The Company owns its home office building and the adjacent real estate in Carmel, Indiana, approximately 14 miles from downtown Indianapolis. The home office building contains a total of 181,000 usable square feet and the Company currently occupies approximately 70% of this space with the remainder being leased to non-affiliated entities on relatively short-term leases.
The primary sources of the Company's liquidity are (1) funds generated from insurance operations including net investment income, (2) proceeds from the sale of investments and (3) proceeds from maturing investments. The Company generally experiences positive cash flow from operations resulting from the fact that premiums are collected on insurance policies in advance of the disbursement of funds in payment of claims. Operating costs of the Insurance Subsidiaries, other than loss and loss expense payments, generally average less than 33% of net premiums earned on a consolidated basis and the remaining amount is available for investment for varying periods of time depending on the type of insurance coverage provided. Because losses are often settled in periods subsequent to when they are incurred, operating cash flows may, at times, become negative as loss settlements on claim reserves established in prior years exceed current revenues. During 2015, cash flow from operations totaled $38.2 million compared to $30.2 million total for 2014. The increase in operating cash flow resulted mainly from decreased loss, LAE and other operating expense payments in addition to higher premium volume in 2015.
For several years, the Company's investment philosophy has emphasized the purchase of short-term bonds with superior quality and liquidity. As flat yield curves have not provided incentive to lengthen maturities in recent years, the Company has continued to maintain its fixed maturity portfolio at short-term levels. The average contractual life of the Company's bond and short-term investment portfolio decreased slightly to 4.6 years during 2015. The average duration of the Company's fixed maturity portfolio remains much shorter than the contractual maturity average and significantly shorter than the duration of the Company's liabilities. The Company also remains an active participant in the equity securities market using capital which is in excess of amounts considered necessary to fund current operations. The long-term horizon for the Company's equity investments allows it to invest in positions where ultimate value, and not short-term market fluctuation, is the primary focus. Investments made by the Company's domestic Insurance Subsidiaries are regulated by guidelines promulgated by the National Association of Insurance Commissioners which are designed to provide protection for both policyholders and shareholders.
Premiums written by the Property and Casualty Insurance segment for 2015 totaled $366.7 million, an increase of $23.5 million (7%) from 2014. This increase is attributable to a $30.1 million (10%) increase in premiums generated by fleet transportation products resulting from the addition of several new accounts during 2015, rate increases and increased revenue and miles driven by our insureds, which is immediately reflected in premium. This increase was partially offset by decreases of $4.7 million and $4.1 million in premiums generated by primary professional liability and personal automobile, respectively, reflecting the Company's strategic initiatives of reducing exposures in these products. Premiums ceded to reinsurers on Property and Casualty Insurance segment business averaged 35.0% of gross written premium for 2015 compared to 34.7% for 2014, with the small variation attributable to fluctuation in the mix of business as well reinsurance treaty placement changes.
Premiums written by the Reinsurance segment totaled $16.9 million during 2015, a decrease of $22.3 million (57%) from 2014. Premiums generated by property reinsurance products decreased $13.4 million (85%), reflective of management's decision to completely withdraw from the property catastrophe market. As of June 30, 2015, all exposure to catastrophic losses has expired. Further contributing to the Reinsurance segment premium written decrease was an $8.9 million (38%) decline in the Company's book of professional liability reinsurance assumed, reflective of the Company's decision to non-renew certain business in response to deteriorating rates and treaty terms.
After giving effect to changes in unearned premiums, consolidated net premiums earned totaled $263.3 million for 2015 compared to $261.6 million for 2014, an increase of 0.7%. The small net premium earned increase reflects a 10.3% increase in premium earned from the fleet transportation products mentioned above, partially offset by decreased premium written from primary professional liability and personal automobile products and in the Reinsurance segment.
Pre-tax investment income of $12.5 million during 2015 was 38% higher than the 2014 reflecting an increased allocation to high-yield bonds and increases in average invested assets. After tax investment income increased by 32% during 2015 compared to the prior year reflecting a mix in taxable compared to tax-exempt investment income.
