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Pass code for both numbers is 36941. In the first quarter, earnings more than doubled from the same quarter of last year to $3.18 per share. LyondellBasell's first quarter net income improved by 25% relative to the fourth quarter as we earned approximately $1.6 billion of EBITDA. Strong cash generation enabled us to pay down $500 million of debt in January and end the first quarter with nearly $5 billion of cash and available liquidity. After the quarter closed, we paid down an additional $500 million of debt in April. In the days after the Texas freeze, North American PG exports fell by 13% for the month of February, and we expect the March data to reflect further decline in exports. It will likely require quite some time before North American polyethylene industry can fulfill backlogs, satisfy domestic demand and returned to last year's pace of selling 40% of production into the export market to serve global demand. We look forward to continued progress on our journey toward our goal of 0 injuries. Over the past 70 years, our polymers have played a central role in advancing modern living by reducing food waste with protective packaging, delivering safe drinking water through plastic pipes and advancing healthcare with sterile and affordable devices and equipment. With the introduction of our Circulen product line, we are making further progress toward LyondellBasell's goal of producing and marketing two million metric tons of recycle- and renewal-based polymers annually by 2030. As you can see in the chart, Hyperzone HDPE blended with 25% PCR can still exceed the crack resistance of standard polyethylene by 70%. Northeast Asian demand increased by an astounding 23% driven by the postpandemic strength of the Chinese economy. Since imports account for approximately 40% of China's demand needs for polyethylene, China's growth benefited LyondellBasell's production sites in the United States and the Middle East that export polyethylene to China. Global demand for polyolefins has grown by 14% over the past two years, far above the long-term trends of 4% and 5% annual demand growth for polyethylene and polypropylene, respectively. Strong global demand and constrained production have supported polyethylene contract price increases of $950 per metric ton in the US from May 2020 through March of this year, with $420 per ton occurring since November and more than $300 per ton of additional price increases on the table for April and May of 2021. Most consultants now believe that global polyolefin demand grew by approximately 4% in 2020, similar to growth rates seen consistently over the past 30 years. Adjusting these forecasts to 4% demand growth for both '20 and '21 results in a predicted operating rate shown by the dotted gray line. Last quarter, we suggested that 2021 would likely follow the patterns seen after prior recessions, and this year's demand growth could be higher than the historical trend of 4%. A 7% growth in demand during 2021 for only one year with reversion to the historical mean in 2022 and beyond would generate the robust operating rate forecast depicted by the dotted orange line. Today, with global polyolefin demand growing in the first quarter by 14% over the past two years, we are even more confident that the recovering economy is likely to facilitate a more orderly absorption of this new capacity by the global market, which should support robust margins. Over the last 12 months, LyondellBasell converted almost 80% of our EBITDA into $3.4 billion of cash from operating activities. In the first quarter of 2021, our businesses delivered over 40% more free operating cash flow relative to the same period last year. In the first quarter, while paying dividends of $352 million and investing a similar amount in capital expenditures, we reduced the balance on our term loan by $500 million to close the first quarter with cash and liquid investments of $1.8 billion. After the quarter closed, we repaid an additional $500 million on the term loan in April. We continue to be on track to invest approximately $2 billion in capital expenditures during 2021, targeted equally toward profit-generating growth projects and sustaining maintenance. And based on expected volumes and margins, we estimate that the third quarter EBITDA impact due to lost production associated with planned maintenance across the company will increase by $30 million to $75 million. In total, the EBITDA impact associated with all of LyondellBasell's 2021 planned maintenance downtime should decrease by $30 million relative to our original guidance to approximately $140 million for the year. In the first quarter of 2021, LyondellBasell's business portfolio delivered EBITDA of $1.6 billion. This was an improvement of more than $300 million relative to the fourth quarter, exceeding typical first quarter seasonal trends. On the left side of the chart, our all-time high quarterly EBITDA, excluding LCM of approximately $2.2 billion reported in the third quarter of 2015, provides useful perspective. Third quarter EBITDA was $867 million, $145 million higher than the fourth quarter. Olefin results increased approximately $155 million compared to the fourth quarter. The ethylene cracker at the joint venture ran continuously throughout the weather events and exceeded ethylene nameplate operating rates by 9% during March. Polyolefin results for the segment decreased by about $15 million during the first quarter. During the first quarter, EBITDA was $412 million, $161 million higher than the fourth quarter. Olefins results increased $30 million driven by increased margins and volumes. Demand was robust during the quarter, and we increased volumes by operating our crackers at a rate of 98%, almost 10% above industry benchmarks for the first quarter. Combined polyolefin results increased approximately $150 million compared to the prior quarter. First quarter EBITDA was $182 million, $14 million lower than the prior quarter. First quarter Propylene Oxide & Derivatives results decreased by approximately $35 million due to lower volumes, offsetting stronger margins driven by tight market supply. Intermediate chemical results decreased about $55 million due to lower volumes as a result of the weather events. Oxyfuels and related products results increased by approximately $25 million as a result of higher margins benefiting from improved gasoline prices that were partially offset by constrained volumes. First quarter EBITDA was $135 million, $9 million higher than the fourth quarter. Advanced Polymer results increased by approximately $15 million due to both higher margins and volumes. First quarter EBITDA was negative $110 million, a $36 million decrease versus the fourth quarter of 2020. Higher cost for renewable fuel credits, or RINs, and lower crude throughput overwhelmed improvements in the Maya 2-1-1 industry crack spread. In the first quarter, the Maya 2-1-1 crack spread increased by $5.21 per barrel to $15.32 per barrel. As a result of the Texas weather event, the average crude throughput at the refinery fell to 152,000 barrels per day. First quarter Technology segment EBITDA was $94 million, $49 million higher than the prior quarter. In the years following the 2008 Great Recession, our company nimbly captured the benefits of low-cost feedstocks that arose from the development of North American oil and gas resources. LyondellBasell typically delivered between $6 billion to $7 billion of EBITDA over the past 10 years. Our EBITDA after LCM inventory adjustments reached $8.1 billion in 2015 during my first year as CEO of our company. Increased utilization of our capacity should provide greater visibility on the more than $200 million in synergies that we've built into the business since acquiring A. Schulman. In 2020, we added 500,000 tons of polyethylene capacity utilizing our next-generation Hyperzone technology.

