PartPART I.  FINANCIAL INFORMATION

Item 1.    Financial Statements

MICRON TECHNOLOGY, INC.

Consolidated Statements of Operations

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in millions except per share amounts)

(Unaudited)

See accompanying notes to consolidated financial statements.

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MICRON TECHNOLOGY, INC.

Consolidated Balance Sheets

CONSOLIDATED BALANCE SHEETS

(Amounts in millions except par value amounts)

(Unaudited)

See accompanying notes to consolidated financial statements.

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MICRON TECHNOLOGY, INC.

Consolidated Statements of Cash Flows

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in millions)

(Unaudited)

See accompanying notes to consolidated financial statements.

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MICRON TECHNOLOGY, INC.

Notes to Consolidated Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All tabular amounts in millions except per share amounts)

(Unaudited)

Unaudited Interim Financial StatementsSignificant Accounting Policies

Basis of presentation:  Micron Technology, Inc., and its subsidiaries (hereinafter referred to collectively as the “Company”) principally design, develop, manufacture and market DRAMs, Flash memory, CMOS image sensors and other semiconductor products.components.  The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles and include the accounts of the Company and its consolidated subsidiaries.  All significant intercompany accountstransactions and transactionsbalances have been eliminated.  The Company’s fiscal year is the 52 or 53-week period ending on the Thursday closest to August 31.  The Company’s fiscal 2004 contains 53 weeks and its first quarter of fiscal 2004 contained 14 weeks.  The Company’s second quarter of fiscal 20032004 and 20022003 ended on March 4, 2004, and February 27, 2003, and February 28, 2002, respectively.  The Company’s fiscal 20022003 ended on August 29, 2002.28, 2003.  All period references are to the Company’s fiscal periods unless otherwise indicated.  In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the consolidated financial position of the Company and its consolidated results of operations and cash flows.

These interim financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended August 29, 2002.28, 2003.

Reclassifications: Certain reclassifications have been made, none of which affected results of operations, to present the financial statements on a consistent basis.

Recently issued accounting standards:  In JanuaryDecember 2003, the Financial Accounting Standards Board (“FASB”) issued a revised Interpretation No. 46, “Consolidation of Variable Interest Entities – an interpretation of ARB No. 51,” which provides guidance on the identification of and reporting for variable interest entities.  Interpretation No. 46 expands the criteria for consideration in determining whether a variable interest entity should be consolidated.  Interpretation No. 46 is effective immediately for variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date.  The Company is required to adopt the interpretation in the first quarter of 2004 for variable interest entities acquired before February 1, 2003.  The Company is currently assessing the impact of Interpretation No. 46 on its results of operations and financial position.

In December 2002, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure – an amendment of FASB Statement No. 123.”  SFAS No. 148 amends SFAS No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation.  In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results.  SFAS No. 148 is effective for the Company in the third quarter of 2003.2004.  The Company does not expect to effect a voluntary change in accounting to the fair value based method, and, accordingly, does not expect the adoption of SFASInterpretation No. 14846 to have a significant impact on the Company’sits future results of operations or financial position.condition.

Segment information:  The Company has determined, based on the nature of its operations and products offered to customers, that its only reportable segment is Semiconductor Operations.  The Semiconductor Operations segment’s primary product is DRAM.

Product warrantyStock-based compensation::  Employee stock plans are accounted for using the intrinsic value method prescribed by APB No. 25, “Accounting for Stock Issued to Employees.”  The Company generally providesutilizes the Black-Scholes option valuation model to value stock options for pro forma presentation of income and per share data as if the fair value based method in Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation,” had been used to account for stock-based compensation.  The following presents pro forma loss and per share data as if a limited warranty that its products are in compliance with Company specifications existing at the time of delivery.  Under the Company’s general terms and conditions of sale, liabilityfair value based method had been used to account for certain failures of product during a stated warranty period is usually limited to repair or replacement of defective items or return of, or a credit with respect to, amounts paid for such items.  Under certain circumstances the Company may provide more extensive limited warranty coverage and general legal principles may, under certain circumstances, impose upon the Company more extensive liability than that provided under the Company’s general terms and conditions.  The Company’s warranty obligations are not material.stock-based compensation:

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Stock-based compensation expense in the above presentation does not reflect a benefit for income taxes, which is consistent with the Company’s treatment of income or loss from its U.S. operations.

Supplemental Balance Sheet Information

In the second and first quarters of 2003, the Company recognized write-downs of $197.4 million and $90.8 million, respectively, to record work in process and finished goods inventories of semiconductor products at their estimated market values.

Depreciation expense was $297.3 million and $584.4 million for the second quarter and first six months of 2003, respectively, and $278.5 million and $563.3 million in the second quarter and first six months of 2002, respectively.

As part of a restructure plan announced in the second quarter of 2003, the Company recorded an impairment charge of $53.9 million to write down the carrying value of certain assets consisting primarily of assets used in the Company’s 200 mm production line in Virginia.  Prior to the charge, these assets had a carrying value of $77.3 million.  These assets are classified as held for sale and are included in other assets in the accompanying consolidated balance sheet.  (See “Restructure and Other Charges” note.)