Net gains on investments, before taxes, totaled $14.9 million in 2014 compared to net gains on investments of $23.5 million during 2013. The 2014 results were once again heavily influenced by direct trading results with gains of $7.9 million in 2014 compared to gains of $13.6 million in 2013. In addition, limited partnership results produced gains of $7.1 million in 2014 compared to gains of $8.0 million during the prior year. Limited partnership ventures utilized by the Company are primarily engaged in the trading of public and private securities, including foreign securities and, to a lesser extent, small venture capital activities and real estate development. The aggregate of the Company's share of gains in these entities represented a 10% appreciation in value for 2014 compared to a 13% appreciation in value for 2013. To the extent that accounting rules require the limited partnerships to include realized and unrealized gains or losses in their net income, the Company's proportionate share of net income will include the results as reported to the Company by the various general partners. During 2014, the $7.1 million net gain was composed of $5.8 million attributable to an increase in unrealized gains and $1.3 million attributable to realized gains. Recoveries of $0.3 million on previously impaired available-for-sale securities that were sold in 2014 are included in the net gains stated above.
A portion of the Company's fleet transportation business is produced by the direct sales efforts of Baldwin & Lyons, Inc. employees and, accordingly, this business does not incur commission expense on a consolidated basis. Rather, the expenses of the agency operations, including salaries and bonuses of salesmen, travel expenses, etc. is included in operating expenses. In general, commissions paid by the Insurance Subsidiaries to the parent company exceed related acquisition costs incurred in the production of the property and casualty insurance business. The ratio of net operating expenses of the Insurance Subsidiaries to net premiums earned was 32.0% in 2014 and 32.4% in 2013. Including the agency operations and corporate expenses, and after elimination of inter-company commissions, the ratio of operating expenses to operating revenue (defined as total revenue less gains or losses on investments) was 31.8% for 2014 compared with 31.9% for 2013.
It is important to note that all available for sale securities included in the Company's financial statements are valued at current fair market values. The evaluation process for determination of other-than-temporary decline in value of investments, as described above, does not change these valuations but, rather, determines when a decline in value will be recognized in the income statement (other-than-temporary decline) as opposed to a charge to shareholders' equity (temporary decline). Another seemingly inconsistent aspect of this accounting policy which is important to understand is that any subsequent recoveries in value of investments which have incurred other-than-temporary impairment adjustments are accounted for as unrealized gains (with credits to equity but not reflected in the income statement) until the security is actually disposed of or sold. At December 31, 2015, unrealized gains include $14.7 million of appreciation on investments previously adjusted for other-than-temporary impairment, compared to a cumulative total of $10.5 million of impairment write-downs at that date. This evaluation process is subject to risks and uncertainties since it is not always clear what has caused a decline in value of an individual security or since some declines may be associated with general market conditions or economic factors which relate to an industry, in general, but not necessarily to an individual issue. The Company has attempted to minimize many of these uncertainties by adopting a largely objective evaluation process as described above. However, to the extent that certain declines in value are reported as unrealized at December 31, 2015, it is possible that future earnings charges will result should the declines in value increase or persist or should the security actually be disposed of while market values are less than cost. At December 31, 2015, the total gross unrealized loss included in the Company's investment portfolio was approximately $14.6 million. No individual issue constituted a material amount of this total. Had this entire amount been considered other-than-temporary at December 31, 2015, there would have been no impact on total shareholders' equity or book value since the decline in value of these securities was recognized as a reduction to shareholders' equity.
A discussion of the Company's reinsurance strategies is presented in Item 1, Business, on page 3.
The Company's loss and loss expense reserves for each segment are shown in the following table on both a gross (before consideration of reinsurance) and on a net of reinsurance basis at December 31, 2015 and 2014 (dollars in thousands).
The Company's reserves for losses and loss expenses ("reserves") are determined based on complex estimation processes using historical experience, current economic information and, when necessary, available industry statistics. The Company's claims range from the very routine private passenger automobile "fender bender" to the highly complex and costly third party bodily injury claim involving large tractor-trailer rigs. Reserving for each class of claims requires a set of assumptions based upon historical experience, knowledge of current industry trends and seasoned judgment. The high limits provided in many of the Company's policies provide for greater volatility in the reserving process for more serious claims. Court rulings, legislative actions and trends in jury awards also play a significant role in the estimation process of larger claims. The Company continuously reviews and evaluates loss developments subsequent to each measurement date and adjusts its reserve estimation assumptions, as necessary, in an effort to achieve the best possible estimate of the ultimate remaining loss costs at any point in time. Changes to previously established reserve amounts are charged or credited to losses and loss expenses incurred in the accounting periods in which they are determined. Note C to the consolidated financial statements includes additional information relating to loss and loss adjustment expense reserve development.
