be provided for shares of such series, in addition to the voting rights provided by law;

     (e)      the times, terms and conditions, if any, upon which shares of such series shall be subject to redemption, including the amount the holders of shares of such series shall be entitled to receive upon redemption (which amount may vary under different conditions or at different redemption dates) and the amount, terms, conditions and manner of operation of any purchase, retirement or sinking fund to be provided for the shares of such series;

     (f)      the rights, if any, of holders of shares of such series to convert such shares into, or to exchange such shares for, shares of any other class or classes or of any other series of the same class, the prices or rates of conversion or exchange, and adjustments thereto, and any other terms and conditions applicable to such conversion or exchange;

     (g)      the limitations, if any, applicable while such series is outstanding on the payment of dividends or making of distributions on, or the acquisition or redemption of, Common Shares or any other class of share ranking junior, either as to dividends or upon liquidation, to the shares of such series;

     (h)      the conditions or restrictions, if any, upon the issue of any additional shares (including additional shares of such series or any other series or of any other class) ranking on a parity with or prior to the shares of such series either as to dividends or upon liquidation; and

     (i)      any other preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, of shares of such series;

in each case, so far as not inconsistent with the provisions of this Certificate of Incorporation or the laws of the State of New York as then in effect. All Preferred Shares shall be identical and of equal rank except in respect to the particulars that may be fixed by the Board of Directors as provided above, and all shares of each series of Preferred Shares shall be identical and of equal rank except as to the times from which cumulative dividends, if any, thereon shall be cumulative. The number of authorized Preferred Shares may be increased or decreased by the affirmative vote of the holders of a majority of the shares of the Corporation entitled to vote thereon, without any requirement that such increase or decrease be approved by a class vote on the part of the holders of the Preferred Shares or any series thereof, or on the part of any other class of stock of the Corporation, except as may be otherwise required by the laws of the State of New York or provided in the certificate of amendment establishing the voting rights of any series of Preferred Shares. The Board of Directors may from time to time amend any of the provisions of any certificate of amendment establishing any series of Preferred Shares, subject to any class voting rights of the holders of such shares and subject to the requirements of the laws of the State of New York.

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     A.1. Junior Participating Cumulative Preferred Shares

     The number, designation, relative rights, preferences and limitations of the Junior Participating Cumulative Preferred Shares are as follows:

     (1) Designation and Number of Shares. 400,000 of the Preferred Shares shall be, and be designated as, Junior Participating Cumulative Preferred Shares (hereinafter referred to as the “Junior Preferred Shares”).

     (2) Dividends. A. Subject to the provisions of subclauses B and D of this clause (2), holders of the Junior Preferred Shares shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the tenth day of March, June, September and December in each year (each such date, which is subject to change pursuant to the provisions of subclause D of this clause (2), being hereinafter referred to as a “Quarterly Dividend Payment Date”), commencing on the first Quarterly Dividend Payment Date after the first issuance of a Junior Preferred Share, in an amount per share (rounded to the nearest cent) equal to the greater of (i) $2.50 per share ($10.00 per annum), and (ii) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends, and 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in Common Shares or a subdivision of the outstanding Common Shares (by reclassification or otherwise), declared on the Common Shares since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any Junior Preferred Share. In the event the Corporation shall at any time declare or pay any dividend on Common Shares payable in Common Shares, or effect a subdivision or combination or consolidation of the outstanding Common Shares (by reclassification or otherwise than by payment of a dividend in Common Shares) into a greater or lesser number of Common Shares, then the number 100 (or such number to which it may previously have been adjusted) in subclause (ii) of the preceding sentence shall be adjusted (or further adjusted) by multiplying such number by a fraction the numerator of which is the number of Common Shares outstanding immediately after such event and the denominator of which is the number of Common Shares that were outstanding immediately prior to such event.

     B. Holders of the Junior Preferred Shares shall be entitled to receive such dividends in preference to and in priority over dividends upon the Common Shares and upon any other shares which are by their terms junior to the Junior Preferred Shares as to dividends. Junior Preferred Shares shall be junior as to dividends to any other Preferred Shares which are by their terms senior to the Junior Preferred Shares as to dividends, and if at any time the Corporation has failed to pay accrued dividends on any such other Preferred Shares at the time outstanding at the times such dividends are payable, the Corporation shall not declare or pay any dividends on the Junior Preferred Shares.

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     C. If at any time the Corporation has failed to pay accrued dividends on any Junior Preferred Shares at the time outstanding at the times such dividends are payable, the Corporation shall not

     (i) declare or pay any dividend on the Common Shares or make any payment on account of, or set apart money for a sinking or other analogous fund for, the purchase, redemption or other retirement of any Common Shares or make any distribution in respect thereof, either directly or indirectly and whether in cash or property or in obligations or shares of the Corporation (other than in Common Shares),

     (ii) purchase any Junior Preferred Shares (except for a consideration payable in Common Shares), or

     (iii) permit any corporation or other entity directly or indirectly controlled by the Corporation to purchase any Common Shares or Junior Preferred Shares,

unless, in the case of any such dividend, payment, distribution, purchase or redemption, all dividends accrued and payable but unpaid on the Junior Preferred Shares have been or contemporaneously are declared and paid in full or declared and a sum sufficient for the payment thereof set aside for such payment.

     D. The Corporation shall declare a dividend or distribution on the Junior Preferred Shares as provided in subclause A of this clause (2) immediately after it declares a dividend or distribution on the Common Shares (other than a dividend payable in Common Shares); provided that, in the event no dividend or distribution shall have been declared on the Common Shares during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $2.50 per share ($10.00 per annum) on the Junior Preferred Shares shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. The Board of Directors may change any of the Quarterly Dividend Payment Dates to a different date to coincide with the payment date for a dividend or distribution on the Common Shares.

     E. Dividends at the $10.00 minimum annual rate shall begin to accrue and be cumulative on outstanding Junior Preferred Shares from the Quarterly Dividend Payment Date next preceding the date of issue of such Junior Preferred Shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of Junior Preferred Shares entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall accumulate but shall not bear interest. Dividends paid on the shares of Junior

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Preferred Shares in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of Junior Preferred Shares entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 50 days prior to the date fixed for the payment thereof.

     (3) No Redemption. The Junior Preferred Shares shall not be redeemable.

     (4) Liquidation. A. The liquidation price of the Junior Preferred Shares, in case of the voluntary or involuntary liquidation, dissolution or winding-up of the Corporation, shall be an amount per share equal to the greater of (i) $100 and (ii) an aggregate amount (subject to the provisions for adjustment hereinafter set forth) equal to 100 times the aggregate per share amount to be distributed to holders of Common Shares. In the event the Corporation shall at any time declare or pay any dividend on Common Shares payable in Common Shares, or effect a subdivision or combination or consolidation of the outstanding Common Shares (by reclassification or otherwise than by payment of a dividend in Common Shares) into a greater or lesser number of Common Shares, then the number 100 (or such number to which it may previously have been adjusted) in subclause (ii) of the preceding sentence shall be adjusted (or further adjusted) by multiplying such number by a fraction the numerator of which is the number of Common Shares outstanding immediately after such event and the denominator of which is the number of Common Shares that were outstanding immediately prior to such event.