The Company’s Lehi, Utah facility, the construction of which was initiated in 1995, is at present only partially utilized by the Company for component test operations.  Timing for completion of the Lehi facility is dependent upon market conditions, including, but not limited to, worldwide market supply of, and demand for, semiconductor products and the Company’s operations, cash flows and alternative capacity utilization opportunities.  As of February 27, 2003, construction in progress included costs of $197.1 million related to certain assets in Lehi, which were not ready for their intended use and were not being depreciated.  As of February 27, 2003, the Company had assets in Lehi with a net book value of approximately $179.9 million, which were not in use but were being depreciated.

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As of February 27, 2003, notes payable and capital lease obligations of $187.2 million and $18.6 million, respectively, were denominated in Japanese Yen and had weighted average interest rates of 1.5% and 1.8%, respectively.

In February 2003, the Company issued $632.5 million of 2.5% Convertible Subordinated Notes due February 1, 2010 (the “Notes”).  The issuance costs associated with the Notes totaled approximately $16.5 million and the net proceeds to the Company from the offering of the Notes were $616.0 million.  Holders of the Notes may convert all or some of their Notes at any time prior to maturity, unless previously redeemed or repurchased, into the Company’s common stock at a conversion rate of 84.8320 shares for each $1,000 principal amount of Notes.  This conversion rate is equivalent to a conversion price of approximately $11.79 per share.  The Company may redeem the notes at any time after February 6, 2006 at declining premiums to par.

Concurrent with the issuance of the Notes, the Company purchased call spread options (the “Call Spread Options”) covering 53.7 million shares of the Company’s common stock, which is the number of shares issuable upon conversion of the Notes in full.  The Call Spread Options, have a lower strike price of $11.79, a higher strike price of $18.19, may be settled at the Company’s option either in cash or net shares and expire on January 29, 2008.  The maximum benefit to the Company from the Call Spread Options is a cash amount of $343.4 million or 18.9 million shares.  The Call Spread Options therefore have the potential of limiting the dilution associated with the conversion of the Notes from 53.7 million shares to as few as 34.8 million shares, depending upon market conditions. The Call Spread Option transactions, including fees and costs of $109.1 million, are accounted for as capital transactions.

The Call Spread Options are designed to mitigate dilution from conversion of the Notes in the event that the market price per share of the Company’s common stock upon exercise of the Call Spread Options is greater than $11.79.  Settlement of the Call Spread Options in cash on January 29, 2008, the expiration date, would result in the

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Company receiving an amount ranging from zero if the market price per share of the Company’s common stock is at or below $11.79 to a maximum of $343.4 million if the market price per share of the Company’s common stock were at or above $18.19.  Settlement of the Call Spread Options in net shares on the expiration date would result in the Company receiving a number of shares, not to exceed 18.9 million shares, of the Company’s common stock with a value equal to the amount otherwise receivable on cash settlement.  Should there be an early unwind of the Call Spread Options the amount of cash or net shares potentially received by the Company will be dependent upon then existing overall market conditions, and on the Company’s stock price, the volatility of the Company’s stock and the amount of time remaining on the Call Spread Options.

