CLB 2018 Annual Report

24 Operating income decreased to $54.8 million in 2018 from $66.5 million in 2017 due to lower activity levels derived from large capital spending projects in international markets and additional stock compensation expense of $6.3 million in 2018 for retirement eligible employees. See Note 14 , Stock-Based Compensation for further detail. Operating income decreased to $66.5 million in 2017 from $78.9 million in 2016, primarily due to lower activity levels. Operating margins, excluding the additional stock compensation expense recorded in 2018 were comparable at 15% in 2018 and 16.0% in 2017 but down from 18.5% in 2016. Production Enhancement Revenue for our Production Enhancement segment increased to $287.8 million in 2018 compared to $232.6 million in 2017 and $164.0 million in 2016. The increase in onshore North America industry activity during 2018 and 2017 compared to each corresponding prior year resulted in increased demand for our products associated with land-based completion of oil wells in U.S. unconventional developments. Operating income for this segment increased to $63.0 million in 2018 from $44.0 million in 2017 primarily due to increased demand for our higher margin products and services and the impact of higher revenue on our fixed-cost structure offset by additional stock compensation expense of $3.7 million in 2018 for retirement eligible employees. See Note 14 , Stock-Based Compensation for further detail. Operating income for this segment increased to $44.0 million in 2017 from $8.5 million in 2016 primarily due to increased demand for our higher margin products and services and the impact of higher revenue on our fixed-cost structure. Operating margins were 21.9% in 2018 up from 18.9% in 2017 and 5.2% in 2016. Liquidity and Capital Resources General We have historically financed our activities through cash on hand, cash flows from operations, bank credit facilities, equity financing and the issuance of debt. Cash flows from operating activities provide the primary source of funds to finance operating needs, capital expenditures and our dividend and share repurchase programs. If necessary, we supplement this cash flow with borrowings under bank credit facilities to finance some capital expenditures and business acquisitions. As we are a Netherlands holding company, we conduct substantially all of our operations through subsidiaries. Our cash availability is largely dependent upon the ability of our subsidiaries to pay cash dividends or otherwise distribute or advance funds to us and on the terms and conditions of our existing and future credit arrangements. There are no restrictions preventing any of our subsidiaries from repatriating earnings, and there are no restrictions or income taxes associated with distributing cash to the parent company through loans or advances. As of December 31, 2018, $12.6 million of our $13.1 million of cash was held by our foreign subsidiaries, including the U.S. Our financial statements are prepared in conformity with generally accepted accounting principles in the U.S. ("U.S. GAAP" or "GAAP"). We utilize the non-GAAP financial measure of free cash flow to evaluate our cash flows and results of operations. Free cash flow is defined as net cash provided by operating activities (which is the most directly comparable GAAP measure) less cash paid for capital expenditures. Management believes that free cash flow provides useful information to investors regarding the cash that was available in the period that was in excess of our needs to fund our capital expenditures and operating activities. Free cash flow is not a measure of operating performance under GAAP, and should not be considered in isolation nor construed as an alternative to operating profit, net income (loss) or cash flows from operating, investing or financing activities, each as determined in accordance with GAAP. Free cash flow does not represent residual cash available for distribution because we may have other non-discretionary expenditures that are not deducted from the measure. Moreover, since free cash flow is not a measure determined in accordance with GAAP and thus is susceptible to varying interpretations and calculations, free cash flow, as presented, may not be comparable to similarly titled measures presented by other companies. The following table reconciles this non-GAAP financial measure to the most directly comparable measure calculated and presented in accordance with U.S. GAAP for the years ended December 31, 2018, 2017 and 2016 (in thousands): For the Years Ended December 31, Free Cash Flow Calculation 2018 2017 2016 Net cash provided by operating activities $ 111,827 $ 124,271 $ 131,887 Less: cash paid for capital expenditures (21,741) (18,775) (11,356) Free cash flow $ 90,086 $ 105,496 $ 120,531