The Company uses both standard actuarial techniques common to most insurance companies as well as proprietary techniques developed by the Company in consideration of its specialty business products. For its short-tail lines of business, the Company uses predominantly the incurred or paid loss development factor methods. The Company has found that the use of accident quarter loss development triangles, rather than those based upon accident year, are most responsive to claim settlement trends and fluctuations in premium exposures for its short-tail lines. A minimum of 12 running accident quarters is used to project the reserve necessary for incurred but not reported losses for its short-tail lines.
For the Company's fleet transportation risks, which are covered by regularly changing reinsurance agreements and which contain wide-ranging self-insured retentions ("SIR"), traditional actuarial methods are supplemented by other methods in consideration of the Company's exposures to loss. In situations where the Company's reinsurance structure, the insured's SIR selections, policy volume, and other factors are changing, current accident period loss exposures may not be homogenous with historical loss data to allow for reliable projection of future developed losses. Therefore, the Company supplements the above-described actuarial methods with loss ratio reserving techniques developed from the Company's extensive, proprietary databases to arrive at the reserve for losses incurred but not reported for the calendar/accident period under review. As losses for a given calendar/accident period develop with the passage of time, management evaluates such development on a monthly and quarterly basis and adjusts reserve factors, as necessary, to reflect current judgment with regard to the anticipated ultimate incurred losses. This process continues until all losses are settled for each period subject to this method.
Expected loss ratios for the current book of business, particularly the Company's fleet transportation products, where the number of accounts insured, selected self-insured retentions, policy limits and reinsurance structure may vary widely period to period
Under reasonably possible scenarios, it is conceivable that the Company's selected loss reserve estimates could be 10%, or more, redundant or deficient. The majority of the Company's reserves for losses and loss expenses, on either a gross or a net of reinsurance basis, relate to its fleet transportation products. Perhaps the most significant example of sensitivity to variation in the key assumptions is the loss ratio selection for the Company's fleet transportation products for policies subject to certain major reinsurance treaties (approximately $169.5 million, or approximately 37% of carried gross reserves for directly produced property and casualty business). The following table presents the approximate impacts on gross and net loss reserves of both a 10 percentage point and 20 percentage point increase or decrease in the loss factors actually utilized in the Company's reserve determination at December 31, 2015. The Company's selection of the range of values presented should not be construed as the Company's prediction of future events, but rather simply an illustration of the impact of such events, should they occur:
To the extent possible, the Company attempts to recover the impact of inflation to loss costs and operating expenses by increasing the premiums it charges. Within the fleet transportation business, a majority of the Company's accounts are charged as a percentage of an insured's gross revenue, mileage or payroll. As these charging bases increase with inflation, premium revenues are immediately increased. The remaining premium rates charged are adjustable only at periodic intervals and often require state regulatory approval. Such periodic increases in premium rates may lag far behind cost increases.
To the extent inflation influences yields on investments, the Company is also affected. The Company's short-term and fixed investment portfolios are structured in direct response to available interest rates over the yield curve. As available market interest rates fluctuate in response to the presence or absence of inflation, the yields on the Company's investments are impacted. Further, as inflation affects current market rates of return, previously committed investments might increase or decline in value depending on the type and maturity of investment (see additional comments under Market Risk, following).
The Company's loss and loss expense reserves do not have contractual maturity dates and the exact timing of the payment of claims cannot be predicted with certainty. However, based upon historical payment patterns, the above table presents an estimate of when we might expect our direct loss and loss expense reserves (without the benefit of reinsurance recoveries) to be paid. Timing of the collection of the related reinsurance recoverable, estimated to be $215.9 million at December 31, 2015, or 39% of the amounts presented in the above table, would approximate that of the above projected direct reserve payout but could lag such payments by several months in some instances.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Baldwin & Lyons, Inc. and subsidiaries at December 31, 2015 and 2014, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Baldwin & Lyons, Inc. and subsidiaries' internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 4, 2016 expressed an unqualified opinion thereon.