In the first quarter, earnings more than doubled from the same quarter of last year to $3.18 per share.

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First quarter sales were 122% of budget, representing a 25% increase over the same period last year. These results were driven by a 13% increase in trained Business Performance Advisors and a 10% improvement in sales efficiency. Mid-market sales were particularly impressive throughout the period, core sales exceeded forecast for the full quarter despite a fall-off in March to 83% of budget as the pandemic escalated. The best empirical evidence is our paid worksite employee decline in April, which was only 3.3% lower than March. Our experience over the years with hurricanes and other disasters proved beneficial as we were totally prepared to work remotely on a broad basis with 93% of our employees working at home and only 7% of employees with the need to be at the workplace to accomplish their responsibilities. Two days later, these reports became available on Insperity Premier and by Friday, the first day the banks began accepting applications, over 67% of Insperity clients had to run the necessary reports to submit their applications. According to our survey, approximately 80% of our clients applied for a loan under the Paycheck Protection Program. We are very pleased for our clients when survey results indicated 59% of these applicants receive their PPP funding in the first round before funds ran out on April 16. This compares very favorably against the National Federation of Independent Business survey, which reported 20% of respondents had received their funding. Since March 9, through the end of April, 25% of our clients have reported layoffs totaling approximately 22,000 employees or about 9% of the total worksite employee base. 35% of these layoffs were processed as permanent layoffs. In 65% as furloughs or temporary layoffs expecting to be rehired in the coming months. Approximately 15,000 of these layoffs were reported before the end of March with the remaining 7,000 in April as layoffs moderated. Over the same period, we've already seen approximately 2,200 employees or 10% of the total rehired, which we believe is somewhat due to our early success with clients in the Paycheck Protection Program. With all these factors in and finalized at the end of April, the result was the 3.3% reduction in paid worksite employees for the one -- that I mentioned earlier. In this case, we assume about 65% of the furloughed employees would be rehired over the next couple of months in time for clients to include them in their calculation for loan forgiveness of their PPP loan. Even though this is the high case, we are assuming 35% of furloughed employees did not return within that period as Business Leader stretch out their funds allowing time for the economic activity to increase. New client sales considered within the high end of our guidance, assumes sales at 80% of our original budget over the balance of the year. We have included an approximately 15% increase in worksite employee attrition from client terminations over our original budget. In this case sales results are assumed to be approximately 60% of our original budget over the last three quarters in the year. The low end of our range also anticipates a 20% higher level of worksite employee attrition due to client terminations above our original budget. Full-year retention is expected to be 80% in this scenario. One of my grandfather's was only 16 years old when he arrived in 1909. We reported Q1 adjusted earnings per share of $1.70 at the high end of our forecasted range. Adjusted EBITDA totaled $101 million for the quarter. Average paid worksite employees increased by 5.5% over Q1 of 2019 to just over 238,000. Gross profit increased by 3.2% over the first quarter of 2019. As for large healthcare claim activity, we continue to see a decline in the number of claims over $100,000 since the initial spike in the second quarter of 2019, although it's still slightly elevated from a historical perspective. Now an outlier in Q1 was a shift in the timing of approximately $4 million of pharmacy costs into the quarter. As you may be aware, as a result of the COVID-19 stay-at-home orders, many benefit plan participants across the country accelerated their pharmacy refills with many extending the refill period from 30 to 90 days. So all things combine the good news is that benefit costs for Q1 of 2020 came in favorable when compared to our budget in spite of the additional $4 million of pharmacy costs. Our first quarter adjusted operating expenses increased 5.3% over Q1 of 2019 below budgeted levels. It's important to note that we continue to invest in our growth as we increased our trained BPA count by 13% over Q1 of 2019. Finally, our Q1 effective tax rate came in at expected 27%, which was significantly higher than the 12% rate in Q1 of 2019 due to a lower tax benefit associated with the vesting of long-term incentive stock awards in Q1 of this year. During the quarter, we repurchased a total of 878,000 shares at a cost of $61 million. These repurchases included those shares bought in the open market and under our corporate 10b5-1 plan in mid-February and early March and shares repurchased in connection with tax withholdings upon the vesting of employee restricted shares. We also paid $16 million in cash