     B. In the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Corporation, the holders of Junior Preferred Shares (i) shall not be entitled to receive the liquidation price of such shares held by them until the liquidation price of any other Preferred Shares which are by their terms senior to the Junior Preferred Shares as to the distribution of assets on any voluntary or involuntary liquidation of the Corporation shall have been paid in full and (ii) shall be entitled to receive the liquidation price of such shares held by them in preference to and in priority over any distributions upon the Common Shares and upon any other shares which are by their terms junior to the Junior Preferred Shares as to the distribution of assets on any voluntary or involuntary liquidation of the Corporation. Upon payment in full of the liquidation price to which the holders of Junior Preferred Shares are entitled, the holders of Junior Preferred Shares will not be entitled to any further participation in any distribution of assets by the Corporation. If the assets of the Corporation are not sufficient to pay in full the liquidation price payable to the holders of Junior Preferred Shares, the holders of all such shares shall share pro rata on a share-by-share basis among all such shares at the time outstanding.

     C. Neither a consolidation or merger of the Corporation with or into any other corporation, nor a merger of any other corporation with or into the

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Corporation, nor a sale or transfer of all or any part of the Corporation’s assets for cash or securities shall be considered a liquidation, dissolution or winding-up of the Corporation within the meaning of this clause (4).

     (5) Convertibility. The Junior Preferred Shares shall not be convertible into any other securities of the Corporation.

     (6) Other Shares. The Junior Preferred Shares do not restrict in any way the issuance of any additional shares (including additional Junior Preferred Shares) ranking on a parity with or prior to the Junior Preferred Shares either as to dividends or upon liquidation or any additional Common Shares or other shares that may be entitled to vote with the Junior Preferred Shares. Any Junior Preferred Shares which are acquired by the Corporation and subsequently cancelled by the Board of Directors shall have the status of authorized but unissued Preferred Shares, without designation as to series, subject to reissuance by the Board of Directors as Junior Preferred Shares or of any one or more series.

     (7) Voting Rights. The holders of Junior Preferred Shares shall have the following voting rights:

     A. Subject to the provisions for adjustment hereinafter set forth, each Junior Preferred Share shall entitle the holder thereof to 100 votes on all matters submitted to a vote of shareholders of the Corporation and the holders of Junior Preferred Shares and the holders of Common Shares shall vote together as one class on all such matters. In the event the Corporation shall at any time declare or pay any dividend on Common Shares payable in Common Shares, or effect a subdivision or combination or consolidation of the outstanding Common Shares (by reclassification or otherwise than by payment of a dividend in Common Shares) into a greater or lesser number of Common Shares, then the number 100 in the preceding sentence (or such number to which it may previously have been adjusted) shall be adjusted (or further adjusted) by multiplying such number by a fraction the numerator of which is the number of Common Shares outstanding immediately after such event and the denominator of which is the number of Common Shares that were outstanding immediately prior to such event.

     B. Except as otherwise provided herein or required by law, the holders of Junior Preferred Shares shall have no voting rights for taking any corporate action.

     (8) Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the Common Shares are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case (subject to the provision for adjustment hereinafter set forth) each Junior Preferred Share shall at the same time be similarly exchanged for or changed into 100 times the aggregate per share amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, for which or into which each Common Share is exchanged or

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changed. In the event the Corporation shall at any time declare or pay any dividend on Common Shares payable in Common Shares, or effect a subdivision or combination or consolidation of the outstanding Common Shares (by reclassification or otherwise than by payment of a dividend in Common Shares) into a greater or lesser number of Common Shares, then the number 100 in the preceding sentence (or such number to which it may previously have been adjusted) shall be adjusted (or further adjusted) by multiplying such number by a fraction the numerator of which is the number of Common Shares outstanding immediately after such event and the denominator of which is the number of Common Shares that were outstanding immediately prior to such event.

     (9) Definition of “Common Shares”. As used in this Paragraph A.1 of this Certificate of Incorporation, the term “Common Shares” shall mean the Common Shares of the Corporation having a par value of six dollars and twenty-five cents ($6.25) per share, as such shares may be changed through any subdivision, combination or consolidation thereof.

     B. Except as otherwise provided by the laws of the State of New York or by any certificate of amendment filed pursuant to Paragraph A of this Article THIRD, setting forth the relative rights, preferences and limitations of any series of Preferred Shares, the entire voting power of the shares of the Corporation for the election of Directors and for all other purposes, as well as all other rights appertaining to shares of the Corporation, shall be vested exclusively in the Common Shares. Each Common Share shall have one vote upon all matters to be voted on by the holders of the Common Shares, and shall be entitled to participate equally in all dividends payable with respect to the Common Shares and to share ratably, subject to the rights and preferences of any such Preferred Shares, in all assets of the Corporation in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the affairs of the Corporation.

     C. No present or future holder of any shares of the Corporation, whether heretofore or hereafter issued, shall have any preemptive rights with respect to (a) any shares of the Corporation or (b) any other securities of the Corporation (including bonds and debentures) convertible into or carrying rights or options to purchase any shares of the Corporation.

     A.2.  6.75% Series A Mandatory Convertible Preferred Shares

     The number, designation, relative rights, preferences and limitations of the 6.75% Series A Mandatory Convertible Preferred Shares are as follows (certain capitalized terms being herein used as defined in Paragraph (10) below):

     1. Designation and Number of Shares. Out of the 6,000,000 preferred shares of the Corporation authorized by the Restated Certificate of Incorporation of the Corporation, 2,000,000 shall be, and be designated as, 6.75% Series A Mandatory Convertible Preferred Shares (hereinafter referred to as “this Series”) having a par value of $1.00 per share.

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     2. Ranking. This Series shall rank, with respect to dividend distributions and distributions upon the liquidation, winding-up and dissolution of the Corporation (i) senior to (a) the Common Shares, par value $6.25 per share, of the Corporation (the “Common Shares”), (b) the Junior Participating Cumulative Preferred Shares, par value $1.00 per share, of the Corporation, and (c) to each other class or series of stock of the Corporation (including any series of preferred stock established after June 6, 2002 by the Board of Directors) the terms of which do not expressly provide that it ranks senior to or on a parity with this Series as to dividend distributions and distributions upon the liquidation, winding-up or dissolution of the Corporation and (ii) junior to any equity security, the terms of which expressly provide that such class or series will rank senior to this Series as to dividend distributions and distributions upon liquidation, winding-up or dissolution of the Corporation.

     3. Dividends.

     General. The dividend rate on shares of this Series shall be $6.75 per annum, provided, that the initial dividend on this Series for the dividend period commencing on June 12, 2002, to but excluding August 15, 2002, will be $1.1813 per share, in each case subject to adjustment as provided in Section 12(ii). Cumulative cash dividends shall be payable quarterly when, as and if declared by the Board of Directors of the Corporation or a duly authorized committee thereof, out of the assets of the Corporation legally available therefor on the fifteenth calendar day (or the following business day if the fifteenth is not a business day) of August, November, February and May (each such date being referred to herein as a “Dividend Payment Date”), provided, that the initial dividend shall be payable, if declared, on August 15, 2002. The amount of dividends payable on each share of this Series for each quarterly period thereafter shall be computed by dividing the annual dividend rate by four. The amount of dividends payable for any other period that is shorter or longer than a dividend period will be computed on the basis of a 360-day year consisting of twelve 30-day months.

     A dividend period is the period ending on the day before a Dividend Payment Date and beginning on the preceding Dividend Payment Date or, if none, the date of issue. Dividends payable, if declared, on a Dividend Payment Date shall be payable to Holders (as defined below) of record as they appear on the stock register of the Corporation on the record date, which shall be the close of business on the first calendar day (or the preceding business day if the first is not a business day) of the calendar month in which the applicable Dividend Payment Date falls (each, a “Dividend Record Date”).

