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Phelps Dodge Corp – ‘DEF 14A’ for 5/28/04

On:  Friday, 4/9/04, at 3:31pm ET   ·   Effective:  4/9/04   ·   For:  5/28/04   ·   Accession #:  950153-4-811   ·   File #:  1-00082

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 4/09/04  Phelps Dodge Corp                 DEF 14A     5/28/04    1:367K                                   Bowne - BPX/FA

Document/Exhibit                   Description                      Pages   Size 

 1: DEF 14A     Definitive Proxy Solicitation Material              HTML    326K 

SCHEDULE 14A
(Rule 14A-101)

INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.  )

	Filed by the registrant

	Definitive proxy statement.
	o   Definitive additional materials.
	o   Soliciting material pursuant to Rule 14a-12.

Phelps Dodge Corporation

(Name of Registrant as Specified in Its Charter)

(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)

      Payment of filing fee (check the appropriate box):

	No fee required.

[PHELPS DODGE CORPORATION LOGO]

J. Steven Whisler

April 15, 2004

Dear Shareholder:

      You are cordially invited to attend our annual meeting of shareholders to be held at 9:00 a.m. (MST) on Friday, May 28, 2004, at the Heard Museum, 2301 North Central Avenue, Phoenix, Arizona. Enclosed with this proxy statement are your proxy card and the 2003 annual report, which includes the Corporation’s Annual Report on Form 10-K.

      Your vote is important. Whether you plan to attend or not, please access electronic voting via the internet or the automated telephone voting feature which are described on your enclosed proxy card, or you may sign, date and return the proxy card in the envelope provided. If you plan to attend the meeting you may vote in person.

      Registration and seating will begin at 8:30 a.m. Each shareholder will be asked to sign an admittance card and may be asked to present a valid picture identification. Shareholders holding stock in brokerage accounts will need to bring a copy of a brokerage statement reflecting stock ownership as of the April 8 record date. Cameras and recording devices will not be permitted at the meeting.

      Last year, 88% of our outstanding shares were represented in person or by proxy, and we hope to increase our shareholder participation this year.

	Sincerely,

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

To the Shareholders of Phelps Dodge Corporation:

      The annual meeting of shareholders of Phelps Dodge Corporation will be held at the Heard Museum, 2301 North Central Avenue, Phoenix, Arizona, on Friday, May 28, 2004, at 9:00 a.m., to consider and take action on the following:

      Only holders of record of the Corporation’s common shares at the close of business on April 8, 2004, will be entitled to vote at the meeting. On April 8, 2004, we had 93,456,351 common shares outstanding.

      If you participate in the Wachovia Bank Direct Advantage Investment Plan for Phelps Dodge Corporation Shareholders, all common shares held for your account under that plan will be voted in accordance with your proxy.

      Proxies are solicited by the Board of Directors. You may revoke your proxy before it is voted at the annual meeting by delivering a signed revocation letter or new proxy, dated later than your first proxy, to J. Dale Brunk, Vice President, Assistant General Counsel and Secretary.

      Shareholders who do not expect to attend the meeting in person are asked to access electronic voting via the internet or telephone voting as described on the enclosed proxy card or date, sign and complete the proxy card and return it without delay in the enclosed envelope, which requires no postage stamp if mailed in the United States. If you are attending in person and have previously mailed your proxy card, you may revoke your proxy and vote in person at the meeting.

      This proxy statement and accompanying materials are being first sent to shareholders on April 15, 2004.

Phoenix, Arizona

ELECTION OF DIRECTORS

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CORPORATE GOVERNANCE AND GENERAL INFORMATION

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Directors and Officers Liability Insurance

      The Corporation maintains directors and officers (D&O) liability insurance policies issued by National Union Fire Insurance Company of Pittsburgh, PA, Federal Insurance Company, Continental Casualty Company, Zurich American Insurance Company, XL Insurance Company and AWAC. The policies insure (i) directors, officers, division presidents and vice presidents of the Corporation and its subsidiaries against certain liabilities they may incur in the performance of their duties and (ii) the Corporation against its obligations to indemnify such persons against such liabilities. These policies are placed on an annual basis from June 1, 2003 to June 1, 2004. The Company also purchases additional D&O liability insurance coverage from Corporate Officers and Directors Assurance Company and Starr Excess Insurance Company. These policies also are placed on an annual basis from June 1, 2003 to June 1, 2004. The annual premium for the D&O liability insurance is $3,242,173. The Corporation also purchases a pension trust liability insurance policy on an annual basis for the period June 1, 2003 to June 1, 2004. This policy insures employees who are fiduciaries of employee benefit plans of the Corporation and its subsidiaries. The annual premium for the pension trust liability insurance is $175,000.