dividends under our regular dividend program and invested $16 million in capital expenditures. While we continue to have a strong balance sheet and liquidity position in the latter part of the quarter, we drew down $100 million from our credit facility to provide further flexibility in this uncertain business environment. So we ended the quarter with $167 million of adjusted cash and $130 million available under our $500 million credit facility. And based on the details that Paul just shared on our expected worksite employee levels, we are now forecasting a 1% to 5% decrease in the average number of paid worksite employees for the Q2 stand-alone quarter and a 1% to 6% decrease for the full-year 2020 as compared to the 2019 periods. For the full-year 2020, we are forecasting adjusted EBITDA in a range of $215 million to $250 million, which is flat to down 14% from 2019. As for adjusted EPS, we are forecasting a range of $3.19 to $3.86. And this assumes an effective tax rate of 28% in 2020 as compared to a rate of 20% in 2019. Now as for our Q2 earnings guidance, we are forecasting adjusted EBITDA range of $65 million to $79 million, a 15% to 39% increase over Q2 of 2019 and adjusted earnings per share in a range of $1 to $1.29, an increase of 23% to 55%.

We reported Q1 adjusted earnings per share of $1.70 at the high end of our forecasted range. So we ended the quarter with $167 million of adjusted cash and $130 million available under our $500 million credit facility. As for adjusted EPS, we are forecasting a range of $3.19 to $3.86. Now as for our Q2 earnings guidance, we are forecasting adjusted EBITDA range of $65 million to $79 million, a 15% to 39% increase over Q2 of 2019 and adjusted earnings per share in a range of $1 to $1.29, an increase of 23% to 55%.

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We reported revenue of $212.1 million during the third quarter of 2020, compared to $238.5 million during the third quarter of 2019. However, volume across all segments increased significantly in June, and net sales in July exceeded prior year on a consolidated basis. We reported net income of $10.8 million or $0.33 per diluted share for the three months ended July 31, 2020, compared to $11.8 million or $0.36 per diluted share during the three months ended July 31, 2019. On an adjusted basis, net income was $11.1 million or $0.34 per diluted share during the third quarter of 2020, compared to $13.7 million or $0.41 per diluted share during the third quarter of 2019. On an adjusted basis, EBITDA for the quarter was $27.7 million, compared to $32.8 million during the same period of last year. Cash provided by operating activities was $45.1 million for the three months ended July 31, 2020, which represents an increase of 50.8% compared to the three months ended July 31, 2019. Cash provided by operating activities was $47.6 million for the nine months ended July 31, 2020, which represents an increase of 58.7% compared to the nine months ended July 31, 2019. Free cash flow improved significantly during the third quarter to $40.7 million, which represents an increase of 57.1% compared to the third quarter of 2019. Year-to-date 2020, free cash flow more than doubled to $26.9 million compared to the same period of 2019. Our balance sheet is healthy, our liquidity position is strong and getting stronger, and our leverage ratio of net debt to last 12 months adjusted EBITDA improved to 1.1 times as of July 31, 2020, which is lower than where we exited fiscal 2019. We will continue to focus on generating cash and paying down debt in the fourth quarter, which should allow us to exit fiscal 2020 with a leverage ratio of net debt to last 12 months adjusted EBITDA at or below one time. Having said that, the recovery has been more robust than expected on all fronts, and we are now comfortable providing the following full-year 2020 guidance: net sales of $832 million to $837 million, adjusted EBITDA of $97 million to $102 million, capex of approximately $25 million and free cash flow of approximately $50 million. Revenue in this segment was $122.4 million, down 10.2% from prior-year third quarter. Adjusted EBITDA of $17.8 million was $4.8 million less than prior-year third quarter. We generated revenue of $38.3 million in our European fenestration segment, which was 13.7% less than prior year or down 12.9% after excluding the foreign exchange impact. Despite low volume in May, this segment was able to realize adjusted EBITDA of $7.7 million in the quarter, which represents margin improvement of approximately 290 basis points over prior year. Our North American cabinet components segment reported revenue of $51.9 million, which was 11.5% less than prior year. However, revenue was only down 7.5% if you adjust for the customer that exited the cabinet manufacturing business in late 2019. Adjusted EBITDA for the segment was $3.1 million, down $1.7 million from prior-year third quarter. It is important to note, though, that EBITDA was negatively impacted by a $1.7 million accrual for writing off the final amount of customer-specific inventory associated with a customer that exited the cabinet business. Absent this write-off, we would have realized margin expansion of approximately 90 basis points in this segment as well. Finally, unallocated corporate and SG&A costs were $1.4 million better than prior-year third quarter.

