WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF

For the quarter ended June 30, 2000

Commission file number 1-82

PHELPS DODGE CORPORATION

(a New York corporation)

13-1808503

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

2600 N. Central Avenue, Phoenix, AZ 85004-3089

Registrant’s telephone number: (602) 234-8100

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

Number of Common Shares outstanding at August 8, 2000: 78,719,898 shares.

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PHELPS DODGE CORPORATION

Quarterly Report on Form 10-Q

For the Quarter Ended June 30, 2000

Table of Contents

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PHELPS DODGE CORPORATION AND SUBSIDIARIES

Part I. Financial Information

See Notes to Consolidated Financial Information.

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See Notes to Consolidated Financial Information.

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CONSOLIDATED STATEMENT OF CASH FLOWS

See Notes to Consolidated Financial Information.

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CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS’ EQUITY

See Notes to Consolidated Financial Information.

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FINANCIAL DATA BY BUSINESS SEGMENT

*	Represents corporate, unallocated and reconciling elimination activities and assets.

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NOTES TO CONSOLIDATED FINANCIAL

1.	The unaudited consolidated financial information presented herein has been prepared in accordance with the instructions to Form 10-Q and does not include all of the information and note disclosures required by generally accepted accounting principles. Therefore, this information should be read in conjunction with the consolidated financial statements and notes thereto included in our Form 10-K for the year ended December 31, 1999. This information reflects all adjustments that are, in the opinion of management, necessary to a fair presentation of the results for the interim periods reported.
2.	The results of operations for the three-month and six-month periods ended June  30, 2000, are not necessarily indicative of the results to be expected for the full year.
3.	The results of operations for the three-month and six-month periods ended June  30, 1999, reflect the reclassification of $5.1 million and $10.0 million, respectively, in operation support costs from selling and general administrative expenses to cost of products sold to conform to the current year presentation.
4.	Depending on market circumstances, we may periodically purchase or liquidate various copper price protection contracts for a portion of our expected future mine production to mitigate the risk of adverse price fluctuations. As of June 30, 2000, the company had a total of approximately 110  million pounds of year 2000 copper cathode production under various price protection agreements with various financial institutions. These annual contracts effectively ensure minimum (approximately 72  cents) and maximum (approximately 95 cents) prices per pound. The minimum and maximum prices are based on the average London Metal Exchange price for the protection period.
5.	Cyprus Amax Acquisition

Liabilities recorded in the acquisition of Cyprus Amax included costs of $22  million associated with merging Cyprus Amax’s operations into the company’s operations (e.g., lease and other cancellation costs and employee termination costs, primarily for duplicate administrative and management functions). Through June 30, 2000, we have paid $11 million for such costs, including approximately $10 million for employee termination and severance costs. Costs for these liabilities are expected to be substantially paid out by the end of 2000.

6.	Restructuring Charges and Non-Recurring Items

On June 27, 2000, we announced a plan to reduce operating costs and restructure operations at our mining and wire and cable segments by (i) curtailing operations at the Miami copper mine in Arizona and the Henderson molybdenum mine in Colorado; (ii) ceasing production at two wire and cable operations in Venezuela; (iii) announcing the planned closure of a telephone cable operation in El Salvador; and (iv) recognizing impairment charges for our wire and cable operations in Austria and the Philippines. These actions resulted in non-recurring, pre-tax charges of $41.3  million ($36.9 million, $0.47 per share, after taxes and minority interests), $6.4 million ($6.4 million, $0.08 per share after taxes and minority interests) in charges to cost of products sold, representing the working capital writedown component of the above actions, and a $7.2 million charge ($7.2  million, $0.09 per share after taxes and minority interests) to miscellaneous income and expense representing the impairment of our equity investment in a wire and cable operation in the Philippines.

In addition to the above items, we recognized certain ongoing costs of $2.9  million ($1.9 million, $0.02 per share after taxes and minority interests) relating to the June 30, 1999, restructuring plan and received a tax refund of $6.5 million and related interest income of $5.8 million ($3.6  million, $0.04 per share after taxes and minority interests) resulting from the settlement of the company’s 1990 and 1991 income tax audits. In total, pre-tax second quarter 2000 restructuring charges and non-recurring items were $52.0  million

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Of PD Mining’s $5.2 million second quarter 2000 restructuring charge for employee severance related to curtailments at the Miami and Henderson mines, $2.6 million in payments had been made as of June 30, 2000.

During the second quarter of 2000 our wire and cable segment recorded pre-tax restructuring charges and non-recurring items of $52.6 million, of which the current liability portion relating primarily to employee severance and plant removal and dismantling costs was $5.0  million. As of June 30, 2000, $2.2  million in payments had been made.

