Thomas E. Stiehle
Executive Vice President And Chief Financial Officer at Huntington Ingalls Industries
Thanks, Chris, and good morning. Today, I'll briefly review our fourth quarter and full year results and also provide our outlook for 2022. For more detail on the segment results, please refer to the earnings release issued this morning and posted to our website. Beginning with our consolidated fourth quarter results on Slide five of the presentation. Our fourth quarter revenues of $2.7 billion decreased approximately 3% compared to the same period last year. This was due to a decline at Newport News and Ingalls shipbuilding, which was largely driven by very high level of material volume in the fourth quarter of 2020, partially offset by the growth at Technical Solutions from the acquisition of Alion in the third quarter of this year. Operating income for the quarter of $120 million decreased by $185 million from the fourth quarter of 2020, and operating margin of 4.5% decreased 658 basis points. These decreases were largely due to a less favorable operating FAS/CAS adjustment compared to the prior year as well as lower segment operating income driven by lower risk retirement on the DDG and NSC programs at Ingalls as well as lower risk retirement on submarine fleet support at Newport News.
Moving to our consolidated results for the full year on slide six. Revenues were $9.5 billion for the year, an increase of 1.7% from 2020. The increase was primarily driven by the acquisition of Alion in the third quarter as well as growth at Newport News shipbuilding in the Virginia class and Columbia class submarine programs and carrier construction and overhaul. This was partially offset by a decline in revenue at Ingalls due to lower volumes on NSE and amphibious assault ships programs as well as the divestiture of our oil and gas business and the contribution of the San Diego shipyard to a joint venture early in 2021. On an organic basis, revenue for Technical Solutions was essentially flat year-over-year. Operating income for the year was $513 million, and operating margin was 5.4%. This compares to operating income of $799 million and operating margin of 8.5% in 2020. The decreases were due to a less sale operating FAS/CAS adjustment compared to 2020, partially offset by stronger segment operating results. Segment operating income for the year was $683 million, and segment operating margin was 7.2%.
This compares to segment operating income of $555 million and segment operating margin of 5.9% in 2020. Our effective income tax rate was 18.4% for the quarter and 12.5% for the full year. This compares to 17.8% and 14.1% for the fourth quarter and full year 2020, respectively. The decrease in the annual tax rate was primarily due to additional research and development tax credit for tax years 2016 through 2020 recorded in the third quarter of 2021. Net earnings in 2021 were $544 million compared to $696 million in 2020. Diluted earnings per share in 2021 was $13.50 compared to $17.14 in the prior year. Pension adjusted diluted earnings per share in 2021 were $13.03, an increase of 30% from 2020 results due to stronger segment operating performance. 2021 results included approximately $20 million of pretax transaction and financing expenses related to the acquisition of Alion. Additionally, 2021 results include amortization of purchased intangible assets totaling approximately $86 million, of which approximately $33 million was related to Alion. Turning to cash flow on Slide seven of the presentation. We ended 2021 with a cash balance of $627 million, up from $512 million at the end of 2020. Cash from operations was $271 million in the fourth quarter, and free cash flow was $165 million.
For the full year, cash from operations was $760 million, and free cash flow was $449 million. Net capital expenditures in 2021 were $311 million or 3.3% of revenues. Cash contributions to our pension and other postretirement benefit plans totaled $106 million in 2021. During the fourth quarter, we paid dividends of $1.18 per share or $48 million, bringing total dividends paid for the year to $186 million. We also repurchased approximately 75,000 shares during the quarter at an aggregate cost of approximately $14 million. In 2021, we repurchased approximately 544,000 shares at an aggregate cost of approximately $101 million. On slide eight, we have provided our updated five-year pension outlook. The notable change from our prior outlook is the increase in the FAS benefit. This was largely driven by asset returns in 2021 of 12.7% and, to a lesser extent, the modest change in the discount rate. Moving on to slide nine. We have provided details on our outlook for 2022. While we continue to expect shipbuilding growth of approximately 3% over time, our 2022 outlook range of $8.2 billion to $8.5 billion acknowledges uncertainties around the current environment.