     Dividends on this Series shall be cumulative if the Corporation fails to declare or pay one or more dividends on this Series in any amount, whether or not the earnings or financial condition of the Corporation were sufficient to pay such dividends in whole or in part.

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     Holders of shares of this Series shall not be entitled to any dividend, whether payable in cash, property or stock, in excess of the then applicable full dividends calculated pursuant to Section 3(i) hereof (including accrued dividends, if any) on shares of this Series. No interest or sum of money in lieu of interest shall be payable in respect of any dividend or payment which may be in arrears.

     Dividends in arrears on this Series not declared for payment or paid on any Dividend Payment Date may be declared by the Board of Directors of the Corporation or a duly authorized committee thereof and paid on any date fixed by the Board of Directors of the Corporation or a duly authorized committee thereof, whether or not a Dividend Payment Date, to the Holders of record of the shares of this Series, as they appear on the stock register of the Corporation on a record date selected by the Board of Directors of the Corporation or a duly authorized committee thereof, which shall be not more than 60 days prior to such fixed dividend payment date.

     Payment Restrictions. The Corporation may not declare or pay any dividend or make any distribution of assets (other than dividends paid or other distributions made in capital stock of the Corporation ranking junior to this Series as to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up) on, or redeem, purchase or otherwise acquire (except upon conversion or exchange for capital stock of the Corporation ranking junior to this Series as to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up), the Corporation’s Common Shares or any other stock of the Corporation ranking junior to this Series as to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up, unless all accrued and unpaid dividends on this Series for all prior dividend periods have been or contemporaneously are declared and paid and the full quarterly dividend on this Series for the current dividend period has been or contemporaneously is declared and set apart for payment.

     Whenever all accrued and unpaid dividends on this Series for all prior dividend periods are not paid in full, the Corporation may not redeem, purchase or otherwise acquire (except upon conversion or exchange for capital stock of the Corporation ranking junior to this Series as to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up) other capital stock of the Corporation then outstanding ranking on a parity with this Series as to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up, including this Series.

     4. Liquidation Preference.

     In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the Holders of shares of this Series shall be entitled to receive out of the assets of the Corporation legally available for distribution to shareholders, before any distribution of assets is made on the Common Shares of the Corporation or any other class or series of stock of the Corporation ranking junior to this Series as to the payment

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of dividends and the distribution of assets upon liquidation, dissolution or winding up a liquidating distribution, in the amount of $100.00 per share, subject to adjustment as provided in Section 12(ii) hereof, plus an amount equal to the sum of all accrued and unpaid dividends (whether or not earned or declared) for the portion of the then-current dividend period until the payment date and all dividend periods prior thereto.

     Neither the sale nor transfer of all or substantially all of the property or business of the Corporation, nor the merger, conversion or consolidation of the Corporation into or with any other corporation, nor the merger, conversion or consolidation of any other corporation into or with the Corporation shall constitute a liquidation, dissolution or winding up, voluntary or involuntary, for the purposes of the foregoing paragraph. After the payment to the Holders of the shares of this Series of the full preferential amounts provided for above, the Holders of the shares of this Series as such shall have no right or claim to any of the remaining assets of the Corporation.

     In the event the assets of the Corporation available for distribution to the Holders of the shares of this Series upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, shall be insufficient to pay in full all amounts to which such Holders are entitled as provided above, no such distribution shall be made on account of any other stock of the Corporation ranking on a parity with this Series as to the distribution of assets upon such liquidation, dissolution or winding up, unless a pro rata distribution is made on this Series and such other stock of the Corporation, with the amount allocable to each series of such stock determined on the basis of the aggregate liquidation preference of the outstanding shares of each series and distributions to the shares of each series being made on a pro rata basis.

     5. Voting Rights.

     The Holders of shares of this Series shall have no voting rights, except as set forth below or as expressly required by applicable law. In exercising any such vote, each outstanding share of this Series shall be entitled to one vote.

     If the equivalent of six quarterly dividends payable, whether consecutively or not, on this Series or any other class or series of preferred stock ranking on a parity with this Series as to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up, has not been paid, the number of directors of the Corporation shall be increased by two (without duplication of any increase, resulting from the same failure to pay dividends, made pursuant to the terms of any other series of preferred stock of the Corporation ranking on a parity with this Series as to payment of dividends and the distribution of assets upon liquidation, dissolution or winding up), and the Holders of this Series, voting as a single class with the holders of shares of any other class of the preferred stock of the Corporation ranking on a parity with this Series as to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up and upon which like voting rights have been conferred and are exercisable (this Series, together with such other class or classes, the “Electing Preferred Shares”), shall have the exclusive right to vote for and to elect such two directors

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at any meeting of shareholders of the Corporation at which directors are to be elected held during the period such dividends remain in arrears. Each class or series of preferred stock entitled to vote for the additional directors shall have a number of votes proportionate to the aggregate liquidation preference of its outstanding shares. Such voting right shall continue until full cumulative dividends for all past dividend periods on all such preferred stock of the Corporation, including any shares of this Series, have been paid or declared and set apart for payment. Any such elected directors shall serve until the Corporation’s next annual meeting of shareholders (notwithstanding that prior to the end of such term the right to elect directors shall cease to exist) or until their respective successors shall be elected and qualify.

     Whenever such exclusive voting right shall vest, it may be exercised initially either at a special meeting of Holders of Electing Preferred Shares or at any annual shareholders’ meeting, but thereafter it shall be exercised only at annual shareholders’ meetings. Any director who shall have been elected by the Holders of Electing Preferred Shares as a class pursuant to this Section 5 may be removed at any time, either for or without cause by, and only by, the affirmative votes of the Holders of record of a majority of the outstanding shares of Electing Preferred Shares given at a special meeting of such shareholders called for such purpose, and any vacancy created by such removal may also be filled at such meeting. Any vacancy caused by the death or resignation of a director who shall have been elected by the Holders of Electing Preferred Shares as a class pursuant to this Section 5 may be filled only by the Holders of outstanding Electing Preferred Shares at a meeting called for such purpose.

     Any meeting of the Holders of outstanding Electing Preferred Shares entitled to vote as a class for the election or removal of directors shall be held at the place at which the last annual meeting of shareholders was held. At such meeting, the presence in person or by proxy of the Holders of a majority of the outstanding shares of all outstanding Electing Preferred Shares shall be required to constitute a quorum; in the absence of a quorum, a majority of the Holders present in person or by proxy shall have the power to adjourn the meeting from time to time without notice, other than announcement at the meeting, until a quorum shall be present.

     So long as any shares of this Series is outstanding, the affirmative vote or consent of the Holders of at least 66 2/3% of the outstanding shares of this Series will be required for any amendment of the Restated Certificate of Incorporation of the Corporation (or any certificate supplemental thereto) that will adversely affect the powers, preferences, privileges or rights of this Series. The affirmative vote or consent of the Holders of at least 66 2/3% of the outstanding shares of this Series and any other series of the preferred stock of the Corporation ranking on a parity with this Series as to payment of dividends and the distribution of assets upon liquidation, dissolution or winding up, voting as a single class without regard to series, will be required (a) to issue, authorize or increase the authorized amount of, or issue or authorize any obligation or security convertible into or

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evidencing a right to purchase, any additional class or series of stock ranking prior to this Series as to payment of dividends and the distribution of assets upon liquidation, dissolution or winding up, (b) to reclassify any authorized stock of the Corporation into any class or series of stock or any obligation or security convertible into or evidencing a right to purchase such stock ranking prior to this Series; provided that such vote will not be required for the Corporation to issue, authorize or increase the authorized amount of, or issue or authorize any obligation or security convertible into or evidencing a right to purchase, any stock ranking on a parity with or junior to this Series as to payment of dividends and the distribution of assets upon liquidation, dissolution or winding up.