Description of Business: Baldwin & Lyons, Inc., (the "Company") based in Carmel, Indiana, is a specialty property-casualty insurer providing liability coverage for large and medium-sized trucking and public transportation fleets as well as coverages for trucking industry independent contractors. Additionally, the Company's product offerings include coverage for small fleet trucking and professional liability as well as workers' compensation for small businesses and casualty reinsurance.
Basis of Presentation: The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant inter-company transactions and accounts have been eliminated in consolidation.
Realized gains and losses on disposals of investments are determined by specific identification of cost of investments sold and are included in income. All fixed maturity and equity securities are considered to be available for sale; the related unrealized net gains or losses (net of applicable tax effect) are reflected directly in shareholders' equity. Included within available for sale fixed maturity securities are insurance linked securities and convertible debt securities. The changes in fair values of insurance-linked securities and portions of the changes in fair values of convertible debt securities are reflected as a component of net realized gains (losses) on investments.
The unrealized net gains or losses (net of applicable tax effect) related to equity securities are reflected directly in shareholders' equity, unless a decline in value is determined to be other-than-temporary, in which case the loss is charged to income. In determining if and when a decline in market value below cost is other-than-temporary, an objective analysis is made of each individual security where current market value is less than cost. For any equity security where the unrealized loss exceeds 20% of original or adjusted cost, and where that decline has existed for a period of at least six months, the decline is treated as an other-than-temporary impairment. Additionally, for any equity security where the decline has existed for a period of at least one year, the decline is treated as an other-than-temporary impairment. Additionally, the Company takes into account any known subjective information in evaluating for impairment, without consideration to the Company's quantitative criteria defined above, as well as the Company's intent and ability to retain the equity security for a period of time sufficient to allow for such recovery in fair value.
Reserves for Losses and Loss Expenses: The reserves for losses and loss expenses, minor portions of which are discounted, are determined using case basis evaluations and statistical analyses and represent estimates of the ultimate cost of all reported and unreported losses which are unpaid at year end. These reserves include estimates of future trends in claim severity and frequency and other factors which could vary as the losses are ultimately settled. While actual results will differ from such estimates, management believes that the reserves for losses and loss expenses are adequate. The estimates are continually reviewed and as adjustments to these reserves become necessary, such adjustments are reflected in current operations.
Reinsurance: Reinsurance premiums, commissions, expense reimbursements and reserves related to reinsured business are accounted for on bases consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts. Premiums ceded to other insurers have been reported as a reduction of premium earned. Amounts applicable to reinsurance ceded for unearned premium and claim loss reserves have been reported as reinsurance recoverable assets. Certain reinsurance contracts provide for additional or return premiums and commissions based upon profits or losses to the reinsurer over prescribed periods. Estimates of additional or return premiums and commissions are adjusted quarterly to recognize actual loss experience to date as well as projected loss experience applicable to the various contract periods. Estimates of reinstatement premiums on reinsurance contracts covering catastrophic events are, to the extent reasonably determinable, recorded concurrently with the related loss.
Comprehensive Income: The Company records accumulated other comprehensive income from unrealized gains and losses on available-for-sale securities as a separate component of shareholders' equity. Foreign exchange adjustments are generally not material and the Company has no defined benefit pension plan. A reclassification adjustment to other comprehensive income is made for gains or losses during the period included in net income.
In May 2015, the FASB issued ASU 2015-07 - Fair Value Measurement - (Topic 820) Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or its equivalent) (a consensus of the Emerging Issues Task Force), which will be effective for fiscal years beginning after December 15, 2015. The new pronouncement was issued to ensure that all investments categorized in the fair value hierarchy are classified using a consistent approach. The Company has not yet adopted the guidance and the adoption of this guidance is not expected to have a material impact on presentation of data in the consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), to clarify the principles for recognizing revenue. While insurance contracts are not within the scope of this updated guidance, the Company's service and fee income could be subject to this updated guidance. The updated guidance requires an entity to recognize revenue as performance obligations are met, in order to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration the entity is entitled to receive for those goods or services. The following steps are applied in the updated guidance: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, the entity satisfies a performance obligation. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which deferred the effective date of ASU 2014-09 to the quarter ending March 31, 2018. The Company is currently evaluating the impact this guidance will have on its results of operations, financial position or liquidity. The Company does not expect the guidance to have a material impact on its results of operations, financial position or liquidity.
