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Hercules Offshore Announces Third Quarter 2012 Results

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HOUSTON, Oct. 25, 2012 /PRNewswire/ -- Hercules Offshore, Inc. (Nasdaq: HERO) today reported a loss from continuing operations of $37.9 million, or $0.24 per diluted share, on revenue of $184.9 million for the third quarter 2012, compared with a loss from continuing operations of $17.0 million, or $0.12 per diluted share, on revenue of $163.0 million for the third quarter 2011. As outlined in the Reconciliation of GAAP to Non-GAAP Financial Measures, third quarter 2012 results include the following pre-tax items:

  • Non-cash charge of $60.7 million to reflect the impairment of the Hercules 252 and Hercules 258;
  • Gain from the sale of Platform Rig 3 and related entities of $18.4 million; and
  • Gain from the insurance settlement on the Hercules 185 of $27.3 million.

On an after-tax basis, these items approximated $22.1 million, or $0.14 per diluted share. 

John T. Rynd, Chief Executive Officer and President of Hercules Offshore stated, "Visibility in our Domestic Offshore segment is the best it has been since the company's formation, driven by solid demand and tight supply of jackup rigs in the U.S. Gulf of Mexico. We believe this positive momentum will continue through at least 2013 based on our discussions with customers, many of whom are seeking longer term commitments than what we have traditionally seen in the U.S. Gulf of Mexico. 

"We continue to rationalize and optimize our global asset base. This includes the favorable insurance settlement on the Hercules 185, along with the sale of our non-core platform rig in Mexico and two cold stacked units in the U.S. during the third quarter.  We also sold a third cold stacked rig, the Hercules 252, in early October, which prompted an impairment charge in the third quarter.  Consistent with our fleet optimization efforts, we have elected to cold stack and impair the book value of the Hercules 258 in Malaysia.

"As we close out 2012, the exceptional visibility in our domestic business, in addition to having over $270 million of cash on the balance sheet, leaves us well-positioned to take advantage of attractive growth opportunities and further enhance our credit profile."

Offshore

Domestic Offshore revenue for the third quarter 2012 increased by 53.2% to $92.3 million from $60.2 million in the third quarter 2011, as both dayrates and utilization have risen substantially over the past year driven by strong fundamentals in the region. Average revenue per rig per day improved by 28.8% to $63,203 for the third quarter 2012 compared to $49,060 in the third quarter 2011, while utilization increased to 88.2% from 74.2% in the same periods, respectively. Operating expenses increased to $62.3 million in the third quarter 2012 from $53.2 million in the respective 2011 period, primarily on higher labor and repair and maintenance costs. In addition, third quarter 2011 operating expenses were reduced by approximately $2.9 million of gains from asset sales. Overall, Domestic Offshore generated an operating loss of $16.4 million in the third quarter 2012, which includes an impairment charge of $25.5 million on the cold stacked rig Hercules 252, as compared to an operating loss of $12.8 million in the third quarter 2011.

International Offshore revenue declined to $37.1 million in the third quarter 2012 from $49.0 million in the third quarter 2011. Operating days declined to 393 days in the third quarter 2012 from 508 days in the same prior year period, primarily due to the absence of the Hercules 185 and contract expiration on the Hercules 258. Average revenue per rig per day of $94,377 in the third quarter 2012 was slightly lower than $96,388 in the comparable prior year period. Third quarter 2012 operating expenses include the benefit from (i) the insurance settlement gain on the Hercules 185 of $27.3 million and (ii) the gain from the sale of Platform Rig 3 of $18.4 million. International Offshore recorded operating income of $3.5 million in the third quarter 2012, which includes an impairment charge of $35.2 million on the cold stacked rig Hercules 258 and the aforementioned gains, compared to operating income of $12.9 million in the comparable 2011 period.