     6. Automatic Conversion.

     Each share of this Series will automatically convert (unless previously converted at the option of the Holder in accordance with Section 7, or a Merger Early Settlement has occurred in accordance with Section 8), on August 15, 2005 (the “Conversion Date”), into a number of newly issued Common Shares equal to the Conversion Rate (as defined in Section 9 below). Dividends on the shares of this Series shall cease to accrue and such shares of this Series shall cease to be outstanding on the Conversion Date. The Corporation shall make such arrangements as it deems appropriate for the issuance of certificates, if any, representing Common Shares, and for the payment of cash in respect of accrued and unpaid dividends (whether or not earned or declared) on this Series, if any, or cash in lieu of fractional Common Shares, if any, in exchange for and contingent upon surrender of certificates representing the shares of this Series (if such shares are held in certificated form), and the Corporation may defer the payment of dividends on such Common Shares and the voting thereof until, and make such payment and voting contingent upon, the surrender of such certificates representing the shares of this Series, provided that the Corporation shall give the Holders of the shares of this Series such notice of any such actions as the Corporation deems appropriate and upon such surrender such Holders shall be entitled to receive such dividends declared and paid on such Common Shares subsequent to the Conversion Date. Amounts payable in cash in respect of the shares of this Series or in respect of such Common Shares shall not bear interest. Transfer or similar taxes in connection with the issuance of Common Shares to any person other than the Holder will be paid by the Holder.

     7. Early Conversion at the Option of the Holder.

     Shares of this Series are convertible, in whole or in part, at the option of the Holders thereof (“Optional Conversion”), at any time prior to the Conversion Date, into Common Shares at a rate of 2.083 Common Shares for each share of this Series (the “Optional Conversion Rate”), subject to adjustment as set forth in Section 9(ii) below (as though references in Section 9(ii) to the Conversion Rate were replaced with references to the Optional Conversion Rate).

     Optional Conversion of shares of this Series may be effected by delivering certificates evidencing such shares (if such shares are held in certificated form), together with written notice of conversion and a proper assignment of such

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certificates to the Corporation or in blank (and, if applicable, payment of an amount equal to the dividend payable on such shares), to the office of the Transfer Agent (as defined below) for this Series or to any other office or agency maintained by the Corporation for that purpose and otherwise in accordance with Optional Conversion procedures established by the Corporation. Each Optional Conversion shall be deemed to have been effected immediately prior to the close of business on the date on which the foregoing requirements shall have been satisfied.

     Holders of shares of this Series at the close of business on a Dividend Record Date shall be entitled to receive the dividend payable on such shares on the corresponding Dividend Payment Date notwithstanding the Optional Conversion of such shares following such Dividend Record Rate and prior to such Dividend Payment Date. However, shares of this Series surrendered for Optional Conversion after the close of business on a Dividend Record Date and before the opening of business on the next succeeding Dividend Payment Date must be accompanied by payment in cash of an amount equal to the dividend payable on such shares on such Dividend Payment Date. Except as provided above, upon any Optional Conversion of shares of this Series, the Corporation shall make no payment or allowance for unpaid preferred dividends, whether or not in arrears, on such shares of this Series as to which Optional Conversion has been effected or for dividends or distributions on the Common Shares issued upon such Optional Conversion.

     8. Early Conversion Upon Cash Merger.

     In the event of a merger or consolidation of the Corporation of the type described in Section 9(iii) in which the Common Shares outstanding immediately prior to such merger or consolidation are exchanged for consideration consisting of at least 30% cash or cash equivalents (any such event, a “Cash Merger”), then the Corporation (or the successor to the Corporation hereunder) shall be required to offer the Holder of each share of this Series the right to convert shares of this Series prior to the Conversion Date (“Merger Early Settlement”) as provided herein. On or before the fifth Business Day after the consummation of a Cash Merger, the Corporation or, at the request and expense of the Corporation, the Transfer Agent, shall give all Holders notice of the occurrence of the Cash Merger and of the right of Merger Early Settlement arising as a result thereof. The Corporation shall also deliver a copy of such notice to the Transfer Agent. Each such notice shall contain:

     the date, which shall be not less than 20 nor more than 30 calendar days after the date of such notice, on which the Merger Early Settlement will be effected (the “Merger Early Settlement Date”);

     the date, which shall be on or one Business Day prior to the Merger Early Settlement Date, by which the Merger Early Settlement right must be exercised;

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     the Conversion Rate in effect immediately before such Cash Merger and the kind and amount of securities, cash and other property receivable by the Holder upon conversion of shares of this Series pursuant to Section 9(iii); and

     the instructions a Holder must follow to exercise the Merger Early Settlement right.

     To exercise a Merger Early Settlement right, a Holder shall deliver to the Transfer Agent at the Corporate Trust Office (as defined below) by 5:00 p.m., New York City time on or one Business Day before the date by which the Merger Settlement right must be exercised as specified in the notice, the certificate(s) (if such shares are held in certificated form) evidencing the shares of this Series with respect to which the Merger Early Settlement right is being exercised duly endorsed for transfer to the Corporation or in blank with a written notice to the Corporation stating the Holder’s intention to convert early in connection with the Cash Merger and providing the Corporation with payment instructions.

     On the Merger Early Settlement Date, the Corporation shall deliver or cause to be delivered the net cash, securities and other property to be received by such exercising Holder determined by assuming the Holder had converted, immediately before the Cash Merger at the Conversion Rate (as adjusted pursuant to Section 9(ii)), the shares of this Series for which such Merger Early Settlement right was exercised into Common Shares. In the event a Merger Early Settlement right shall be exercised by a Holder in accordance with the terms hereof, all references herein to Conversion Date shall be deemed to refer to such Merger Early Settlement Date.

     Upon a Merger Early Settlement, the Transfer Agent shall, in accordance with the instructions provided by the Holder thereof on the notice provided to the Corporation as set forth in paragraph (ii) above deliver to the Holder such net cash, securities or other property issuable upon such Merger Early Settlement together with payment in lieu of any fraction of a share, as provided herein.

     In the event that Merger Early Settlement is effected with respect to shares of this Series representing less than all the shares of this Series held by a Holder, upon such Merger Early Settlement the Corporation (or the successor to the Corporation hereunder) shall execute and the Transfer Agent shall authenticate, countersign and deliver to the Holder thereof, at the expense of the Corporation, a certificate evidencing the shares as to which Merger Early Settlement was not effected.

     9. Definition of Conversion Rate; Anti-dilution Adjustments.

     The “Conversion Rate” is equal to (a) if the Average Market Price (as defined below) is greater than or equal to $48.00 (the “Threshold Appreciation Price”), 2.083 Common Shares per share of this Series, (b) if the Average Market Price is less than the Threshold Appreciation Price, but is greater than $40.00, the

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number of Common Shares per share of this Series that equals $100.00 (the “Stated Amount”) divided by the Average Market Price, and (c) if the Average Market Price is equal to or less than $40.00, 2.5 Common Shares per share of this Series. In each case subject to adjustment as provided in Section 9(ii) (and in each case rounded upward or downward to the nearest 1/10,000th of a share).