On June 30, 1999, we announced a plan to reduce costs and improve operating performance at all three of our business segments by (i) curtailing higher-cost copper production by temporarily closing our Hidalgo smelter in New Mexico and the smaller of two concentrators at our Morenci mining operations in Arizona, as well as curtailing production by 50  percent at our copper refinery in El Paso, Texas; (ii) selling a non-core South African fluorspar mining unit; (iii) restructuring certain wire and cable assets to respond to changing market conditions; and (iv) suspending operations at our carbon black plant in the Philippines. These actions resulted in a total non-recurring, pre-tax charge of $96.7 million ($65.7 million, $1.07  per share, after taxes and minority interests) in 1999 and $2.9 million ($1.9 million, $0.02 per share, after taxes) in the 2000 second quarter.

Our mining segment had no charges in the 2000 second quarter from the June 30, 1999, restructuring plan. The current liability components of the restructuring plan for the mining segment related to employee severance, mothballing and take or pay contracts during the first six months of 2000 were as follows:

	Our specialty chemicals segment had no charges in the 2000 second quarter from the June 30, 1999, restructuring plan. The current liability components of the restructuring plan for our specialty chemicals segment related to employee severance and disposal and dismantling costs during the first six months of 2000 were as follows:

	Our wire and cable segment had non-recurring, pre-tax charges of $2.9 million in the 2000 second quarter from the June 30, 1999 restructuring plan. The components of the restructuring plan related to employee severance and disposal and dismantling

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	costs during the first six months of 2000 were as follows:

*	Relocation costs are charged to expense as incurred.

7.	Accounting Standards

In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.  133, “Accounting for Derivative Instruments and Hedging Activities.” This statement requires recognition of all derivatives as either assets or liabilities on the balance sheet and measurement of those instruments at fair value. Changes in the fair value of derivatives are re corded each period in current earnings or other comprehensive income (loss). Proper accounting for changes in fair value of derivatives held is dependent on whether the derivative transaction qualifies as an accounting hedge and on the classification of the hedge transaction. The statement was originally required to be adopted on January 1, 2000. Citing concerns about companies’ ability to modify their information systems and educate their managers in time to apply SFAS No. 133, the FASB has delayed its effective date for one year. We will adopt SFAS No. 133 effective January 1, 2001, and are in the process of evaluating the effect this statement will have on our financial reporting and disclosures as well as on our ongoing derivative and hedging activities.

In the 1999 first quarter, we adopted SoP 98-5, “Reporting on the Costs of Start-Up Activities.” The adoption resulted in a $3.5 million after-tax charge, or $0.06 per common share, representing the write-off of previously unamortized start-up costs at our Candelaria mining operation in Chile and our magnet wire operation in Mexico.

In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 101, “Revenue Recognition in Financial Statements” that provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the SEC. SAB No.  101 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosures related to revenue recognition policies. Citing the numerous requests from groups requesting additional time to determine the effect on revenue recognition practices, the SEC issued SAB No. 101B in June 2000 which delayed the implementation date of SAB  101 to no later than the fourth fiscal quarter of 2000. We are currently awaiting additional guidance from the SEC on the application of SAB 101 in order to evaluate the effect this bulletin may have, if any, on our consolidated financial statements.

The Emerging Issues Task Force (EITF) issued Topic No. D-88, “Planned Major Maintenance Activities” in March 2000. Topic D-88 requires companies to disclose in their Form 10-Qs for 2000, their accounting policy for repair and maintenance costs incurred in connection with planned major maintenance activities. Our policy for repair and maintenance costs incurred in connection with planned major maintenance activities is to charge to operations such costs equally over the twelve months of the year in which the major maintenance activities are incurred.

8.	Environmental Matters

As of December 31, 1999, we had a reserve balance of $336.1 million for estimated future costs associated with environmental matters. During the first six months of 2000, net spending against that reserve totaled $15.1 million. As of June 30, 2000, the reserve balance was $321.0 million.

The company has received notice of an agreement to perform a Remedial Investigation/ Feasibility Study (RI/ FS) at a site for which it may have an indemnity obligation. The cost of the RI/ FS is not consid-

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The company has contingencies regarding environmental, closure and other matters. For a further discussion of these contingencies please see Note 19 to the Consolidated Financial Statements of the company’s 1999 Form 10-K.