We reported revenue of $212.1 million during the third quarter of 2020, compared to $238.5 million during the third quarter of 2019. However, volume across all segments increased significantly in June, and net sales in July exceeded prior year on a consolidated basis. We reported net income of $10.8 million or $0.33 per diluted share for the three months ended July 31, 2020, compared to $11.8 million or $0.36 per diluted share during the three months ended July 31, 2019. On an adjusted basis, net income was $11.1 million or $0.34 per diluted share during the third quarter of 2020, compared to $13.7 million or $0.41 per diluted share during the third quarter of 2019. Having said that, the recovery has been more robust than expected on all fronts, and we are now comfortable providing the following full-year 2020 guidance: net sales of $832 million to $837 million, adjusted EBITDA of $97 million to $102 million, capex of approximately $25 million and free cash flow of approximately $50 million.

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We're also seeing improving customer engagement, including 8,000 registrations for our annual Legal, Tax and Corporates SYNERGY conferences around the world. Our leadership team, including the president of our Corporates business, Sunil Pandita; and the president of our Tax & Accounting Professionals business, Elizabeth Beastrom, will be joining nearly 2,000 of our customers for the upcoming SYNERGY conferences in November in Nashville. Four of our five business segments recorded organic revenue growth of 6%. That performance resulted in total company organic revenue growth of 5%, putting us well above the 3.5% to 4% third quarter guidance provided in August. Full year total company organic revenue growth is now forecast to be between 4.5% and 5% and approximately 6% for the Big 3 businesses. Free cash flow for the year is now forecast to be approximately $1.2 billion. As of September 30, we recorded run rate savings of about $130 million, putting us on a path to achieve $200 million by year end. I'll remind you, our aggregate savings target is $600 million by the end of 2023, $200 million of which we plan to reinvest in the business. Finally, we were active during the quarter executing on the $1.2 billion share buyback program we announced in August. We've already bought back $1.1 billion of stock, and we expect to complete the program before year end. Contributing to this performance was strong organic growth of more than 20% from our Latin American businesses and nearly 10% growth from our Asia and emerging markets businesses. Adjusted EBITDA declined 7% to $458 million due to costs related to the Change Program, resulting in a margin of 30%. Excluding Change Program costs, adjusted EBITDA margin was 33.5%. Adjusted earnings per share for the quarter was $0.46, compared to $0.39 per share in the prior-year period. The Big 3 businesses achieved organic revenue growth of 6% for the quarter. Legal's third quarter performance was again strong with organic revenue growth of 6%. This was Legal's second consecutive quarter of 6% growth, its highest quarterly growth rate in over a decade. For example, Westlaw Edge continues to achieve strong sales growth and ended the quarter with an annual contract value or ACV penetration of 60%, achieving our full year ACV penetration guidance. Third, our Government business, which is managed within our Legal segment, continues to perform and grew 10% organically. And fourth, FindLaw grew over 10%, and our Legal businesses in Canada, Europe and Asia all grew mid-single-digit in the quarter. Organic revenue growth increased to 6% from 4% in the first half of the year. Reuters News organic revenues also increased 6%, the second consecutive quarter of 6% growth. This was driven by the Professional business, which includes Reuters Events, which grew over 60% and continues to recover from the negative impact of COVID-19 in 2020. Finally, Global Print organic revenues declined 5%, less than expected, due to a continued gradual return to office by our customers and higher third-party print revenues. We still have much work to do in executing our Change Program, and we've assembled a talented team over the past 18 months who are working well together and clearly understand our goals and our timelines. As you can see on this slide, momentum has been building for our Big 3 businesses over the past 11 quarters, which we believe will continue in the fourth quarter and into next year. These factors position us well to achieve the upper end of the range of our 2022 revenue guidance of 4% to 5%. This release features key integrations with Practical Law, Contract Express, Elite 3E and Microsoft Teams and includes more than 50 enhancements and upgrades. Today, these four legal products are growing double digit, comprising over 10% of total company revenue and are contributing to the improving growth in both our Legal and Corporates segments. Two weeks ago, we announced the establishment of a $100 million corporate venture capital fund focused on the future of professionals. Let me start by discussing the third quarter revenue performance of our Big 3 segments. Organic revenues and revenues at constant currency were both up 6% for the quarter. This marks the fifth consecutive quarter our Big 3 segments have grown at least 5%. Legal Professionals total and organic revenues increased 6% in the third quarter. Recurring organic revenue grew 6%. And transaction revenues increased 10% related to our Elite, FindLaw and Government businesses. Westlaw Edge added about 100 basis points to Legal's organic growth rate, is maintaining a healthy premium and is expected to continue to contribute at a similar level going forward. Our Government business, which is reported within Legal and