We design, market, and administer compensation and benefit programs for companies supplementing and securing employee benefits and provide executive compensation and related consulting services to U.S. corporations, banks, and healthcare organizations. We generally compete with regional firms while we market our products and services nationwide. A majority of our revenues result from commissions paid by insurance companies that underwrite the insurance policies used to finance our clients' benefit programs. Most of our clients' benefit programs are financed by business-owned life insurance and other financial products. We pay commissions to employees and independent producers based upon a percentage of our commission revenue. We work closely with clients to design customized products that meet the specific organizational needs of the client and with insurance companies to develop unique policy features and competitive pricing.
will require that elections to defer compensation be made earlier than is current practice for many plans. The Treasury Department and the IRS issued their initial guidance regarding Section 409A, Notice 2005-1, on December 20, 2004. This initial guidance provides for the transition to the new rules contained in Section 409A and further guidance is expected during 2005. Most existing deferred compensation programs will have to be modified in accordance with the new rules. During the transition period, it is expected that plan sponsors will revise the structure of their current programs and formalize the changes into a compliant plan design by the end of 2005. We believe that deferred compensation plans remain a valuable savings tool. However, because of the time and effort required by plan sponsors to come into compliance with the new rules and to communicate the required changes to participants, participant compensation deferrals may be reduced. As a result, our revenue from existing and new arrangements may be reduced during the transitional period. Beyond the transitional period, it is anticipated that participant deferrals will return to their prior level, although the long-term impact of the new rules remains uncertain at this time.
Renewal Commission Revenue and Related Fees. Renewal revenue is recognized on the date that the renewal premium is due or paid by the client to the insurance company depending on whether a policy is considered fixed or variable. Fixed renewal policies have predictable set premium amounts. Revenue on these policies is recognized on the premium due date. Variable renewal policy premiums can be based upon such items as value of underlying investments in the policy, cash surrender value of the policy, or mutual fund values. In some cases, we are able to obtain information directly from the carriers allowing us to reasonably and reliably estimate the expected renewal premiums. Revenue is recognized based upon these estimates at a policy's renewal date. For those
Interest expense. Interest expense for the year December 31, 2003 was $24.3 million compared to $4.1 million in 2002. To finance the November 2002 acquisition of LongMiller, we borrowed approximately $87.5 million on our line of credit and issued $305 million of non-recourse insurance revenue asset-backed notes. The increased outstanding borrowings were responsible for the increase in interest expense.
Our acquisition criteria focuses on the quality of management, future earnings, and the strategic fit with our company, as well as the growth potential of the target company. In several of our acquisitions, we also acquire the financial value embedded in a book of recurring renewal business that is expected to be realized for many years after the acquisition takes place. Historically, our future renewal revenue stream has been the source of collateral for our line of credit, which we frequently use for acquisitions. As we acquire more businesses that do not have this attribute, this may limit our future borrowing availability. We typically structure a majority of the purchase price in cash. We acquire little in the way of tangible assets, thus creating a substantial amount of intangible assets on our balance sheet. The companies we acquire are frequently privately owned and structured as subchapter S corporations and the acquisitions are usually effected through a purchase of assets with the income taxed directly to the stockholders of the target.
The restrictive covenants under the credit agreement provide for the maintenance of a minimum ratio of fixed charges, a maximum allowable leverage ratio, a minimum amount of net worth (stockholders' equity), and a maximum ratio of debt to capitalization. We were in compliance with all restrictive covenants as of December 31, 2004.