Inland

During the third quarter 2012, Inland generated revenue of $7.4 million compared to revenue of $8.1 million in the third quarter 2011. Average revenue per rig per day increased by 3.7% to $32,153 during the third quarter 2012, from $31,008 during the third quarter 2011. Utilization declined to 83.0% in the third quarter 2012 from 94.9% in the respective prior year period. Third quarter 2012 operating expenses increased to $6.7 million, from $3.5 million in the third quarter 2011, largely due to higher workers' compensation expense and lower gains from asset sales. Prior year period operating expenses include the benefit of $2.6 million in net gains from asset sales, compared to gains of $1.3 million during the third quarter 2012. Inland recorded an operating loss of $2.8 million in the third quarter 2012 compared to operating income of $0.9 million in the third quarter 2011, including the aforementioned gains.

Liftboats

Domestic Liftboats revenue increased to $17.4 million in the third quarter 2012 from $16.7 million in the third quarter 2011, as higher average dayrates were largely offset by fewer operating days. Average revenue per liftboat per day increased by 19.2% to $8,870 during the third quarter 2012, from $7,443 in the prior year period. Operating days decreased to 1,958 in the third quarter 2012, compared to 2,246 operating days during the third quarter 2011. Operating days were negatively impacted by Hurricane Isaac and a reduction in the number of marketed vessels as a result of an international mobilization, a casualty loss on the Starfish, and the cold stacking of one vessel. Third quarter 2012 operating expenses declined to $9.9 million from $11.4 million during the comparable period of 2011, due to lower workers' compensation and various expenses related to a reduction in the number of marketed vessels. Domestic Liftboats recorded operating income of $2.6 million in the third quarter 2012 compared to operating income of $0.6 million in the third quarter 2011.

International Liftboats generated revenue of $30.8 million in the third quarter 2012 compared to $28.9 million in the third quarter 2011. Average revenue per liftboat per day increased by 9.9% to $23,432 in the third quarter 2012 from $21,325 in the same period in 2011. Operating days were relatively constant at 1,314 during the third quarter 2012, compared to 1,357 days in the third quarter 2011. Third quarter 2012 operating expenses increased to $20.4 million, from $14.1 million during the third quarter 2011, primarily due to incremental costs associated with the repair of the Whaleshark and mobilization of the Kingfish to the Middle East, in addition to higher labor and repair and maintenance expenses. International Liftboats recorded operating income of $6.5 million in the third quarter 2012 compared to operating income of $8.5 million in the prior year period.

Non-GAAP

Certain non-GAAP performance measures and corresponding reconciliations to GAAP financial measures for the Company have been provided for meaningful comparisons between current results and prior operating periods. Generally, a non-GAAP financial measure is a numerical measure of a company's performance, financial position, or cash flows that excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles. In order to fully assess the financial operating results, management believes that the adjusted loss from continuing operations figures included in this release are appropriate measures of the continuing and normal operations of the Company. However, these measures should be considered in addition to, and not as a substitute for, or superior to, income (loss) from continuing operations, operating income (loss), cash flows from operations, or other measures of financial performance prepared in accordance with GAAP. The non-GAAP measures included in this press release have been reconciled to the nearest GAAP measure in the table that follows the financial statements. Please see the attached Reconciliation of GAAP to Non-GAAP Financial Measures for a complete description of the adjustments made to Operating Loss, Loss From Continuing Operations and Diluted Loss per Share from Continuing Operations.

Conference Call Information

Hercules Offshore will conduct a conference call at 10:00 a.m. CDT (11:00 a.m. EDT) on October 25, 2012, to discuss its third quarter 2012 financial results. To participate in the call, dial 866-277-1184 (domestic) or 617-597-5360 (international) and reference access code 24477667 approximately 10 minutes prior to the start of the call. The conference call will also be broadcast live via the Internet at http://www.herculesoffshore.com.

A replay of the conference call will be available by telephone on October 25, 2012, beginning at 12:00 p.m. CDT (1:00 p.m. EDT), through November 1, 2012. The phone number for the conference call replay is 888-286-8010 (domestic) or 617-801-6888 (international) with access code 57392118. Additionally, the recorded conference call will be accessible through our website at http://www.herculesoffshore.com for 7 days after the conference call.

Additional Information

Headquartered in Houston, Hercules Offshore, Inc. operates a fleet of 39 jackup rigs, 16 barge rigs, 63 liftboats and two submersible rigs. The Company offers a range of services to oil and gas producers to meet their needs during drilling, well service, platform inspection, maintenance, and decommissioning operations in several key shallow water provinces around the world. Hercules Offshore currently holds 32.1% of share capital in Discovery Offshore S.A., a pure play, ultra-high specification jackup rig company.  For more information, please visit our website at http://www.herculesoffshore.com.