includes much of our risk, fraud, and compliance businesses, had a strong quarter, with total revenue growth of 11% and organic growth of 10%. In our Corporates segment, total and organic revenues increased 6% due to recurring organic revenue growth of 7% and transactions organic revenue growth of 2%. And finally, Tax & Accounting's total and organic revenues grew 6%, driven by 10% recurring organic revenue growth. Transactions organic revenue declined 9%, resulting from the year-over-year timing of individual tax filing deadlines. Normalizing for this timing, organic revenues for Tax & Accounting were up 11% in Q3. Third quarter performance was strong, achieving total and organic revenue growth of 6%, primarily due to the Agency business and Professional business, which includes Reuters Events. In Global Print, total and organic revenues declined 5%, at the lower end of the range we had forecast of minus 5% to minus 8%. We expect full year Global Print revenue to decline between 4% and 6%. On a consolidated basis, third quarter total and organic revenues each increased 5%. Starting on the left side, total company organic revenue for the third quarter of 2021 was up 5% compared to 2% in the third quarter of 2020 due to the impact of COVID. If we look at Q3 2021 performance for the Big 3, you will see organic revenues increased 6% compared to 5% in the same period last year. Total company recurring organic revenues grew 6% in Q3, 230 basis points above Q3 2020. And the Big 3 recurring organic revenues grew 7%, which was above last year's third quarter growth of 5%. Transaction revenues were up 8%, as the third quarter of 2020 was impacted by COVID, which affected our implementation services and the Reuters Events business. Starting with the total TR chart on the top left, we now estimate full year total and organic revenues will grow between 4.5% and 5%. This is an increase from the previous guidance of 4% to 4.5%. The Big 3 total and organic revenues are now forecast to grow approximately 6% for the full year, up from the previous guidance of 5.5% to 6%. We forecast full year total and organic revenues to grow between 3% and 5%, driven mainly by our Reuters Professional business. This is an increase from the previous guidance of 2% to 3%. Finally, Global Print full year revenues are expected to decline between 4% and 6%, an improvement from our previous guidance of a 4% to 7% decline. Adjusted EBITDA for the Big 3 segments was $468 million, up 7% from the prior-year period. Adjusted EBITDA was $25 million, $2 million more than the prior-year period, driven by revenue growth. Global Print adjusted EBITDA was $52 million with a margin of 35%, a decline of about 600 basis points due to the decrease in revenues and the dilutive impact of lower margin third-party print revenue. So in aggregate, total company adjusted EBITDA was $458 million, a 7% decrease versus Q3 2020. Excluding costs related to the Change Program, adjusted EBITDA increased 4%. The third quarter's adjusted EBITDA margin was 30% and was 33.5% on an underlying basis, excluding costs related to the Change Program. Starting with earnings per share, adjusted earnings per share was $0.46 per share versus $0.39 per share in the prior-year period, an 18% increase. For the full year, we have decreased our tax rate guidance to between 14% and 16% due to favorable results from the settlement of prior tax years in various jurisdictions. Currency had a $0.01 positive impact on adjusted earnings per share in the quarter. Our reported free cash flow was $1 billion versus $881 million in the prior-year period, an improvement of $120 million. Working from the bottom of the slide upwards, the cash outflows from the discontinued operations component of our free cash flow was $59 million more than the prior-year period. In the first nine months, we made $94 million of Change Program payments as compared to Refinitiv-related separation cost of $87 million in the prior-year period. So if you adjust for these items, comparable free cash flow from continuing operations was just shy of $1.2 billion, $327 million better than the prior-year period. In the third quarter, we achieved $42 million of annual run rate operating expense savings. This brings the cumulative annual run rate operating expense savings up to $132 million for the Change Program. We are forecasting to achieve $200 million of cumulative annual run rate operating expense savings by the end of this year. As a reminder, we anticipate operating expense savings of $600 million by 2023 while reinvesting $200 million back into the business or net savings of $400 million. Achieving $200 million of operating expense savings by the end of 2021 would put us a third of the way toward our goal of $600 million of gross savings by 2023. Spend during the third quarter was $79 million, which included $53 million of opex and $26 million of capex. Total spend in the first nine months of the year was $170 million. We now anticipate opex and capex spending between $120 million and $150 million in the fourth quarter. For the full year, we now expect Change Program opex and capex spend to be between $290 million and $320 million. This is slightly lower than the previous guidance range of $300 million to $350 million. We expect the lower spend in 2021 to carry over into 2022 as we are still expecting to incur approximately $600 million over the course of the program. There is no change in the anticipated split of about 60% opex and 40% capex. And as Steve outlined, today, we increased our full year outlook for total TR and Big 3 revenue growth. We also increased our full year free cash flow guidance to approximately $1.2 billion. Lastly, we reaffirm the balance of our full year 2021 guidance as well as our 2022 and 2023 guidance previously provided.