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COMPENSATION COMMITTEE INTERLOCKS

       The following directors served on the Compensation and Management Development Committee during 2003: Messrs. Burt, Dunham (Chair), Franke, Johnson, (Mrs.) Knowles and Post. None of these directors is or has been an officer or employee of the Corporation or any of its subsidiaries or has had any other relationship with the Corporation or any of its subsidiaries requiring disclosure under the applicable rules of the Securities and Exchange Commission.

SHARE OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS

       The following table lists the common share ownership as of April 1, 2004 for our directors and the five named executive officers. “Beneficial Ownership” includes shares a director or officer has the power to vote or transfer, and stock options that were exercisable on April 1, 2004 or within 60 days thereafter. On April 1, 2004, the directors and the five named executive officers of the Corporation owned, in the aggregate, 1,220,712 shares of the Corporation’s common stock (approximately 1 percent of the shares outstanding). The Corporation’s non-employee directors also have interests in stock-based units under Corporation plans. While these units may not be voted or transferred, they are listed in the table below because they represent a component of the total economic interest of our directors in the Corporation’s stock.

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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

       Based on a review of reports filed by our directors, executive officers and beneficial holders of 10% or more of our outstanding shares, and upon representations from those persons, all reports required to be filed by our reporting persons during 2003 were filed on time.

      To the knowledge of the Corporation, the following entities beneficially owned in excess of five percent of the Corporation’s common shares as of February 16, 2004:

EQUITY COMPENSATION PLAN INFORMATION

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EXECUTIVE COMPENSATION

       The following table summarizes the compensation we paid our five most highly compensated executive officers in 2003, 2002 and 2001.

Summary Compensation Table

Stock Options

      Each of the executives listed in the Summary Compensation Table was eligible to receive normal option grants during 2003. No option grants were made in 2003 to any of the executives named in the table as the scheduled annual grant was shifted to early in the 2004 calendar year when a total compensation review was made. A scheduled annual grant was considered in February 2004. On February 3, 2004, the Compensation

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Aggregated Option Exercises in 2003 and December 31, 2003 Option Values

       The following table provides information concerning options exercised in 2003 by the named executives and the options held by them at December 31, 2003:

PENSION AND OTHER RETIREMENT BENEFITS

Retirement Plans

      The following pension table shows the estimated aggregate annual benefits payable in the form of a straight life annuity commencing at age 65 under the Phelps Dodge Retirement Plan (the “Retirement Plan”) as supplemented by the Phelps Dodge Corporation Supplemental Retirement Plan (the “Supplemental Retirement Plan”) that makes up amounts otherwise limited by the Internal Revenue Code (the “Code”).

Pension Plan Table

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SEVERANCE AND CHANGE OF CONTROL ARRANGEMENTS

Severance Agreements With Our Executives

      The Corporation has severance agreements (“Severance Agreements”) with each of its five named executive officers under which the executive would receive a lump sum payment equal to his annual base salary in the event the Corporation terminates his employment, other than for cause or mandatory retirement, or the executive voluntarily terminates his employment because of material reductions in his salary or his position, duties and responsibilities. The terminated executive would also receive (i) outplacement services at a cost up to a maximum of 15% of his base salary and (ii) the cost of continued coverage for a limited period under the Corporation’s group health, life insurance and disability plans.

Change of Control Agreements With Our Executives

      The Corporation also has agreements with these executives under which each executive would receive, in the event he ceases to be employed by the Corporation within two years following a change of control of the Corporation (for a reason other than death, disability, willful misconduct, or under certain circumstances a voluntary termination of employment by the executive), a lump sum equal to (i) three times the executive’s highest base salary during that year and the prior two years plus (ii) three times the executive’s target bonus under the Annual Incentive Compensation Plan in the year in which the change of control occurs, less (iii) any severance amounts payable under his Severance Agreement. These executives also have a 30-day window period beginning immediately after the first anniversary date of the change of control to voluntarily terminate their employment and still receive their change of control benefits. If the payments trigger an excise tax under the Internal Revenue Code, the Corporation will provide the executive with a tax gross-up payment

