Edgar Filing: PHELPS DODGE CORP

e10vq

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


þ		QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2005


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER: 1-82

PHELPS DODGE CORPORATION

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


New York (State of Incorporation)		13-1808503 (I.R.S. Employer Identification No.)

One North Central Avenue, Phoenix, AZ 85004
(Address of principal executive offices)(Zip Code)

(602) 366-8100
(Registrant’s telephone number, including area code)

N/A
(Former name, former address and former fiscal year, if changed since last report)

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 the filing requirements for at least 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 of the Exchange Act). Yes þ Noo

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ

Number of Common Shares outstanding at October 24, 2005: 101,550,235 shares.

- i -

PHELPS DODGE CORPORATION

Quarterly Report on Form 10-Q

For the Quarter Ended September 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		20
Report of Independent Registered Public Accounting Firm		20

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations		21
Results of Phelps Dodge Mining Company		24
Results of Phelps Dodge Industries		44
Other Matters Relating to the Consolidated Statement of Income		46
Changes in Financial Condition		48

Item 3. Quantitative and Qualitative Disclosure About Market Risk		52

Item 4. Controls and Procedures		52

Part II. Other Information

Item 1. Legal Proceedings		52

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		53

Item 5. Other Information		54

Item 6. Exhibits		54

Signatures		54

Index to Exhibits		54
Exhibit 10.1
Exhibit 10.2
Exhibit 10.3
Exhibit 10.4
Exhibit 10.5
Exhibit 10.6
Exhibit 10.7
Exhibit 10.8
Exhibit 10.9
Exhibit 11
Exhibit 12
Exhibit 15
Exhibit 31
Exhibit 32

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)


							Nine Months Ended
	Third Quarter						September 30,
	2005			2004			2005			2004
Sales and other operating revenues	$	2,359.8			1,846.5			6,577.9			5,094.4

Operating costs and expenses
Cost of products sold (exclusive of items shown separately below)		1,550.6			1,246.5			4,220.0			3,478.5
Depreciation, depletion and amortization		120.9			125.9			377.3			375.2
Selling and general administrative expense		48.3			42.0			136.1			114.7
Exploration and research expense		27.1			15.8			72.6			44.9
Special items and provisions, net (see Note 3)		45.0			11.1			481.3			6.4

		1,791.9			1,441.3			5,287.3			4,019.7

Operating income		567.9			405.2			1,290.6			1,074.7
Interest expense		(19.0	)		(29.2	)		(66.1	)		(100.5	)
Capitalized interest		7.0			0.3			9.9			0.6
Early debt extinguishment costs		(54.0	)		—			(54.0	)		(37.6	)
Gain on sale of cost-basis investment (see Note 3)		—			—			438.4			—
Change in interest gain from Cerro Verde stock issuance (see Note 3)		—			—			159.5			—
Miscellaneous income and expense, net		24.2			21.6			86.7			25.1

Income before taxes, minority interests in consolidated subsidiaries and equity in net earnings (losses) of affiliated companies		526.1			397.9			1,865.0			962.3
Provision for taxes on income (see Note 8)		(108.6	)		(62.2	)		(314.4	)		(109.1	)
Minority interests in consolidated subsidiaries		(51.9	)		(43.4	)		(117.4	)		(149.0	)
Equity in net earnings (losses) of affiliated companies		0.5			0.6			1.9			1.0

Net income		366.1			292.9			1,435.1			705.2
Preferred stock dividends		—			(3.3	)		(6.8	)		(10.1	)

Net income applicable to common shares	$	366.1			289.6			1,428.3			695.1


Weighted average number of common shares outstanding — basic		98.6			93.8			96.8			92.8

Basic earnings per common share	$	3.71			3.09			14.75			7.49

Weighted average number of common shares outstanding — diluted		101.4			99.4			101.1			98.6

Diluted earnings per common share	$	3.61			2.95			14.19			7.15

See Notes to Consolidated Financial Information.

PHELPS DODGE CORPORATION

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


	September 30,			December 31,
	2005			2004
Assets
Current assets:
Cash and cash equivalents	$	2,416.2			1,200.1
Restricted cash		89.1			—
Accounts receivable, less allowance for doubtful accounts (2005 — $15.7; 2004 — $17.4)		1,085.6			761.5
Mill and leach stockpiles		25.6			26.2
Inventories		461.9			392.1
Supplies		212.2			192.7
Prepaid expenses and other current assets		109.5			46.0
Deferred income taxes		79.2			43.1

Current assets		4,479.3			2,661.7
Investments and long-term receivables		129.3			120.7
Property, plant and equipment, net		5,019.7			5,318.9
Long-term mill and leach stockpiles		140.9			131.0
Deferred income taxes		45.3			61.8
Goodwill		115.0			103.5
Intangible assets, net		7.6			5.3
Other assets and deferred charges		304.9			191.2

	$	10,242.0			8,594.1


Liabilities
Current liabilities:
Short-term debt	$	31.1			78.8
Current portion of long-term debt		43.0			45.9
Accounts payable and accrued expenses		1,292.1			972.1
Dividends payable		—			3.4
Accrued income taxes		29.3			67.8

Current liabilities		1,395.5			1,168.0
Long-term debt		656.6			972.2
Deferred income taxes		469.8			448.4
Other liabilities and deferred credits		998.8			1,107.3

		3,520.7			3,695.9


Commitments and contingencies (see Notes 5, 6 and 8)

Minority interests in consolidated subsidiaries		897.0			555.1


Shareholders’ equity
Common shares, par value $6.25; 300.0 shares authorized; 101.5 outstanding (2004 — 95.9) after deducting 8.5 shares (2004 — 9.9) held in treasury, at cost		634.4			599.5
Cumulative preferred shares, par value $1.00; 6.0 shares authorized; 2.0 outstanding in 2004		—			2.0
Capital in excess of par value		1,985.9			1,906.4
Retained earnings		3,583.4			2,239.9
Accumulated other comprehensive loss		(343.2	)		(384.2	)
Other		(36.2	)		(20.5	)

		5,824.3			4,343.1

	$	10,242.0			8,594.1

See Notes to Consolidated Financial Information

PHELPS DODGE CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited; in millions)


	Nine Months Ended
	September 30,
	2005			2004
Operating activities
Net income	$	1,435.1			705.2
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization		377.3			375.2
Deferred income tax provision (benefit)		(3.9	)		6.5
Equity in net earnings (losses) of affiliated companies, net of dividends received		0.3			2.2
Gain on sale of cost-basis investment		(438.4	)		—
Change in interest gain from Cerro Verde stock issuance		(159.5	)		—
Special items and provisions		481.3			7.8
Early debt extinguishment costs		54.0			37.6
Minority interests in consolidated subsidiaries		117.4			149.0
Changes in current assets and liabilities:
Accounts receivable		(240.1	)		(257.9	)
Repayment of securitized accounts receivable		(85.0	)		—
Mill and leach stockpiles		0.5			4.8
Inventories		(69.4	)		(10.4	)
Supplies		(26.1	)		(11.8	)
Prepaid expenses and other current assets		(54.6	)		(20.6	)
Interest payable		4.6			16.4
Other accounts payable		71.3			134.3
Accrued income taxes		(18.4	)		5.0
Other accrued expenses		164.1			(8.0	)
Pension plan contributions		(250.0	)		(85.4	)
Other operating, net		(61.4	)		54.0

Net cash provided by operating activities		1,299.1			1,103.9


Investing activities
Capital outlays		(392.5	)		(160.0	)
Capitalized interest		(9.9	)		(0.6	)
Investments in subsidiaries and other, net of cash received and acquired		(11.2	)		(0.2	)
Proceeds from asset dispositions		6.2			18.9
Proceeds from sale of cost-basis investment		451.6			—
Restricted cash		(89.1	)		—
Other investing, net		(2.3	)		(0.6	)

Net cash used in investing activities		(47.2	)		(142.5	)


Financing activities
Proceeds from issuance of debt		—			150.0
Payment of debt		(362.5	)		(718.1	)
Common dividends		(84.8	)		(23.6	)
Preferred dividends		(10.1	)		(10.1	)
Issuance of shares, net		52.4			254.0
Debt issue costs		(5.8	)		(7.3	)
Proceeds from issuance of Cerro Verde stock		441.8			—
Other financing, net		(84.2	)		(57.4	)

Net cash used in financing activities		(53.2	)		(412.5	)


Effect of exchange rate impact on cash and cash equivalents		17.4			8.2


Increase in cash and cash equivalents		1,216.1			557.1
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	$	2,416.2			1,269.2

See Notes to Consolidated Financial Information.

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		1.2		7.6									83.7												91.3
Restricted shares issued/cancelled, net		0.2		1.5									23.2									(15.7	)		9.0
Common shares purchased		—		(0.2	)								(3.4	)											(3.6	)
Preferred shares conversions		4.2		26.0			(2.0	)		(2.0	)		(24.0	)											—
Dividends on preferred shares																(6.8	)								(6.8	)
Dividends on common shares																(84.8	)								(84.8	)
Comprehensive income (loss):
Net income																1,435.1									1,435.1
Other comprehensive income, net of tax:
Translation adjustment																			11.0						11.0
Net gain on derivative instruments																			1.8						1.8
Other investment adjustments																			0.5						0.5
Unrealized gains on securities																			15.9						15.9
Minimum pension liability																			11.8						11.8

Other comprehensive income																			41.0						41.0

Comprehensive income																									1,476.1


Balance at September 30, 2005		101.5	$	634.4		$	—		$	—		$	1,985.9		$	3,583.4		$	(343.2	)	$	(36.2	)	$	5,824.3


*		As of September 30, 2005, this balance comprised $(217.8) million of cumulative minimum pension liability adjustments, $(160.8) million of cumulative translation adjustments and $(0.2) million of cumulative other investment adjustments; partially offset by $32.7 million of cumulative unrealized gains on securities and $2.9 million of cumulative unrealized gains on derivative instruments.

See Notes to Consolidated Financial Information.

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
Third Quarter 2005
Sales and other operating revenues:
Unaffiliated customers	$	—			—		6.9			—			8.2			—			133.6			14.2			78.1			468.0
Intersegment		283.0			180.1		223.4			10.4			79.1			31.8			59.5			80.1			80.8			—
Depreciation, depletion and amortization		15.7			7.6		3.5			1.1			5.1			0.2			9.6			7.0			28.6			9.7
Operating income (loss) before special items and provisions		128.2			112.4		153.9			1.5			18.6			3.0			73.1			55.8			52.6			71.9
Special items and provisions, net		0.4			—		(8.6	)		(0.1	)		—			—			—			—			—			—
Operating income (loss)		128.6			112.4		145.3			1.4			18.6			3.0			73.1			55.8			52.6			71.9
Interest income		0.1			—		—			—			0.6			—			2.6			2.6			0.8			0.2
Interest expense, net		—			—		—			—			—			—			0.1			4.9			(0.5	)		—
Provision for taxes on income		—			—		—			—			—			—			(13.0	)		(15.7	)		(18.0	)		—
Minority interests in consolidated subsidiaries		—			—		—			—			—			—			(9.5	)		(23.8	)		(16.6	)		—
Equity in net earnings (losses) of affiliated companies		—			—		—			(0.2	)		—			—			—			—			—			—
Equity basis investments at September 30		—			—		0.2			0.7			—			—			0.3			—			—			—
Assets at September 30		918.3			446.0		328.5			97.4			429.8			73.2			1,041.4			913.8			1,003.2			934.9
Expenditures for segment assets		16.1			10.6		5.0			0.1			2.9			2.7			4.6			106.7			6.4			18.1