Free cash flow for the year is now forecast to be approximately $1.2 billion. We've already bought back $1.1 billion of stock, and we expect to complete the program before year end. Adjusted earnings per share for the quarter was $0.46, compared to $0.39 per share in the prior-year period. Legal Professionals total and organic revenues increased 6% in the third quarter. In Global Print, total and organic revenues declined 5%, at the lower end of the range we had forecast of minus 5% to minus 8%. Starting with the total TR chart on the top left, we now estimate full year total and organic revenues will grow between 4.5% and 5%. Starting with earnings per share, adjusted earnings per share was $0.46 per share versus $0.39 per share in the prior-year period, an 18% increase. Lastly, we reaffirm the balance of our full year 2021 guidance as well as our 2022 and 2023 guidance previously provided.

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Poultry represents about 40% of the $3 billion global opportunity that's been created by the elimination of antibiotics in the human food chain. And so you're talking a $1.2 billion opportunity, where from Fred to that team that I just mentioned, their -- with a quick phone call, they can get to every level at all the major decision-makers around the world, and we are getting interest like never before. We have 100 million proven, but we have to equal that amount inferred, meaning we don't even bother doing the drilling because we're not going to need it in any of our lifetimes, but mother nature put it there. We have always a minimum of 40 years reserves in every product line. And 11 markets really are where we think we have a unique position to go after a large percentage of that $1.2 billion opportunity. My math is it's between $700 million and $800 million of that $1.2 billion, so maybe two-thirds. So in our second quarter of fiscal 2021, Oil-Dri delivered another solid quarter of top-line growth with net sales of $74.5 million, growing 5% over net sales during the same quarter in the prior year. Both our business-to-business products group, which grew 7%, and our retail and wholesale products group, which grew 4%, contributed to this growth, demonstrating that as Dan said, we are achieving success in two of the key areas of our strategic focus, and those are mineral-based animal feed additives and lightweight cat litter. We are seeing evidence that the focus on our mineral-based strategy in animal health and nutrition products is paying off, with 20% net sales growth during the quarter over the second quarter of the prior year. Agricultural and horticultural products also had a strong quarter, achieving 10% growth over the same quarter in the prior year, driven primarily by increased sales with existing customers. And in our fluids purification products, the decrease in sales of our jet fuel purification products that have been adversely impacted by the reductions in air travel due to the global pandemic were more than offset by the growth of our other products as our overall fluids purification products grew 3% in the quarter over the prior year. And finally, our co-packaged cat litter product, which sits within our business-to-business products portfolio, grew 5% during the second quarter of fiscal 2021. Now similarly, within our consumer products group, cat litter sales grew 6% over the prior year. Our second-quarter gross profit of $18.2 million was down $800,000 from the same quarter in the prior year, representing a 4% year-over-year decrease. Despite the favorable growth in net sales, the quarter was unfavorably impacted by cost increases particularly in the categories of freight, which was up 13% per manufactured ton over the same quarter in the prior year due to domestic trucking supply constraints that resulted in significant increases in transportation costs. Our packaging costs were also up 13% per manufacturing ton as increased resin pricing resulted in increased costs, particularly in our jugs and pales, and natural gas costs were up 8% per manufactured tons, which we used to operate kilns to dry our clay. Overall, our cost of goods sold per manufactured ton was up 8% over the same quarter in the prior year, driven, in large part, by these market-based factors that were partially offset by operating cost reductions and efficiencies during the quarter. Switching to our total selling, general and administrative expenses for the second quarter of $13.9 million, they were $843,000 higher than the prior year, representing a 6% increase. However, the second quarter of the prior fiscal year included a onetime curtailment gain of $1.3 million related to the freeze of the company's supplemental executive retirement plan, which has since been terminated. Excluding that $1.3 million onetime gain in the prior year, SG&A was down 3% during the quarter. However, there was also an underlying shift in costs as corporate expenses, including the impact of the fiscal 2020 onetime gain or excluding the impact of the onetime gain of $1.3 million, decreased from the prior year and SG&A costs to support our business-to-business products, particularly the investments that we're talking about in our animal health and nutrition products, grew 26% or approximately $600,000 over the same quarter of the prior year. Our second-quarter other income of $1.1 million included an $800,000 gain upon the annual actuarial valuation of our pension plan. And finally, net income attributed to Oil-Dri for the second quarter of fiscal 2021 was $4.3 million, which represents an 11% decrease from the prior year for the cost and investment reasons we just reviewed. We ended the quarter with cash and cash equivalents of $31 million and have very little debt, equating to a debt to total capital ratio of only 6%. During the first six months of fiscal 2021, our accounts receivable increased $3.8 million, reflecting our sales growth and a shift in our customer mix, including an increase of sales to foreign customers who tend to have longer payment terms. Because of our strong position during the quarter, we also repurchased 33,594 shares of Oil-Dri common stock for $1.2 million at an average price of $36.09 per share.