     In connection with the Conversion Rate as set forth in Section 9(i), the formula for determining the Conversion Rate and the number of Common Shares to be delivered on an early conversion as set forth in Sections 7 or 8 shall be subject to the following adjustments:

     Stock Dividends. In case the Corporation shall pay or make a dividend or other distribution on the Common Shares in Common Shares, the Conversion Rate, as in effect at the opening of business on the day following the date fixed for the determination of shareholders entitled to receive such dividend or other distribution shall be increased by dividing such Conversion Rate by a fraction of which the numerator shall be the number of Common Shares outstanding at the close of business on the date fixed for such determination and the denominator shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution, such increase to become effective immediately after the opening of business on the day following the date fixed for such determination.

     Stock Purchase Rights. In case the Corporation shall issue (other than pursuant to a dividend reinvestment, share purchase or similar plan) rights, options or warrants to all holders of its Common Shares (not being available on an equivalent basis to Holders of the shares of this Series upon conversion) entitling them to subscribe for or purchase Common Shares at a price per share less than the Current Market Price (as defined below) per share of the Common Shares on the date fixed for the determination of shareholders entitled to receive such rights, options or warrants, the Conversion Rate in effect at the opening of business on the day following the date fixed for such determination shall be increased by dividing such Conversion Rate by a fraction, the numerator of which shall be the number of Common Shares outstanding at the close of business on the date fixed for such determination plus the number of Common Shares which the aggregate of the offering price of the total number of Common Shares so offered for subscription or purchase would purchase at such Current Market Price and the denominator of which shall be the number of Common Shares outstanding at the close of business on the date fixed for such determination plus the number of Common Shares so offered for subscription or purchase, such increase to become effective immediately after the opening of business on the day following the date fixed for such determination.

     Stock Splits; Reverse Splits. In case outstanding Common Shares shall be subdivided or split into a greater number of Common Shares, the Conversion Rate in effect at the opening of business on the day following the day upon which such subdivision or split becomes effective shall be proportionately increased, and,

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conversely, in case outstanding Common Shares shall each be combined into a smaller number of Common Shares, the Conversion Rate in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately reduced, such increase or reduction, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision, split or combination becomes effective.

     Debt or Asset Distributions. (1) In case the Corporation shall, by dividend or otherwise, distribute to all holders of its Common Shares evidences of its indebtedness or assets (including securities, but excluding any rights, options or warrants referred to in paragraph (b) of this Section 9(ii), any dividend or distribution paid exclusively in cash and any dividend, shares of capital stock of any class or series, or similar equity interests, of or relating to a subsidiary or other business unit in the case of a Spin-Off referred to in the next subparagraph, or distribution referred to in paragraph (a) of this Section 9(ii)), the Conversion Rate shall be increased by dividing the Conversion Rate in effect immediately prior to the close of business on the date fixed for the determination of shareholders entitled to receive such distribution by a fraction, the numerator of which shall be the Current Market Price per share of the Common Shares on the date fixed for such determination less the then fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution filed with the Transfer Agent) of the portion of the assets or evidences of indebtedness so distributed applicable to one Common Share and the denominator of which shall be such Current Market Price per Common Share, such adjustment to become effective immediately prior to the opening of business on the day following the date fixed for the determination of shareholders entitled to receive such distribution. In any case in which this subparagraph (d)(1) is applicable, subparagraph (d)(2) of this Section 9(ii) shall not be applicable.

     (2) In the case of a Spin-Off, the Conversion Rate in effect immediately before the close of business on the record date fixed for determination of shareholders entitled to receive that distribution will be increased by multiplying the Conversion Rate by a fraction, the numerator of which is the Current Market Price per Common Share plus the Fair Market Value (as defined below) of the portion of those shares of Capital Stock or similar equity interests so distributed applicable to one Common Share and the denominator of which is the Current Market Price per Common Share. Any adjustment to the Conversion Rate under this subparagraph (d)(2) will occur at the earlier of (A) the tenth Trading Day from, and including the effective date of, the Spin-Off and (B) the date of the securities being offered in the Initial Public Offering of the Spin-Off, if that Initial Public Offering is effected simultaneously with the Spin-Off.

     Cash Distributions. In case the Corporation shall (1) by dividend or otherwise, distribute to all holders of its Common Shares cash (excluding any cash that is distributed in a Reorganization Event to which Section 9(iii) applies or as part of a distribution referred to in paragraph (d) of this Section 9(ii)) in an

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aggregate amount that combined together with (2) the aggregate amount of any other distributions to all holders of its Common Shares made exclusively in cash within the 12 months preceding the date of payment of such distribution and in respect of which no adjustment pursuant to this paragraph (e) or paragraph (f) of this Section 9(ii) has been made and (3) the aggregate of any such cash plus the fair market value, as of the date of the expiration of the tender or exchange offer referred to below (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution), of the consideration payable in respect of any tender or exchange offer by the Corporation or any of its subsidiaries for all or any portion of the Common Shares concluded within the 12 months preceding the date of payment of the distribution described in clause (1) of this paragraph (e) and in respect of which no adjustment pursuant to this paragraph (e) or paragraph (f) of this Section 9(ii) has been made, exceeds 15% of the product of the Current Market Price (as defined below) per Common Share on the date for the determination of Holders of Common Shares entitled to receive such distribution times the number of Common Shares outstanding on such date, then and in each such case, immediately after the close of business on such date for determination, the Conversion Rate shall be increased so that the same shall equal the rate determined by dividing the Conversion Rate in effect immediately prior to the close of business on the date fixed for determination of the shareholders entitled to receive such distribution by a fraction (A) the numerator of which shall be equal to the Current Market Price per Common Share on the date fixed for such determination less an amount equal to the quotient of (x) the combined amount distributed or payable in the transactions described in clauses (1), (2) and (3) of this paragraph (e) and (y) the number of Common Shares outstanding on such date for determination and (B) the denominator of which shall be equal to the Current Market Price per Common Share on such date for determination.

     Tender Offers. In case (1) a tender or exchange offer made by the Corporation or any subsidiary of the Corporation for all or any portion of the Common Shares shall expire and such tender or exchange offer (as amended upon the expiration thereof) shall require the payment to holders (based on the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of Purchased Shares (as defined below)) of an aggregate consideration having a fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution) that combined together with (2) the aggregate of such payment plus the fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution), as of the expiration of such tender or exchange offer, of consideration payable in respect of any other tender or exchange offer by the Corporation or any subsidiary of the Corporation for all or any portion of the Common Shares expiring within the 12 months preceding the expiration of such tender or exchange offer and in respect of which no adjustment pursuant to paragraph (e) of this Section 9(ii) or this paragraph (f) has been made and (3) the aggregate amount of any distributions to all Holders of the Corporation’s Common Shares made exclusively in cash within the 12 months

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preceding the expiration of such tender or exchange offer and in respect of which no adjustment pursuant to paragraph (e) of this Section 9(ii) or this paragraph (f) has been made, exceeds 15% of the product of the Current Market Price per Common Share as of the last time (the “Expiration Time”) tenders could have been made pursuant to such tender or exchange offer (as it may be amended) times the number of Common Shares outstanding (including any tendered shares) on the Expiration Time, then, and in each such case, immediately prior to the opening of business on the day after the date of the Expiration Time, the Conversion Rate shall be adjusted so that the same shall equal the rate determined by dividing the Conversion Rate immediately prior to the close of business on the date of the Expiration Time by a fraction (A) the numerator of which shall be equal to (x) the product of (I) the Current Market Price per Common Share on the date of the Expiration Time and (II) the number of Common Shares outstanding (including any tendered shares) on the Expiration Time less (y) the amount of cash plus the fair market value (determined as aforesaid) of the aggregate consideration payable to shareholders based on the transactions described in clauses (1), (2) and (3) of this paragraph (f) (assuming in the case of clause (1) the acceptance, up to any maximum specified in the terms of the tender or exchange offer, of Purchased Shares), and (B) the denominator of which shall be equal to the product of (x) the Current Market Price per Common Share as of the Expiration Time and (y) the number of Common Shares outstanding (including any tendered shares) as of the Expiration Time less the number of all shares validly tendered and not withdrawn as of the Expiration Time (the shares deemed so accepted, up to any such maximum, being referred to as the “Purchased Shares”).