9.	Asset Sales

On March 30, 2000, we sold Cyprus Australia Coal Company, a wholly owned subsidiary, to Glencore Coal Australia Pty. Ltd., a subsidiary of Switzerland-based Glencore International AG, for US$150 million in cash. We acquired Cyprus Australia Coal Company as part of our acquisition of Cyprus Amax Minerals Company on October 16, 1999. Cyprus Australia Coal Company owned 48  percent of Oakbridge Pty. Ltd. and 50  percent of the Springvale Mine in Australia.

10.	Debt

An agreement on a new, unsecured revolving credit facility was entered into by the company and several lenders on May 10, 2000.

The facility is to be used for general corporate purposes, primarily as a commercial paper backstop. This facility, which replaces the June 1997 agreement, permits borrowings of up to $1 billion until its maturity on May 10, 2005. It allows for one-year extensions beyond the maturity date under certain circumstances. Interest is payable at a fluctuating rate based on the agent bank’s base rate or a fixed rate based on the London Interbank Offered Rate (LIBOR), or at fixed rates offered independently by the several lenders, for maturities of from one month to twelve months. This agreement provides for an annual facility fee of 15 basis points (0.15 percent) on total commitments. The agreement requires the company to maintain minimum consolidated tangible net worth of $1.5 billion and limits indebtedness to 60 percent of total consolidated capitalization.

REVIEW BY INDEPENDENT ACCOUNTANTS

         The financial information as of June 30, 2000, and for the three-month and six-month periods ended June 30, 2000 and 1999, included in Part I pursuant to Rule 10-01 of Regulation S-X has been reviewed by PricewaterhouseCoopers LLP (PricewaterhouseCoopers), the company’s independent accountants, in accordance with standards established by the American Institute of Certified Public Accountants. PricewaterhouseCoopers’ report is included in this quarterly report.

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

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Report of Independent Accountants

To the Board of Directors and Shareholders

We have reviewed the accompanying consolidated balance sheet of Phelps Dodge Corporation and its subsidiaries as of June 30, 2000, and the related consolidated statements of operations, for each of the three-month and six-month periods ended June 30, 2000 and 1999, and the consolidated statement of cash flows for the six-month periods ended June 30, 2000 and 1999 and consolidated statement of common shareholders’ equity for the six month period ended June 30, 2000. This financial information is the responsibility of the Corporation’s management.

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

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

We previously audited in accordance with generally accepted auditing standards, the consolidated balance sheet as of December 31, 1999, and the related consolidated statements of operations, of cash flows and of common shareholders’ equity for the year then ended (not presented herein), and in our report dated January 26, 2000, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet information as of December 31, 1999, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

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Item 2. Management’s Discussion and Analysis

         The U.S. securities laws provide a “safe harbor” for certain forward-looking statements. This quarterly report contains “forward-looking statements” that express expectations of future events or results. All statements based on future expectations rather than historical facts are forward-looking statements that involve a number of risks and uncertainties, and Phelps Dodge Corporation (the company, which may be referred to as Phelps Dodge, we, us or ours) cannot give assurance that such statements will prove to be correct. Please refer to the Management’s Discussion and Analysis sections of the company’s report on Form 10-K for the year ended December 31, 1999.

RESULTS OF OPERATIONS

         Earnings

         The company had consolidated earnings in the 2000 second quarter of $4.5 million, or 6 cents per common share, before after-tax, restructuring charges and non-recurring items of $42.3 million, or 54 cents per share, from the company’s restructuring plan announced on June 27, 2000, and other non-recurring items arising during the quarter (see Note 6 to the Consolidated Financial Information for a description of the restructuring plan and the non-recurring items). By comparison, earnings for the second quarter of 1999 were $1.2 million, or 2 cents per share, before after-tax restructuring charges of $58.7 million, or $1.01 per share. After restructuring charges and non-recurring items, the 2000 second quarter net loss was $37.8 million, or 48 cents per share, compared with a 1999 second quarter net loss of $57.5 million, or 99 cents per share.

         Earnings before restructuring charges and non-recurring items were higher in the 2000 second quarter than in the corresponding 1999 period principally as a result of higher average copper prices and increased production from the properties acquired in the October 16, 1999, Cyprus Amax Minerals Company (Cyprus Amax) acquisition. These increases were partially offset by higher copper production costs primarily due to higher electric power and diesel fuel costs and a production shortfall at El Abra.

         The New York Commodity Exchange (COMEX) spot price per pound of copper cathode, upon which we base our selling price, averaged 80 cents in the 2000 second quarter, compared with 67 cents, or 19 percent higher, than the corresponding 1999 period. From July 1 to August 8, 2000, the COMEX price averaged 85 cents per pound, closing at 86 cents per pound on August 8, 2000.