The news release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements are subject to a number of risks, uncertainties and assumptions, including the factors described in Hercules Offshore's most recent periodic reports and other documents filed with the Securities and Exchange Commission, which are available free of charge at the SEC's website at http://www.sec.gov or the Company's website at http://www.herculesoffshore.com. Hercules Offshore cautions you that forward-looking statements are not guarantees of future performance and that actual results or developments may differ materially from those projected or implied in these statements.

 

HERCULES OFFSHORE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)























September 30,



December 31,









2012



2011









(Unaudited)





ASSETS











Current Assets:













Cash and Cash Equivalents



$        271,550



$       134,351





Restricted Cash



3,994



9,633





Accounts Receivable, Net



152,037



153,688





Prepaids



24,675



16,352





Current Deferred Tax Asset



15,536



15,543





Assets Held for Sale



7,840



-





Other



11,322



20,435









486,954



350,002

















Property and Equipment, Net



1,464,165



1,591,791



Equity Investment



38,460



34,735



Other Assets, Net



39,833



30,176









$     2,029,412



$    2,006,704















LIABILITIES AND STOCKHOLDERS' EQUITY











Current Liabilities:













Short-term Debt and Current Portion of Long-term Debt



$          66,335



$         22,130





Accounts Payable



57,652



49,370





Accrued Liabilities



70,143



70,421





Interest Payable



36,120



9,899





Insurance Notes Payable



18,165



5,218





Other Current Liabilities



30,467



18,366









278,882



175,404

















Long-term Debt, Net of Current Portion



797,797



818,146



Deferred Income Taxes



51,379



83,503



Other Liabilities



24,108



21,098

















Commitments and Contingencies

























Stockholders' Equity



877,246



908,553









$     2,029,412



$    2,006,704

 

HERCULES OFFSHORE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)



























Three Months Ended
September 30,



Nine Months Ended
September 30,







2012



2011



2012



2011









































Revenue



$     184,888



$    162,991



$     507,158



$    492,570





















Costs and Expenses:



















Operating Expenses



85,608



111,372



317,934



332,081



Asset Impairment



60,693



-



108,216



-



Depreciation and Amortization



40,805



43,895



126,178



128,699



General and Administrative



15,738



10,757



39,925



40,403







202,844



166,024



592,253



501,183





















Operating Loss



(17,956)



(3,033)



(85,095)



(8,613)





















Other Income (Expense):



















Interest Expense



(19,869)



(20,389)



(59,831)



(59,035)



Loss on Extinguishment of Debt



-



-



(9,156)



-



Other, Net



676



(1,595)



764



(3,263)





















Loss Before Income Taxes



(37,149)



(25,017)



(153,318)



(70,911)

Income Tax Benefit (Provision)



(709)



7,973



22,047



25,921

Loss from Continuing Operations



(37,858)



(17,044)



(131,271)



(44,990)

Income (Loss) from Discontinued Operations, Net of Taxes

-



52



-



(9,651)

Net Loss



$    (37,858)



$    (16,992)



$   (131,271)



$     (54,641)









































Basic and Diluted Loss Per Share:



















Loss from Continuing Operations



$         (0.24)



$         (0.12)



$          (0.86)



$        (0.35)



Income (Loss) from Discontinued Operations



-



-



-



(0.08)



Net Loss



$         (0.24)



$         (0.12)



$          (0.86)



$        (0.43)









































Basic and Diluted Weighted Average Shares Outstanding



158,573



137,887



152,098



128,000

 

 

HERCULES OFFSHORE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



















Nine Months Ended September 30,







2012



2011

Cash Flows from Operating Activities:











Net Loss



$      (131,271)



$      (54,641)



Adjustments to Reconcile Net Loss to Net Cash Provided by











Operating Activities:











Depreciation and Amortization



126,178



130,355



Stock-Based Compensation Expense



5,141



3,898



Deferred Income Taxes



(33,120)



(47,458)



