Thus, Year 2005 entailed a continuation of the realignments and refinements that we began in 2004, in both staff, and in our business processes. What did not change was our focus on Mission and service to our members. We also maintained four major goals: grow membership, increase revenues and margins, and expand the Foundation endowment. We strengthened our internal organization built around "champions” leading the line units that are at the epicenter of our work: Periodicals Group, Press Group, Conference Group, Naval Heritage Group, and the Foundation.
During the second quarter we recruited an impressive new editorial team, led by prize-winning journalist, author, and USNA '64 grad Bob Timberg. This team, assisted by former USNI editor Mac Greeley, continued to deliver the pulse of the INDEPENDENT FORUM in Proceedings and Naval History without missing a beat.
During 2005, we completed outsourcing fulfillment services to Ware-Pak, Inc., and prepared our Generals Highway property for development as a valuable financial asset. By the third quarter, our entire USNI staff had moved to Beach Hall; we are together under one roof for the first time in decades. In the fourth quarter, we outsourced information technology support to ITA Corporation and Microsoft; moved periodicals advertising to Marketing General Inc., and closed our Naval Academy bookstore in anticipation of Preble Hall renovations. At year"s end the Naval Institute had 51 full time staff members.
From a financial and operating perspective 2005 was a mixed year. We experienced a large cash outflow as Foundation contributions and membership renewals did not meet expectations, but we did not need to withdraw funds from the USNI portfolio as we had in previous years. We did not meet our revenue goals, but through judicious management of expenses we maintained a positive operating margin, over $100,000 better than 2004; both Conference and Periodicals Groups operated in the black; and the Press and Membership, while still operating in negative territory, made significant gains over 2004. The Foundation had a difficult year and was well below goal in both restricted and unrestricted contributions.
In Operations, we continued to experience membership losses, in major part because of our inability to determine exactly how many members we had and the accuracy of their contact information. We finished the year with slightly more than 50,000 members and almost 20,000 non-member subscribers. We spent much of the year working to gain demographic knowledge about our membership and better understanding of what might constitute the broader USNI membership marketplace.
In view of the foregoing, the Board determined not to pay a bonus to USNI Executives, but to pay a 50% of target bonus to selected staff.
After a year of continued, much-needed modernization, we have built a leadership team with the skills and experience to take USNI to a stronger future. Our Champions are the principals on this team. We have outsourced successfully those portions of our business that are not core competencies.
This continued transition has been difficult, but we are confident that these changes were necessary as we seek to transform the Institute into an effective, enduring organization capable of serving members and the nation well into the future.
We finished Year 2005 with a positive operating margin of $352,000. We were sustained by two significant factors in 2005: successful expense controls and fortuitous portfolio performance resulting from a positive market year. We look forward to 2006 with confidence as a year with strong potential in all Mission areas.
Charles S. C. Hamilton, II
Rear Admiral, USN
Chairman of the Board
Thomas L. Wilkerson
Major General, USMC (Ret.)
Chief Executive Officer