We finished 2021 with shipbuilding operating margins at 7.7%, the high end of our initial guidance range and at the midpoint of our revised guidance range. This was a marked improvement from the shipbuilding margin of 6.2% in 2020. We expect shipbuilding operating margin to be between 8% and 8.1% for 2022, and we expect 2023 shipbuilding operating margin will continue to improve beyond 2022 results. For Technical Solutions, we expect revenue of approximately $2.6 billion in 2022, operating margins of approximately 2.5% and EBITDA margin between 8% and 8.5%. These are all consistent with our guidance and messaging at the time of the Alion announcement, and current run rate in 2021 results firmly support our expectations. In 2022, amortization of purchased intangible assets is expected to total approximately $142 million, of which $121 million is attributable to Technical Solutions. Given the timing of the shipbuilding program milestones and the normal seasonality for Technical Solutions, we expect the first quarter segment operating results to be the weakest of the year, with shipbuilding operating margin near 7% and Technical Solutions operating margin near 1%.
Additionally, we expect that the first quarter 2022 shipbuilding revenue will be the lightest of the year given Omicron and the challenging labor market driving to a slow start of the year. Our expectation is for shipbuilding revenue to be approximately $100 million lower than results in the first quarter of 2021, with that equally split between the shipyards. Moving on, we expect 2022 capital expenditures to be between 2.5% and 3% of sales. This guidance does include modest incremental capital expenditures above our prior guidance related to investments in infrastructure and tooling to support the submarine industrial base. We are working with our Navy partner regarding the shared investment and capital incentive structure, and believe these critical investments will have minimal impact on our overall free cash flow generation. We expect 2022 free cash flow to be between $300 million and $350 million, which includes a number of nonrecurring items. First, as we noted on the third quarter call, we now expect the repayment of the advanced progress payments we received in 2020 to occur in 2022, which totals approximately $160 million. Additionally, we have a repayment of approximately $70 million in 2022 due to the 2020 payroll tax holiday.
Our 2021 free cash flow results were also about $125 million better than the midpoint of our latest guidance, simply due to timing of collections and distributions. The outlook we are providing today is based on the best information we have now and assumes no further degradation in our supply chain. It also assumes that we're able to continue to hire employees at a pace that supports our staffing and that we continue to see limited impacts from inflation given the nature of our contracts and the long-term arrangements that we have in place with our labor unions and suppliers. Additionally, on slide nine, we've provided our updated outlook for a number of other discrete items to assist you with your modeling. Regarding our longer-term targets, we remain confident in our free cash flow target of $3.2 billion from 2020 through 2024. This outlook does assume the continued expensing of research and development costs for tax purposes. For context, we now believe the impact to 2022 free cash flow would be approximately $100 million if the current R&D amortization treatment remains in place. On slide 10, we have provided a walk up from our 2022 to 2024 free cash flow outlook. First, 2023 free cash flow is enhanced by the lack of discrete headwinds I just mentioned for 2022, the advance to progress and payroll tax holiday repayments.
Secondly, we do expect a working capital tailwind in 2023 that, along with continued top line growth in shipbuilding, is expected to drive approximately $200 million of incremental cash flow. Finally, the growth in margin expansion of Technical Solutions is expected to contribute meaningful incremental free cash flow in 2023 and beyond. As a reminder, working capital can be quite lumpy as we saw at the end of 2021, and we have provided ranges to help account for that variability. For 2023, we are expecting free cash flow to be between $750 million and $800 million and between $800 million and $900 million for 2024, which is all consistent with the target of $3.2 billion between 2020 and 2024. In closing, given the persistent challenges presented in 2021, we are pleased that we were able to complete the year with the results generally consistent with our guidance, including shipbuilding margin at the high end of our initial range and free cash flow well above our guidance. Notwithstanding the current environment, we remain enthusiastic regarding our long-term outlook as we begin 2022, with nearly $50 billion in backlog and Technical Solutions business that we believe is poised with very strong growth. We are laser-focused on consistent execution and generating sustainable long-term value.
Now I'll turn the call back over to Christie for Q&A.