Benefit for Doubtful Accounts Receivable



(8,841)



(12,240)



Amortization of Deferred Financing Fees



2,450



2,877



Amortization of Original Issue Discount



3,187



3,305



Gain on Insurance Settlement



(30,668)



-



(Gain) Loss on Disposal of Assets, Net



(24,563)



5,495



Non-Cash Portion of Loss on Extinguishment of Debt



2,738



-



Asset Impairment



108,216



-



Other



(838)



2,868



Net Change in Operating Assets and Liabilities



40,604



23,908



Net Cash Provided by Operating Activities



59,213



58,367

























Cash Flows from Investing Activities:











Acquisition of Assets



(40,000)



(25,000)



Additions of Property and Equipment



(82,150)



(33,508)



Deferred Drydocking Expenditures



(9,814)



(12,859)



Cash Paid for Equity Investment



(4,288)



(34,155)



Insurance Proceeds Received



54,139



-



Proceeds from Sale of Assets, Net



49,854



58,440



(Increase) Decrease in Restricted Cash



1,621



(2,476)



Net Cash Used in Investing Activities



(30,638)



(49,558)













Cash Flows from Financing Activities:











Long-term Debt Borrowings



500,000



-



Long-term Debt Repayments



(452,909)



(18,615)



Redemption of 3.375% Convertible Senior Notes



(27,606)



-



Common Stock Issuance



96,696



-



Payment of Debt Issuance Costs



(7,717)



(2,109)



Other



160



2,523



Net Cash Provided by (Used in) Financing Activities



108,624



(18,201)













Net Increase (Decrease) in Cash and Cash Equivalents



137,199



(9,392)

Cash and Cash Equivalents at Beginning of Period



134,351



136,666

Cash and Cash Equivalents at End of Period



$       271,550



$      127,274

 

 

HERCULES OFFSHORE, INC. AND SUBSIDIARIES

SELECTED FINANCIAL AND OPERATING DATA

(Dollars in thousands, except per day amounts)

(Unaudited)



























Three Months Ended
September 30,



Nine Months Ended
September 30,







2012



2011



2012



2011





















Domestic Offshore:



















Number of rigs (as of end of period)



34



43



34



43



Revenue



$   92,277



$   60,246



$  264,663



$ 142,688



Operating expenses



62,343



53,184



177,746



140,390



Asset impairment



25,502



-



25,502



-



Depreciation and amortization expense



18,695



17,977



54,966



49,920



General and administrative expenses



2,099



1,909



5,936



7,499



Operating income (loss)



$ (16,362)



$ (12,824)



$         513



$ (55,121)





















International Offshore:



















Number of rigs (as of end of period)



8



9



8



9



Revenue



$   37,090



$   48,965



$    85,210



$ 196,131



Operating expenses



(13,816)



29,098



39,061



99,803



Asset impairment



35,191



-



82,714



-



Depreciation and amortization expense



10,360



12,913



35,087



39,469



General and administrative expenses



1,842



(5,992)



(2,682)



(6,968)



Operating income (loss)



$     3,513



$   12,946



$   (68,970)



$   63,827





















Inland:



















Number of barges (as of end of period)



16



17



16



17



Revenue



$     7,363



$     8,124



$    19,907



$   21,251



Operating expenses



6,749



3,535



20,963



16,693



Depreciation and amortization expense



3,217



3,310



9,634



11,338



General and administrative expenses



231



356



407



869



Operating income (loss)



$   (2,834)



$        923



$   (11,097)



$   (7,649)





















Domestic Liftboats:



















Number of liftboats (as of end of period)



39



41



39



41



Revenue



$   17,368



$   16,718



$    44,041



$   44,209



Operating expenses



9,931



11,419



29,561



31,837



Depreciation and amortization expense



4,042



4,136



11,682



11,637



General and administrative expenses



821



548



1,963



1,579



Operating income (loss)



$     2,574



$        615



$         835



$      (844)





















International Liftboats:



















Number of liftboats (as of end of period)



24



24



24



24



Revenue



$   30,790



$   28,938



$    93,337



$   88,291



Operating expenses



20,401



14,136



50,603



43,358



Depreciation and amortization expense



3,819



4,905



12,872



14,379



General and administrative expenses



72



1,374



2,855



4,470



Operating income



$     6,498



$     8,523



$    27,007



$   26,084





















Total Company:



















