PROPERTY AND EQUIPMENT

A summary of property and equipment by classification is as follows:



(In thousands)	March 31, 2015			September 30, 2014
Drilling vessels and equipment	$	4,026,004		$	4,181,774
Construction work in progress	471,046			319,548
Drill pipe	42,576			31,265
Office equipment and other	36,035			35,566
Total cost	4,575,661			4,568,153
Less: Accumulated depreciation	(564,970		)	(601,125		)
Property and equipment, net	$	4,010,691		$	3,967,028

Asset Impairment

The Atwood Hunter completed the contract it was working under in December 2014 and since that date we have been unable to obtain additional work for this rig. Based on the lack of contracting opportunities and the further deterioration of commodity prices, in January 2015 we determined that it was not likely that additional work would be obtained in the foreseeable future. Therefore we made the decision to scrap the rig and the Atwood Hunter and its materials and supplies were written down to their salvage value. We recorded a non-cash impairment charge of approximately $60.8 million ($56.1 million, net of tax, or $0.86 per diluted share), which is included in Asset Impairment on the Condensed Consolidated Statement of Operations for the six months ended March 31, 2015. This impairment charge includes write-downs of property and equipment of $48.0 million and write-downs of our inventory of materials and supplies that was specific to the Atwood Hunter of $8.4 million.

Sale of Assets

During February 2015, we entered into an agreement for the sale and recycling of the Atwood Hunter for a sale price of approximately $2.9 million. Upon the agreement becoming effective, we received $1.8 million as a deposit. We anticipate the closing to occur in the quarter ending September 30, 2015. We recorded a loss of approximately $5.5 million ($5.5 million, net of tax, or $0.08 per diluted share), which is included in (Gain) Loss on Sale of Assets on the Condensed Consolidated Statement of Operations for the six months ended March 31, 2015.

During December 2014, we completed the sale of our rig, the Atwood Southern Cross, for recycling. We received $2.1 million in proceeds and incurred related costs of $2.0 million. We recorded a loss of approximately $8.0 million ($7.1 million, net of tax, or $0.11 per diluted share), which is included in (Gain) Loss on Sale of Assets on the Condensed Consolidated Statement of Operations for the six months ended March 31, 2015.

Construction Projects

As of March 31, 2015, we had expended approximately $432 million towards our two ultra-deepwater drillships under construction at the Daewoo Shipbuilding and Marine Engineering Co., Ltd. ("DSME") yard in South Korea. Remaining firm commitments for these two drillships under construction totaled approximately $704 million at March 31, 2015.

On October 31, 2014, we entered into Supplemental Agreements ("Supplemental Agreement No. 1") to the construction contracts for our two ultra-deepwater drillships which postponed their delivery by six months each. The Atwood Admiral was rescheduled for delivery on September 30, 2015 and the Atwood Archer was rescheduled for delivery on June 30, 2016. In consideration of the agreement by DSME to postpone deliveries, we agreed to accelerate the payment of a portion of the milestone payments on each rig as follows: $50 million on each rig was paid on November 30, 2014 and $25 million on each rig is payable on June 30, 2015. In addition, each rig’s final milestone payment amount will be increased by the aggregate financing cost on these payments using an interest rate of 3.5% per annum.

On February 6, 2015, we entered into additional Supplemental Agreements (“Supplemental Agreement No. 2”), which gave us the option to postpone the delivery of each of these two drillships by two further periods of six months each. On March 30, 2015, we exercised our first six-month option ("Option No. 1") to delay the delivery of the Atwood Admiral to March 31, 2016. In consideration, we agreed to accelerate the payment of a portion of the remaining milestone payments on the Atwood Admiral as follows: $150 million on September 30, 2015 and $146 million payable on March 31, 2016. If we elect to exercise Option No. 1 on the Atwood Archer and Option No. 2 on either of the two rigs, milestone payments will also be further accelerated. Additionally, any of the extensions of the delivery dates will cause us to incur additional operating costs.

The expected delivery dates of the Atwood Admiral and Atwood Archer are as follows:



	Atwood Admiral		Atwood Archer
	Expected Delivery	Status	Expected Delivery	Status
Prior to supplemental agreements	3/31/2015		12/31/2015
Supplemental Agreement No. 1:	9/30/2015	Exercised	6/30/2016	Exercised
Supplemental Agreement No. 2:
Option No. 1	3/31/2016	Exercised	12/31/2016	Unexercised
Option No. 2	9/30/2016	Unexercised	6/30/2017	Unexercised

As of March 31, 2015, expected payments for the Atwood Admiral and Atwood Archer as impacted by Supplemental Agreement No. 1 and Supplemental Agreement No. 2 are as follows:



(In millions)	Date	Atwood Admiral		Atwood Archer
Milestone	6/30/2015	$	25	$	25
Milestone	9/30/2015	150
Final payment	3/31/2016	146
Final payment	6/30/2016			358
Total		$	321	$	383