Intangible Assets	February 27, 2003   August 29, 2002       Gross Carrying Amount   Accumulated Amortization   Gross Carrying Amount   Accumulated Amortization                       Product and process technology   $ 317.0   $ (104.6 ) $ 320.5   $ (91.5 ) Joint venture supply arrangement   98.0   (25.4 ) 98.0   (20.6 ) Other   14.7   (6.6 ) 15.0   (4.4 )     $ 429.7   $ (136.6 ) $ 433.5   $ (116.5 )	March 4, 2004						During the first six months ofAugust 28, 2003 the Company expended $17.8 million for product
		Gross Amount			Accumulated Amortization			Gross Amount			Accumulated Amortization
Product and process technology and $2.5 million for other intangible assets with weighted average useful lives of nine and three years, respectively.  During the first six months of 2002, the Company expended $31.5 million for product and process technology and $3.8 million for other intangible assets with weighted average useful lives of nine and two years, respectively.  As part of a restructure plan announced in the second quarter of 2003, the Company wrote off $16.1 million of product and process technology and $2.5 million of other intangible assets associated with discontinued products.  (See “Restructure and Other Charges” note.)		Amortization expense for intangible assets was $13.0 million and $25.6 million for the second quarter and first six months of 2003, respectively, and $11.5 million and $22.5 million for the second quarter and first six months of 2002, respectively.  Annual amortization expense for intangible assets held as of February 27, 2003, is estimated to be $49.7 million for 2003, $45.2 million in 2004, $42.0 million in 2005, $40.7 million in 2006, and $40.6 million in 2007.$	341.7		Contingencies$	(136.0	)	$	328.1		As is typical in the semiconductor and other high technology industries, from time to time, others have asserted, and may in the future assert, that the Company’s products or its processes infringe their product or process technology rights.  The Company is currently engaged in litigation with Rambus, Inc. (“Rambus”$	(118.2	) relating to certain patents of Rambus and certain of the Company’s claims and defenses.  Lawsuits between Rambus and the Company are pending in the United States, Germany, France, the United Kingdom and Italy.  The Company is unable to predict the outcome of the Rambus suits or of other assertions of infringements made against the Company.  A court determination that the Company’s manufacturing processes or products infringe the product or process rights of others could result in significant liability and/or require the Company to make material changes to its products and/or manufacturing processes.  Any of the foregoing results could have a material adverse effect on the Company’s business, results of operations or financial condition.
Joint venture supply arrangement		On June 17, 2002, the Company received a grand jury subpoena from the U.S. District Court for the Northern District of California seeking information regarding an investigation by the Antitrust Division of the Department of Justice (the “DOJ”) into possible antitrust violations in the “Dynamic Random Access Memory” or “DRAM” industry.  The Company is cooperating fully and actively with the DOJ in its investigation.  Subsequent to the commencement of the DOJ investigation, 24 purported class action lawsuits were filed against the Company and other DRAM suppliers in various federal and state courts alleging violations of the Federal Sherman Antitrust Act or105.0			7(37.2		)	105.0			California’s Cartwright Antitrust Act and Unfair Competition Law relating to the sale and pricing of DRAM products.  The complaints seek treble damages for the alleged damages sustained by purported class members, in addition to restitution, costs and attorneys’ fees, as well as an injunction against the allegedly unlawful conduct.  The Company is unable to predict the outcome of these suits.  Based upon the Company’s analysis of the claims made and the nature of the DRAM industry, the Company believes that class treatment of these cases is not appropriate and that any purported injury alleged by plaintiffs would be more appropriately resolved on a customer-by-customer basis.  There can be no assurance that the final resolution of these alleged violations of federal or state antitrust laws will not result in significant liability and will not have a material adverse effect on the Company’s results of operations and financial condition.(31.2		)
Other		The Company has accrued a liability and charged operations for the estimated costs of adjudication or settlement of asserted and unasserted claims existing as of the balance sheet date.  The Company is currently a party to various other legal actions arising out of the normal course of business, none of which is expected to have a material adverse effect on the Company’s financial position or results of operations.10.9			The Company is a party to a variety of agreements pursuant to which it may be obligated to indemnify the other party with respect to certain matters.  Typically, these obligations arise in the context of contracts entered into by the Company, under which the Company may agree to hold the other party harmless against losses arising from a breach of representations or under which the Company may have an indemnity obligation to the counterparty with respect to certain intellectual property matters or certain tax related matters.  Customarily, payment by the Company with respect to such matters is conditioned on the other party making a claim pursuant to the procedures specified in the particular contract, which procedures typically allow the Company to challenge the other party’s claims.  Further, the Company’s obligations under these agreements may be limited in terms of time and/or amount, and in some instances, the Company may have recourse against third parties for certain payments made by the Company.  It is not possible to predict the maximum potential amount of future payments under these or similar agreements due to the conditional nature of the Company’s obligations and the unique facts and circumstances involved in each particular agreement.  Historically, payments made by the Company under these agreements have not had a material effect on the Company’s financial position or results of operations.  The Company believes if it were to incur a loss in any of these matters, such loss should not have a material effect on the Company’s financial position or results(6.8		)	14.7			(8.8		)
		$	457.6		$	(180.0	)	$	447.8		$	(158.2	)

During the first six months of 2004, the Company capitalized $13.9 million for product and process technology with a weighted average useful life of ten years.  During the first six months of 2003, the Company capitalized $17.8 million for product and process technology and $2.5 million for other intangible assets with weighted average useful lives of nine and three years, respectively.

Amortization expense for intangible assets was $12.3 million and $25.8 million for the second quarter and first six months of 2004, respectively, and $13.0 million and $25.6 million for the second quarter and first six months of 2003, respectively.  Annual amortization expense for intangible assets held as of March 4, 2004, is estimated to be $49.8 million for 2004, $47.0 million for 2005, $45.3 million for 2006, $43.4 million for 2007 and $42.7 million for 2008.

Depreciation expense was $282.9 million and $581.7 million for the second quarter and first six months of 2004, respectively, and $297.3 million and $584.4 million for the second quarter and first six months of 2003, respectively.  As of March 4, 2004, the Company had assets classified as held for sale and included in other assets in the accompanying consolidated balance sheet with a carrying value of $9.3 million.

The Company has manufacturing facilities in Virginia and Utah that are only partially utilized.  As of March 4, 2004, the Virginia and Utah facilities had net book values of $374.1 million and $785.8 million, respectively.  A portion of the Virginia facility is being used for 300 mm wafer fabrication and a portion of the Utah facility is being used for component test operations.  The Company is depreciating substantially all assets at the Virginia and Utah facilities other than $195.6 million of construction in progress in Utah as of March 4, 2004.  Increased utilization of these facilities is dependent upon market conditions, including, but not limited to, worldwide market supply of, and demand for, semiconductor products and the Company’s operations, cash flows and alternative capacity utilization opportunities.