         Any material change in the price we receive for copper, or in our unit production costs, has a significant effect on our results. Our share of current annual production is approximately 2.4 billion pounds of copper. Accordingly, each 1-cent per pound change in our average annual realized copper price, or in our average annual unit production costs, causes a variation in annual operating income before taxes of approximately $24 million.

         Depending on market circumstances, we may periodically purchase or liquidate various copper price protection contracts for a portion of our expected future mine production to mitigate the risk of adverse price fluctuations. See Note 4 to the Consolidated Financial Information for a discussion of such contracts as of June 30, 2000.

         Sales

         Sales were $1,112.9 million in the 2000 second quarter, compared with $691.1 million in the corresponding 1999 period. This increase principally resulted from the higher average copper and carbon black prices, combined with higher sales volumes of copper and molybdenum.

         Business Segments

         Results for 2000 and 1999 can be meaningfully compared by separate reference to our reporting divisions, Phelps Dodge Mining Company and Phelps Dodge Industries. Phelps Dodge Mining Company is a business segment that includes our worldwide copper operations from mining through rod production, marketing and sales; molybdenum operations from mining through manufacturing, marketing and sales; other mining operations and investments; and worldwide mineral exploration and development programs. Phelps Dodge Industries includes our specialty chemicals segment and our wire and cable segment.

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RESULTS OF PHELPS DODGE MINING COMPANY

         Phelps Dodge Mining Company (PD Mining) is an international business comprising a group of companies involved in vertically integrated copper operations including mining, concentrating, electrowinning, smelting, refining, rod production, marketing and sales, and related activities. Copper is sold primarily to others as rod, cathode or concentrates, and as rod to our wire and cable segment. PD Mining, at times, smelts and refines copper and produces copper rod for others on a toll basis. PD Mining also is an integrated producer of molybdenum, with mining, roasting and processing facilities producing molybdenum concentrate as well as metallurgical and chemical products. PD Mining also produces gold, silver, molybdenum and copper chemicals as by-products, and sulfuric acid from our air quality control facilities. This business segment also includes our worldwide mineral exploration programs.

(B)	Includes pre-tax charges of $5.2 million for costs associated with the June 30, 2000, restructuring plans (see Note 6 to the Consolidated Financial Information).

(C)	Includes pre-tax charges of $34.5 million for costs associated with the June  30, 1999, restructuring plans (see Note 6 to the Consolidated Financial Information).

         PD Mining - Sales

         PD Mining sales and other operating revenues to unaffiliated customers increased by $402.6 million, or 115 percent, in the 2000 second quarter compared with the corresponding 1999 period. This variance reflected the effect of increased copper sales volumes (approximately $206 million) primarily resulting from the acquisition of Cyprus Amax, increased average selling price for copper (approximately $108 million), an increase in molybdenum sales revenue as a result of the properties acquired as part of Cyprus Amax

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         PD Mining - Operating Income

         PD Mining reported operating income of $43.3 million in the 2000 second quarter before non-recurring, pre-tax restructuring charges of $5.2 million (see Note 6 to the Consolidated Financial Information). This compares with operating income of $1.4 million in the corresponding 1999 period before non-recurring, pre-tax restructuring charges of $34.5 million (see Note 6 to the Consolidated Financial Information). This increase primarily reflected the higher average copper price for sales of PD-mined copper (approximately $49 million) and higher sales volumes of PD-mined copper (approximately $16 million). These increases were partially offset by higher copper production costs (approximately $25 million) and losses from molybdenum operations (approximately $5 million). Higher 2000 copper production costs when compared with the second quarter of 1999 primarily were due to higher diesel fuel and power costs, higher depreciation expenses and the impact of higher cost production from the properties acquired from Cyprus Amax.

         The higher costs for power and petroleum products increased our second quarter 2000 mining operating costs by approximately $11 million, relative to the first quarter of 2000.

         PD Mining - Other Matters

         On May 8, 2000, we announced the curtailment of molybdenum production at our Henderson mine in Colorado. This curtailment will reduce molybdenum production by approximately 5 million pounds annually and result in a workforce reduction of approximately 130 workers. The severance related costs associated with the curtailment resulted in a non-recurring, pre-tax restructuring charge of $4.3 million ($2.7 million or 3 cents per share after taxes).

         On June 27, 2000, we announced the curtailment of operations at our Miami mine in Arizona. The curtailment will result in a reduction in the workforce of approximately 65 positions. The severance related costs associated with the curtailment resulted in a non-recurring, pre-tax restructuring charge of $0.9 million ($0.6 million or 1 cent per share after taxes).

RESULTS OF PHELPS DODGE INDUSTRIES

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