     Reclassification. The reclassification of Common Shares into securities including securities other than Common Shares (other than any reclassification upon a Reorganization Event to which Section 9(iii) applies) shall be deemed to involve (1) a distribution of such securities other than Common Shares to all Holders of Common Shares (and the effective date of such reclassification shall be deemed to be “the date fixed for the determination of shareholders entitled to receive such distribution” and the “date fixed for such determination” within the meaning of paragraph (d) of this Section 9(ii)), and (2) a subdivision, split or combination, as the case may be, of the number of Common Shares outstanding immediately prior to such reclassification into the number of Common Shares outstanding immediately thereafter (and the effective date of such reclassification shall be deemed to be “the day upon which such subdivision or split becomes effective” or “the day upon which such combination becomes effective,” as the case may be, and “the day upon which such subdivision, split or combination becomes effective” within the meaning of paragraph (c) of this Section 9(ii)).

     Calculation of Adjustments. All adjustments to the Conversion Rate shall be calculated to the nearest 1/10,000th of a Common Share (or if there is not a nearest 1/10,000th of a share to the next lower 1/10,000th of a share). No adjustment in the Conversion Rate shall be required unless such adjustment would require an increase or decrease of at least one percent therein; provided, that any

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adjustments which by reason of this subparagraph are not required to be made shall be carried forward and taken into account in any subsequent adjustment. If an adjustment is made to the Conversion Rate pursuant to paragraph (a), (b), (c), (d), (e), (f), (g) or (i) of this Section 9(ii), an adjustment shall also be made to the Average Market Price solely to determine which of clauses (a), (b) or (c) of the definition of Conversion Rate will apply on the Conversion Date. Such adjustment shall be made by multiplying the Average Market Price by a fraction, the numerator of which shall be the Conversion Rate immediately after such adjustment pursuant to paragraph (a), (b), (c) (d), (e), (f), (g) or (i) of this Section 9(ii) and the denominator of which shall be the Conversion Rate immediately before such adjustment; provided, that if such adjustment to the Conversion Rate is required to be made pursuant to the occurrence of any of the events contemplated by paragraph (a), (b), (c), (d), (e), (f) or (g) of this Section 9(ii) during the period taken into consideration for determining the Average Market Price, appropriate and customary adjustments shall be made to the Conversion Rate.

     Increase of Conversion Rate. The Corporation may make such increases in the Conversion Rate, in addition to those required by this Section 9(ii), as it considers to be advisable in order to avoid or diminish any income tax to any Holders of Common Shares resulting from any dividend or distribution of stock or issuance of rights or warrants to purchase or subscribe for stock or from any event treated as such for income tax purposes or for any other reasons. The Corporation shall have the power to resolve any ambiguity or correct any error in this Section 9(ii) and its action in so doing, as evidenced by a resolution of the Board of Directors, shall be final and conclusive.

     Notice of Adjustment. Whenever the Conversion Rate is adjusted in accordance with Section 9(ii), the Corporation shall: (i) forthwith compute the Conversion Rate in accordance with Section 9(ii), and prepare and transmit to the Transfer Agent an Officer’s Certificate setting forth the Conversion Rate, the method of calculation thereof in reasonable detail, and the facts requiring such adjustment and upon which such adjustment is based; and (ii) as soon as practicable following the occurrence of an event that requires an adjustment to the Conversion Rate pursuant to Sections 9(ii) (or if the Corporation is not aware of such occurrence, as soon as practicable after becoming so aware) provide a written notice to the Holders of this Series of the occurrence of such event and a statement setting forth in reasonable detail the method by which the adjustment to the Conversion Rate was determined and setting forth the adjusted Conversion Rate.

     (iii) In the event of:

     any consolidation or merger of the Corporation with or into another person (other than a merger or consolidation in which the Corporation is the surviving corporation and in which the Common Shares outstanding immediately prior to the merger or consolidation are not

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exchanged for cash, securities or other property of the Corporation or another corporation); or

     any sale, transfer, lease or conveyance to another person of the property of the Corporation as an entirety or substantially as an entirety; or

     any statutory exchange of securities of the Corporation with another person (other than in connection with a merger or acquisition) (any such event, a “Reorganization Event”)

each share of this Series immediately prior to such Reorganization Event shall, after such Reorganization Event, be converted into a right to receive the kind and amount of securities, cash and other property receivable in such Reorganization Event per share of this Series (without any interest thereon, and without any right to dividends or distribution thereon that have a record date that is prior to the Conversion Date) by a Holder of Common Shares that (1) is not a person with which the Corporation consolidated or into which the Corporation merged or which merged into the Corporation or to which such sale or transfer was made, as the case may be (any such person, a “Constituent Person”), or an Affiliate (as defined below) of a Constituent Person to the extent such Reorganization Event provides for different treatment of Common Shares held by Affiliates of the Corporation and non-Affiliates, and (2) failed to exercise his rights of election, if any, as to the kind or amount of securities, cash and other property receivable upon such Reorganization Event (provided that if the kind or amount of securities, cash and other property receivable upon such Reorganization Event is not the same for each Common Share held immediately prior to such Reorganization Event by other than a Constituent Person or an Affiliate thereof and in respect of which such rights of election shall not have been exercised (“Non-electing Share”), then for the purpose of this Section 9(iii) the kind and amount of securities, cash and other property receivable upon such Reorganization Event by each Non-electing Share shall be deemed to be the kind and amount so receivable per share by a plurality of the Non-electing Shares). On the Conversion Date the Conversion Rate then in effect will be applied to the value on the Conversion Date of such securities, cash or other property in a manner as nearly as equivalent as possible to the adjustment that would have been made with respect to each Common Share held immediately prior to the Reorganization Event.

     In the event of such a Reorganization Event, the person formed by such consolidation, merger or exchange or the person which acquires the assets of the Corporation shall execute and deliver to the Transfer Agent an agreement supplemental hereto providing that the Holder of each share of this Series shall have the rights provided by this Section 9(iii). Such supplemental agreement shall provide for adjustments which, for events subsequent to the effective date of such supplemental agreement, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 9(iii). The above provisions of this Section 9(iii) shall similarly apply to successive Reorganization Events.

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     10. Definitions.

     “Affiliate” has the same meaning as given to that term in Rule 405 of the Securities Act of 1933, as amended, or any successor rule thereunder.

     The “Average Market Price” means the average of the Closing Prices (as defined below) per Common Share on each of the 20 consecutive Trading Days (as defined below) ending on the third Trading Day immediately preceding the Conversion Date.

     “Business Day” means any day other than a Saturday or Sunday or any other day on which banks in The City of New York are authorized or required by law or executive order to close.