Revenue



$ 184,888



$ 162,991



$  507,158



$ 492,570



Operating expenses



85,608



111,372



317,934



332,081



Asset impairment



60,693



-



108,216



-



Depreciation and amortization expense



40,805



43,895



126,178



128,699



General and administrative expenses



15,738



10,757



39,925



40,403



Operating loss



(17,956)



(3,033)



(85,095)



(8,613)



     Interest expense



(19,869)



(20,389)



(59,831)



(59,035)



     Loss on extinguishment of debt



-



-



(9,156)



-



     Other, net



676



(1,595)



764



(3,263)



Loss before income taxes



(37,149)



(25,017)



(153,318)



(70,911)



     Income tax benefit (provision)



(709)



7,973



22,047



25,921



Loss from continuing operations



(37,858)



(17,044)



(131,271)



(44,990)



Income (loss) from discontinued operations, net of taxes



-



52



-



(9,651)



Net loss



$ (37,858)



$ (16,992)



$ (131,271)



$ (54,641)

 

 

HERCULES OFFSHORE, INC. AND SUBSIDIARIES

SELECTED FINANCIAL AND OPERATING DATA - (Continued)

(Dollars in thousands, except per day amounts)

(Unaudited)



























Three Months Ended September 30, 2012





Operating Days



Available Days



Utilization (1)



Average

Revenue

per Day (2)



Average

Operating

Expense per

Day (3)

























Domestic Offshore

1,460



1,656



88.2%



$       63,203



$           37,647



International Offshore

393



602



65.3%



94,377



(22,950)



Inland

229



276



83.0%



32,153



24,453



Domestic Liftboats

1,958



2,944



66.5%



8,870



3,373



International Liftboats

1,314



1,932



68.0%



23,432



10,560



























Three Months Ended September 30, 2011





Operating Days



Available Days



Utilization (1)



Average

Revenue

per Day (2)



Average

Operating

Expense per

Day (3)

























Domestic Offshore

1,228



1,656



74.2%



$       49,060



$           32,116



International Offshore

508



736



69.0%



96,388



39,535



Inland

262



276



94.9%



31,008



12,808



Domestic Liftboats

2,246



3,220



69.8%



7,443



3,546



International Liftboats

1,357



2,116



64.1%



21,325



6,681



























Nine Months Ended September 30, 2012





Operating Days



Available Days



Utilization (1)



Average

Revenue

per Day (2)



Average

Operating

Expense per

Day (3)

























Domestic Offshore

4,414



4,932



89.5%



$       59,960



$           36,039



International Offshore

969



1,876



51.7%



87,936



20,821



Inland

633



822



77.0%



31,449



25,502



Domestic Liftboats

5,193



8,997



57.7%



8,481



3,286



International Liftboats

3,895



5,594



69.6%



23,963



9,046



























Nine Months Ended September 30, 2011





Operating Days



Available Days



Utilization (1)



Average

Revenue

per Day (2)



Average

Operating

Expense per

Day (3)

























Domestic Offshore

3,075



4,099



75.0%



$       46,403



$           34,250



International Offshore

1,654



2,184



75.7%



118,580



45,697



Inland

739



819



90.2%



28,756



20,382



Domestic Liftboats

5,676



9,855



57.6%



7,789



3,231



International Liftboats

4,022



6,279



64.1%



21,952



6,905














































(1)

Utilization is defined as the total number of days our rigs or liftboats, as applicable, were under contract, known as operating days, in the period as a percentage of the total number of available days in the period.  Days during which our rigs and liftboats were undergoing major refurbishments, upgrades or construction, and days during which our rigs and liftboats are cold stacked, are not counted as available days. Days during which our liftboats are in the shipyard undergoing drydocking or inspection are considered available days for the purposes of calculating utilization. 























(2)

Average revenue per rig or liftboat per day is defined as revenue earned by our rigs or liftboats, as applicable, in the period divided by the total number of operating days for our rigs or liftboats, as applicable, in the period.