Third Quarter 2004*
Sales and other operating revenues:
Unaffiliated customers	$	—			—		5.7			—			0.1			—			130.4			31.8			88.6			267.1
Intersegment		238.5			123.6		146.4			9.7			75.5			29.2			41.8			35.2			58.0			—
Depreciation, depletion and amortization		19.5			6.7		3.5			1.4			4.6			3.0			12.3			8.1			29.4			7.7
Operating income (loss) before special items and provisions		100.5			57.6		82.0			(0.7	)		16.9			8.7			77.2			32.5			63.3			17.3
Special items and provisions, net		(0.1	)		—		—			(0.1	)		(0.2	)		(1.5	)		—			—			—			—
Operating income (loss)		100.4			57.6		82.0			(0.8	)		16.7			7.2			77.2			32.5			63.3			17.3
Interest income		—			—		—			—			0.3			—			0.1			0.4			0.3			0.1
Interest expense, net		—			—		—			—			—			—			—			(0.2	)		(4.4	)		—
Provision for taxes on income		—			—		—			—			—			—			(11.8	)		(11.8	)		(6.6	)		—
Minority interests in consolidated subsidiaries		—			—		—			—			—			—			(12.4	)		(3.9	)		(25.6	)		—
Equity in net earnings (losses) of affiliated companies		—			—		—			—			—			—			—			—			—			—
Equity basis investments at September 30		—			—		0.2			1.0			—			—			0.3			—			—			—
Assets at September 30		944.0			435.2		307.3			104.8			431.1			176.4			807.6			524.0			1,143.4			826.3
Expenditures for segment assets		7.5			6.0		8.8			0.8			2.4			4.5			3.0			2.2			3.1			3.8


													PDMC															Corporate,
	Manufac-						PDMC						Elimi-			PDMC			Specialty			Wire &			PDI			Other &
	turing			Sales			Segments			Other			nations			Subtotal			Chemicals			Cable			Subtotal			Eliminations			Totals
Third Quarter 2005
Sales and other operating revenues:
Unaffiliated customers	$	894.2			249.2			1,852.4			7.3			—			1,859.7			180.8			319.3			500.1			—			2,359.8
Intersegment		30.6			77.3			1,136.1			20.3			(1,077.3	)		79.1			—			0.3			0.3			(79.4	)		—
Depreciation, depletion and amortization		11.2			—			99.3			1.5			—			100.8			11.4			7.0			18.4			1.7			120.9
Operating income (loss) before special items and provisions		0.2			2.3			673.5			(46.6	)		—			626.9			7.6			11.2			18.8			(32.8	)		612.9
Special items and provisions, net		0.1			—			(8.2	)		(0.3	)		—			(8.5	)		—			(1.8	)		(1.8	)		(34.7	)		(45.0	)
Operating income (loss)		0.3			2.3			665.3			(46.9	)		—			618.4			7.6			9.4			17.0			(67.5	)		567.9
Interest income		—			0.1			7.0			0.7			(0.7	)		7.0			4.4			0.5			4.9			11.7			23.6
Interest expense, net		(0.8	)		(0.2	)		3.5			0.2			0.7			4.4			(3.2	)		(1.9	)		(5.1	)		(11.3	)		(12.0	)
Provision for taxes on income		—			—			(46.7	)		—			—			(46.7	)		—			—			—			(61.9	)		(108.6	)
Minority interests in consolidated subsidiaries		—			—			(49.9	)		0.1			—			(49.8	)		(0.3	)		(1.8	)		(2.1	)		—			(51.9	)
Equity in net earnings (losses) of affiliated companies		—			—			(0.2	)		—			—			(0.2	)		—			0.2			0.2			0.5			0.5
Equity basis investments at September 30		—			—			1.2			0.2			—			1.4			—			6.4			6.4			23.8			31.6
Assets at September 30		330.6			36.7			6,553.8			1,366.1			(1,456.9	)		6,463.0			828.5			686.9			1,515.4			2,263.6			10,242.0
Expenditures for segment assets		5.0			—			178.2			24.4			(0.5	)		202.1			12.3			4.7			17.0			5.0			224.1


Third Quarter 2004*
Sales and other operating revenues:
Unaffiliated customers	$	657.5			233.0			1,414.2			6.1			—			1,420.3			171.1			255.1			426.2			—			1,846.5
Intersegment		50.2			52.5			860.6			18.5			(824.6	)		54.5			—			0.3			0.3			(54.8	)		—
Depreciation, depletion and amortization		6.0			—			102.2			1.1			—			103.3			12.1			8.9			21.0			1.6			125.9
Operating income (loss) before special items and provisions		8.6			1.6			465.5			(34.2	)		—			431.3			5.1			10.7			15.8			(30.8	)		416.3
Special items and provisions, net		(3.1	)		—			(5.0	)		(2.9	)		—			(7.9	)		—			(3.3	)		(3.3	)		0.1			(11.1	)
Operating income (loss)		5.5			1.6			460.5			(37.1	)		—			423.4			5.1			7.4			12.5			(30.7	)		405.2
Interest income		—			—			1.2			1.1			(1.0	)		1.3			2.5			0.2			2.7			1.5			5.5
Interest expense, net		(1.0	)		—			(5.6	)		—			1.0			(4.6	)		(3.8	)		(1.5	)		(5.3	)		(19.0	)		(28.9	)
Provision for taxes on income		—			—			(30.2	)		—			—			(30.2	)		—			—			—			(32.0	)		(62.2	)
Minority interests in consolidated subsidiaries		—			—			(41.9	)		—			—			(41.9	)		—			(1.5	)		(1.5	)		—			(43.4	)
Equity in net earnings (losses) of affiliated companies		—			—			—			—			—			—			—			—			—			0.6			0.6
Equity basis investments at September 30		—			—			1.5			—			—			1.5			—			5.5			5.5			24.1			31.1
Assets at September 30		473.5			12.4			6,186.0			1,288.5			(1,381.1	)		6,093.4			789.8			593.8			1,383.6			1,064.9			8,541.9
Expenditures for segment assets		2.0			0.1			44.2			5.1			(0.3	)		49.0			8.9			5.2			14.1			0.5			63.6


*		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.

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
Nine Months Ended September 30, 2005
Sales and other operating revenues:
Unaffiliated customers	$	—			—		12.2			—			14.0			—			356.0			47.5			238.5			1,470.9
Intersegment		773.3			526.8		635.3			30.5			243.6			94.6			155.1			196.2			233.8			—
Depreciation, depletion and amortization		46.9			23.3		11.2			3.3			15.5			7.2			28.8			20.2			90.1			31.6
Operating income (loss) before special items and provisions		328.9			313.3		424.0			4.7			49.2			7.5			213.1			131.4			160.9			257.4
Special items and provisions, net		(0.2	)		—		(8.6	)		(0.1	)		(64.5	)		(215.7	)		—			—			—			—
Operating income (loss)		328.7			313.3		415.4			4.6			(15.3	)		(208.2	)		213.1			131.4			160.9			257.4
Interest income		0.1			—		—			—			1.6			—			4.8			4.9			1.2			0.4
Interest expense, net		—			—		—			—			—			—			0.2			6.6			(5.0	)		—
Gain on sale of cost-basis investment		—			—		—			—			—			—			—			—			—			87.2
Change in interest gain from Cerro Verde stock issuance		—			—		—			—			—			—			—			159.5			—			—
Provision for taxes on income		—			—		—			—			—			—			(42.1	)		(11.5	)		(56.4	)		—
Minority interests in consolidated subsidiaries		—			—		—			—			—			—			(25.9	)		(38.8	)		(48.3	)		—
Equity in net earnings (losses) of affiliated companies		—			—		—			(0.4	)		—			—			—			—			—			—
Equity basis investments at September 30		—			—		0.2			0.7			—			—			0.3			—			—			—
Assets at September 30		918.3			446.0		328.5			97.4			429.8			73.2			1,041.4			913.8			1,003.2			934.9
Expenditures for segment assets		23.0			21.9		11.6			0.1			11.9			4.5			12.5			178.1			15.8			25.1


Nine Months Ended September 30, 2004*
Sales and other operating revenues:
Unaffiliated customers	$	—			—		5.7			—			0.3			—			312.0			76.4			284.9			642.2
Intersegment		669.0			276.3		366.0			21.1			158.1			82.2			158.6			120.3			198.3			—
Depreciation, depletion and amortization		56.8			18.0		9.4			3.8			9.9			9.0			37.7			24.4			91.9			22.9
Operating income (loss) before special items and provisions		265.3			103.8		182.1			(4.5	)		42.3			19.5			195.3			95.4			202.5			62.4
Special items and provisions, net		(0.5	)		—		—			(0.1	)		(0.6	)		(3.3	)		—			—			—			0.3
Operating income (loss)		264.8			103.8		182.1			(4.6	)		41.7			16.2			195.3			95.4			202.5			62.7
Interest income		—			—		—			—			0.8			—			0.8			0.6			0.5			0.2
Interest expense, net		—			—		—			—			—			—			(6.3	)		(2.0	)		(13.2	)		—
Provision for taxes on income		—			—		—			—			—			—			(34.8	)		(34.4	)		25.1			—
Minority interests in consolidated subsidiaries		—			—		—			—			—			—			(28.6	)		(11.8	)		(105.2	)		—
Equity in net earnings (losses) of affiliated companies		—			—		(0.1	)		—			—			—			—			—			—			—
Equity basis investments at September 30		—			—		0.2			1.0			—			—			0.3			—			—			—
Assets at September 30		944.0			435.2		307.3			104.8			431.1			176.4			807.6			524.0			1,143.4			826.3
Expenditures for segment assets		14.5			10.7		16.0			1.0			8.5			6.7			13.3			4.0			5.7			9.9


													PDMC															Corporate,
	Manufac-						PDMC						Elimi-			PDMC			Specialty			Wire &			PDI			Other &
	turing			Sales			Segments			Other			nations			Subtotal			Chemicals			Cable			Subtotal			Eliminations			Totals
Nine Months Ended September 30, 2005
Sales and other operating revenues:
Unaffiliated customers	$	2,316.6			687.5			5,143.2			19.0			—			5,162.2			546.4			869.3			1,415.7			—			6,577.9
Intersegment		136.4			195.9			3,221.5			60.3			(3,080.9	)		200.9			—			0.7			0.7			(201.6	)		—
Depreciation, depletion and amortization		23.7			—			301.8			4.3			—			306.1			43.4			22.7			66.1			5.1			377.3
Operating income (loss) before special items and provisions		11.2			1.8			1,903.4			(100.5	)		—			1,802.9			29.7			30.0			59.7			(90.7	)		1,771.9
Special items and provisions, net		(148.6	)		—			(437.7	)		8.3			—			(429.4	)		—			(3.3	)		(3.3	)		(48.6	)		(481.3	)
Operating income (loss)		(137.4	)		1.8			1,465.7			(92.2	)		—			1,373.5			29.7			26.7			56.4			(139.3	)		1,290.6
Interest income		—			0.1			13.1			2.7			(2.3	)		13.5			12.0			1.2			13.2			22.4			49.1
Interest expense, net		(2.3	)		(0.7	)		(1.2	)		0.1			2.3			1.2			(9.9	)		(5.8	)		(15.7	)		(41.7	)		(56.2	)
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
Provision for taxes on income		—			—			(110.0	)		—			—			(110.0	)		—			—			—			(204.4	)		(314.4	)
Minority interests in consolidated subsidiaries		—			—			(113.0	)		0.1			—			(112.9	)		(0.9	)		(3.6	)		(4.5	)		—			(117.4	)
Equity in net earnings (losses) of affiliated companies		—			—			(0.4	)		(0.3	)		—			(0.7	)		—			1.0			1.0			1.6			1.9
Equity basis investments at September 30		—			—			1.2			0.2			—			1.4			—			6.4			6.4			23.8			31.6
Assets at September 30		330.6			36.7			6,553.8			1,366.1			(1,456.9	)		6,463.0			828.5			686.9			1,515.4			2,263.6			10,242.0
Expenditures for segment assets		14.4			—			318.9			67.3			(27.1	)		359.1			22.6			12.0			34.6			10.0			403.7