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As of March 4, 2004, notes payable and capital lease obligations of $136.6 million and $7.6 million, respectively, denominated in Japanese yen, were at weighted average interest rates of 1.4% and 1.8%, respectively.

Interest Rate Swap:  The Company entered into an interest rate swap agreement (the “Swap”) that effectively converted, beginning August 29, 2003, the fixed interest rate on the Notes to a variable interest rate based on the 3-month London Interbank Offering Rate (“LIBOR”) less 65 basis points (0.53% for the second quarter of 2004).  The Swap qualifies as a fair-value hedge under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.”  The gain or loss from changes in the fair value of the Swap is expected to be highly effective at offsetting the gain or loss from changes in the fair value of the Notes attributable to changes in interest rates.  The Company measures the effectiveness of the Swap using regression analysis.  The Company recognizes changes in the fair value of the Swap and changes in the fair value of the Notes since inception of the Swap in the consolidated balance sheets.  For the first six months of 2004, the Company recognized a net gain of $0.2 million, which is included in other non-operating income, representing the difference between the change in the fair value of the Notes and the change in the fair value of the Swap.  As of March 4, 2004, the Company had pledged $24.4 million as collateral for the Swap which is included in restricted cash on the Company’s consolidated balance sheet.  The amount of collateral will fluctuate based on the fair value of the Swap.  The Swap will terminate if the closing price of the Company’s common stock is at or exceeds $14.15 after February 6, 2006.

Contingencies

As is typical in the semiconductor and other high technology industries, from time to time, others have asserted, and may in the future assert, that the Company’s products or manufacturing processes infringe their intellectual property rights.  The Company is currently engaged in litigation with Rambus, Inc. (“Rambus”) relating to certain of Rambus’ patents and certain of the Company’s claims and defenses.  Lawsuits between Rambus and the Company are pending in the United States, Germany, France, the United Kingdom and Italy.  The Company is unable to predict the outcome of the Rambus suits or of other assertions of infringements made against the Company.  A court determination that the Company’s products or manufacturing processes infringe the intellectual property rights of others could result in significant liability and/or require the Company to make material changes to its products and/or manufacturing processes.  Any of the foregoing results could have a material adverse effect on the Company’s business, results of operations or financial condition.

On June 17, 2002, the Company received a grand jury subpoena from the U.S. District Court for the Northern District of California seeking information regarding an investigation by the Antitrust Division of the Department of Justice (the “DOJ”) into possible antitrust violations in the “Dynamic Random Access Memory” or “DRAM” industry.  The Company is cooperating fully and actively with the DOJ in its investigation.  Subsequent to the commencement of the DOJ investigation, twenty-five purported class action lawsuits were filed against the Company and other DRAM suppliers in various federal and state courts alleging violations of the Sherman Act, violations of state unfair competition law, and unjust enrichment relating to the sale and pricing of DRAM products. The complaints seek treble damages for the alleged damages sustained by purported class members, in addition to restitution, costs and attorneys’ fees, as well as an injunction against the allegedly unlawful conduct.  The Company is unable to predict the outcome of these suits.  Based upon the Company’s analysis of the claims made and the nature of the DRAM industry, the Company believes that class treatment of these cases is not appropriate and that any purported injury alleged by plaintiffs would be more appropriately resolved on a customer-by-customer basis.  The final resolution of these alleged violations of federal or state antitrust laws could result in significant liability and could have a material adverse effect on the Company’s business, results of operations or financial condition.

The Company has accrued a liability and charged operations for the estimated costs of adjudication or settlement of various asserted and unasserted claims existing as of the balance sheet date.  The Company is currently a party to other legal actions arising out of the normal course of business, none of which is expected to have a material adverse effect on the Company’s business, results of operations or financial condition.

In the normal course of business, the Company is a party to a variety of agreements pursuant to which it may be obligated to indemnify the other party.  It is not possible to predict the maximum potential amount of future payments under these types of agreements due to the conditional nature of the Company’s obligations and the unique facts and circumstances involved in each particular agreement.  Historically, payments made by the Company under these types of agreements have not had a material effect on the Company’s business, results of operations or financial condition.

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Redeemable Common Stock

In connection with the issuanceCompany’s acquisition on April 22, 2002, of substantially all of the assets of Toshiba Corporation’s (“Toshiba”) DRAM business as conducted by Dominion Semiconductor L.L.C., the Company issued Toshiba 1.5 million shares of common stock for the Toshiba DRAM Acquisition, the Companyand granted Toshiba Corporation (“Toshiba”) an option to require the Company to repurchase on October 21, 2003, all of thesethe shares for $67.5 million in cash.  Thecash on October 21, 2003.  During the first quarter of 2004, Toshiba exercised its option expires ifand the closing priceCompany redeemed the 1.5 million shares.