     The “Closing Price” of the Common Shares or any securities distributed in a Spin-Off, as the case may be, on any date of determination means the closing sale price (or, if no closing price is reported the last reported sale price) per share on the New York Stock Exchange (“NYSE”) on such date or, if such security is not quoted for trading on NYSE on any such date, as reported in the composite transactions for the principal United States securities exchange on which such security is so listed or quoted, or if such security is not so listed or quoted on a United States national or regional securities exchange, as reported by NYSE, or, if such security is not so reported, the last quoted bid price for the such security in the over-the-counter market as reported by the National Quotation Bureau or similar organization, or, if such bid price is not available, the market value of such security on such date as determined by a nationally recognized independent investment banking firm retained for this purpose by the Corporation.

     “Corporate Trust Office” means the principal corporate trust office of the Transfer Agent at which, at any particular time, its corporate trust business shall be administered.

     “Current Market Price” means (a) on any day the average of the Closing Prices for the five consecutive Trading Days preceding the earlier of the day preceding the day in question and the day before the “ex date” with respect to the issuance or distribution requiring computation, (b) in the case of any Spin-Off that is effected simultaneously with an Initial Public Offering of the securities being distributed in the Spin-Off, the Closing Price of the Common Shares on the Trading Day on which the initial public offering price of the securities being distributed in the Spin-Off is determined, and (c) in the case of any other Spin-Off, the average of the Closing Prices of the Common Shares over the first 10 Trading Days after the effective date of such Spin-Off. For purposes of this paragraph, the term “ex date,” when used with respect to any issuance or distribution, shall mean the first date on which the Common Shares trade regular way on such exchange or in such market without the right to receive such issuance or distribution.

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     “Fair Market Value” means (a) in the case of any Spin-Off that is effected simultaneously with an Initial Public Offering of such securities, the initial public offering price of those securities, and (b) in the case of any other Spin-Off, the average of the Closing Prices of those securities over the first 10 Trading Days after the effective date of such Spin-Off.

     “Holder” means the person in whose name any shares of this Series are registered in the books and records of the Corporation.

     “Initial Public Offering” means the first time securities of the same class or type as the securities being distributed in the Spin-Off are offered to the public for cash.

     “Spin-Off” means a dividend or other distribution of shares of capital stock of any class or series, or similar equity interests, of or relating to a subsidiary or other business unit of the Corporation.

     “Trading Day” means a day on which the Common Shares (A) are not suspended from trading on any national or regional securities exchange or association or over-the-counter market at the close of business and (B) have traded at least once on the national or regional securities exchange or association or over-the-counter market that is the primary market for the trading of the Common Shares.

     “Transfer Agent” shall be Mellon Investor Services LLC unless and until a successor is selected by the Corporation, and then such successor.

     11. Fractional Shares.

     No fractional Common Shares shall be issued upon the conversion of any shares of this Series. In lieu of any fraction of a Common Share that would otherwise be issuable in respect of the aggregate number of shares of this Series surrendered by the same Holder upon a conversion as described in Sections 7(i), 8 or 9(i), such Holder shall have the right to receive an amount in cash (computed to the nearest cent) equal to the same fraction of (a) in the case of Section 9(i), the Current Market Price or (b) in the case of Sections 7(i) or 8, the Closing Price of the Common Shares determined as of the second Trading Day immediately preceding the effective date of conversion.

     12. Miscellaneous.

     Procedures for conversion of shares of this Series, in accordance with Sections 6, 7 or 8, not held in certificated form will be governed by arrangements among the depositary, participants and persons that may hold beneficial interests through participants designed to permit conversion without the physical movement of certificates. Payments, transfers, deliveries, exchanges and other matters relating to beneficial interests in global security certificates may be subject to various policies and procedures adopted by the depositary from time to time.

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     The liquidation preference and the annual dividend rate set forth herein each shall be subject to equitable adjustment whenever there shall occur a stock split, combination, reclassification or other similar event involving this Series. Such adjustments shall be determined in good faith by the Board of Directors and submitted by the Board of Directors to the Transfer Agent.

     For the purposes of Section 9, the number of Common Shares at any time outstanding shall not include shares held in the treasury of the Corporation but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of Common Shares. The Corporation will not pay any dividend or make any distribution with respect to shares held in treasury.

     If the Corporation shall take any action affecting the Common Shares, other than action described in Section 9, that in the opinion of the Board of Directors would materially adversely affect the conversion rights of the Holders of the shares of this Series, then the Conversion Rate and/or the Optional Conversion Rate for this Series may be adjusted, to the extent permitted by law, in such manner, if any, and at such time, as the Board of Directors may determine to be equitable in the circumstances.

     The Corporation covenants that it will at all times reserve and keep available, free from preemptive rights, out of the aggregate of its authorized but unissued Common Shares for the purpose of effecting conversion of this Series, the full number of Common Shares deliverable upon the conversion of all outstanding shares of this Series not theretofore converted. For purposes of this Section 12(v), the number of Common Shares that shall be deliverable upon the conversion of all outstanding shares of this Series shall be computed as if at the time of computation all such outstanding shares were held by a single Holder.

     The Corporation covenants that any Common Shares issued upon conversion of shares of this Series shall be validly issued, fully paid and non-assessable.

     The Corporation shall endeavor to list the Common Shares required to be delivered upon conversion of shares of this Series, prior to such delivery, upon each national securities exchange or quotation system, if any, upon which the outstanding Common Shares are listed at the time of such delivery.

     The Corporation will pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of Common Shares or other securities or property on conversion of shares of this Series pursuant thereto; provided, however, that the Corporation shall not be required to pay any tax that may be payable in respect of any transfer involved in the issue or delivery of Common Shares or other securities or property in a name other than that of the Holder of this Series to be converted and no such issue or delivery shall be made unless and until the person requesting such issue or delivery has paid to the

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Corporation the amount of any such tax or established, to the reasonable satisfaction of the Corporation, that such tax has been paid.

     This Series is not redeemable.

     For purposes of this Paragraph A.2, all shares of this Series shall be deemed outstanding, except from the date of registration of transfer, all shares of this Series held of record by the Corporation or any subsidiary of the Corporation.

     This Series is not entitled to any preemptive or subscription rights in respect of any securities of the Corporation.

     Whenever possible, each provision hereof shall be interpreted in a manner as to be effective and valid under applicable law, but if any provision hereof is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating or otherwise adversely affecting the remaining provisions hereof. If a court of competent jurisdiction should determine that a provision hereof would be valid or enforceable if a period of time were extended or shortened or a particular percentage were increased or decreased, then such court may make such change as shall be necessary to render the provision in question effective and valid under applicable law.

     This Series may be issued in fractions of a share which shall entitle the Holder, in proportion to such Holder’s fractional shares, to exercise voting rights, receive dividends, participate in distributions and have the benefit of all other rights of Holders of this Series.

     Subject to applicable escheat laws, any monies set aside by the Corporation in respect of any payment with respect to shares of this Series, or dividends thereon, and unclaimed at the end of two years from the date upon which such payment is due and payable shall revert to the general funds of the Corporation, after which reversion the Holders of such shares shall look only to the general funds of the Corporation for the payment thereof. Any interest accrued on funds so deposited shall be paid to the Corporation from time to time.

     Except as may otherwise be required by law, the shares of this Series shall not have any voting powers, preferences and relative, participating, optional or other special rights, other than those specifically set forth in this Certificate of Amendment or the Restated Certificate of Incorporation.

     The headings of the various subdivisions hereof are for convenience of reference only and shall not affect the interpretation of any of the provisions hereof.