Nine Months Ended September 30, 2004*
Sales and other operating revenues:
Unaffiliated customers	$	1,863.3			687.8			3,872.6			16.7			—			3,889.3			500.2			704.9			1,205.1			—			5,094.4
Intersegment		166.5			154.6			2,371.0			51.9			(2,258.3	)		164.6			—			0.4			0.4			(165.0	)		—
Depreciation, depletion and amortization		16.8			—			300.6			3.3			—			303.9			37.0			27.0			64.0			7.3			375.2
Operating income (loss) before special items and provisions		20.1			2.8			1,187.0			(86.3	)		—			1,100.7			32.2			23.6			55.8			(75.4	)		1,081.1
Special items and provisions, net		(3.1	)		—			(7.3	)		(3.1	)		—			(10.4	)		—			(7.6	)		(7.6	)		11.6			(6.4	)
Operating income (loss)		17.0			2.8			1,179.7			(89.4	)		—			1,090.3			32.2			16.0			48.2			(63.8	)		1,074.7
Interest income		—			—			2.9			3.7			(3.1	)		3.5			6.7			0.6			7.3			2.7			13.5
Interest expense, net		(3.1	)		(0.3	)		(24.9	)		—			3.1			(21.8	)		(11.3	)		(3.9	)		(15.2	)		(62.9	)		(99.9	)
Provision for taxes on income		—			—			(44.1	)		—			—			(44.1	)		—			—			—			(65.0	)		(109.1	)
Minority interests in consolidated subsidiaries		—			—			(145.6	)		—			—			(145.6	)		(0.5	)		(2.9	)		(3.4	)		—			(149.0	)
Equity in net earnings (losses) of affiliated companies		—			—			(0.1	)		(0.9	)		—			(1.0	)		—			0.3			0.3			1.7			1.0
Equity basis investments at September 30		—			—			1.5			—			—			1.5			—			5.5			5.5			24.1			31.1
Assets at September 30		473.5			12.4			6,186.0			1,288.5			(1,381.1	)		6,093.4			789.8			593.8			1,383.6			1,064.9			8,541.9
Expenditures for segment assets		8.2			0.1			98.6			18.1			(1.2	)		115.5			14.7			19.1			33.8			10.9			160.2


*		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.

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 Financial Accounting Standards Board (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. Interests 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 inter-company balances and transactions are eliminated.

For comparative purposes, certain amounts for the quarter and nine months ended September 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 nine-month periods ended September 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)


	Third Quarter
	2005			2004
Net income as reported	$	366.1			292.9

Deduct:
Total compensation cost determined under fair value based method for all awards, net of tax		(0.5	)		(1.7	)

Pro forma net income	$	365.6			291.2


Earnings per common share
Basic — as reported	$	3.71			3.09
Basic — pro forma	$	3.71			3.07

Earnings per common share
Diluted — as reported	$	3.61			2.95
Diluted — pro forma	$	3.61			2.93

(Unaudited; $ in millions except per share data)


	Nine Months Ended
	September 30,
	2005			2004
Net income as reported	$	1,435.1			705.2

Deduct:
Total compensation cost determined under fair value based method for all awards, net of tax		(2.4	)		(5.1	)

Pro forma net income	$	1,432.7			700.1


Earnings per common share
Basic — as reported	$	14.75			7.49
Basic — pro forma	$	14.72			7.43

Earnings per common share
Diluted — as reported	$	14.19			7.15
Diluted — pro forma	$	14.18			7.11

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 nine months ended September 30, 2005:

(Unaudited; $ in millions except per share amounts)


	2005 Third Quarter
							$/Share
Consolidated Statement of Income Line Item	Pre-tax			After-tax			After-tax
Special items and provisions, net:
PDMC —
Environmental provisions, net	$	(8.7	)		(6.7	)		(0.07	)
Environmental insurance recoveries, net		(0.1	)		—			—
Historical legal matters		0.3			0.2			—

		(8.5	)		(6.5	)		(0.07	)

PDI —
Environmental provisions, net		(0.1	)		(0.1	)		—
Wire and Cable restructuring programs/closures		0.3			0.3			—
Asset impairment charges		(2.0	)		(1.6	)		(0.01	)

		(1.8	)		(1.4	)		(0.01	)

Corporate and Other —
Environmental provisions, net		(34.4	)		(26.3	)		(0.26	)
Environmental insurance recoveries, net		0.1			—			—
Historical legal matters		(0.4	)		(0.3	)		—

		(34.7	)		(26.6	)		(0.26	)

		(45.0	)		(34.5	)		(0.34	)


Early debt extinguishment costs		(54.0	)		(41.3	)		(0.41	)

	$	(99.0	)		(75.8	)		(0.75	)

For the quarter and nine months ended September 30, 2005, net charges for environmental provisions of $43.2 million and $78.6 million ($33.1 million and $60.0 million after-tax), respectively, were 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 quarter and nine months ended September 30, 2005, a pre-tax net gain of $0.3 million and a net charge of $0.8 million ($0.3 million and net zero after-tax), respectively, were 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 quarter and nine months ended September 30, 2005, Phelps Dodge Magnet Wire recorded special, pre-tax charges of $2.0 million and $2.4 million ($1.6 million and $1.9 million after-tax), respectively, for asset impairments. These included an impairment charge of $2.0 million ($1.6 million after-tax) in the 2005 third quarter at our El Paso, Texas, magnet wire facility, and $0.4 million ($0.3 million after-tax) in the 2005 second quarter at our Laurinburg, North Carolina, magnet wire facility. The amount of the asset impairments were determined through a fair market value based on an assessment of projected cash flows.

For the quarter and nine months ended September 30, 2005, a pre-tax net charge of $0.1 million and a net gain of $19.6 million ($0.1 million charge and a $15.7 million gain after-tax), respectively, were recognized for legal matters. The nine-month total included $14.8 million ($11.2 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.

In the 2005 third quarter, we recognized a charge of $54.0 million ($41.3 million after-tax) for early debt extinguishment costs. (Refer to Note 11, Debt and Other Financing, for further discussion.)

(Unaudited; $ in millions except per share amounts)


	Nine Months Ended
	September 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	)		(3.17	)
Environmental provisions, net		(24.4	)		(18.6	)		(0.18	)
Environmental insurance recoveries, net		(1.2	)		(0.9	)		(0.01	)
Historical legal matters		15.3			11.6			0.11

		(429.4	)		(328.8	)		(3.25	)

PDI —
Environmental provisions, net		(0.1	)		(0.1	)		—
Wire and Cable restructuring programs/closures		(0.8	)		—			—
Asset impairment charges		(2.4	)		(1.9	)		(0.02	)

		(3.3	)		(2.0	)		(0.02	)

Corporate and Other —
Environmental provisions, net		(54.1	)		(41.3	)		(0.41	)
Environmental insurance recoveries, net		1.2			0.9			0.01
Historical legal matters		4.3			4.1			0.04

		(48.6	)		(36.3	)		(0.36	)

		(481.3	)		(367.1	)		(3.63	)


Early debt extinguishment costs		(54.0	)		(41.3	)		(0.41	)


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	)		(0.03	)

	$	62.6			150.1			1.48

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. 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.

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 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.

In the 2005 second quarter, a pre-tax gain of $438.4 million ($388.0 million after-tax) was recognized from the sale of our common shares of Southern Peru Copper Corporation (SPCC). On June 9, 2005, the Company entered into an Underwriting Agreement with Citigroup Global Markets, Inc., UBS Securities LLC, 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).

In the 2005 second quarter, we recognized a pre-tax 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. (Buenaventura), and Sumitomo Metal Mining Co. Ltd. and Sumitomo Corp., known collectively as Sumitomo. The inflow of capital from Buenaventura and Sumitomo will be used as partial financing for an approximate $850 million expansion project to mine a primary sulfide ore body beneath the leachable ore body currently in production.

In the 2005 second quarter, 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.

Note: Supplemental Data

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

(Unaudited; $ in millions except per share amounts)


	2004 Third Quarter
							$/Share
Consolidated Statement of Income Line Item	Pre-tax			After-tax			After-tax
Special items and provisions, net:
PDMC —
Environmental provisions, net	$	(11.8	)		(8.9	)		(0.09	)
Environmental insurance recoveries, net		7.5			6.0			0.06
Asset impairment charges		(1.1	)		(0.9	)		(0.01	)
Historical legal matters		(2.5	)		(2.0	)		(0.02	)

		(7.9	)		(5.8	)		(0.06	)

PDI —
Environmental provisions, net		(0.2	)		(0.1	)		—
Wire and Cable restructuring programs/closures		(3.1	)		(2.3	)		(0.02	)

		(3.3	)		(2.4	)		(0.02	)

Corporate and Other —
Environmental provisions, net		(0.7	)		(0.5	)		(0.01	)
Historical legal matters		0.8			0.6			0.01

		0.1			0.1			—

		(11.1	)		(8.1	)		(0.08	)

Miscellaneous income and expense, net:
Historical legal matter		9.5			7.2			0.07

	$	(1.6	)		(0.9	)		(0.01	)

(Unaudited; $ in millions except per share amounts)


	Nine Months Ended
	September 30, 2004
							$/Share
Consolidated Statement of Income Line Item	Pre-tax			After-tax			After-tax
Special items and provisions, net:
PDMC —
Environmental provisions, net	$	(14.1	)		(10.7	)		(0.11	)
Environmental insurance recoveries, net		7.3			5.9			0.06
Asset impairment charges		(1.1	)		(0.9	)		(0.01	)
Historical legal matters		(2.5	)		(2.0	)		(0.02	)

		(10.4	)		(7.7	)		(0.08	)

PDI —
Environmental provisions, net		(0.3	)		(0.2	)		—
Wire and Cable restructuring programs/closures		(6.7	)		(4.8	)		(0.05	)
Asset impairment charges		(0.6	)		(0.5	)		(0.01	)

		(7.6	)		(5.5	)		(0.06	)

Corporate and Other —
Environmental provisions, net		(4.8	)		(3.6	)		(0.03	)
Environmental insurance recoveries, net		0.1			0.1			—
Historical legal matters		16.3			13.0			0.13

		11.6			9.5			0.10

		(6.4	)		(3.7	)		(0.04	)

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	)
Historical legal matter		9.5			7.2			0.07

		(0.5	)		(1.9	)		(0.02	)

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			0.03

		—			(12.6	)		(0.12	)

	$	(45.4	)		(27.3	)		(0.28	)

4. New Accounting Pronouncements

In September 2005, FASB ratified the consensus reached by the Emerging Issues Task Force (EITF) on Issue No. 04-13, “Accounting for Purchases and Sales of Inventory with the Same Counterparty.” The consensus concluded that two or more legally separate exchange transactions with the same counterparty should be combined and considered as a single arrangement for accounting purposes, if they are entered into “in contemplation” of one another. The EITF also reached a consensus that nonmonetary exchanges of inventory within the same business should be recognized at fair value. The consensus reached on EITF Issue No. 04-13 is effective

for new arrangements entered into, or modifications or renewals of existing arrangements, in reporting periods beginning after March 15, 2006. The Company is currently determining the impact of this Issue on its financial reporting and disclosures.