(3)

Average operating expense per rig or liftboat per day is defined as operating expenses, excluding depreciation and amortization, incurred by our rigs or liftboats, as applicable, in the period divided by the total number of available days in the period.  We use available days to calculate average operating expense per rig or liftboat per day rather than operating days, which are used to calculate average revenue per rig or liftboat per day, because we incur operating expenses on our rigs and liftboats even when they are not under contract and earning a dayrate. In addition, the operating expenses we incur on our rigs and liftboats per day when they are not under contract are typically lower than the per day expenses we incur when they are under contract.

 

Hercules Offshore, Inc. and Subsidiaries

Reconciliation of GAAP to Non-GAAP Financial Measures

(Unaudited)

(In thousands, except per share data)



We report our financial results in accordance with generally accepted accounting principles (GAAP). However, management believes that certain non-GAAP performance measures and ratios may provide users of this financial information additional meaningful comparisons between current results and results in prior operating periods. Non-GAAP financial measures we may present from time to time are operating income, income from continuing operations or diluted earnings per share excluding certain charges or amounts. These adjusted income amounts are not a measure of financial performance under GAAP. Accordingly, they should not be considered as a substitute for operating income, income from continuing operations, net income, earnings per share or other income data prepared in accordance with GAAP. See the table below for supplemental financial data and corresponding reconciliations to GAAP financial measures for the three and nine months ended September 30, 2012. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company's reported results prepared in accordance with GAAP. The non-GAAP measures included in this press release have been reconciled to the nearest GAAP measure in the following table:






Three Months Ended

September 30,





Nine Months Ended

September 30,





















2012 





2012 





    Operating Loss:















      GAAP Operating Loss



$                 (17,956)





$               (85,095)





      Adjustment



15,075

(a)



62,598

(b)



      Non-GAAP Operating Loss



$                   (2,881)





$               (22,497)





















    Other Expense:















      GAAP Other Expense



$                 (19,193)





$               (68,223)





      Adjustment



-





9,156

(c)



      Non-GAAP Other Expense  



$                 (19,193)





$               (59,067)





















   Benefit (Provision) for Income Taxes:















      GAAP Benefit (Provision) for Income Taxes



$                      (709)





$                 22,047





      Tax Impact of Adjustment



7,042





(12,796)





      Non-GAAP Benefit (Provision) for Income Taxes



$                     6,333





$                   9,251





















    Loss from Continuing Operations:















      GAAP Loss from Continuing Operations



$                 (37,858)





$             (131,271)





      Total Adjustment, Net of Tax



22,117





58,958





      Non-GAAP Loss from Continuing Operations



$                 (15,741)





$               (72,313)





















    Diluted Loss per Share from Continuing Operations:















      GAAP Diluted Loss per Share from Continuing Operations



$                     (0.24)





$                   (0.86)





      Adjustment per Share



0.14





0.38





      Non-GAAP Diluted Loss per Share from Continuing Operations



$                     (0.10)





$                   (0.48)






































(a)

This amount represents a non-cash charge of $35.2 million related to the impairment of the Hercules 258; a non-cash charge of $25.5 million related to the impairment of the Hercules 252; an $18.4 million gain on the sale of Platform Rig 3 and a $27.3 million gain on the Hercules 185 insurance settlement. On an after-tax basis, these adjustments approximated $22.1 million.





































(b)

This amount represents a non-cash charge of $47.5 million related to the impairment of the Hercules 185 and related unamortized deferred costs; a non-cash charge of $35.2 million related to the impairment of the Hercules 258; a non-cash charge of $25.5 million related to the impairment of the Hercules 252; an $18.4 million gain on the sale of Platform Rig 3 and a $27.3 million gain on the Hercules 185 insurance settlement. On an after-tax basis, these adjustments approximated $53.0 million.





































(c)

This amount represents (i) a charge of $6.4 million related to our debt refinancing in April 2012; (ii) a non-cash charge of $1.4 million related to the write-off of unamortized issuance costs in connection with the April 2012 termination of our prior term loan and (iii) a $1.3 million loss on the retirement of a portion of our 3.375% convertible senior notes. On an after-tax basis, these adjustments approximated $6.0 million.















SOURCE Hercules Offshore, Inc.




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