So in our second quarter of fiscal 2021, Oil-Dri delivered another solid quarter of top-line growth with net sales of $74.5 million, growing 5% over net sales during the same quarter in the prior year.

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Despite the sequential 36% decline in US onshore rig count, two hurricane storms that came through the Gulf of Mexico and the continued overhang from COVID-19, our team's focus on execution of our strategies resulted in positive EBITDA for each of our segments and sequential improved EBITDA margins. On a consolidated basis, we achieved $30 million of adjusted EBITDA in the third quarter with the related margin improving 150 basis points sequentially as a result of our focus on cost management and maximizing the value of our latest technology. Compared to the third quarter of last year, we've reduced our cost by $345 million on an annualized basis or 41% as it impacts EBITDA. This compares to an annualized decline of revenue of $373 million, reducing cost by $0.92 for every $1 decline in revenue. TETRA only generated $7.7 million of free cash flow from continuing operations in the quarter and ended the quarter with $59 million of cash at the TETRA level. Year-to-date September, we've generated $43.5 million of TETRA-only cash from continued operations, an improvement of $66.6 million from last year. And products third-quarter revenue decreased 27% sequentially, reflecting the seasonal second-quarter peak from our industrial European business and also due to project delays in the Gulf of Mexico as we experienced two major hurricanes in the third quarter. Despite the lower revenue and sudden impact from the hurricanes, we achieved higher adjusted EBITDA margins by 110 basis points sequentially. The third-quarter adjusted EBITDA margin of 26.8% was also 310 basis points better than a year ago. International sales for completion fluids, excluding the industrial business, increased sequentially by 84%, led by some large sales for some major national oil companies in the Middle East. Our industrial chemicals business continues to perform well and made up approximately 36% of the total revenue for this segment. Water and flowback third-quarter adjusted EBITDA remained positive despite revenue decreasing sequentially 13%. Integrated projects increased from 16 with 14 different customers at the end of the second quarter to 17 with 10 different customers at the end of the third quarter. In September, 63% of our water management work was associated with integrated projects with multiple services provided by our BlueLinx automation system. Our SandStorm technology was able to achieve 99.4% sand filtration. We far exceeded the current solution the customer was using, with zero wash downstream and at a peak flow rate of 40 million standard cubic feet per day. Excluding new equipment sales, which we have now exited, revenue decreased 1% sequentially to $72 million. Third-quarter adjusted EBITDA of $22.9 million was down $3.4 million from the second quarter. Adjusted EBITDA margins improved 170 basis points sequentially. Compression services revenue decreased 5% sequentially, and gross margins decreased 200 basis points to 52.9%. Utilization declined from 82.1% in the second quarter to 80.3% in the third quarter. We believe that our strategy to invest in high horsepower equipment will allow us to maintain utilization above the low point of 75.2% that was seen during the last downturn. In the third quarter, horsepower was on standby decreased from a peak of 20% back in May to approximately 8% at the end of September as our key customers started bringing production and units back online. We've completed 25% of the hardware upgrade rollouts and expect to be fully deployed by the end of 2021. Aftermarket services revenue declined 12% from the second quarter, while gross margins improved 200 basis points sequentially. Brady mentioned that we generated $43.5 million of free cash flow year to date on a TETRA-only basis, which is an improvement of $67 million from the same time a year ago. TETRA-only adjusted EBITDA was $7 million in the third quarter. TETRA-only capital expenditures in the third quarter were $1.6 million. Of the $43.5 million of free cash flow that we generated so far this year, $11.4 million is year-to-date earnings less capex, less interest expense and less taxes. The other $32 million has been from monetizing working capital, and monetizing receivables in this environment is not easy given the financial struggles by many of our customers. Our ability to generate $11 million in free cash flow this year without the benefit of working capital talks to the aggressive cost management we have implemented, the benefit of deploying technology to the US onshore market, and a very flexible, vertically integrated business model on the fluids side. In the third quarter, we were slightly over $0.5 million positive free cash flow without the benefit of monetizing working capital. For the full year of 2020, we expect TETRA-only capital expenditures to be between 9 and $12.5 million, slightly lower than the prior guidance. TETRA-only liquidity ended the third quarter improved approximately $22 million in the same period a year ago, positioning us to be able to continue to manage through this downturn as activity begins to slowly recover. TETRA-only net debt at the end of September was $148 million with cash on hand of $59 million. Our $221 million term loan is not due until August 2025, and our $100 million asset-based revolver does not mature until September 2023. Annual interest expense on this term loan is approximately 15.5 to $17 million. CSI Compressco's cash on hand at the end of September was $16.7 million, up from $2.4 million at the beginning of the year. At the end of September, there were no amounts outstanding