In May 2005, 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 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 FIN 47, “Accounting for Conditional Asset Retirement Obligations— an interpretation of FASB Statement No. 143.” 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 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. The Company adopted this Statement in the 2005 third quarter. The adoption of SFAS No. 153 did not 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 and requires 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 September 30, 2005, and December 31, 2004, environmental reserves totaled $351.7 million and $303.6 million, respectively, for environmental liabilities attributed to Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) or analogous state programs and 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 nine months ended September 30, 2005:

(Unaudited; $ in millions)


	2005			Nine Months Ended
	Third Quarter			September 30, 2005
Balance, beginning of period	$	319.5			303.6
Additions to reserves		43.8			80.8
Reductions in reserve estimates		(0.6	)		(2.2	)
Spending against reserves		(11.0	)		(30.5	)

Balance, end of period	$	351.7			351.7

The site currently considered to be most significant is the Pinal Creek site near Miami, Arizona, where $106.8 million remained in the environmental reserve at September 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 resulted in cancellation of the Phase I trial. While the terms of the 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.

The site with the most significant change was the Anniston Lead Site (Anniston) located in Anniston, Alabama. PDI has been identified by the U.S. Environmental Protection Agency (EPA) as a potentially responsible party (PRP) at Anniston. Anniston consists of lead contamination in residential soils. Pursuant to an administrative order on consent/settlement agreement (Settlement Agreement), PDI, along with 10 other parties, identified by the EPA as PRPs, have agreed to conduct a non-time-critical removal action at residential properties identified to have lead contamination above certain thresholds. The Settlement Agreement was subject to public comment, which ended on October 11, 2005. The Settlement Agreement will not become final until EPA evaluates and responds to public comment. PDI and the other PRPs have entered into an interim cost-sharing agreement that assigns PDI approximately one-eighth of the costs to be incurred under the Settlement Agreement. During the 2005 third quarter, PDI concluded that it may have a liability greater than its agreed-upon interim share and therefore, has increased its reserve by $19.8 million to a total reserve of $26.7 million at September 30, 2005, which covers remedial costs, PRP group settlement costs, and legal and consulting costs.

At September 30, 2005, the cost range for reasonably possible outcomes for all reservable remediation sites (including Pinal Creek’s estimate of approximately $103 million to $210 million) was estimated to be from approximately $312 million to $627 million (of which $351.7 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 September 30, 2005, the cost range for reasonably possible outcomes for all such sites was estimated to be from approximately $2 million to $22 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 nine months ended September 30, 2005:

Asset Retirement Obligations
(Unaudited; $ in millions)


				Nine Months
	2005			Ended
	Third Quarter			September 30, 2005
Balance, beginning of period	$	328.9			275.2
New liabilities during the period		1.1			2.7
Accretion expense		5.9			16.8
Payments		(11.9	)		(27.1	)
Revisions in estimated cash flows		17.7			74.5
Foreign currency translation adjustments		(0.1	)		(0.5	)

Balance, end of period	$	341.6			341.6

Asset Retirement Costs
(Unaudited; $ in millions)


				Nine Months
	2005			Ended
	Third Quarter			September 30, 2005
Gross balance, beginning of period	$	124.7			196.3
New assets during the period		1.1			2.7
Revisions in estimated cash flows		17.7			74.5
Impairment of assets		—			(129.7	)
Foreign currency translation adjustments		(0.1	)		(0.4	)

Gross balance, end of period		143.4			143.4
Less accumulated depreciation, depletion and amortization		(80.9	)		(80.9	)

Balance, end of period	$	62.5			62.5

In the 2005 third quarter, we further revised our estimated cash flows for the Tyrone mine, resulting in an increase of $17.7 million

(discounted). The revision recognized a change in the scope of reclamation work for certain stockpiles and for obtaining revised cost estimates associated with the decision to accelerate reclamation activities for stockpiles and tailing.

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 accelerate the timing of reclamation activities for stockpile work and tailing 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 authorization for 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.)

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.

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 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 beneficial.

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. The New Mexico Supreme Court has declined to review the Court of Appeals decision. Under this decision, Chino’s closure permit is expected to 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. At September 30, 2005, the balance of the trust fund was approximately $68 million. 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 September 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 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 and is considering interim remediation proposals, 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 September 30, 2005, is $21.1 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 stockpiles at the mine. The Company’s estimated cost, as of September 30, 2005, for the remaining work at Lake One is $3.7 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 $29.6 million at September 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. At September 30, 2005, the balance of the trust fund was approximately $20 million. 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 September 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 September 30, 2005, Tyrone substantially completed reclamation of the Burro Mountain tailing area at an approximate cost of $1 million. Tyrone has applied for reductions in the required amount of financial assurance for some of the closure and reclamation work that has been 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 $355 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 September 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 $459 million (undiscounted and unescalated). This cost estimate includes approximately $20 million of net costs in addition to the financial assurance cost estimate that primarily relate to an increased scope of work for the tailing, stockpiles and other projects, and updated estimates for actual closure expenditures. At September 30, 2005, and December 31, 2004, we had accrued approximately $166 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. At September 30, 2005, the balance of the trust fund was approximately $2 million.

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 financial assurance cost estimate that primarily relates to construction of test plots for stockpile studies. At September 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 September 30, 2005, and December 31, 2004, we had accrued approximately $4 million for closure at Hidalgo.

Significant Changes in International Closure and Reclamation Programs

Sociedad Minera Cerro Verde S.A.A.

On August 15, 2005, the Peruvian Ministry of Energy and Mines published the final regulation associated with the Mine Closure Law. The regulation requires companies to submit closure plans for existing projects within one year after August 15, 2005, and for new projects within one year after approval of the Environment Impact Statement. Additionally, the regulation sets forth the financial assurance requirements, including guidance for calculating the estimated cost and the types of financial assurance instruments that can be utilized.

In accordance with the new regulation, the Company is required to submit the closure plan for the Cerro Verde mine before August 15, 2006. We are currently in the process of reviewing the technical requirements and obtaining updated ARO estimates to comply with the regulation. We are also in the process of determining our financial assurance obligations associated with the new regulation. At September 30, 2005, and December 31, 2004, our ARO estimates for Cerro Verde were based on the requirements set forth in our environmental permits. The potential impact of this new regulation on Phelps Dodge cannot reasonably be estimated at this time.

Other

On February 7, 2004, the Chilean Ministry of Mining published and passed a modification to its mining safety regulations. The current published regulation requires a company to submit a reclamation plan within five years of the published regulation. This modification may impact our ARO estimates and financial assurance obligations. At September 30, 2005, and December 31, 2004, our ARO estimates for our Chilean mines were based on the requirements set forth in

our environmental permits. We are currently in the process of determining the requirements and obtaining updated ARO estimates to comply with this modification to the mining safety regulations. Any potential impact of this modification on Phelps Dodge cannot reasonably be estimated at this time.

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. Unvested restricted stock is included only in the computation of diluted earnings per share as the shares are contingent only upon vesting.

Common shares relating to stock options where the exercise price exceeded the average market price of the Company’s common shares during the 2004 periods were also excluded from the diluted earnings per share calculation as the related impact was anti-dilutive.

(Unaudited; $ in millions except per share data)


	Third Quarter
	2005		2004
Basic Earnings Per Share Computation
Numerator:
Net income	$	366.1		292.9
Preferred stock dividends		—		(3.3	)

Net income applicable to common shares	$	366.1		289.6


Denominator:
Weighted average common shares outstanding		98.6		93.8

Basic earnings per common share	$	3.71		3.09


Diluted Earnings Per Share Computation
Numerator:
Net income	$	366.1		292.9


Denominator:
Weighted average common shares outstanding		98.6		93.8
Weighted average employee stock options		0.3		1.1
Weighted average restricted stock issued to employees		0.4		0.3
Weighted average mandatory convertible preferred shares		2.1		4.2


Total weighted average common shares outstanding		101.4		99.4

Diluted earnings per common share	$	3.61		2.95

(Unaudited; $ in millions except per share data)


	Nine Months Ended
	September 30,
	2005			2004
Basic Earnings Per Share Computation
Numerator:
Net income	$	1,435.1			705.2
Preferred stock dividends		(6.8	)		(10.1	)


Net income applicable to common shares	$	1,428.3			695.1


Denominator:
Weighted average common shares outstanding		96.8			92.8

Basic earnings per common share	$	14.75			7.49


Diluted Earnings Per Share Computation
Numerator:
Net income	$	1,435.1			705.2


Denominator:
Weighted average common shares outstanding		96.8			92.8
Weighted average employee stock options		0.4			1.2
Weighted average restricted stock issued to employees		0.4			0.4
Weighted average mandatory convertible preferred shares		3.5			4.2

Weighted average common shares outstanding		101.1			98.6


Diluted earnings per common share	$	14.19			7.15

8. Provision for Taxes on Income

The Company’s income tax provision for the 2005 third quarter resulted from taxes on earnings at U.S. operations ($57.1 million) including recognition of valuation allowances ($34.1 million), and taxes on earnings at international operations ($51.5 million) including benefits from the release of valuation allowances ($0.9 million).

The Company’s income tax provision for the nine months ended September 30, 2005, resulted from taxes on earnings at U.S. operations ($179.2 million) including recognition of valuation allowances ($2.2 million), and taxes on earnings at international operations ($135.2 million) including recognition of valuation allowances ($0.6 million).

The net recognition in our domestic valuation allowances for the quarter and nine months ended September 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 third quarter resulted from taxes on earnings at international operations ($36.1 million) including benefits from the release of valuation allowances ($14.8 million) and taxes on earnings at U.S. operations ($26.1 million) including benefits from the release of valuation allowances ($25.7 million).

The Company’s income tax provision for the nine months ended September 30, 2004, resulted from (i) taxes on earnings at international operations ($91.9 million) including benefits from the release of valuation allowances ($60.6 million), (ii) taxes on earnings at U.S. operations ($39.0 million) including benefits from the release of

valuation allowances ($91.9 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 for the quarter and nine months ended September 30, 2004, reflects NOLs and other tax credits that were expected to be utilized.

The Company’s effective income tax rate for the nine months ended September 30, 2005, was 16.9 percent, compared with 11.3 percent for the corresponding 2004 period. The difference between our effective income tax rate for the nine months ended September 30, 2005, and the U.S. federal statutory tax rate (35 percent) primarily was due to (i) percentage depletion deductions for regular tax purposes in the United States, (ii) a portion of the gain on the sale of our investment in SPCC being offset by previously unrecognized capital loss carryovers, (iii) the extraterritorial income exclusion associated with foreign molybdenum sales, (iv) Peruvian reinvestment benefits resulting from the Cerro Verde mine expansion and (v) 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 September 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. The difference between the effective income tax rate for the nine months ended September 30, 2004, and the U.S. federal statutory tax rate primarily was due to percentage depletion deductions for regular tax purposes in the United States 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 re-evaluate 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 have not decided whether and to what extent we might repatriate foreign earnings or the related income tax effect of such repatriation. Our analysis indicates that the additional utilization of the provision discussed above would have minimal impact on the Company’s taxes. We expect to finalize our assessment by the end of the 2005 fourth 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.

Phelps Dodge has entered into programs to protect a portion of its expected global copper production by purchasing zero-premium copper collars and copper put options. The copper collars and the copper put options are settled on an average London Metal Exchange (LME) pricing basis for their respective hedge periods. The copper collar put options are settled monthly for 2005 and 2006, and annually for 2007; the copper collar call options are settled annually. The copper put options are settled monthly for 2006, and annually for 2007. Phelps Dodge entered into the programs as insurance to help ameliorate the effects of unanticipated copper price decreases.

