Segment Reporting The Company reports segment information based on its internal reporting used by management for making decisions and assessing performance as the source of its reportable segments. As a result of the acquisition of Lifetouch in the second quarter of 2018, the Company entered into a new business and as a result, the Company has a new reportable and operating segment described further below. The Chief Operating Decision Maker ("CODM") function uses segment margin to evaluate the performance of the segments and allocate resources. Management considers segment margin to be the appropriate metric to evaluate and compare the ongoing performance of each reportable segment as it is the level at which direct costs associated with the performance of the segment are monitored. During the second quarter of 2018, the Company expanded its segment reporting. As a result, the profitability metric by which the Company's CODM measures segment performance and allocates resources changed from segment gross profit to segment margin. Segment margin includes technology and development expenses, sales and marketing expenses, and credit card fees, arriving at a margin for the segment. Segment margin excludes corporate expenses, amortization of intangible assets, stock-based compensation expense, and other non-recurring items including restructuring charges and acquisition-related costs. Corporate expenses include activities that are not directly attributable or allocable to a specific segment. The Companys segments are determined based on the products and services each segment provides and how the CODM evaluates the business. The Company has the following reportable segments: Shutterfly Consumer - Includes sales from the Company's brands and are derived from the sale of a variety of products such as, cards and stationery, professionally-bound photo books, personalized gifts and home decor, calendars and prints, and related shipping revenue, as well as rental revenue from its BorrowLenses brand. Revenue from advertising displayed on the Company's website is also included in Shutterfly Consumer revenue. Lifetouch - Includes revenue from professional photography services for schools, preschools and retail studios operated by Lifetouch under the JCPenney Portrait brand as well as churches and other groups. Shutterfly Business Solutions - Includes revenue from personalized direct marketing and other end-consumer communications as well as just-in-time, inventory-free printing for the Company's business customers. Segment assets are not reported to, or used by, the CODM to allocate resources or assess performance of the Company's segments. Accordingly, the Company has not disclosed asset information by segment. Substantially all of the Company's revenue is generated from sales originating in the United States. The Company's segment results for fiscal 2018, 2017 and 2016 were as follows (dollars in thousands): Year Ended December 31 2018 2017 2016 Shutterfly Consumer: Net revenue $ 971,829 $ 996,963 $ 997,556 Cost of net revenue 452,226 456,665 455,387 Technology and development 124,670 140,698 146,216 Sales and marketing 168,442 170,687 198,583 Credit card fees 25,072 25,645 26,319 Margin (1) $ 201,419 $ 203,268 $ 171,051 Margin % 20.7 % 20.4 % 17.1 % Lifetouch (2) : Net revenue (3) $ 798,718 $  $  Cost of net revenue (4) 299,467   Technology and development 21,711   Sales and marketing (5) 288,578   Credit card fees 8,951   Margin (1) $ 180,011 $  $  Margin % 22.5 %  %  % Shutterfly Business Solutions: Net revenue $ 230,588 $ 193,239 $ 136,668 Cost of net revenue 187,392 154,068 100,582 Technology and development 13,614 17,907 12,142 Sales and marketing 6,067 4,476 5,005 Margin (1) $ 23,515 $ 16,788 $ 18,939 Margin % 10.2 % 8.7 % 13.9 % Consolidated Segments: Net revenue (3) $ 2,001,135 $ 1,190,202 $ 1,134,224 Cost of net revenue (4) 939,085 610,733 555,969 Technology and development 159,995 158,605 158,358 Sales and marketing 463,087 175,163 203,588 Credit card fees 34,023 25,645 26,319 Margin (1) $ 404,945 $ 220,056 $ 189,990 Margin % 20.2 % 18.5 % 16.8 % (1) The margins reported reflect only costs that are directly attributable or allocable to a specific segment and exclude corporate expenses, amortization of intangible assets, stock-based compensation expense and other one-time charges. (2) The Company acquired Lifetouch on April 2, 2018. (3) Yearbook sales and collections for the Lifetouch segment are made throughout the school year, whereas yearbooks are typically delivered toward the end of the school year in the second quarter of the fiscal year. Business combination accounting principles require the Company to record the assumed deferred revenue at fair value on the acquisition date measured based on the cost to manufacture and deliver the yearbooks, plus a profit margin. Segment reporting includes this purchase accounting adjustment which primarily relates to yearbook sales in net revenue for the Lifetouch segment. (4) Business combination accounting principles require the Company to measure acquired inventory at fair value. The fair value of inventory reflects Lifetouch's cost of manufacturing plus a portion of the expected profit margin. Segment reporting excludes this purchase accounting adjustment from cost of net revenue for the Lifetouch segment. The following table reconciles segment margin to total operating income and income before income taxes, segment net revenue to Net revenue, and segment cost of net revenue to Cost of net revenue for the years ended December 31, 2018, 2017 and 2016 (in thousands): Year Ended December 31 2018 2017 2016 Total segment margin $ 404,945 $ 220,056 $ 189,990 Purchase accounting deferred revenue adjustment (1) (39,315)   Purchase accounting inventory adjustment (2) (10,931)   Purchase accounting deferred rent adjustment (3) (292)   Corporate expenses (4) (130,642) (74,903) (75,068) Amortization of intangible assets (40,424) (14,916) (20,120) Stock-based compensation expense (47,721) (43,573) (45,692) Restructuring (4,618) (16,966)  Acquisition-related costs (15,549)   Capital lease termination  (8,098)  Income from operations $ 115,453 $ 61,600 $ 49,110 Income from operations $ 115,453 $ 61,600 $ 49,110 Interest expense (61,239) (27,836) (23,023) Interest and other income, net 5,444 1,481 501 Income before income taxes $ 59,658 $ 35,245 $ 26,588 Total segment net revenue $ 2,001,135 $ 1,190,202 $ 1,134,224 Purchase accounting deferred revenue adjustment (1) (39,315)   Net revenue $ 1,961,820 $ 1,190,202 $ 1,134,224 Total segment cost of net revenue $ 939,085 $ 610,733 $ 555,969 Purchase accounting inventory adjustment (2) 10,931   Stock-based compensation expense for cost of net revenue 3,824 4,339 4,579 Amortization of intangible assets for cost of net revenue 7,735 4,578 5,569 Cost of net revenue $ 961,575 $ 619,650 $ 566,117 (1) Yearbook sales and collections for the Lifetouch segment are made throughout the school year, whereas yearbooks are typically delivered toward the end of the school year in the second quarter of the fiscal year. Business combination accounting principles require the Company to record the assumed deferred revenue at fair value on the acquisition date measured based on the cost to manufacture and deliver the yearbooks, plus a profit margin. Segment reporting includes this purchase accounting adjustment which primarily relates to yearbook sales in net revenue for the Lifetouch segment. (2) Business combination accounting principles require the Company to measure acquired inventory at fair value. The fair value of inventory reflects the acquired companys cost of manufacturing plus a portion of the expected profit margin. Management reporting excludes this purchase accounting adjustment from cost of net revenue for the Lifetouch segment.