Segment Disclosure

9 Months Ended

Jul. 31, 2019

Certain disclosures are required for operating segments, products and services, geographic areas of operation and major customers. Segment reporting is based upon the “management approach,” i.e., how management organizes the Company’s operating segments for which separate financial information is (1) available and (2) evaluated regularly by the Chief Operating Decision Makers (CODMs) in deciding how to allocate resources and in assessing performance. Synopsys’ CODMs are its two co-Chief Executive Officers.

In prior periods, the Company operated in a single segment. Effective in fiscal 2019, the Company realigned its business to evaluate the results of its Software Integrity business separately from the Company’s traditional EDA and semiconductor IP business. The CODMs now regularly review disaggregated information for the following two reportable segments: (1) Semiconductor & System Design, which includes EDA tools, IP products, system integration solutions and associated services, and (2) Software Integrity, which includes security and quality solutions for software development across many industries. The Company’s historical results have been recast to retrospectively reflect the change from one to two reportable segments.

As a result of the change in reporting structure, financial information provided to and used by the CODMs to assist in making operational decisions, allocating resources, and assessing performance reflects consolidated financial information as well as revenue, adjusted operating income, and adjusted operating margin information for the Semiconductor & System Design and Software Integrity segments, accompanied by disaggregated information relating to revenues by geographic region.

Information by reportable segment was as follows:



	Three Months Ended July 31,						Nine Months Ended July 31,
	2019			2018			2019			2018
	(in thousands)
Total Segments:
Revenues	$	852,970		$	779,714		$	2,509,613		$	2,325,976
Adjusted operating income	216,581			167,847			627,369			553,909
Adjusted operating margin	25		%	22		%	25		%	24		%
Semiconductor & System Design:
Revenues	$	769,411		$	708,413		$	2,260,372		$	2,122,780
Adjusted operating income	207,773			169,798			604,497			564,656
Adjusted operating margin	27		%	24		%	27		%	27		%
Software Integrity:
Revenues	$	83,559		$	71,301		$	249,241		$	203,196
Adjusted operating income	8,808			(1,951		)	22,872			(10,747		)
Adjusted operating margin	11		%	(3		)%	9		%	(5		)%

Certain operating expenses are not allocated to the segments and are managed at a consolidated level. The unallocated expenses managed at a consolidated level, including amortization of intangible assets, stock compensation and other operating expenses, are presented in the table below to provide a reconciliation of the total adjusted operating income from segments to the Company's consolidated operating income:



	Three Months Ended July 31,						Nine Months Ended July 31,
	2019			2018			2019			2018
	(in thousands)
Total segment adjusted operating income	$	216,581		$	167,847		$	627,369		$	553,909
Reconciling items:
Amortization of intangible expense	(23,714		)	(30,805		)	(77,138		)	(90,538		)
Stock-based compensation expense	(39,453		)	(37,252		)	(114,827		)	(102,540		)
Other	(25,820		)	(35,822		)	(44,894		)	(62,131		)
Total operating income	$	127,594		$	63,968		$	390,510		$	298,700

The CODMs do not use total assets by segment to evaluate segment performance or allocate resources. As a result, total assets by segment are not required to be disclosed.

Revenue by Geography

The CODMs consider where individual “seats” or licenses to the Company’s products are located in allocating revenue to particular geographic areas. Revenue is defined as revenues from external customers. Revenues related to operations in the United States and other geographic areas were:



	Three Months Ended July 31,				Nine Months Ended July 31,
	2019		2018		2019		2018
	(in thousands)
Revenue:
United States	$	407,408	$	365,414	$	1,231,951	$	1,126,624
Europe	90,074		90,657		257,502		273,136
Japan	65,709		71,981		203,486		210,805
Asia-Pacific and Other	289,779		251,662		816,675		715,411
Consolidated	$	852,970	$	779,714	$	2,509,613	$	2,325,976

Geographic revenue data for multi-region, multi-product transactions reflect internal allocations and are therefore subject to certain assumptions and the Company’s methodology.

For the three and nine months ended July 31, 2019 and 2018, one customer, including its subsidiaries, through multiple agreements accounted for greater than 10% of the Company's total revenues.