Shareholders' equity includes approximately $26,521, net of deferred federal income taxes, of undistributed earnings from limited partnerships as of December 31, 2015.
There is no primary or secondary market for the Company's investments in limited partnerships and, in most cases, the Company is prohibited from disposing of its limited partnership interests for some period of time and generally must seek approval from the applicable general partner for any such disposal. Distributions of earnings from these partnerships are largely at the sole discretion of the general partners and distributions are generally not received by the Company for many years after the earnings have been reported. The Company has commitments to contribute an additional $2,459 to various limited partnerships as of December 31, 2015.
The Company has invested a total of $23,000 in two limited partnerships, with an aggregate estimated value of $45,009 at December 31, 2015, that are managed by organizations in which four directors of the Company are executive officers, directors or owners. The Company's ownership interest in these limited partnerships ranges from 5% to 17%. These limited partnerships added ($1,978), $7,088 and $1,154, net of fees, to investment gains (losses) in 2015, 2014 and 2013, respectively. During 2015, 2014 and 2013, the Company has recorded management fees of $749, $697 and $640, respectively, and performance-based fees of $0, $0 and $18, respectively, to these organizations for management of these limited partnerships.
The fair value of regulatory deposits with various insurance departments in the United States and Canada totaled $84,198 and $76,406 at December 31, 2015 and 2014, respectively.
The Company's fixed maturities are over 85% invested in investment grade fixed maturity investments. The Company has a total of $2,969, representing three different investments, of fixed maturity investments which were originally issued with guarantees by three different third party insurance companies, with the largest exposure to a single investment being $1,997. The average S&P credit rating of such investments, with consideration of the guarantee, is AA. The average S&P underlying credit rating of such investments, without consideration of the guarantee, would remain AA. The Company does not have any direct exposure to any guarantor.
The table above shows that a savings of $10,062 was developed during 2015 in the settlement of claims occurring on or before December 31, 2014 with comparative developments for the two previous calendar years. The net savings for each year are composed of individual claim savings and deficiencies which, in the aggregate have resulted from the settlement of claims at amounts lower than previously reserved and from changes in estimates of losses incurred but not reported as part of the normal reserving process.
Deferred income taxes are calculated to account for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities as of December 31 are as follows:
The Company is required to establish a valuation allowance for any portion of the gross deferred tax asset that management believes will not be realized. Management has determined that no such valuation allowance is necessary at December 31, 2015 or 2014. As of December 31, 2015, only the calendar year 2014 remains subject to examination by the IRS.
In accordance with the terms of the 1981 Stock Purchase Plan (1981 Plan), the Company is obligated to repurchase shares issued under the 1981 Plan, at a price equal to 90% of the book value of the shares at the end of the quarter immediately preceding the date of repurchase. A limited number of shares have ever been repurchased under the 1981 Plan. At December 31, 2015, there were 121,286 shares (Class A) and 339,546 shares (Class B) outstanding which remain eligible for repurchase by the Company.
The Company maintains a single restricted stock unit plan which is described below.
Effective February 4, 2015, the Company issued 36,646 shares of class B restricted stock to certain of the Company's executives. The restricted shares will be paid solely in the Company's class B stock. The restricted shares represent a portion of the calendar year 2014 compensation to certain executives under the terms of the Company's Executive Incentive Bonus Plan. The restricted shares will vest ratably over a three year period from the date of grant and are accelerated for retirement eligible recipients in accordance with the non-substantive post-grant date vesting clause of ASC 715, Compensation-Retirement Benefits. Restricted stock was valued based on the closing price of the stock on the day the award was granted. Each share was valued at $23.29 per share representing a total value of $853. Non-vested restricted shares will be forfeited should an executive's employment terminate for any reason other than death, disability, or retirement as defined by the Compensation Committee.