The following table provides a summary of PDMC’s zero-premium copper collar and copper put option programs for 2005, 2006 and 2007:

(Unaudited)


	2005			2006		2007
Copper Collars:
Pounds of zero-premium copper collars purchased (in millions)		198	(A)		564		486
Average LME put strike price (floor) per pound	$	0.943			0.954		0.950
Annual average LME call strike price (ceiling) per pound	$	1.400			1.632		2.002
Unrealized pre-tax losses for the 2005 third quarter (in millions)(B)	$	22			2		—
Unrealized pre-tax losses for the nine months ended September 30, 2005 (in millions)(B)	$	43			2		—

Copper Put Options:
Pounds of copper put options purchased (in millions)		—			564		730
Average LME put strike price per pound	$	—			0.950		0.950
Premium cost per pound	$	—			0.020		0.023


(A)		2005 excludes El Abra; refer to the table on page 18 for a summary of El Abra’s 2005 zero-premium copper collar program.

(B)		The 2005 unrealized pre-tax losses resulted from the 2005 LME forward average price of $1.617 per pound exceeding the ceiling of our 2005 zero-premium copper collars of $1.40 per pound. The 2006 unrealized pre-tax losses resulted from the 2006 LME forward average price of $1.555 per pound exceeding a portion of our 2006 zero-premium copper collars (weighted average of $1.632 per pound).

The following table provides a summary of El Abra’s 2005 zero-premium copper collar program for 2005:

(Unaudited)


	2005
El Abra Copper Collars:
Pounds of zero-premium copper collars purchased (in millions)		452
Monthly average LME put strike price (floor) per pound	$	1.000
Annual average LME call strike price (ceiling) per pound	$	1.376
Unrealized pre-tax losses for the 2005 third quarter (in millions)(A)	$	51
Unrealized pre-tax losses for the nine months ended September 30, 2005 (in millions)(A)	$	108


(A)		The unrealized pre-tax losses resulted from the 2005 LME forward average price of $1.617 per pound exceeding the ceiling of our 2005 zero-premium copper collars of $1.376 per pound (approximately $26 million and $55 million for PD’s share for the quarter and nine months ended September 30, 2005, respectively).

Transactions under these copper price protection programs do not qualify for hedge accounting treatment under SFAS No. 133 and are adjusted to fair market value each reporting period with the gain or loss recorded in earnings. The actual impact of our 2005, 2006 and 2007 zero-premium copper collar programs will not be fully determinable until the maturity of the collars at each respective year-end.

During the quarter and nine months ended September 30, 2005, we reclassified approximately $5.0 million and $6.6 million, respectively, from other comprehensive income to the Consolidated Statement of Income, primarily as a result of our domestic energy (diesel fuel and natural gas) price protection contracts.

During the quarter and nine months ended September 30, 2004, we reclassified approximately $4.3 million from other comprehensive income and $7.9 million from other comprehensive losses, respectively, to the Consolidated Statement of Income. The quarter-end gains were primarily the result of our domestic diesel fuel hedges, while the year-to-date losses principally resulted from 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 nine months ended September 30, 2005 and 2004:

Pension Benefits
(Unaudited; $ in millions)


	Third Quarter
	2005			2004
Service cost	$	7.1			5.9
Interest cost		18.6			18.0
Expected return on plan assets		(21.6	)		(21.0	)
Amortization of prior service cost		0.9			0.9
Amortization of actuarial loss		3.5			0.8
Curtailment and special retirement benefits		0.1			—

Net periodic benefit cost	$	8.6			4.6


	Nine Months Ended
	September 30,
	2005			2004
Service cost	$	21.1			17.7
Interest cost		55.9			54.0
Expected return on plan assets		(64.7	)		(63.1	)
Amortization of prior service cost		2.5			2.7
Amortization of actuarial loss		10.6			2.4
Curtailment and special retirement benefits		0.1			0.6

Net periodic benefit cost	$	25.5			14.3

Postretirement Benefits
(Unaudited; $ in millions)


	Third Quarter
	2005		2004
Service cost	$	1.1		1.3
Interest cost		5.1		5.9
Expected return on plan assets		—		(0.1	)
Amortization of prior service cost		0.1		0.3
Amortization of actuarial loss		0.3		0.1

Net periodic benefit cost	$	6.6		7.5


	Nine Months Ended
	September 30,
	2005			2004
Service cost	$	3.3			4.0
Interest cost		14.7			17.5
Expected return on plan assets		(0.1	)		(0.2	)
Amortization of prior service cost		0.2			0.9
Amortization of actuarial loss		0.3			0.3
Other		—			(1.1	)

Net periodic benefit cost	$	18.4			21.4

Our pension expense in the 2005 third quarter was $8.6 million, compared with $4.6 million in the 2004 third quarter. The increase of $4.0 million was primarily due to an increase in service costs ($1.2 million) resulting from the effect of a 50-basis point reduction in the discount rate and amortization of actuarial loss ($2.7 million).

Our pension expense for the first nine months of 2005 was $25.5 million, compared with $14.3 million in the corresponding 2004 period. The increase of $11.2 million was primarily due to an increase in service costs ($3.4 million) resulting from the effect of a

50-basis point reduction in the discount rate, interest costs ($1.9 million) resulting from the effect of a 50-basis point reduction in the discount rate and actuarial losses, and amortization of actuarial loss ($8.2 million); partially offset by an increase in expected return on plan assets ($1.6 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 third quarter was $6.6 million, compared with $7.5 million in the 2004 third quarter. The decrease of $0.9 million was primarily due to a decrease in interest costs ($0.8 million) resulting from a decrease in benefit liability due to a plan amendment associated with employee life insurance and the federal subsidy associated with The Medicare Prescription Drug, Improvement and Modernization Act of 2003.

Our postretirement expense for the first nine months of 2005 was $18.4 million, compared with $21.4 million in the corresponding 2004 period. The decrease of $3.0 million was primarily due to a decrease in interest costs ($2.8 million) resulting from a decrease in benefit liability due to a plan amendment associated with employee life insurance and the federal subsidy associated with The Medicare Prescription Drug, Improvement and Modernization Act of 2003.

11. Debt and Other Financing

In July 2005, the Company completed a tender offer for its 8.75 percent Notes due in 2011, which resulted in the retirement of long-term debt with a book value of approximately $280 million (representing approximately 72 percent of the outstanding notes). This resulted in a 2005 third quarter, special, pre-tax charge of $54.0 million, including purchase premiums, for early debt extinguishment costs.

In July 2005, El Abra fully repaid subordinated debt of $34.3 million to Corporación Nacional del Cobre de Chile, its minority interest partner. At September 30, 2005, El Abra was debt-free.

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. 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. 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 September 30, 2005, there was approximately $75 million of letters of credit issued under the new revolver. Total availability under the revolving credit facility at September 30, 2005, amounted to approximately $1,025 million, of which approximately $225 million could be used for additional letters of credit.

On September 30, 2005, the Company entered into a number of agreements in connection with obtaining debt-financing facilities in the overall amount of $450 million for the expansion of the Cerro Verde copper mine. Export credit agencies and commercial banks supporting the debt-financing facility are the Japan Bank for International Cooperation (JBIC), KfW banking group of Germany (KfW), Calyon New York Branch, Mizuho Corporate Bank of Japan, Scotia Capital of Canada and the Royal Bank of Scotland. The JBIC facility also includes Sumitomo Mitsui Banking Corp. and Bank of Tokyo Mitsubishi. Phelps Dodge has guaranteed its adjusted pro rata share of the financing until completion of construction and has agreed to maintain a net worth of at least $1.5 billion. The security package associated with the debt-financing facilities includes mortgages and pledges of substantially all of the assets of Cerro Verde and requires the Company, Sumitomo and Buenaventura to pledge their respective shares of Cerro Verde.

The financing comprises (i) a JBIC facility with two tranches totaling $247.5 million (Tranche A of $173.25 million and Tranche B of $74.25 million), (ii) a KfW facility totaling $22.5 million, and (iii) a commercial bank loan facility of $180.0 million, of which $90.0 million represents a stand-by facility intended to be replaced by the issuance of Peruvian bonds at a later date. The financing has a maximum 10-year term, and repayment consists of 16 semi-annual installments commencing on the earlier of the March 20 or the September 20 next occurring after commencement of commercial operations or March 20, 2008. Under the JBIC and commercial bank loan facilities, interest is payable at a floating rate based on LIBOR, plus a fixed margin. Under the KfW facility, interest is payable at a variable or fixed rate, determined by Cerro Verde based on market rates at the time of drawdown. At September 30, 2005, there were no borrowings under the facilities.

12. Shareholders’ Equity

Series A Mandatory Convertible Preferred Stock

On August 15, 2005, our Series A Mandatory Convertible Preferred Stock (Series A Stock) automatically converted, at the rate of 2.083, into 4.2 million shares of Common Stock. The conversion rate was based on the average closing market price for the 20 consecutive trading days ending with the third trading day immediately preceding the conversion date. Each share of Series A Stock was non-voting and entitled to an annual dividend of $6.75, paid quarterly. At September 30, 2005, there were no preferred shares outstanding.

Stock Options Exercised

During the 2005 third quarter, 0.4 million stock options were exercised for Phelps Dodge common shares, for which Phelps Dodge received approximately $20.6 million.

During the nine months ended September 30, 2005, 1.2 million stock options were exercised for Phelps Dodge common shares, for which Phelps Dodge received approximately $56.0 million.

REVIEW BY INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The financial information as of September 30, 2005, and for the three-month and nine-month periods ended September 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 September 30, 2005, and the related consolidated statement of income for each of the three-month and nine-month periods ended September 30, 2005 and 2004, the consolidated statement of cash flows for the nine-month periods ended September 30, 2005 and 2004, and the consolidated statement of shareholders’ equity for the nine-month period ended September 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
October 25, 2005

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 September 30, 2005, Consolidated Financial Information, for a discussion of our consolidation policy.

RESULTS OF OPERATIONS

Consolidated Financial Results

(Unaudited; $ in millions)


	Third Quarter
	2005			2004
Sales and other operating revenues	$	2,359.8			1,846.5
Operating income	$	567.9			405.2
Minority interests in consolidated subsidiaries	$	(51.9	)		(43.4	)
Net income	$	366.1			292.9
Basic earnings per common share	$	3.71			3.09
Diluted earnings per common share	$	3.61			2.95

The Company had consolidated net income for the 2005 third quarter of $366.1 million, or $3.61 per common share, including special, net charges of $75.8 million, or 75 cents per common share, after taxes. (All references to per share earnings are based on diluted earnings per share.) In the 2004 third quarter, consolidated net income was $292.9 million, or $2.95 per common share, including special, net charges of $0.9 million, or 1 cent per common share, after taxes.

Consolidated net income increased $73.2 million in the 2005 third quarter compared with the 2004 third quarter. The increase primarily included the effects of higher copper prices (approximately $178 million), including premiums and copper pricing adjustments, and higher molybdenum earnings, including earnings from primary molybdenum mines (approximately $55 million) and by-product molybdenum contribution (approximately $130 million). These were offset by (i) higher copper production costs (approximately $124 million), which exclude by-product molybdenum revenues, (ii) higher early debt extinguishment costs ($54.0 million), (iii) a higher tax provision ($46.4 million) due to higher earnings, (iv) higher special, net charges for environmental provisions recognized for closed facilities and closed portions of operating facilities ($30.5 million), (v) lower copper sales volumes (approximately $29 million) and (vi) higher exploration and research expense ($11.3 million).

(Unaudited; $ in millions)


	Nine Months Ended
	September 30,
	2005			2004
Sales and other operating revenues	$	6,577.9			5,094.4
Operating income	$	1,290.6			1,074.7
Minority interests in consolidated subsidiaries	$	(117.4	)		(149.0	)
Net income	$	1,435.1			705.2
Basic earnings per common share	$	14.75			7.49
Diluted earnings per common share	$	14.19			7.15

The Company had consolidated net income for the nine months ended September 30, 2005, of $1,435.1 million, or $14.19 per common share, including special, net gains of $150.1 million, or $1.48 per common share, after taxes. For the nine months ended September 30, 2004, consolidated net income was $705.2 million, or $7.15 per common share, including special, net charges of $27.3 million, or 28 cents per common share, after taxes.