     If any of the voting powers, preferences and relative participating, optional and other special rights of this Series and qualifications, limitations and restrictions thereof set forth herein is invalid, unlawful or incapable of being

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enforced by reason of any rule of law or public policy, all other voting powers, preferences and relative participating, optional and other special rights of this Series and qualifications, limitations and restrictions thereof set forth herein that can be given effect without the invalid, unlawful or unenforceable voting powers, preferences and relative participating, optional and other special rights of this Series and qualifications, limitations and restrictions thereof shall, nevertheless, remain in full force and effect, and no voting powers, preferences and relative participating, optional or other special rights of this Series and qualifications, limitations and restrictions thereof herein set forth shall be deemed dependent upon any other such voting powers, preferences and relative participating, optional or other special rights of this Series and qualifications limitations and restrictions thereof unless so expressed herein.

     Shares of this Series that have been issued and reacquired in any manner, including shares purchased or exchanged or converted, shall (upon compliance with any applicable provisions of the laws of New York) have the status of authorized but unissued shares of preferred stock of the Corporation undesignated as to series and may be designated or redesignated and issued or reissued, as the case may be, as part of any series of preferred stock of the Corporation, provided that any issuance of such shares as this Series must be in compliance with the terms hereof.

     If any certificates of shares of this Series shall be mutilated, lost, stolen or destroyed, the Corporation shall issue, in exchange and in substitution for and upon cancellation of the mutilated certificates of shares of this Series, or in lieu of and substitution for certificates of this Series lost, stolen or destroyed, a new certificate of this Series and of like tenor and representing an equivalent amount of shares of this Series, but only upon receipt of evidence of such loss, theft or destruction of such certificate of this Series and indemnity, if requested, satisfactory to the Corporation and the Transfer Agent. The Corporation is not required to issue any certificates representing shares of this Series on or after the Conversion Date. In place of the delivery of a replacement certificate following the Conversion Date, the Transfer Agent, upon delivery of the evidence and indemnity described above, will deliver Common Shares pursuant to the terms of this Series evidenced by the certificate.

     4. Pursuant to authority vested in the Board of Directors by the provisions of Paragraph A of Article THIRD of the Restated Certificate of Incorporation of the Corporation, the amendments to such Restated Certificate of Incorporation set forth above were adopted by the affirmative vote of a majority of the Board of Directors of the Corporation at a meeting held on May 1, 2002.

     FOURTH: The office of the Corporation shall be located in the City of New York, County of New York, State of New York. CT Corporation System, 1633 Broadway, New York, New York 10019, is designated as the registered agent of the Corporation upon whom process in any action or proceeding against it may be served. The Secretary of State of the State of New York is also designated as the agent of the

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Corporation upon whom process in any action or proceeding against it may be served. The address to which the Secretary of State shall mail a copy of process in any action or proceeding against the Corporation which may be served upon him is: Phelps Dodge Corporation, c/o CT Corporation System, 1633 Broadway, New York, New York 10019.

     FIFTH: The duration of the Corporation shall be perpetual.

     SIXTH: The number of the Corporation’s Directors shall not be less than nine nor more than twelve, provided that whenever the holders of any one or more series of Preferred Shares of the Corporation become entitled to elect one or more Directors to the Board of Directors in accordance with any applicable provisions of this Certificate of Incorporation, such maximum number of Directors shall be increased automatically by the number of Directors such holders are so entitled to elect. Such increase shall remain in effect until the right of such holders to elect such Director or Directors shall cease and until the Director or Directors elected by such holders shall no longer hold office. No Director may be removed without cause by shareholders of the Corporation.

     SEVENTH: The personal liability of the Directors of the Corporation for any breach of duty in such capacity is hereby eliminated and limited to the fullest extent permitted by Section 402(b) of the New York Business Corporation Law, as the same may be amended from time to time.

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EX-11

PHELPS DODGE CORPORATION AND SUBSIDIARIES

Exhibit 11

COMPUTATION OF PER SHARE EARNINGS
(Unaudited; $ in millions except per share data)

							Six Months Ended
	Second Quarter						June 30,
	2005			2004			2005			2004
Net income	$	682.3			226.6			1,069.0			412.3
Preferred stock dividends		(3.4	)		(3.4	)		(6.8	)		(6.8	)
Net income applicable to common shares	$	678.9			223.2			1,062.2			405.5
Basic:
Average number of common shares outstanding		96.2			92.9			96.0			92.3
Diluted:
Average number of common shares outstanding		96.2			92.9			96.0			92.3
Common stock equivalents — stock options		0.3			1.0			0.4			1.4
Common stock equivalents — restricted stock		0.4			0.3			0.4			0.3
Conversion of mandatory convertible preferred stock		4.2			4.2			4.2			4.2
Diluted average number of common shares outstanding		101.1			98.4			101.0			98.2
Basic earnings per share	$	7.06			2.40			11.07			4.39
Diluted earnings per share	$	6.75			2.30			10.59			4.20

EX-12

PHELPS DODGE CORPORATION AND SUBSIDIARIES

Exhibit 12

COMPUTATION OF TOTAL DEBT TO TOTAL CAPITALIZATION
($ in millions)

	June 30,			December 31,
	2005			2004
Short-term debt	$	30.3			78.8
Current portion of long-term debt		43.6			45.9
Long-term debt		970.3			972.2
Total debt		1,044.2			1,096.9
Minority interests in consolidated subsidiaries		844.9			555.1
Shareholders’ equity		5,399.9			4,343.1
Total capitalization	$	7,289.0			5,995.1
Ratio of total debt to total capitalization		14.3	%		18.3	%

EX-15

Exhibit 15

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

Commissioners:

We are aware that our report dated July 27, 2005 on our review of the interim financial information of Phelps Dodge Corporation (the “Company”) for the three-month and six-month periods ended June 30, 2005 and 2004 and included in the Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2005 is incorporated by reference in its Registration Statements on Form S-3 (Nos. 333-104627, 333-67606, 333-61624, 333-43890 and 333-124094), Registration Statement and Post-Effective Amendment No. 1 on Form S-3 (Nos. 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, 333-117382, 333-42231 and 333-52175) and the 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
Phoenix, Arizona
July 28, 2005

EX-31

Exhibit 31

CERTIFICATION
Pursuant to Rule 13a-14(a) of the Exchange Act

I, J. Steven Whisler, Chairman and Chief Executive Officer, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Phelps Dodge Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13(a)-15(f) and 15d-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: July 28, 2005

/s/ J. Steven Whisler

J. Steven Whisler

Chairman and Chief Executive Officer

I, Ramiro G. Peru, Executive Vice President and Chief Financial Officer, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Phelps Dodge Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13(a)-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

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(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: July 28, 2005

/s/ Ramiro G. Peru

Ramiro G. Peru

Executive Vice President and Chief Financial Officer

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EX-32

Exhibit 32

CERTIFICATION
Pursuant to 18 United States Code § 1350

     The undersigned hereby certifies that, to his knowledge, the Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2005 of Phelps Dodge Corporation (the “Company”) filed with the Securities and Exchange Commission on the date hereof fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	/s/ J. Steven Whisler
Name:	J. Steven Whisler
Title:	Chairman and
	Chief Executive Officer
Date:	July 28, 2005

     The undersigned hereby certifies that, to his knowledge, the Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2005 of Phelps Dodge Corporation (the “Company”) filed with the Securities and Exchange Commission on the date hereof fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	/s/ Ramiro G. Peru
Name:	Ramiro G. Peru
Title:	Executive Vice President and
	Chief Financial Officer
Date:	July 28, 2005