Effective February 5, 2016, the Company issued 47,333 shares of class B restricted stock to certain of the Company's executives. The restricted shares will be paid solely in the Company's class B stock. The restricted shares represent a portion of the calendar year 2015 compensation to certain executives under the terms of the Company's Executive Incentive Bonus Plan. The restricted shares will vest ratably over a three year period from the date of grant and are accelerated for retirement eligible recipients in accordance with the non-substantive post-grant date vesting clause of ASC 715, Compensation-Retirement Benefits. Restricted stock was valued based on the closing price of the stock on the day the award was granted. Each share was valued at $23.30 per share representing a total value of $1,103. Non-vested restricted shares will be forfeited should an executive's employment terminate for any reason other than death, disability, or retirement as defined by the Compensation Committee.
The Company operates within two reportable business segments: property and casualty insurance and reinsurance. The property and casualty insurance segment provides multiple line insurance coverage primarily to fleet transportation companies as well as to independent contractors who contract with fleet transportation companies. In addition, the Company provides private passenger automobile products to individuals, workers' compensation coverage to small businesses and professional liability products on a selective basis. The reinsurance segment currently accepts professional liability cessions from other insurance companies. From 1992 until July 1, 2014, the reinsurance segment accepted property cessions from other insurance companies and retrocessions from reinsurance companies, principally reinsuring against catastrophes. Final exposure to property catastrophe losses expired on June 30, 2015.
The Company writes policies of excess insurance attaching above self-insured retentions ("SIR") and also writes policies that contain per-claim deductibles. Those losses and claims that fall within the SIR limits are obligations of the insured; however, the Company writes surety bonds in favor of various regulatory agencies guaranteeing the insureds' payment of claims within the SIR. Further, specified portions of losses and claims incurred under large deductible policies, while obligations of the Company, are contractually reimbursable to the Company from the insureds. The Company requires collateral from its insureds to serve as a source of reimbursement if the Company is obligated to pay claims within the SIR by reason of an insured's default or if the insured fails to reimburse the Company for deductible amounts paid by the Company.
The Company's balance sheet includes paid and estimated unpaid amounts recoverable from reinsurers under various agreements totaling $232,735 at December 31, 2015. These recoverables are only partially collateralized. The two largest amounts due from individual reinsurers, net of collateral and offsets, were $36,796 and $17,817 at December 31, 2015.
Investments in limited partnerships include an aggregate of $45,009 invested in two limited partnerships, New Vernon India Fund and New Vernon Global Opportunity Fund which are managed by organizations in which four directors of the Company are executive officers, directors and owners.
The Level 3 assets consist of a portfolio of corporate convertible bonds, commercial mortgage-backed securities and a limited amount of foreign government obligations. The assets are valued using various unobservable inputs including extrapolated data, proprietary models and indicative quotes. Transfers into Level 3 during 2015 and 2014 relate to securities previously classified as Level 2. A reconciliation of the beginning and ending balances of assets measured at fair value on a recurring basis using Level 3 inputs is as follows for the years ended December 31:
Short-term borrowings: The fair value of our short-term borrowings is based on quoted market prices for the same or similar debt, or, if no quoted market prices are available, on the current market interest rates available to us for debt of similar terms and remaining maturities.
A summary of the carrying value and fair value by level of financial instruments not recorded at fair value on the Company's consolidated balance sheet at December 31, 2015 and 2014 is as follows:
The Company leases certain computer and related equipment using noncancelable operating leases. Lease expense for 2015, 2014 and 2013 was $175, $330 and $1,324, respectively. At December 31, 2015, future lease payments for operating leases with initial or remaining noncancelable terms of one year or more consisted of the following:
The Company maintains a revolving line of credit with a $40,000 limit and an expiration date of September 23, 2018. Interest on this line of credit is referenced to LIBOR and can be fixed for periods of up to one year at the Company's option. Outstanding drawings on this line of credit were $20,000 as of December 31, 2015 and 2014, respectively. At December 31, 2015, the effective interest rate was 1.52%. The Company has $20,000 remaining unused under the line of credit at December 31, 2015. The current outstanding borrowings were used for general corporate purposes.