Consolidated net income increased $729.9 million for the nine months ended September 30, 2005, compared with the corresponding 2004 period. The increase primarily included the effects of (i) higher copper prices (approximately $450 million), including premiums and copper pricing adjustments, (ii) the gain recognized on the sale of a cost-basis investment ($438.4 million), (iii) the change in interest gain associated with the Cerro Verde stock issuance ($159.5 million), (iv) higher molybdenum earnings, including earnings from primary molybdenum mines (approximately $195 million) and by-product molybdenum contribution (approximately $453 million), (v) lower net interest expense ($43.7 million), (vi) lower minority interests in consolidated subsidiaries ($31.6 million) and (vii) higher interest income ($35.6 million). These were offset by (i) asset impairment charges recorded at PDMC in the 2005 second quarter ($419.1 million), (ii) higher copper production costs (approximately $365 million), which exclude by-product molybdenum revenues, (iii) higher tax provision ($205.3 million) due to higher earnings, (iv) higher special, net charges for environmental provisions recognized for closed facilities and closed portions of operating facilities ($59.4 million) and (v) higher exploration and research expense ($27.7 million).

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

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 nine-month periods ended September 30, 2005 and 2004:

(Unaudited; $ in millions)


	Third Quarter
	2005			2004
Net income	$	366.1			292.9
Special items and provisions, net of taxes		(75.8	)		(0.9	)


Earnings excluding special items and provisions (after taxes)	$	441.9			293.8

(Unaudited; $ in millions)


	Nine Months Ended
	September 30,
	2005		2004
Net income	$	1,435.1		705.2
Special items and provisions, net of taxes		150.1		(27.3	)


Earnings excluding special items and provisions (after taxes)	$	1,285.0		732.5

Note: Supplemental Data

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

(Unaudited; $ in millions except per share data)


	2005 Third Quarter									2004 Third 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)	$	(8.5	)		(6.5	)		(0.07	)		(7.9	)		(5.8	)		(0.06	)

PDI (see Business Segment disclosure)		(1.8	)		(1.4	)		(0.01	)		(3.3	)		(2.4	)		(0.02	)

Corporate and Other —
Environmental provisions, net		(34.4	)		(26.3	)		(0.26	)		(0.7	)		(0.5	)		(0.01	)
Environmental insurance recoveries, net		0.1			—			—			—			—			—
Historical legal matters		(0.4	)		(0.3	)		—			0.8			0.6			0.01

		(34.7	)		(26.6	)		(0.26	)		0.1			0.1			—

		(45.0	)		(34.5	)		(0.34	)		(11.1	)		(8.1	)		(0.08	)


Early debt extinguishment costs		(54.0	)		(41.3	)		(0.41	)		—			—			—


Miscellaneous income and expense, net:
Historical legal matter		—			—			—			9.5			7.2			0.07

	$	(99.0	)		(75.8	)		(0.75	)		(1.6	)		(0.9	)		(0.01	)

(Unaudited; $ in millions except per share data)


	Nine Months Ended									Nine Months Ended
	September 30, 2005									September 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)	$	(429.4	)		(328.8	)		(3.25	)		(10.4	)		(7.7	)		(0.08	)

PDI (see Business Segment disclosure)		(3.3	)		(2.0	)		(0.02	)		(7.6	)		(5.5	)		(0.06	)


Corporate and Other —
Environmental provisions, net		(54.1	)		(41.3	)		(0.41	)		(4.8	)		(3.6	)		(0.03	)
Environmental insurance recoveries, net		1.2			0.9			0.01			0.1			0.1			—
Historical legal matters		4.3			4.1			0.04			16.3			13.0			0.13

		(48.6	)		(36.3	)		(0.36	)		11.6			9.5			0.10

		(481.3	)		(367.1	)		(3.63	)		(6.4	)		(3.7	)		(0.04	)


Interest expense:
Texas franchise tax matter		—			—			—			(0.9	)		(0.7	)		(0.01	)


Early debt extinguishment costs		(54.0	)		(41.3	)		(0.41	)		(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	)
Historical legal matter		—			—			—			9.5			7.2			0.07

		—			—			—			(0.5	)		(1.9	)		(0.02	)


Provision for taxes on income:
Foreign dividend tax		—			(2.4	)		(0.03	)		—			—			—
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	)		(0.03	)		—			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			0.03

		—			—			—			—			(12.6	)		(0.12	)

	$	62.6			150.1			1.48			(45.4	)		(27.3	)		(0.28	)

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. No decision has yet been made to proceed with any such transaction and no assurance can be given that a transaction will be concluded. 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. On September 6, 2005, the Phelps Dodge board of directors approved plans for Specialty Chemicals 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 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 nine-month periods ended September 30, 2005 and 2004, are summarized in the following tables:

(Unaudited; $ in millions except per pound amounts)


	Third Quarter
	2005			2004
Sales and other operating revenues to unaffiliated customers	$	1,859.7			1,420.3
Operating income	$	618.4			423.4
Operating income before special items and provisions	$	626.9			431.3
Minority interests in consolidated subsidiaries	$	(49.8	)		(41.9	)
Copper production (thousand short tons):
Total copper production		319.5			337.6
Less undivided interest (A)		15.3			16.1


Copper production on a consolidated basis		304.2			321.5
Less minority participants’ shares (B)		48.0			42.9

Copper production on a pro rata basis		256.2			278.6


Copper sales (thousand short tons):
Total copper sales from own mines		318.7			341.6
Less undivided interest (A)		15.3			16.1


Copper sales from own mines on a consolidated basis		303.4			325.5
Less minority participants’ shares (B)		48.3			41.0


Copper sales from own mines on a pro rata basis		255.1			284.5

Purchased copper (thousand short tons)		123.8			103.8

Total copper sales on a consolidated basis		427.2			429.3


LME average spot copper price per pound — cathodes	$	1.704			1.293
COMEX average spot copper price per pound — cathodes	$	1.701			1.287

Molybdenum production (million pounds)		16.4			15.1
Molybdenum sales (million pounds):
Net Phelps Dodge share from own mines		14.8			15.4
Purchased molybdenum		2.9			3.3

Total molybdenum sales		17.7			18.7


Metals Week:
Molybdenum Dealer Oxide mean price per pound	$	30.74			16.90

(Unaudited; $ in millions except per pound amounts)


	Nine Months Ended
	September 30,
	2005			2004
Sales and other operating revenues to unaffiliated customers	$	5,162.2			3,889.3
Operating income	$	1,373.5			1,090.3
Operating income before special items and provisions	$	1,802.9			1,100.7
Minority interests in consolidated subsidiaries	$	(112.9	)		(145.6	)
Copper production (thousand short tons):
Total copper production		966.2			976.6
Less undivided interest (A)		44.6			47.2


Copper production on a consolidated basis		921.6			929.4
Less minority participants’ shares (B)		134.0			133.8

Copper production on a pro rata basis		787.6			795.6


Copper sales (thousand short tons):
Total copper sales from own mines		971.7			986.7
Less undivided interest (A)		44.6			47.2


Copper sales from own mines on a consolidated basis		927.1			939.5
Less minority participants’ shares (B)		136.1			134.7


Copper sales from own mines on a pro rata basis		791.0			804.8

Purchased copper (thousand short tons)		295.0			335.6

Total copper sales on a consolidated basis		1,222.1			1,275.1


LME average spot copper price per pound — cathodes	$	1.575			1.266
COMEX average spot copper price per pound — cathodes	$	1.567			1.251

Molybdenum production (million pounds)		47.8			43.4
Molybdenum sales (million pounds):
Net Phelps Dodge share from own mines		45.2			46.6
Purchased molybdenum		9.8			9.8

Total molybdenum sales		55.0			56.4


Metals Week:
Molybdenum Dealer Oxide mean price per pound	$	32.44			13.25


(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 equity interest through May 31, 2005, and a 46.4 percent equity interest beginning June 1, 2005, 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)


	Third Quarter
	2005		2004
Minority participants’ share of copper production:
Candelaria		8.3		10.1
Cerro Verde		12.3		4.3
El Abra		27.4		28.5

		48.0		42.9

(thousand short tons)


	Nine Months Ended
	September 30,
	2005		2004
Minority participants’ share of copper production:
Candelaria		27.2		31.5
Cerro Verde		23.6		13.0
El Abra		83.2		89.3

		134.0		133.8

Total PDMC Division — Sales

PDMC’s sales and other operating revenues to unaffiliated customers increased $439.4 million, or 31 percent, in the 2005 third quarter compared with the 2004 third quarter. The increase reflected higher average copper realizations (approximately $256 million) and higher average molybdenum realizations (approximately $207 million); partially offset by higher markdown of concentrates from cathode realized prices due to higher treatment and refining charges (approximately $19 million) and lower copper sales volumes, including purchased copper (approximately $9 million).

PDMC’s sales and other operating revenues to unaffiliated customers increased $1,272.9 million, or 33 percent, in the first nine months of 2005 compared with the corresponding 2004 period. The increase reflected higher average molybdenum realizations (approximately $822 million), higher average copper realizations (approximately $616 million) and higher precious metals and by-product sales (approximately $10 million); partially offset by lower copper sales volumes, including purchased copper (approximately $134 million) and higher markdown of concentrates from cathode realized prices due to higher treatment and refining charges (approximately $55 million).

Total PDMC — Operating Income

PDMC reported operating income of $618.4 million for the 2005 third quarter, including special, net pre-tax charges of $8.5 million, compared with operating income of $423.4 million for the 2004 third quarter, including special, net pre-tax charges of $7.9 million. The increase in operating income of $195.0 million, or 46 percent, primarily was due to the effects of higher copper prices (approximately $178 million), including premiums and copper pricing adjustments, and higher molybdenum earnings, including earnings from primary molybdenum mines (approximately $55 million) and by-product molybdenum contribution (approximately $130 million) primarily due to higher prices. These were partially offset by higher copper production costs (approximately $124 million), lower sales volumes (approximately $29 million) and higher exploration and research expense (approximately $11 million). Higher copper production costs, which exclude by-product molybdenum revenues, were primarily due to higher mining and milling costs due generally to higher mining rates and repairs and maintenance (approximately $85 million), higher energy costs (approximately $30 million) and higher smelting, refining and freight costs (approximately $10 million).

PDMC reported operating income of $1,373.5 million for the first nine months of 2005, including special, net pre-tax charges of $429.4 million, compared with operating income of $1,090.3 million for the first nine months of 2004, including special, net pre-tax charges of $10.4 million. The increase in operating income of $283.2 million, or 26 percent, primarily included the effects of higher copper prices

(approximately $450 million), including premiums and copper pricing adjustments, and higher molybdenum earnings, including earnings from primary molybdenum mines (approximately $195 million) and by-product molybdenum contribution (approximately $453 million) primarily due to higher prices. These were partially offset by higher special, net pre-tax charges ($419.0 million) mostly associated with asset impairment charges recorded in the 2005 second quarter, higher copper production costs (approximately $365 million), higher exploration and research expense (approximately $27 million), and lower sales volumes (approximately $14 million). Higher copper production costs, which exclude by-product molybdenum revenues, were primarily due to higher mining and milling costs due generally to higher mining rates, repairs and maintenance and the operational impacts of unusually heavy rainfall for the southwest United States in the first quarter of 2005 (approximately $219 million), higher energy costs (approximately $82 million) and higher smelting, refining and freight costs (approximately $72 million); partially offset by higher precious metal by-product revenues (approximately $7 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 $1.701 and $1.287 in the third quarters of 2005 and 2004, respectively, and $1.567 and $1.251 for the first nine months of 2005 and 2004, respectively. The London Metal Exchange (LME) spot price per pound of copper cathode, upon which we primarily base our international sales, averaged $1.704 and $1.293 in the third quarters of 2005 and 2004, respectively, and $1.575 and $1.266 for the first nine 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 anticipated pricing based on the commodity exchange forward rate. For accounting purposes, these revenues are adjusted to fair value through earnings each period until the date of final copper pricing. At September 30, 2005, approximately 235 million pounds of copper sales were provisionally priced at an average of $1.740 per pound with final quotational periods of October 2005 to January 2006. Candelaria accounted for approximately 60 percent of the outstanding, provisionally priced sales at September 30, 2005.