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Other Change of Control Provisions

      Although normal compensatory options granted by the Corporation become exercisable in three or four substantially equal annual installments beginning on the first anniversary of the date of grant, they also become exercisable in certain change of control situations. Specifically, such options are exercisable (but not earlier than six months from the date of grant) for a period of 30 days beginning on the date the Corporation’s common shares are purchased pursuant to a third party tender offer or the Corporation’s shareholders approve a merger or similar transaction in which the Corporation will not survive as a publicly held corporation or, in the case of the five named executive officers and certain other employees, the date the employee ceases to be employed if he/she ceases to be employed within two years following a change of control.

      The Phelps Dodge Corporation Supplemental Retirement Plan provides for the payment of unreduced benefits to employees who meet liberalized age and length of service requirements and whose employment is terminated by the Corporation or any of its subsidiaries within two years following a change of control of the Corporation. The Phelps Dodge Corporation Supplemental Retirement Plan also provides an additional 36 months of service credit to an executive who, due to his termination of employment within two years following a change of control of the Corporation, becomes entitled to receive payments under his change of control agreement with the Corporation. The Phelps Dodge Corporation Supplemental Savings Plan obligates the Corporation to transfer an amount equal to the deficiency in the assets of the Plan’s trust fund, if any, prior to the day on which a change of control occurs.

COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE

The Committee

      The Committee is composed solely of independent directors (currently six) who are not employees of the Corporation. It has periodically retained independent compensation consultants to advise it in connection with various compensation matters. In December 2003, the Committee retained Pearl Meyer & Partners, Inc., an independent executive compensation consulting firm, to advise the Committee and work with management regarding executive compensation.

Corporate Goals and Compensation Philosophy

      The Corporation’s goal is to be the leader in the domestic and international mining and manufacturing activities in which it competes while maximizing longer-term shareholder value.

      The Committee designs its executive compensation program to ensure the Corporation’s ability to attract, retain and motivate the best qualified and highest performing employees. The Committee believes it can align total compensation with shareholder interests and motivate senior managers participating in these programs by:

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      The Corporation’s compensation philosophy emphasizes variable compensation in both short-term and long-term incentives. The Corporation targets base salaries at or slightly below the median of the comparison group (as described below). Annual total cash (base salary plus annual incentive) is targeted near the 60th percentile of the comparison group. Total remuneration (total cash plus long-term incentives, including stock options and restricted stock) is targeted between the 50th and 75th percentiles of the comparison group. The Committee believes that superior performance should result in superior pay.

Elements of Executive Compensation

      The executive officers are compensated by salaries, annual incentive awards and long-term incentive compensation in the form of stock options and restricted stock grants, with each element focusing on performance. Salaries focus on level of responsibility and individual performance. Annual incentives relate to corporate and, where appropriate, division, unit and individual performance. Long-term incentive awards, delivered in the form of stock options and restricted stock, create a long-term identity of interest with shareholders based on the Corporation’s performance and related growth of shareholder value.

      The Committee believes that the Corporation competes for its executive talent primarily with similarly-sized industrial companies based in the United States. Accordingly, the Committee compares the compensation for the Corporation’s top five executives, at least annually, to the compensation paid to executives holding similar positions at 13 publicly held industrial corporations of a median size, measured by revenues and market capitalization, similar to that of the Corporation (referred to as the “comparison group”). For other executives, comparisons to similar positions are based on a much larger group of companies of similar size to the Corporation, measured by revenues. The Committee believes that the competitive data used is generally representative of the competitive level of compensation paid to executive officers in companies the size of the Corporation. Thus, the companies used for comparison purposes in connection with the compensation paid to the Corporation’s executive officers is a larger group than the companies included in the peer group used in the performance graphs on pages 21 and 22 to compare shareholder returns.

      Beginning in 2004, the Committee intends to determine salary increases, incentive compensation awards, and long-term equity grants at the same time, permitting a comprehensive total compensation review in light of the prior year’s performance both by the Corporation and by the executive. In order to accomplish this, the annual equity grant was shifted from December 2003 until February 2004 and salary increases were moved to March 1, 2004.

