KLA-Tencor (KLAC)

NOTE 16—SALE AND IMPAIRMENT OF REAL ESTATE ASSETS

During the fiscal year ended June 30, 2007, as part of the Company’s long-term business plan, the Company decided to sell certain real estate properties owned by the Company in San Jose, California and Livermore, California. Based on the valuation of these assets using relevant market indicators such as range of estimated selling prices, the Company recorded an asset impairment charge of approximately $56.8 million, which was included in SG&A expenses during the fiscal year ended June 30, 2007. During the fiscal year ended June 30, 2008, the Company completed the sale of real estate properties in Livermore, California and recognized a gain of $9.0 million as an offset to selling, general and administrative expenses.

In addition, during the fiscal year ended June 30, 2008, the Company entered into an agreement for the sale and leaseback of certain buildings located in San Jose, California. The sale transaction, which closed on March 26, 2008, resulted in proceeds to the Company of $28.8 million and a gain on sale of $13.2 million. Under the agreement, the Company leases back the buildings for periods ranging from 3 months to 39 months. Rent expense was a total of $0.4 million during the three months ended June 30, 2008 and are expected to be $1.1 million, $1.7 million and $1.8 million during the fiscal years ending June 30, 2009, 2010 and 2011,

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KLA-TENCOR CORPORATION

Notes to Consolidated Financial Statements—(Continued)

respectively. Under the provisions of SFAS No. 13, Accounting for Leases, the Company immediately recognized $8.5 million of the gain, which represents the portion of the gain in excess of the present value of the minimum lease payments, and deferred the remaining gain of $4.7 million, which will be amortized ratably in proportion to rent expense over the 39-month term of the lease. Total amount of gain recognized during the fiscal year ended June 30, 2008 was $9.1 million. The Company is recognizing the rent expense related to rental payments on a straight line basis over the term of the lease.

In addition, during the fourth quarter of the fiscal year ended June 30, 2008, the Company completed the sale of certain real estate located in Chennai, India and recognized a gain of $2.0 million as an offset to selling, general and administrative expenses.

NOTE 16—SALE AND IMPAIRMENT OF REAL ESTATE ASSETS

NOTE 15 – SALE AND IMPAIRMENT OF REAL ESTATE ASSETS

During the nine months ended March 31, 2007, as part of the Company’s long-term business plan, the Company decided to sell certain real estate properties owned by the Company in San Jose, California and Livermore, California. Based on the valuation of these assets using relevant market indicators such as range of estimated selling prices, the Company recorded an asset impairment charge of approximately $56.8 million, which was included in SG&A expenses during the nine months ended March 31, 2007. During the three months ended December 31, 2007, the Company completed the sale of real estate properties in Livermore, California and recognized a gain of $9.0 million as an offset to SG&A expenses.

During the three months ended March 31, 2008, the Company entered into an agreement for the sale and leaseback of certain buildings located in San Jose, California. The sale transaction, which closed on March 26, 2008, resulted in proceeds to the Company of $28.8 million and a gain on sale of $13.2 million. Under the agreement, the Company leases back the buildings for periods ranging from 3 months to 39 months. Rent will be a total of $0.4 million during the three months ending June 30, 2008 and $1.1 million, $1.7 million and $1.8 million during the fiscal years ending June 30, 2009, 2010 and 2011, respectively. Under the provisions of SFAS No. 13, Accounting for Leases, the Company immediately recognized $8.5 million of the gain, which represents the portion of the gain in excess of the present value of the minimum lease payments, and deferred the remaining gain of $4.7 million, which will be amortized ratably in proportion to rent expense over the 39-month term of the lease. The Company is recognizing the rent expense related to rental payments on a straight line basis over the term of the lease.

In addition, during the three months ended March 31, 2008, the Company entered into an agreement to sell certain real estate located in Chennai, India. The sale is expected to be completed in the fourth quarter of fiscal year 2008. Accordingly, these assets with a net book value of $5.8 million are held for sale at March 31, 2008.

NOTE 13—SALE AND IMPAIRMENT OF REAL ESTATE ASSETS

During the fiscal year ended June 30, 2007, as part of the Company’s long-term business plan, the Company decided to sell certain real estate properties owned by the Company in San Jose, California and Livermore, California. Based on the valuation of these assets using relevant market indicators such as range of estimated selling prices, the Company recorded an asset impairment charge of approximately $56.8 million, which was included in SG&A expenses during the fiscal year ended June 30, 2007.

During the three months ended December 31, 2007, the Company completed the sale of real estate properties in Livermore, California and recognized a gain of $9.0 million as an offset to SG&A expenses. In addition, during the three months ended December 31, 2007, the Company entered into an agreement to sell certain real estate located in San Jose, California. The sale is expected to be completed in the second half of fiscal year 2008. Accordingly, these assets with a net book value of $14.0 million have been held for sale at December 31, 2007.