Activision, Inc. — 2004 Annual Report Notes to Consolidated Financial Statements 8. Goodwill 9. Accrued Expenses 10. Operations by Reportable Segments and Geographic Area page 60 Based upon our organizational structure, we operate two business segments: (i) publishing of interactive entertainment software and (ii) distribution of interactive entertainment software and hardware products. Publishing refers to the development, marketing and sale of products directly, by license or through our affiliate label program with certain third-party publishers. In the United States, we primarily sell our products on a direct basis to mass-market retailers, consumer electronics stores, discount warehouses and game specialty stores. We conduct our international publishing activities through offices in the UK, Germany, France, Italy, Australia, Sweden, Canada and Japan. Our products are sold internationally on a direct-to-retail basis and through third-party distribution and licensing arrangements and through our wholly-owned distribution subsidiaries located in the UK, the Netherlands and Germany. Distribution refers to our operations in the UK, the Netherlands and Germany that provide logistical and sales services to third-party publishers of interactive entertainment software, our own publishing operations and manufacturers of inter- active entertainment hardware. Accrued expenses were comprised of the following (amounts in thousands): The changes in the carrying amount of goodwill were as follows (amounts in thousands): Publishing Distribution Total Balance as of March 31, 2002 $31,626 $4,366 $35,992 Goodwill acquired during the year 29,348 — 29,348 Issuance of contingent consideration 2,668 — 2,668 Adjustment—prior period purchase allocation (448) — (448) Effect of foreign currency exchange rates — 459 459 Balance as of March 31, 2003 63,194 4,825 68,019 Goodwill acquired during the year 3,763 — 3,763 Issuance of contingent consideration 3,246 — 3,246 Adjustment—prior period purchase allocation 695 — 695 Effect of foreign currency exchange rates — 770 770 Balance as of March 31, 2004 $70,898 $5,595 $76,493 March 31, 2004 2003 Accrued royalties payable $ 7,218 $ 6,430 Accrual for settlement of treasury stock purchases — 7,553 Accrued selling and marketing costs 11,456 8,737 Income tax payable 9,897 6,940 Accrued bonus and vacation pay 20,042 12,287 Other 14,592 16,709 To ta l $63,205 $58,656