Executive Salaries

      Individual salaries for executive officers are established by the Committee based upon the officer’s performance, existing general economic and industry conditions and the Corporation’s performance during the prior year. Generally, salary adjustments are targeted to advance salaries to competitive levels over time for sustained and excellent performance. The executives who participate in the Annual Incentive Compensation Plan (“AICP”) did not receive salary increases in 2002, but did receive increases in 2003. The Committee believes current salaries for the executive officers are generally below the median competitive levels when compared to employees in similar positions in the comparison group. The Committee determined that the individual executives named in the Summary Compensation Table have sustained excellent individual performance, and given the significant progress made on the Quest for Zero initiative, despite challenging economic conditions, salaries for the named executives have been increased in 2004.

Annual Incentives

      The AICP provides executive officers and certain other officers and managers with compensation based on success in achieving annual corporate, division and, where appropriate, unit goals. Corporate goals are set

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      For the 2004 AICP plan year, implied unit cost of copper production will be the metric for measuring Quest for Zero improvements. Implied unit cost was the Quest for Zero performance metric for the mining company in both 2002 and 2003. This number is publicly reported and is the ultimate measure of success in driving costs out of the operations. Additional measures for the 2004 plan year, retained from prior years, include net operating cash flow return on invested capital and return on equity.

Long-Term Incentive Compensation

      The Committee has historically used stock options and restricted stock as the principal methods of providing long-term incentive compensation. In 2002, a combination of stock options and restricted shares was awarded, intended to deliver the same approximate economic value as each of the 2000 and 2001 stock option grants. To accommodate the annual total compensation review by the Committee which will occur early in the calendar year, the normal 2003 grant cycle was shifted to early 2004. In 2003, only specific, targeted awards were made for retention, promotional or new hire purposes.

Grants of Restricted Stock

      A total of 14 grants of restricted stock were awarded in 2003, including four to named executive officers. The majority of the awards, including those to the named officers, have a five-year cliff vesting schedule designed to enhance retention.

Stock Ownership Guidelines

      To emphasize the connection between the interests of management and shareholders, the Corporation established stock ownership guidelines for officers and management of the Corporation. The guidelines are expressed as a multiple of salary and are then divided by the average 10-year stock price. The ownership targets range from two times salary at the lower end of the organization up to five times salary for the CEO.

Tax Code Issues

      Section 162(m) of the Internal Revenue Code generally places a $1 million per person limit on the deduction a publicly held corporation may take for compensation paid to its chief executive officer and its four other highest compensated “covered employees,” excluding for this purpose deferred compensation and, in general, compensation constituting “performance-based” compensation. In 1998 and 2003, the Corporation obtained shareholder approval for the 1998 and 2003 Stock Option and Restricted Stock Plans, respectively, which continue to exclude the compensation from stock options from the $1 million deductibility limit. Other elements of the compensation payable to executive officers, such as salary, annual incentive compensation and

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CEO Compensation

      The Committee determines the chief executive officer’s compensation using the same philosophy and policies as for all executive officers.

      Mr. Whisler earned $850,000 in base salary in 2003. His salary increase was designed to bring his compensation closer to the median of the comparison group and to reflect his personal performance. As reported publicly, the Corporation achieved at year-end 2003 an annualized operating income-improvement run-rate of $365 million, and its implied unit cost of production remained essentially the same as in 2002 — all directly attributable to the Quest for Zero initiative. Without the savings attributable to Quest for Zero in 2003, implied unit cost of production would have risen by more than 6 percent compared to 2002. Mr. Whisler’s commitment to the design, implementation, and execution of the Quest for Zero enterprise performance system was critical to its success. The Committee awarded Mr. Whisler an incentive payment of $1 million for 2003 performance in recognition of the significant progress on Quest for Zero and its importance to the Corporation’s short- and long-term future, as well as the overall improvement in the Corporation’s performance. The combination of base salary and bonus places Mr. Whisler’s total cash compensation for 2003 between the median and the 75th percentile of the peer group of companies used for compensation purposes. In 2003, Mr. Whisler received an award of 40,000 shares of restricted stock which will vest on the fifth anniversary of the grant. The primary basis for the Committee’s restricted stock grant was to provide a significant incentive for him to enhance long-term shareholder value. The specific basis for the Committee’s determination regarding Mr. Whisler’s compensation in 2003 included his role in improving the Corporation’s financial results in the short- and long-term, and restoring the Corporation to profitability.