Stock Rights

On September 24, 2003, the Company received $450.0 million, which is included in additional capital in the accompanying consolidated balance sheet, from Intel Corporation (“Intel”) in exchange for the issuance of stock rights exchangeable into approximately 33.9 million shares of the Company’s common stock is at or above $45.05 per share for 20 consecutive trading days.  The carrying valuestock.  In conjunction with the issuance of the redeemablestock rights, the Company agreed to achieve operational objectives through May 2005, including certain levels of DDR2 production and 300 mm wafer processing capacity, and dedication of resources to advanced product development.  In the event the Company fails to achieve certain 2005 milestones and the Company’s common stock price is accretedthen below Intel’s purchase price of $13.29, the Company could be obligated to its redemption amountpay Intel amounts not to exceed $135 million, a substantial portion of $67.5 million by a charge directlywhich is payable, at the Company’s election, in the Company’s common stock.  The shares issuable pursuant to retained earnings and isthe stock rights are included in weighted average common shares outstanding in the computations of earningearnings per share.  Accretion of redeemable common stock was $1.6 million and $3.1 million in the second quarter and first six months of 2003.  (See “Acquisition of Toshiba Corporation DRAM Assets” note.)

Income Taxes

The income tax provision for the second quarter and first six months of 2003 was $17.6 million and $39.0 million, respectively, which primarily reflects taxes on foreign operations.  Income tax benefit for the second quarter and first six months of 2002 was $20.3 million and $197.5 million, respectively.  The Company recognized no tax benefit on its domestic net operating losses in 2003.  As of February 27, 2003, the Company had outstanding domestic net operating loss carryforwards of approximately $2.0 billion.  Until the Company utilizes these operating loss carryforwards, the income tax provision will only reflect modest levels of taxes from the Company’s foreign operations.

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Earnings (Loss) Per Share

Basic earnings per share is computed based on the weighted average number of common shares outstanding.  Diluted earnings per share is computed based on the weighted average number of common shares outstanding plus the dilutive effects of stock options, warrants and convertible notes.  The potential common shares that were antidilutive for the second quarter and first six months of 2003 amounted to 128.9 million shares and 124.8 million shares, respectively, and for the second quarter and first six months of 2002 amounted to 109.3 million shares and 107.1 million shares, respectively.  Basic and diluted earnings per share computations reflect the effect of accretion of redeemable common stock.

Comprehensive Income (Loss)

Comprehensive loss for the second quarter and first six months of 2003 was $620.2 million and $935.7 million, respectively, and included $1.0 million and $0.6 million net of tax, respectively, of unrealized losses on investments.  Comprehensive loss for the second quarter and first six months of 2002 was $32.2 million and $292.6 million, respectively, and included $1.8 million of unrealized losses and $3.7 million of unrealized gains net of tax, respectively, on investments.

Restructure and Other Charges

As a result of the prolonged downturn in the semiconductor memory industry and the Company’s eight consecutive quarters of operating losses, inIn the second quarter of 2003, the Company announced a plan to restructure its operations.  The restructure plan includesincluded the shutdown of the Company’s 200 mm production line in Virginia, the discontinuance of certain memory products, including SRAM and TCAM products, and aan approximate 10% reduction of the Company’s worldwide workforce.  The Company expects the restructure to result in a lower overall cost structure, to provide better focus on products with greater potential for growth and profitability and to allow continuing investment in new technology.  In connection with the plan, the Company recorded a $107.9 million restructure charge of $107.9 million in the second quarter of 2003.  In addition, the Company recorded other restructure-relatedand additional restructure related charges of $7.8 million, which areis included in cost of goods sold, in the accompanying consolidated statementssecond quarter of operation,2003.  The credit to write-downrestructure of $21.2 million in the carrying valuefirst six months of raw materials and work-in-process inventories2004 primarily reflects gains on sales of equipment associated with discontinued products.  Theoperations shut down in the restructure.  Through March 4, 2004, the Company expects to substantially completehas paid essentially all of the costs accrued in connection with the restructure plan bybut expects to incur gains and losses in future periods as residual equipment associated with the end of 2003 and estimates that it will incur additional restructure related charges of approximately $15 million in the second half of 2003, primarily for the redeployment of equipment from its Virginia site to Boise and to certain of its international facilities.is sold.  The components of the restructure charge and otheradditional restructure related charges in the second quarter of 2003 are as follows:

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Other Operating (Income) Expense

Other operating expense for the second quarter of 2004 includes a $7.6 million benefit from changes in currency exchange rates primarily as the result of a generally stronger U.S. dollar relative to the Japanese yen and euro.  For the first six months of 2004, the Company recognized a net loss of $16.9 million from changes in currency exchange rates as gains in the second quarter of 2004 only partially offset $24.5 million of losses from changes in the first quarter of 2004.  Other operating expense for the first six months of 2004 includes net gains of $8.0 million related to disposals of semiconductor equipment.  Other operating expense in the second quarter and first six months of 2003 includes losses of $13.5 million and $9.1 million, respectively, from changes in currency exchange rates.  Other operating expense in the first six months of 2003 also includes net losses of $10.8 million related to disposals of semiconductor equipment.  Other operating income in the second quarter of 2003 includes $14.4 million in receipts from the U.S. government in connection with anti-dumping tariffs.