Phelps Dodge has entered into copper swap contracts to protect certain provisionally priced sales exposures in a manner designed to allow it 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 October 26, 2005, we had in place copper swap contracts for approximately 98 percent of Candelaria’s provisionally priced copper sales outstanding at September 30, 2005, at an average of $1.673 per pound. This program is expected to substantially alleviate the volatility that provisionally priced copper sales could have on our revenues.

The following table provides a summary of PDMC’s zero-premium copper collar and copper put option programs for 2005, 2006 and 2007:

(Unaudited)


	2005			2006		2007
Copper Collars:
Pounds of zero-premium copper collars purchased (in millions)		198	(A)		564		486
Average LME put strike price (floor) per pound	$	0.943			0.954		0.950
Annual average LME call strike price (ceiling) per pound	$	1.400			1.632		2.002
Unrealized pre-tax losses for the 2005 third quarter (in millions)(B)	$	22			2		—
Unrealized pre-tax losses for the nine months ended September 30, 2005 (in millions)(B)	$	43			2		—

Copper Put Options:
Pounds of copper put options purchased (in millions)		—			564		730
Average LME put strike price per pound	$	—			0.950		0.950
Premium cost per pound	$	—			0.020		0.023


(A)		2005 excludes El Abra; refer to the table on page 28 for a summary of El Abra’s 2005 zero-premium copper collar program.

(B)		The 2005 unrealized pre-tax losses resulted from the 2005 LME forward average price of $1.617 per pound exceeding the ceiling of our 2005 zero-premium copper collars of $1.40 per pound. The 2006 unrealized pre-tax losses resulted from the 2006 LME forward average price of $1.555 per pound exceeding a portion of our 2006 zero-premium copper collars (weighted average of $1.632 per pound).

The following table provides a summary of El Abra’s 2005 zero-premium copper collar program for 2005:

(Unaudited)


	2005
El Abra Copper Collars:
Pounds of zero-premium copper collars purchased (in millions)		452
Monthly average LME put strike price (floor) per pound	$	1.000
Annual average LME call strike price (ceiling) per pound	$	1.376
Unrealized pre-tax losses for the 2005 third quarter (in millions)(A)	$	51
Unrealized pre-tax losses for the nine months ended September 30, 2005 (in millions)(A)	$	108


(A)		The unrealized pre-tax losses resulted from the 2005 LME forward average price of $1.617 per pound exceeding the ceiling of our 2005 zero-premium copper collars of $1.376 per pound (approximately $26 million and $55 million for PD’s share for the quarter and nine months ended September 30, 2005, respectively).

Increasing energy prices are continuing to impact our costs. Although we mitigate extreme increases in energy costs with long-term power contracts and our price protection programs, we nevertheless pay more for our energy needs during these times of progressively higher energy prices. Energy accounted for 20.4 cents per pound of our production costs in the 2005 third quarter, compared with 14.7 cents per pound in the 2004 third quarter and 19.2 cents in the 2005 second quarter. In the 2005 third quarter, the average West Texas Intermediate (WTI) price of oil was approximately $63 per barrel. In the 2005 fourth quarter, if the base price of oil were to increase by a hypothetical $20 per barrel, our unit cost of copper production would increase by approximately 3.5 to 5.0 cents per pound.

Note: Supplemental Data

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

(Unaudited; $ in millions)


	2005 Third Quarter
	U.S.			South		Primary
	Mining			American		Molyb-
	Operations			Mines		denum
Environmental provisions, net		(8.7	)		—		—
Environmental insurance recoveries, net		(0.1	)		—		—
Historical legal matters		0.3			—		—

	$	(8.5	)		—		—

(Unaudited; $ in millions)


	Nine Months Ended
	September 30, 2005
	U.S.			South		Primary
	Mining			American		Molyb-
	Operations			Mines		denum
Asset impairment charges	$	(419.1	)		—		—
Environmental provisions, net		(24.4	)		—		—
Environmental insurance recoveries, net		(1.2	)		—		—
Historical legal matters		15.3			—		—

	$	(429.4	)		—		—

(Unaudited; $ in millions)


	2004 Third Quarter
	U.S.			South		Primary
	Mining			American		Molyb-
	Operations			Mines		denum
Environmental provisions, net	$	(11.8	)		—		—
Environmental insurance recoveries, net		7.5			—		—
Asset impairment charges		(1.1	)		—		—
Historical legal matters		(2.5	)		—		—

	$	(7.9	)		—		—

(Unaudited; $ in millions)


	Nine Months Ended
	September 30, 2004
	U.S.			South		Primary
	Mining			American		Molyb-
	Operations			Mines		denum
Environmental provisions, net	$	(14.4	)		—		0.3
Environmental insurance recoveries, net		7.3			—		—
Asset impairment charges		(1.1	)		—		—
Historical legal matters		(2.5	)		—		—

	$	(10.7	)		—		0.3

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

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 third quarters 2005 and 2004:


	U.S. Mines
									Miami/			Chino/
	Morenci			Bagdad		Sierrita			Bisbee			Cobre			Tyrone			Subtotal
Third Quarter 2005
Copper production (thousand short tons):
Total production		102.1			25.3		18.7			3.2			25.6			9.6			184.5
Less undivided interest		15.3			—		—			—			—			—			15.3

Copper production on a consolidated basis		86.8			25.3		18.7			3.2			25.6			9.6			169.2
Less minority participants’ shares		—			—		—			—			—			—			—

Copper production on a pro rata basis		86.8			25.3		18.7			3.2			25.6			9.6			169.2

Copper sales (thousand short tons):
Total copper sales from own mines		102.1			25.3		18.6			3.1			25.6			9.6			184.3
Less undivided interest		15.3			—		—			—			—			—			15.3

Copper sales from own mines on a consolidated basis		86.8			25.3		18.6			3.1			25.6			9.6			169.0
Less minority participants’ shares		—			—		—			—			—			—			—

Copper sales from own mines on a pro rata basis		86.8			25.3		18.6			3.1			25.6			9.6			169.0

Total purchased copper (thousand short tons)		—			—		—			—			—			—			—

Total copper sales on a consolidated basis		86.8			25.3		18.6			3.1			25.6			9.6			169.0


($ in millions)
Operating income (loss)	$	128.6			112.4		145.3			1.4			18.6			3.0			409.3
Special items and provisions, net		0.4			—		(8.6	)		(0.1	)		—			—			(8.3	)

Operating income (loss) excluding special items and provisions	$	128.2			112.4		153.9			1.5			18.6			3.0			417.6


Third Quarter 2004
Copper production (thousand short tons):
Total production		107.6			30.4		19.9			2.4			29.0			11.1			200.4
Less undivided interest		16.1			—		—			—			—			—			16.1

Copper production on a consolidated basis		91.5			30.4		19.9			2.4			29.0			11.1			184.3
Less minority participants’ shares		—			—		—			—			—			—			—

Copper production on a pro rata basis		91.5			30.4		19.9			2.4			29.0			11.1			184.3

Copper sales (thousand short tons):
Total copper sales from own mines		107.9			32.9		22.1			3.8			29.0			11.1			206.8
Less undivided interest		16.1			—		—			—			—			—			16.1

Copper sales from own mines on a consolidated basis		91.8			32.9		22.1			3.8			29.0			11.1			190.7
Less minority participants’ shares		—			—		—			—			—			—			—

Copper sales from own mines on a pro rata basis		91.8			32.9		22.1			3.8			29.0			11.1			190.7

Total purchased copper (thousand short tons)		—			—		—			—			—			—			—

Total copper sales on a consolidated basis		91.8			32.9		22.1			3.8			29.0			11.1			190.7


($ in millions)
Operating income (loss)	$	100.4			57.6		82.0			(0.8	)		16.7			7.2			263.1
Special items and provisions, net		(0.1	)		—		—			(0.1	)		(0.2	)		(1.5	)		(1.9	)

Operating income (loss) excluding special items and provisions	$	100.5			57.6		82.0			(0.7	)		16.9			8.7			265.0

Refer to segment discussion on pages 37 through 42.

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 37 and 38 for further discussion.)

PDMC RESULTS BY REPORTABLE SEGMENTS
(Unaudited)


	South American Mines
	Candelaria/
	Ojos del
	Salado		Cerro Verde		El Abra		Subtotal
Third Quarter 2005
Copper production (thousand short tons):
Total production		52.1		26.6		55.8		134.5
Less undivided interest		—		—		—		—

Copper production on a consolidated basis		52.1		26.6		55.8		134.5
Less minority participants’ shares		8.3		12.3		27.4		48.0

Copper production on a pro rata basis		43.8		14.3		28.4		86.5

Copper sales (thousand short tons):
Total copper sales from own mines		49.9		26.2		57.8		133.9
Less undivided interest		—		—		—		—

Copper sales from own mines on a consolidated basis		49.9		26.2		57.8		133.9
Less minority participants’ shares		7.9		12.1		28.3		48.3

Copper sales from own mines on a pro rata basis		42.0		14.1		29.5		85.6

Total purchased copper (thousand short tons)		9.1		—		—		9.1


Total copper sales on a consolidated basis		59.0		26.2		57.8		143.0


($ in millions)
Operating income (loss)	$	73.1		55.8		52.6		181.5
Special items and provisions, net		—		—		—		—

Operating income (loss) excluding special items and provisions	$	73.1		55.8		52.6		181.5


Third Quarter 2004
Copper production (thousand short tons):
Total production		54.1		24.5		58.0		136.6
Less undivided interest		—		—		—		—

Copper production on a consolidated basis		54.1		24.5		58.0		136.6
Less minority participants’ shares		10.1		4.3		28.5		42.9

Copper production on a pro rata basis		44.0		20.2		29.5		93.7

Copper sales (thousand short tons):
Total copper sales from own mines		56.2		24.5		53.5		134.2
Less undivided interest		—		—		—		—

Copper sales from own mines on a consolidated basis		56.2		24.5		53.5		134.2
Less minority participants’ shares		10.5		4.3		26.2		41.0

Copper sales from own mines on a pro rata basis		45.7		20.2		27.3		93.2

Total purchased copper (thousand short tons)		5.0		—		—		5.0


Total copper sales on a consolidated basis		61.2		24.5		53.5		139.2


($ in millions)
Operating income (loss)	$	77.2		32.5		63.3		173.0
Special items and provisions, net		—		—		—		—

Operating income (loss) excluding special items and provisions	$	77.2		32.5		63.3		173.0

Refer to segment discussion on pages 37 through 42.