Conclusion

      The Committee will continue to evaluate the Corporation’s compensation programs to best enable the Corporation to employ and motivate its employees. Such employees, properly motivated, are believed to be key to achieving the Corporation’s goal to be the international leader in the mining and manufacturing arenas in which it competes and the related enhancement of shareholder value over the long term.

      The members of the Compensation and Management Development Committee express their appreciation for the leadership of their recently retired colleague, Southwood Morcott, who served on the Committee through September 2003.

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AUDIT COMMITTEE REPORT

       The Committee has reviewed and discussed with management of the Corporation and PricewaterhouseCoopers LLP, independent accountants for the Corporation, the audited financial statements of the Corporation for the fiscal year ended December 31, 2003 (the “Audited Financial Statements”).

      The Committee has discussed with PricewaterhouseCoopers LLP the matters required to be discussed by Statement on Auditing Standards No. 61 (as amended by SAS 89 and SAS 90), as in effect on the date of this proxy statement.

      The Committee has: (i) considered whether non-audit services provided by PricewaterhouseCoopers LLP are compatible with its independence; (ii) received the written disclosures and the letter from PricewaterhouseCoopers LLP required by the Independence Standards Board Standard No. 1, as in effect on the date of this proxy statement; and (iii) discussed with PricewaterhouseCoopers LLP its independence.

      Based on the reviews and discussions described above, the Committee recommended to the Board of Directors of the Corporation that the audited financial statements be included in the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003 for filing with the Securities and Exchange Commission.

      The Board of Directors has adopted a Charter of the Audit Committee, a copy of which is published as Appendix B of this proxy statement. The Committee’s policy regarding the pre-approval of audit and non-audit fees incurred by the Corporation is contained in the Audit Committee Charter. All audit and non-audit fees incurred in 2003 were pre-approved by the Committee.

PRINCIPAL ACCOUNTING FIRM FEES

      The Corporation’s fees for services performed by its principal accounting firm, PricewaterhouseCoopers LLP, during fiscal years 2003 and 2002 were:

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CODE OF ETHICS OF PHELPS DODGE CORPORATION

      The Corporation annually certifies that all non-bargained domestic and international employees have read and are in compliance with its Code of Business Ethics & Policies as a condition of continued employment with the Corporation. The code of ethics is published in nine foreign languages and is posted on the Corporation’s website in English and Spanish at www.phelpsdodge.com. All executive officers and financial officers attest annually to the ethical business practices and the financial reporting and financial management policies contained in the code of ethics and thereby satisfy the NYSE rule which requires a financial code of ethics for the principal executive officer, chief financial officer and principal accounting officer or controller. The Board of Directors has also adopted a code of ethics which can be found on the Corporation’s website.

      In addition, the Corporation maintains a hotline service, 24 hours per day, 365 days per year, for the receipt of complaints and questions. Global Compliance Services, an external compliance services company, provides this hotline service for employees and third parties to submit complaints and questions. Callers may remain anonymous if they so desire.

      The Phelps Dodge Ethics and Compliance Hotline number is (800) 295-6783 (toll-free); it is also published on the Corporation’s website. The compliance services provider simultaneously issues reports of complaints directly to the Chairperson of the Audit Committee and to the Director, Corporate Audit and the Vice President, Assistant General Counsel and Secretary of the Corporation.

      Complaints are investigated and remedial action is taken as appropriate and to the satisfaction of the Audit Committee. Questions are referred to the appropriate management group for response. The Director, Corporate Audit follows up to ensure all complaints are properly addressed.

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COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*

      The Corporation’s peer group comprises selected peers within its industry. The peer group’s returns are weighted according to each member company’s market capitalization and include Inco Ltd., Falconbridge Ltd., Phelps Dodge Corporation, Noranda Inc., Freeport-McMoRan Copper & Gold Inc. and Teck Cominco Ltd.

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COMPARISON OF TEN YEAR CUMULATIVE TOTAL RETURN*

      The Corporation’s peer group comprises selected peers within its industry. The peer group’s returns are weighted according to each member company’s market capitalization and include Inco Ltd., Falconbridge Ltd., Phelps Dodge Corporation, Noranda Inc., Freeport-McMoRan Copper & Gold Inc. and Teck Cominco Ltd.