Income Taxes

The income tax provision for the second quarter and first six months of 2004 and 2003 primarily reflects taxes on non-U.S. operations.  As of March 4, 2004, the Company had aggregate U.S. tax net operating loss carryforwards of $2.9 billion and unused U.S. tax credits of $104.9 million, which expire in various years through 2024.  The Company also has unused state tax net operating loss carryforwards of $1.9 billion for tax purposes which expire in various years through 2024 and unused state tax credits of $121.0 million for tax and financial reporting purposes which expire through 2018.  Until the Company utilizes these net operating loss carryforwards and unused tax credits, the Company expects its income tax provision will primarily reflect taxes from the Company’s non-U.S. operations.

Earnings (Loss) Per Share

Basic earnings per share is computed based on the weighted average number of common shares outstanding.  Diluted earnings per share is computed based on the weighted average number of common shares outstanding plus the dilutive effects of stock options and warrants and convertible notes.  Potential common shares that would increase earnings per share amounts or decrease loss per share amounts are antidilutive and are therefore excluded from earnings per share calculations.  Potential common shares that could dilute basic earnings per share in the future that were not included in the computation of diluted earnings per share because to do so would have been antidilutive were 188.3 million shares and 179.7 million shares as of the end of the second quarter of 2004 and 2003, respectively.  Basic and diluted earnings per share computations reflect the effect of accretion of, and fair value adjustment to, redeemable common stock.

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Comprehensive Income (Loss)

Through February 27, 2003, the Company had paid essentially none of the severance and other costs related to the restructure.  As of February 27, 2003, the Company’s accounts payable and accrued expenses included $30.0Comprehensive loss was $28.3 million for remaining costs accrued in connection with the restructure plan, consisting primarilysecond quarter of severance2004 and other termination benefits.$27.3 million for the first six months of 2004, which included $0.1 million net of tax of unrealized loss on investments.  Comprehensive loss for the second quarter and first six months of 2003 was $620.2 million and $935.7 million, respectively, and included $1.0 million and $0.6 million net of tax, respectively, of unrealized losses on investments.

Acquisition of Toshiba Corporation DRAM Assets

On April 22, 2002, the Company acquired substantially all of the assets of Toshiba Corporation’s (“Toshiba”) DRAM business as conducted by Dominion Semiconductor L.L.C., a wholly-owned subsidiary of Toshiba located in Virginia (the “Toshiba DRAM Acquisition”).  The total purchase price of $327.9 million included cash and 1.5 million shares of the Company’s common stock, which was valued at $58.1 million on the date of acquisition.  The purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair values.  In connection with the purchase, the Company recorded total assets of $363.3 million, including property, plant and equipment of $292.8 million and intangible assets of $7.8 million, and total liabilities of $35.4 million.  (See “Redeemable Common Stock” note.)

Joint Venture

TECH Semiconductor Singapore Pte. Ltd. (“TECH”) is a semiconductor memory manufacturing joint venture in Singapore among Micron Technology, Inc., the Singapore Economic Development Board, Canon Inc. and Hewlett-Packard Company.  The Company acquired its initial ownership and other interests in TECH as a result of its acquisition of the semiconductor memory operations of Texas Instruments Incorporated in 1998.  As of March 4, 2004, the Company had a 39.12% ownership interest in TECH.  Significant financing, investment and operating decisions for TECH typically require approval from TECH’s Board of Directors.  The shareholders’ agreement for the TECH joint venture expires in 2011.  TECH’s semiconductor manufacturing facilities use the Company’s product and process technology.  Subject to specific terms and conditions, the Company has agreed to purchase all of the products manufactured by TECH.  TECH supplied approximately 30% of the total megabits of memory produced by the Company in the second quarter and first six months of 2004.  The Company generally purchases semiconductor memory products from TECH at prices determined quarterly, based on a discount from average selling prices realized by the Company for the immediately preceding quarter.  The Company performs assembly and test services on product manufactured by TECH.  The Company also provides certain technology, engineering and training to support TECH.  All of these transactions with TECH are recognized as part of the net cost of products purchased from TECH.  In the second quarter of 2004, the Company sold TECH semiconductor equipment in the amount of $0.1 million.  The net cost of products purchased from TECH amounted to $124.8 million and $247.9 million for the second quarter and first six months of 2004, respectively, and $86.9 million and $147.5 million for the second quarter and first six months of 2003, respectively, and ($3.7) million and $22.3 million for the second quarter and first six months of 2002, respectively.  In 2000, as part of an equity capital infusion by the majority of TECH’s shareholders, the Company funded TECH with $98.0 million as support for continuing the TECH supply arrangement.  The Company amortizes the value of the TECH supply arrangement on a straight-line basis over the remaining contractual life of the TECH shareholders’ agreement.  Amortization expense resulting from the TECH supply arrangement, included in the cost of productproducts purchased from TECH, was $2.4 million and $5.0 million for the first quarter and first six months of 2004, respectively, and $2.4 million and $4.8 million for the second quarter and first six months of 2003, respectively, and $2.5 million and $5.1 million for the second quarter and first six months of 2002, respectively.  Receivables from TECH were $31.7$28.2 million and payables to TECH were $46.1$64.4 million as of February 27, 2003.March 4, 2004.  Receivables from TECH were $10.5$53.1 million and payables to TECH were $52.8$102.5 million as of August 29, 2002.28, 2003.  As of March 4, 2004, the Company had remaining unamortized costs of $67.8 million in intangible assets relating to the supply arrangement to purchase product from TECH.

