Segment Disclosure

9 Months Ended

Jul. 31, 2020

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.

The Company has two reportable segments: (1) Semiconductor & System Design, which includes EDA tools, IP products, system integration solutions and other associated revenue categories, and (2) Software Integrity, which includes a comprehensive solution for building integrity—security, quality and compliance testing—into the customers’ software development lifecycle and supply chain.

The 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 revenue by geographic region.

Information by reportable segment was as follows:



	Three Months Ended July 31,						Nine Months Ended July 31,
	2020			2019			2020			2019
	(in thousands)
Total Segments:
Revenue	$	964,134		$	852,970		$	2,659,842		$	2,509,613
Adjusted operating income	323,553			216,581			731,890			627,369
Adjusted operating margin	34		%	25		%	28		%	25		%
Semiconductor & System Design:
Revenue	$	870,734		$	769,411		$	2,392,542		$	2,260,372
Adjusted operating income	308,730			207,773			697,273			604,497
Adjusted operating margin	35		%	27		%	29		%	27		%
Software Integrity:
Revenue	$	93,400		$	83,559		$	267,300		$	249,241
Adjusted operating income	14,823			8,808			34,617			22,872
Adjusted operating margin	16		%	11		%	13		%	9		%

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,
	2020			2019			2020			2019
	(in thousands)
Total segment adjusted operating income	$	323,553		$	216,581		$	731,890		$	627,369
Reconciling items:
Amortization of intangible expense	(23,649		)	(23,714		)	(70,277		)	(77,138		)
Stock-based compensation expense	(61,837		)	(39,453		)	(170,155		)	(114,827		)
Other	(27,469		)	(25,820		)	(67,449		)	(44,894		)
Total operating income	$	210,598		$	127,594		$	424,009		$	390,510

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.

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



	Three Months Ended July 31,				Nine Months Ended July 31,
	2020		2019		2020		2019
	(in thousands)
Revenue:
United States	$	432,692	$	407,408	$	1,245,570	$	1,231,951
Europe	94,297		90,074		277,951		257,502
Korea	96,344		84,968		291,175		272,486
Japan	77,819		65,709		230,586		203,486
Asia Pacific and Other	262,982		204,811		614,560		544,188
Consolidated	$	964,134	$	852,970	$	2,659,842	$	2,509,613

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

One customer, including its subsidiaries, accounted for greater than 10% of the Company’s total revenue for the three and nine months ended July 31, 2020 and for the three and nine months ended July 31, 2019, respectively.