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CONSIDER SHAREHOLDER PROPOSAL

       Raymond B. Ruddy, 26 Rolling Lane, Dover, MA 02030, who is the record holder of 134 common shares of the Corporation has given notice that he intends to present the following proposal for action at the annual meeting of shareholders:

      “Resolved, the shareholders recommend to the board of directors of Phelps Dodge to cease making charitable contributions.”

“Supporting Statement”

      “Thomas Jefferson once wrote, “To compel a man to furnish contributions of money for propagation of opinions which he believes is sinful and tyrannical.” Choice is a popular word in our culture. Noble Prize winning economist and long time critic of corporate charitable contributions, Milton Friedman, writes about the importance of choice in his book, Free to Choose. By making charitable contributions at the corporate level we have usurped the right and duty of individuals to support the charities of their choice. We may also be forcing thousands of people to support causes they may disagree with on a most profound level. For example, abortion rights advocates often use the word choice, without mentioning what choice is all about, i.e., abortion. Today there are a number of prominent charities advocating for abortion and, in at least one case, Planned Parenthood, actually performing abortions. Other charities, often times involved in research for cures of disease, may advocate the destruction of human embryos for research purposes. These may be more controversial examples, but they illustrate the point today, many charities are involved in activities that are divisive and not universally supported. Phelps Dodge Corporation employees and shareholders represent a broad range of interests. It is impossible to be sensitive to the moral, religious and cultural sensitivities to so many people. Rather than compel our stakeholders to support potentially controversial charitable groups we should refrain from giving their money away to them. Let each person choose. The importance of individual choice and the importance of each individual cannot be underestimated.”

VOTING ON SHAREHOLDER PROPOSAL

       The affirmative vote of the holders of a majority of the shares voted in person or by proxy at the annual meeting is required for the approval of this proposal.

      The Board of Directors recommends a vote AGAINST the Shareholder Proposal.

      The Board of Directors recommends that shareholders vote AGAINST this proposal for the following reasons:

      Phelps Dodge Corporation (“Phelps Dodge” or the “Company”) is proud of its commitment to community and its charitable giving history. This commitment is part of a long history of giving and involvement that began in 1832. Over the years, our efforts have evolved to meet community needs, while also supporting our values and enhancing many of our business objectives. Phelps Dodge’s long-term record of charitable giving is vital to the Company’s reputation as a socially responsible company among investors, clients, employees, governments and communities.

      Phelps Dodge strives to act as a catalyst for positive change in communities where we have a presence by awarding grants, building partnerships, encouraging employee volunteerism, and standing behind critical issues that affect quality of life. Through a carefully selected set of program focus areas, we are pioneering the creation of value for our communities, our employees and our businesses. These program focus areas include education, community safety, environment, arts and culture, and community/civic development.

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      Each year the Phelps Dodge Foundation, Phelps Dodge Corporation and local operating facilities donate resources to charitable organizations in more than 30 communities across the globe. The following are just a few of the many efforts we have funded in recent years:

      In addition, communities and their citizens have come to expect that corporations contribute to a sustainable quality of life beyond jobs and taxes, which include the provision of charitable contributions that help solve social issues. The Phelps Dodge charitable contributions program is critical in creating the hospitable community environment essential to our operational success, which is obviously critical to shareholder value.

      The Board is confident that rather than damaging the Company’s reputation with any of its constituencies, our corporate giving programs strengthen the Company’s image as a good citizen and a good neighbor. Company contributions improve the communities where our employees live, create recognition for our Company and its products, and help us attract the best people. Refraining from making these contributions would erode, not enhance, the value of the Company to shareholders.

      Accordingly, the Board recommends a vote AGAINST this proposal.

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OTHER BUSINESS

       The Board of Directors is not aware of any other matters to be presented at the annual meeting. If any other matter proper for action at the meeting should be presented, the holders of the accompanying proxy will vote the shares represented by the proxy on such matter in accordance with their best judgment. If any matter not proper for action at the meeting should be presented, the holders of the proxy will vote against consideration of the matter or the proposed action.

AUDITORS FOR 2004

       The Audit Committee has selected PricewaterhouseCoopers LLP, as independent accountants for the Corporation in 2004. The auditors will attend the annual meeting and will be available to answer questions.

VOTING PROCEDURES

       All shares represented by the accompanying proxy, if the proxy is duly executed and received by the Corporation at or prior to the annual meeting, will be voted at the meeting in accordance with any instructions specified on such proxy. Where no instruction is specified, the shares may be voted according to the printed instructions on the proxy.