The Company has pledged $100.0 million as cash collateral for TECH’s $250.0 million credit facility.  In the event the cash collateral is used to discharge obligations of TECH that are unpaid and due under the TECH credit facility, certain shareholders of TECH have agreed to indemnify the Company for approximately one-half of the amount of the cash collateral used to satisfy such obligations.

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As of February 27, 2003, the Company had pledged $50.0 million, which is included in other noncurrent assets in the accompanying consolidated balance sheet, as cash collateral for a fully-drawn revolving line of credit for TECH.

In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.”  Interpretation No. 45 requires an entity, at the time it issues a guarantee, to recognize an initial liability for the fair value of obligations assumed under the guarantee and elaborates on existing disclosure requirements.  The initial recognition requirements of Interpretation No. 45 are effective for guarantees issued or modified after December 31, 2002, and the disclosure requirements became effective for the Company in its second quarter of 2003.  Subsequent to the end of the second quarter of 2003, on March 13, 2003, TECH entered into a new $250 million term loan credit facility, the proceeds of which were used to refinance amounts borrowed under its former facility.  In connection therewith, the $50 million originally pledged by the Company as cash collateral with respect to TECH’s previous credit facility was re-pledged and supplemented by an additional $50 million by the Company.  With respect to this $100 million in cash collateral, certain shareholders in TECH have agreed, in the event all or a portion of the cash collateral is required to be used to meet TECH’s principal loan payments, to indemnify the Company for approximately one-half of such amounts.  Additionally, the Company and these indemnifying shareholders are entitled to proceed against TECH and its assets to the extent such cash collateral is required to be used to meet TECH’s principal loan payments.  However, such rights are subordinated to the rights of the banks participating in the new credit facility.

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Micron Technology, Inc., and its subsidiaries (hereinafter referred to collectively as the “Company”) principally design, develop, manufacture and market semiconductor products.

The following discussion contains trend information and other forward-looking statements that involve a number of risks and uncertainties.  Forward-looking statements include, but are not limited to, statements such as those made in “Critical Accounting Policies – Income Taxes” and “Income Taxes” regarding the modest levels of taxes from the Company foreign operations; in “Net Sales” regarding DDR SDRAM sales in future periods; inmegabit production growth and allocation of wafer starts to DDR2 devices, CMOS image sensors, PSRAM devices and Flash memory products, “Gross Margin” regarding the Company’s transition to .13µ technology, manufacturing costscost reductions in the remaining two quarters of 2003, the estimated amount of write-down remainingfuture periods and relative gross margin realized on products purchased from TECH in inventory at the end of the third quarter of 2003 and relative gross margins on TECH products in the remainder of 2003;2004; in “Research and Development” regarding the level of expected research and development expenseexpenses in future periods; in “Restructure and Other Charges” regarding timing and additional costs to complete the restructure and the estimated cost savings in future periodsthird quarter of 2004 and in “Liquidity and Capital Resources” regarding capital spending in 2003 and 2004.  The Company’s actual results could differ materially from the Company’s historical results and those discussed in the forward-looking statements.  Factors that could cause actual results to differ materially include, but are not limited to, those identified in “Certain Factors.”  This discussion should be read in conjunction with the Consolidated Financial Statements and accompanying notes and with the Company’s Annual Report on Form 10-K for the year ended August 29, 2002.28, 2003.  All period references are to the Company’s fiscal periods unless otherwise indicated. The Company’s fiscal year is the 52 or 53-week period ending on the Thursday closest to August 31.  The Company’s fiscal 2004, which ends on September 2, 2004, contains 53 weeks.   All per share amounts are presented on a diluted basis.  All tabular dollar amounts are in millions.

Critical Accounting PoliciesOverview

The preparation of financial statements and related disclosures in conformity with United States generally accepted accounting principles (“U.S. GAAP”) requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures.  Estimates and judgments are based on historical experience, forecasted future events and various other assumptions that the Company believes to be reasonable under the circumstances.  Estimates and judgments may vary under different assumptions or conditions.  The Company evaluates its estimates and judgments on an ongoing basis.  Management believes the accounting policies below are critical in the portrayal of the Company’s financial condition and results of operations and require management’s most difficult, subjective or complex judgments.

