Segment Disclosure

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 January 31,
	2019			2018
	(in thousands)
Total Segments:
Revenues	$	820,401		$	769,426
Adjusted operating income	200,952			195,946
Adjusted operating margin	24		%	25		%
Semiconductor & System Design:
Revenues	$	737,906		$	705,333
Adjusted operating income	195,317			199,116
Adjusted operating margin	26		%	28		%
Software Integrity:
Revenues	$	82,495		$	64,093
Adjusted operating income	5,635			(3,170		)
Adjusted operating margin	7		%	(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 January 31,
	2019			2018
	(in thousands)
Total segment adjusted operating income	$	200,952		$	195,946
Reconciling items:
Amortization of intangible expense	(28,227		)	(28,547		)
Stock-based compensation expense	(38,460		)	(32,323		)
Other	13,149			(27,358		)
Total operating income	$	147,414		$	107,718

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 January 31,
	2019		2018
	(in thousands)
Revenue:
United States	$	407,799	$	384,574
Europe	83,886		85,465
Japan	65,073		68,389
Asia-Pacific and Other	263,643		230,998
Consolidated	$	820,401	$	769,426

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