      It is the policy of the Corporation that, except under limited circumstances, each shareholder proxy card, ballot and voting tabulation that identifies any shareholder will be kept confidential and that the receipt and tabulation of such votes will be conducted by independent third parties, including the Corporation’s transfer agent and its proxy solicitation firm, and not by employees of the Corporation.

      The cost of soliciting proxies for the meeting will be borne by the Corporation. The Corporation has retained The Proxy Advisory Group of Strategic Stock Surveillance, LLC, 331 Madison Avenue, New York, NY 10017, to assist in soliciting proxies for a fee estimated at $8,500 plus reasonable expenses. Strategic Stock Surveillance and some officers and other employees of the Corporation may solicit proxies in person and by telephone or otherwise. The Corporation may also reimburse brokers and others who are record holders of the Corporation’s shares for their reasonable expenses incurred in obtaining voting instructions from beneficial owners of such shares.

PROPOSALS FOR 2005

       The Corporation will review for inclusion in next year’s proxy statement shareholder proposals received by December 8, 2004. Proposals should be sent to the Vice President, Assistant General Counsel and Secretary at One North Central Avenue, Phoenix, Arizona 85004.

      Shareholder proposals not included in next year’s proxy statement may be brought before the May 27, 2005 annual meeting of shareholders by a shareholder of the Corporation who is entitled to vote at the meeting, who has given a written notice to the Vice President, Assistant General Counsel and Secretary of the Corporation containing certain information specified in the By-Laws and who was a shareholder of record at the time such notice was given. Such notice must be delivered to or mailed and received at the One North Central Avenue address in the preceding paragraph no earlier than December 31, 2004 and no later than January 30, 2005, except that if the date of the 2005 annual meeting of shareholders is changed, and the meeting is held before March 31, 2005 or after June 29, 2005, such notice must be delivered or mailed and received at the One North Central Avenue address in the preceding paragraph no earlier than the close of business on the 120th day prior to the new date of such annual meeting and no later than the close of business on the later of (i) the 90th day prior to the new date of such meeting and (ii) the 10th day following the day on which a public announcement of the new date of such annual meeting is first made.

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      If a shareholder notifies the Corporation after January 30, 2005 of an intention to present a proposal at the Corporation’s May 27, 2005 annual meeting or, if the date of the 2005 annual meeting is changed and the meeting is held before March 31, 2005 or after June 29, 2005, if a shareholder notifies the Corporation of an intention to present a proposal at such meeting after the close of business on the later of (i) the 90th day prior to the new date of such meeting and (ii) the 10th day following the day on which a public announcement of the new date of such annual meeting is first made, and for any reason any such proposal is voted on at such meeting, the Corporation’s proxy holders will have the right to exercise discretionary voting authority with respect to such proposal.

ANNUAL REPORT FOR 2003

       The annual report of the Corporation for the year 2003, which includes the Corporation’s Annual Report on Form 10-K, is being furnished concurrently with this proxy statement to persons who were shareholders of record as of April 8, 2004, the record date for the annual meeting. These materials do not form part of the material for the solicitation of proxies.

Phoenix, Arizona

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APPENDIX A

CORPORATE GOVERNANCE GUIDELINES OF

Offices of Chairman and CEO

      The By-Laws currently provide that the Chairman is the CEO. In the past, the By-Laws have been amended by the Board to accommodate the governance structure deemed appropriate at the time.

Director to Preside at Executive Sessions

      The Board has adopted a policy providing that regularly scheduled executive sessions of the independent Directors shall be presided at by the Chair of the Committee on Directors and Corporate Governance, who is an independent Director. The Chair of the Committee on Directors and Corporate Governance may, if he or she so desires, delegate such responsibility to another independent Director, including the Chair of the Committee having jurisdiction over the bulk of the issues to be discussed at an executive session.

Number of Committees

      There are currently five Board committees other than the Executive Committee: Audit; Directors and Corporate Governance; Compensation and Management Development; Environmental, Health and Safety; and Finance. The Board may form new committees or disband existing committees as appropriate.

Assignment and Rotation of Committee Members

      Committee assignments are made by the Board based upon recommendations of the Committee on Directors and Corporate Governance. The committee generally will consider rotating a committee chairperson or member periodically as the Committee on Directors and Corporate Governance deems appropriate.