Income taxes:  The Company has recorded a valuation allowance against its deferred tax assets arising from net operating loss carryforwards of its domestic operations.  The Company expects that until it utilizes these operating loss carryforwards the consolidated income tax provision will only reflect modest levels of taxes from the Company’s foreign operations.  The Company evaluates the realizability of its deferred tax assets on an ongoing basis in accordance with U.S. GAAP, which requires the assessment of the Company’s performance and other relevant factors when determining the need for a valuation allowance with respect to these deferred tax assets.  The Company’s ability to realize deferred tax assets is dependent on its ability to generate future taxable income sufficient to utilize loss carryforwards or tax credits before their expiration.  In the evaluation of realizability of deferred tax assets, factors such as recent losses are given substantially more weight than forecasted future profitability.

The Company is requireda global manufacturer and marketer of DRAM, Flash memory, CMOS image sensors and other semiconductor components.  These semiconductor components are similar to estimate its provision for income taxescommodities in that they are generally standardized products where selling prices fluctuate significantly based upon industry-wide relationships of supply and amounts ultimately payable or recoverabledemand.  Success in numerous jurisdictions around the world.  Such estimates involve interpretationssemiconductor memory market is typically driven by achieving the most cost-efficient delivery of regulations and are inherently complex.  Resolutionproducts.  Delivery of income tax treatments in individual jurisdictions may not be known for many years after completion of any fiscal year.

Inventories:  Inventories are statedsemiconductor memory products at the lower of averagelowest cost or market value.  Cost includes labor, material and overhead costs, including productis dependent upon advanced design and process technology, costs.  Determining market valueefficient utilization of inventories involves judgmentextensive capital investments in that it requires the Company to project average selling prices, sales volumes for future periodssilicon processing capacity, timely development of new products and completion costs for products in work in process inventories.  To project average selling prices and sales volumes for future periods, the Company reviews recent sales volumes, existing customer orders, current contract prices, industry analysis of supply and demand, seasonal factors, general economic trends and other information.  When these analyses reflect market values that are below the Company’s costs, the Company records a charge tocost-effective capital access.

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cost of goods sold in advance of when the inventory is actually sold.  Differences in forecasted average selling prices used in calculating lower of cost or market adjustments can result in significant changes in the estimated net realizable value of product inventories and accordingly the amount of write-down recorded.  Due to the volatile nature of the semiconductor memory industry, actual selling prices and volumes often vary significantly from projected prices and volumes and as a result, the timing of when product costs are charged to operations can vary significantly.  For example, a 5% variance in the estimated average selling prices used to calculate the inventory write-down of $197 million in the second quarter of 2003 would have changed the recorded write-down by $28 million.

U.S. GAAP provides for products to be grouped into categories in order to compare costs to market values.  The amount of any inventory write-down can vary significantly depending on the determination of inventory categories.  A majority of the Company’s inventory has been categorized as volatile (DRAM and SRAM) or non-volatile (Flash).  The major characteristics the Company considers in determining inventory categories are product type and markets.

Product and process technology:  Costs incurred to acquire product and process technology or to patent technology developed by the Company are capitalized and amortized on a straight-line basis over periods currently ranging up to 10 years.  The Company capitalizes a portion of costs incurred based on its analysis of historical and projected patents issued as a percent of patents filed.  Capitalized product and process technology costs are amortized over the shorter of (i) the estimated useful life of the technology, (ii) the patent term or (iii) the term of the technology agreement.

Property, plant and equipment:  The Company reviews the carrying value of property, plant and equipment for impairment when events and circumstances indicate that the carrying value of an individual asset or groups of assets may not be recoverable from the estimated future cash flows expected to result from their use and/or eventual disposition.  In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss would be recognized equal to an amount by which the carrying value exceeds the estimated fair value of the assets.  The estimation of future cash flows involves numerous assumptions which require judgment by the Company, including, but not limited to, future use of the assets for Company operations versus sale or disposal of the assets, future selling prices for the Company’s products and future sales and production volumes.

Research and development:  Costs related to the conceptual formulation and design of products and processes are expensed as research and development when incurred.  Determining when product development is complete requires judgment by the Company.  The Company deems development of a product complete once the product has been thoroughly reviewed and tested for performance and reliability and is internally qualified for sale to customers.  Subsequent to product qualification, product costs are valued in inventory.

Contingencies:  The Company is subject to the possibility of various loss contingencies.  Considerable judgment is necessary to estimate the probability and amounts of such contingencies.  An accrual is made when it is probable that a liability has been incurred or an asset has been impaired and the amount of loss can be reasonably estimated.  The Company accrues a liability and charges operations for the estimated costs of adjudication or settlement of asserted and unasserted claims existing as of the balance sheet date.  The Company regularly evaluates current information available to determine whether such accruals should be adjusted.

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Results of Operations