PDMC RESULTS BY REPORTABLE SEGMENTS
(Unaudited)


	Primary							PDMC						Total
	Molybdenum		Manufacturing			Sales		Segments			Other			PDMC
Third Quarter 2005
Copper production (thousand short tons):
Total production		—		(0.1	)		—		318.9			0.6			319.5
Less undivided interest		—		—			—		15.3			—			15.3

Copper production on a consolidated basis		—		(0.1	)		—		303.6			0.6			304.2
Less minority participants’ shares		—		—			—		48.0			—			48.0

Copper production on a pro rata basis		—		(0.1	)		—		255.6			0.6			256.2

Copper sales (thousand short tons):
Total copper sales from own mines		—		(0.1	)		—		318.1			0.6			318.7
Less undivided interest		—		—			—		15.3			—			15.3

Copper sales from own mines on a consolidated basis		—		(0.1	)		—		302.8			0.6			303.4
Less minority participants’ shares		—		—			—		48.3			—			48.3

Copper sales from own mines on a pro rata basis		—		(0.1	)		—		254.5			0.6			255.1

Total purchased copper (thousand short tons)		—		108.5			6.2		123.8			—			123.8


Total copper sales on a consolidated basis		—		108.4			6.2		426.6			0.6			427.2


Molybdenum production (thousand pounds):
Primary — Henderson		8,386		—			—		8,386			—			8,386
By-product		7,996		—			—		7,996			—			7,996

Total production		16,382		—			—		16,382			—			16,382


Molybdenum sales (thousand pounds):
Net Phelps Dodge share from own mines		14,754		—			—		14,754			—			14,754
Purchased molybdenum		2,953		—			—		2,953			—			2,953

Total molybdenum sales		17,707		—			—		17,707			—			17,707


($ in millions)
Operating income (loss)	$	71.9		0.3			2.3		665.3			(46.9	)		618.4
Special items and provisions, net		—		0.1			—		(8.2	)		(0.3	)		(8.5	)

Operating income (loss) excluding special items and provisions	$	71.9		0.2			2.3		673.5			(46.6	)		626.9

Refer to segment discussion on pages 37 through 42.

PDMC RESULTS BY REPORTABLE SEGMENTS
(Unaudited)


	Primary							PDMC						Total
	Molybdenum		Manufacturing			Sales		Segments			Other			PDMC
Third Quarter 2004
Copper production (thousand short tons):
Total production		—		0.6			—		337.6			—			337.6
Less undivided interest		—		—			—		16.1			—			16.1

Copper production on a consolidated basis		—		0.6			—		321.5			—			321.5
Less minority participants’ shares		—		—			—		42.9			—			42.9

Copper production on a pro rata basis		—		0.6			—		278.6			—			278.6

Copper sales (thousand short tons):
Total copper sales from own mines		—		0.6			—		341.6			—			341.6
Less undivided interest		—		—			—		16.1			—			16.1

Copper sales from own mines on a consolidated basis		—		0.6			—		325.5			—			325.5
Less minority participants’ shares		—		—			—		41.0			—			41.0

Copper sales from own mines on a pro rata basis		—		0.6			—		284.5			—			284.5

Total purchased copper (thousand short tons)		—		98.3			0.5		103.8			—			103.8

Total copper sales on a consolidated basis		—		98.9			0.5		429.3			—			429.3


Molybdenum production (thousand pounds):
Primary — Henderson		6,794		—			—		6,794			—			6,794
By-product		8,277		—			—		8,277			—			8,277

Total production		15,071		—			—		15,071			—			15,071


Molybdenum sales (thousand pounds):
Net Phelps Dodge share from own mines		15,466		—			—		15,466			—			15,466
Purchased molybdenum		3,264		—			—		3,264			—			3,264

Total molybdenum sales		18,730		—			—		18,730			—			18,730


($ in millions)
Operating income (loss)	$	17.3		5.5			1.6		460.5			(37.1	)		423.4
Special items and provisions, net		—		(3.1	)		—		(5.0	)		(2.9	)		(7.9	)

Operating income (loss) excluding special items and provisions	$	17.3		8.6			1.6		465.5			(34.2	)		431.3

Refer to segment discussion on pages 37 through 42.

PDMC RESULTS BY REPORTABLE SEGMENTS
(Unaudited)


	U.S. Mines
									Miami/			Chino/
	Morenci			Bagdad		Sierrita			Bisbee			Cobre			Tyrone			Subtotal
Nine Months Ended September 30, 2005
Copper production (thousand short tons):
Total production		297.2			80.3		60.1			9.2			79.0			30.9			556.7
Less undivided interest		44.6			—		—			—			—			—			44.6

Copper production on a consolidated basis		252.6			80.3		60.1			9.2			79.0			30.9			512.1
Less minority participants’ shares		—			—		—			—			—			—			—

Copper production on a pro rata basis		252.6			80.3		60.1			9.2			79.0			30.9			512.1

Copper sales (thousand short tons):
Total copper sales from own mines		297.2			81.6		61.3			9.9			79.0			30.9			559.9
Less undivided interest		44.6			—		—			—			—			—			44.6

Copper sales from own mines on a consolidated basis		252.6			81.6		61.3			9.9			79.0			30.9			515.3
Less minority participants’ shares		—			—		—			—			—			—			—

Copper sales from own mines on a pro rata basis		252.6			81.6		61.3			9.9			79.0			30.9			515.3

Total purchased copper (thousand short tons)		—			—		—			—			—			—			—

Total copper sales on a consolidated basis		252.6			81.6		61.3			9.9			79.0			30.9			515.3


($ in millions)
Operating income (loss)	$	328.7			313.3		415.4			4.6			(15.3	)		(208.2	)		838.5
Special items and provisions, net		(0.2	)		—		(8.6	)		(0.1	)		(64.5	)		(215.7	)		(289.1	)

Operating income (loss) excluding special items and provisions	$	328.9			313.3		424.0			4.7			49.2			7.5			1,127.6


Nine Months Ended September 30, 2004
Copper production (thousand short tons):
Total production		314.9			81.9		56.5			7.1			62.7			32.8			555.9
Less undivided interest		47.2			—		—			—			—			—			47.2

Copper production on a consolidated basis		267.7			81.9		56.5			7.1			62.7			32.8			508.7
Less minority participants’ shares		—			—		—			—			—			—			—

Copper production on a pro rata basis		267.7			81.9		56.5			7.1			62.7			32.8			508.7

Copper sales (thousand short tons):
Total copper sales from own mines		314.9			84.3		58.6			8.5			62.7			32.8			561.8
Less undivided interest		47.2			—		—			—			—			—			47.2

Copper sales from own mines on a consolidated basis		267.7			84.3		58.6			8.5			62.7			32.8			514.6
Less minority participants’ shares		—			—		—			—			—			—			—

Copper sales from own mines on a pro rata basis		267.7			84.3		58.6			8.5			62.7			32.8			514.6

Total purchased copper (thousand short tons)		—			—		—			—			—			—			—

Total copper sales on a consolidated basis		267.7			84.3		58.6			8.5			62.7			32.8			514.6


($ in millions)
Operating income (loss)	$	264.8			103.8		182.1			(4.6	)		41.7			16.2			604.0
Special items and provisions, net		(0.5	)		—		—			(0.1	)		(0.6	)		(3.3	)		(4.5	)

Operating income (loss) excluding special items and provisions	$	265.3			103.8		182.1			(4.5	)		42.3			19.5			608.5

Refer to segment discussion on pages 37 through 42.

PDMC RESULTS BY REPORTABLE SEGMENTS
(Unaudited)


	South American Mines
	Candelaria/
	Ojos del
	Salado		Cerro Verde		El Abra		Subtotal
Nine Months Ended September 30, 2005
Copper production (thousand short tons):
Total production		159.6		76.6		169.7		405.9
Less undivided interest		—		—		—		—

Copper production on a consolidated basis		159.6		76.6		169.7		405.9
Less minority participants’ shares		27.2		23.6		83.2		134.0

Copper production on a pro rata basis		132.4		53.0		86.5		271.9

Copper sales (thousand short tons):
Total copper sales from own mines		158.6		74.3		175.3		408.2
Less undivided interest		—		—		—		—

Copper sales from own mines on a consolidated basis		158.6		74.3		175.3		408.2
Less minority participants’ shares		27.0		23.2		85.9		136.1

Copper sales from own mines on a pro rata basis		131.6		51.1		89.4		272.1

Total purchased copper (thousand short tons)		15.5		—		—		15.5


Total copper sales on a consolidated basis		174.1		74.3		175.3		423.7


($ in millions)
Operating income (loss)	$	213.1		131.4		160.9		505.4
Special items and provisions, net		—		—		—		—

Operating income (loss) excluding special items and provisions	$	213.1		131.4		160.9		505.4


Nine Months Ended September 30, 2004
Copper production (thousand short tons):
Total production		162.6		74.2		182.2		419.0
Less undivided interest		—		—		—		—

Copper production on a consolidated basis		162.6		74.2		182.2		419.0
Less minority participants’ shares		31.5		13.0		89.3		133.8

Copper production on a pro rata basis		131.1		61.2		92.9		285.2

Copper sales (thousand short tons):
Total copper sales from own mines		164.7		75.6		182.9		423.2
Less undivided interest		—		—		—		—

Copper sales from own mines on a consolidated basis		164.7		75.6		182.9		423.2
Less minority participants’ shares		31.9		13.2		89.6		134.7

Copper sales from own mines on a pro rata basis		132.8		62.4		93.3		288.5

Total purchased copper (thousand short tons)		25.1		—		—		25.1


Total copper sales on a consolidated basis		189.8		75.6		182.9		448.3


($ in millions)
Operating income (loss)	$	195.3		95.4		202.5		493.2
Special items and provisions, net		—		—		—		—

Operating income (loss) excluding special items and provisions	$	195.3		95.4		202.5		493.2

Refer to segment discussion on pages 37 through 42.

PDMC RESULTS BY REPORTABLE SEGMENTS
(Unaudited)


	Primary							PDMC						Total
	Molybdenum		Manufacturing			Sales		Segments			Other			PDMC
Nine Months Ended September 30, 2005
Copper production (thousand short tons):
Total production		—		1.7			—		964.3			1.9			966.2
Less undivided interest		—		—			—		44.6			—			44.6

Copper production on a consolidated basis		—		1.7			—		919.7			1.9			921.6
Less minority participants’ shares		—		—			—		134.0			—			134.0

Copper production on a pro rata basis		—		1.7			—		785.7			1.9			787.6

Copper sales (thousand short tons):
Total copper sales from own mines		—		1.7			—		969.8			1.9			971.7
Less undivided interest		—		—			—		44.6			—			44.6

Copper sales from own mines on a consolidated basis		—		1.7			—		925.2			1.9			927.1
Less minority participants’ shares		—		—			—		136.1			—			136.1

Copper sales from own mines on a pro rata basis		—		1.7			—		789.1			1.9			791.0

Total purchased copper (thousand short tons)		—		266.1			13.4		295.0			—			295.0


Total copper sales on a consolidated basis		—		267.8			13.4		1,220.2			1.9			1,222.1


Molybdenum production (thousand pounds):
Primary — Henderson		25,279		—			—		25,279			—			25,279
By-product		22,482		—			—		22,482			—			22,482

Total production		47,761		—			—		47,761			—			47,761


Molybdenum sales (thousand pounds):
Net Phelps Dodge share from own mines		45,184		—			—		45,184			—			45,184
Purchased molybdenum		9,784		—			—		9,784			—			9,784

Total molybdenum sales		54,968		—			—		54,968			—			54,968


($ in millions)
Operating income (loss)	$	257.4		(137.4	)		1.8		1,465.7			(92.2	)		1,373.5
Special items and provisions, net		—		(148.6	)		—		(437.7	)		8.3			(429.4	)

Operating income (loss) excluding special items and provisions	$	257.4		11.2			1.8		1,903.4			(100.5	)		1,802.9

Refer to segment discussion on pages 37 through 42.

PDMC RESULTS BY REPORTABLE SEGMENTS
(Unaudited)


	Primary						PDMC
	Molybdenum		Manufacturing		Sales		Segments		Other		Total PDMC
Nine Months Ended September 30, 2004
Copper production (thousand short tons):
Total production		—		1.7		—		976.6		—		976.6
Less undivided interest		—		—		—		47.2		—		47.2