Frequency and Length of Committee Meetings

      Each committee chairperson determines the frequency and length of committee meetings in consultation with other committee members.

Committee Agenda

      The chairperson of each committee determines the committee’s agenda prior to the meeting, giving consideration to management recommendations.

Selection of Agenda Items for Board Meeting

      The CEO establishes the agenda for each Board meeting. Individual Board members may suggest agenda items.

Board Materials Distributed in Advance

      Materials pertaining to Board and committee meetings are distributed in advance of those meetings. A Director is expected to review all distributed materials prior to any Board or committee meeting that such Director attends.

Attendance of Directors at Board Meetings

      Directors are expected to regularly attend meetings of the Board or its committees of which they are members.

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Regular Attendance of Non-Directors at Board Meetings

      Non-director executive officers regularly attend Board meetings. At least once a year, the independent Directors meet with the CEO without the other executive officers being present.

Executive Sessions of Independent Directors

      The independent Directors will meet at regularly scheduled executive sessions without management.

Board Access to Management

      Directors have complete access to management; however, independent Directors are expected to keep the CEO informed of such contacts. The Board encourages the attendance of officers other than executive officers at Board meetings when matters within their areas of responsibility are discussed.

Board Access to Independent Advisors

      Directors have complete access, as necessary and appropriate, to the Corporation’s outside advisors.

Board Compensation Review

      Management provides the Committee on Directors and Corporate Governance annually with comparative information concerning director compensation. Changes in Board compensation are made by the full Board, based upon recommendations by the Committee on Directors and Corporate Governance.

Size of the Board

      The By-Laws provide that the Board shall be comprised of between 9 and 12 Directors.

Mix of Inside and Independent Directors

      A majority of the Board must consist of “independent” Directors.

Definition of Independent

      A Director is independent if the Board has made an affirmative determination that such Director has no material relationship with the Corporation (either directly or as a partner, shareholder or officer of an organization that has a relationship with the Corporation). In addition:

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Former Officer’s Board Membership

      Any Director serving as an officer of the Corporation or any subsidiary shall resign from the Board at the time such person ceases to be an officer.

Board Membership Criteria

      [Please see page A-4 of Appendix A]

Selection of New Director Candidates

      The Board selects new Directors based on candidates recommended by the Committee on Directors and Corporate Governance.

Extending the Invitation to a New Potential Director to Join the Board

      The Chair of the Committee on Directors and Corporate Governance extends invitations to new potential Directors on behalf of the Board.

Assessing the Board’s Performance

      The Board conducts an annual self-evaluation in order to determine whether it and its committees are functioning effectively. The Committee on Directors and Corporate Governance oversees the Board’s annual self-evaluation.

Directors Who Change Their Present Job Responsibility

      A Director who experiences a significant change in job responsibilities or assignment is required to submit a resignation to the Board. The remaining Directors, upon recommendation of the Committee on Directors, then determine the appropriateness of continued Board membership.

Term Limits

      There are no established term limits for service on the Board.

Mandatory Retirement Age

      Board policy requires that a Director retire at the shareholders’ meeting first following attainment of age 72.

Formal Evaluation of the Chief Executive Officer

      The performance of the CEO is reviewed annually by the Compensation and Management Development Committee based in part on preset goals. The results of this review are reported to and discussed with the Board and separately reported to the CEO by the chairperson of the committee.

Succession Planning

      Every year the CEO formally reports to the Board on succession planning. The report includes a broad review of management as well as a recommendation regarding a successor to the CEO.

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Management Development

      The CEO reports periodically to the Board on the training and development program for management and reviews with the Board the executives who have change of control agreements with the Corporation.

Director Orientation and Continuing Education

      The Board has instituted an orientation and continuing education program for Directors.

Board Interaction with Institutional Investors, the Press, Customers, etc.

      The CEO and, as appropriate, designated members of senior management speak for the Corporation.

NYSE Ruling

      Interested parties who wish to make their concerns known by communicating directly with the non-management directors as a group, confidentially or otherwise, may do so in writing addressed to the attention of the Corporation’s General Counsel.

MEMBERSHIP CRITERIA FOR NON-EMPLOYEE

       It is the Corporation’s desire to select individuals for nomination to the Board of Directors, who, if elected, will best serve the interests of the company and its shareholders. To accomplish this goal, each candidate nominee should: