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 November 2, 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) severance costs associated with reorganizations, (iii) product recall accruals and adjustments, (iv) asset held for sale gain, (v) legal settlements, net of legal expenses, (vi) non-cash amortization of the inventory fair value adjustment recorded in connection with the acquisition of Waterworks and (vii) costs associated with distribution center closures. 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				Nine Months Ended
	November 2,		November 3,		November 2,		November 3,
	2019		2018		2019		2018
Operating income:
RH Segment	$	86,936	$	60,853	$	260,429	$	185,705
Waterworks		825		222		2,839		(6)
Asset impairments and change in useful lives		(1,031)		(3,411)		(7,052)		(3,411)
Reorganization related costs		(1,075)		(7,564)		(1,075)		(9,285)
Recall accrual		2,053		(3,986)		3,988		(2,668)
Asset held for sale gain		1,529		—		1,529		—
Legal settlements		—		—		1,193		5,289
Impact of inventory step-up		—		—		—		(380)
Distribution center closures		—		(3,886)		—		(3,046)
Income from operations		89,237		42,228		261,851		172,198
Interest expense—net		21,564		17,695		67,195		48,260
Loss on extinguishment of debt—net		6,857		—		5,903		917
Income before income taxes	$	60,816	$	24,533	$	188,753	$	123,021

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				Nine Months Ended
	November 2,		November 3,		November 2,		November 3,
	2019		2018		2019		2018
Furniture	$	467,524	$	418,895	$	1,349,861	$	1,201,737
Non-furniture		210,002		217,663		632,600		633,025
Total net revenues	$	677,526	$	636,558	$	1,982,461	$	1,834,762

The Company is domiciled in the United States and primarily operates its retail and outlet stores in the United States. As of November 2, 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 nine months ended November 2, 2019 or November 3, 2018.