The Company defines reportable and operating segments on the same basis that it uses to evaluate performance internally by the Chief Operating Decision Maker (the “CODM”). The Company has determined that the Chief Executive Officer is its CODM. As of August 3, 2019, the Company had two operating segments: RH Segment and Waterworks. The two operating segments include all sales channels accessed by the Company’s customers, including sales through catalogs, sales through the Company’s websites, sales through stores, and sales through the commercial channel.

The Company’s two operating segments are strategic business units that offer products for the home furnishings customer. While RH Segment and Waterworks have a shared management team and customer base, the Company has determined that their results cannot be aggregated as they do not share similar economic characteristics, as well as due to other quantitative factors.

The Company uses operating income to evaluate segment profitability. Operating income is defined as net income before interest expense—net, (gain) loss on extinguishment of debt and income tax expense.

The following tables presents the statements of income metrics reviewed by the CODM to evaluate performance internally or as required under ASC 280—Segment Reporting (in thousands):

The following table presents the balance sheet metrics as required under ASC 280—Segment Reporting (in thousands):

(1)	The Waterworks reporting unit goodwill of $51.1 million recognized upon acquisition in fiscal 2016 was fully impaired as of February 2, 2019, with $17.4 million and $33.7 million impairment recorded in fiscal 2018 and fiscal 2017, respectively.

(2)	The Waterworks reporting unit tradename is presented net of an impairment charge of $14.6 million recorded in fiscal 2018.

The Company uses segment operating income to evaluate segment performance and allocate resources. Segment operating income excludes (i) asset impairments and change in useful lives, (ii) product recall accruals and adjustments, (iii) legal settlements, net of legal expenses, (iv) severance costs associated with reorganizations, including the closures of distribution centers and the Dallas customer call center as part of the Company’s supply chain reorganization, (v) non-cash amortization of the inventory fair value adjustment recorded in connection with the acquisition of Waterworks and (vi) reversal of an estimated loss on disposal of asset. These items are excluded from segment operating income in order to provide better transparency of segment operating results. Accordingly, these items are not presented by segment because they are excluded from the segment profitability measure that management reviews.

The following table presents segment operating income and income before income taxes (in thousands):


	Three Months Ended				Six Months Ended
	August 3,		August 4,		August 3,		August 4,
	2019		2018		2019		2018
Operating income:
RH Segment	$	104,093	$	75,804	$	173,493	$	124,852
Waterworks		920		(338)		2,014		(228)
Asset impairments and change in useful lives		(2,545)		—		(6,021)		—
Recall accrual		320		1,064		1,935		1,318
Legal settlements		1,193		7,204		1,193		5,289
Reorganization related costs		—		(1,721)		—		(1,721)
Impact of inventory step-up		—		(190)		—		(380)
Reversal of loss on asset disposal		—		—		—		840
Income from operations		103,981		81,823		172,614		129,970
Interest expense—net		24,513		15,467		45,631		30,565
(Gain) loss on extinguishment of debt		(954)		917		(954)		917
Income before income taxes	$	80,422	$	65,439	$	127,937	$	98,488

The Company classifies its sales into furniture and non-furniture product lines. Furniture includes both indoor and outdoor furniture. Non-furniture includes lighting, textiles, fittings, fixtures, surfaces, accessories and home décor. Net revenues in each category were as follows (in thousands):


	Three Months Ended				Six Months Ended
	August 3,		August 4,		August 3,		August 4,
	2019		2018		2019		2018
Furniture	$	485,639	$	430,196	$	882,337	$	782,842
Non-furniture		220,875		210,602		422,598		415,362
Total net revenues	$	706,514	$	640,798	$	1,304,935	$	1,198,204

The Company is domiciled in the United States and primarily operates its retail and outlet stores in the United States. As of August 3, 2019, the Company operates 4 retail and 2 outlet stores in Canada and 1 retail store in the U.K. Revenues from Canadian and U.K. operations, and the long-lived assets in Canada and the U.K., are not material to the Company. Canada and U.K. geographic revenues are based upon revenues recognized at the retail store locations in the respective country.

No single customer accounted for more than 10% of the Company’s revenues in the three and six months ended August 3, 2019 or August 4, 2018.