on the revolver compared to $2.6 million that was outstanding at the beginning of the year. The reduction in the outstanding amount of revolver plus the increasing cash represents almost a $17 million improvement from the beginning of the year despite very challenging market conditions. And this is how CSI Compressco paid almost $5 million of legal and advisor fees to complete the debt swap in June of this year, which resulted in a net reduction of $9 million and pushed $215 million of maturities into 2025 and 2026. CSI Compressco sold our Midland fabrication facility and related real estate and have targeted the sale of $13 million in compressor assets in the second half of this year. Their objective is to generate between $15 million and $25 million of free cash flow by early in the third quarter of 2021 to partially pay down the maturing $81 million of unsecured notes and to refinance the remaining amount. For the full-year 2020, CSI Compressco expects capital expenditures of between 6 and $7 million, and maintenance capital expenditures of between 20 and $21 million. And this year, they expect to spend between 5 and $6 million. Other than the $81 million of unsecured notes that are due August of 2022 for CSI Compressco, the $555 million of first and second lien bonds are not due until 2025 and 2026. CSI Compressco's net leverage ratio at the end of September was 5.4 times. CSI Compressco generated $14 million of free cash flow in the quarter. And year-to-date, free cash flow is $24.7 million. Distributable cash flow was $10.5 million in the third quarter, which increased by 25% as they benefited from the sale of used assets. Through September, distributable cash flow was $27 million. On an annualized basis, distributable cash flow will be $36.5 million or approximately $0.77 per common unit. This compares to CSI Compressco's unit price at the close of business last week of $0.85, which is not a bad cash flow yield. And other than $81 million of unsecured debt that is due August of 2022 for CSI Compressco, there are no near-term maturities.

And products third-quarter revenue decreased 27% sequentially, reflecting the seasonal second-quarter peak from our industrial European business and also due to project delays in the Gulf of Mexico as we experienced two major hurricanes in the third quarter. For the full-year 2020, CSI Compressco expects capital expenditures of between 6 and $7 million, and maintenance capital expenditures of between 20 and $21 million.

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And as most of you know, we've historically held our calls at 9 AM on Friday, but there is a calendar conflict this quarter and we moved our call to accommodate that. But going forward, we do expect to move our call back to Friday's at 9 AM Central. And then in January, we are attending the Raymond James Deer Valley Summit in person on January 3 through 5 and Citi's Apps Economy Conference virtually on January 6. From our founding over 50 years ago, TDS believes that being a good corporate citizen is fundamental to our long-term success. These responsible practices, which make up the S in ESG are what we call our 3 Cs; customer, culture and community. Before turning the call over, I want to remind everyone that due to the FCC's anti-collusion rules related to the ongoing Auction 1-10, we will not be responding to any questions related to spectrum auctions. As you can see, we've raised $3.4 billion since the beginning of 2020 at an average cost of 4.9% and redeemed six separate bond series comprising $1.6 billion in debt with a weighted average cost of 7%. Finally, before turning the call over to LT, I want to point out that our income tax rate for the quarter was 29%. We're offering commercial millimeter wave fixed wireless access speeds of up to 300 megabits per second and to date we're seeing many customers experiencing speeds that far exceed that. We recently received a net promoter score 40, which is an amazing loyalty score. Postpaid handset gross additions increased by 3,000 year-over-year, largely due to higher switching activity in combination with our strong promotional activity. We saw connected device gross additions declined 26,000 year-over-year. Total smartphone connections increased by 8,000 during the quarter and by 65,000 over the course of the past 12 months. We saw prepaid gross additions improved by 9,000 year-over-year. Postpaid handset churn depicted by the blue bars was 0.95% up from 0.88% a year ago. Total postpaid churn combining handsets and connected devices was 1.15% for the third quarter of 2021 higher than a year ago as we've also seen churn increase on connected devices due to certain business and government customers disconnecting devices that were activated during the peak periods of the pandemic in 2020. Total operating revenues for the third quarter were $1.016 billion, a decrease of $11 million or 1% year-over-year. Retail service revenues increased by $25 million to $699 million. Inbound roaming revenue was $30 million, that was a decrease of $12 million year-over-year driven by a decrease in data volume and rates. Other service revenues were $59 million flat year-over-year. Finally, equipment sales revenues decreased by $24 million year-over-year due to a decrease in average revenue per unit, in large part as a result of an increase in promotional activity as well as a decrease in overall sales volume. As a result of the combined impact of these factors [Indecipherable] equipment increased $19 million year-over-year from $5 million in 2020 to $24 million in 2021, this change in [Phonetic] loss of equipment was the primary driver of our decline in profitability year-over-year. Now a few more comments about postpaid revenue shown on Slide 12, the average revenue per user or connection was $48.12 for the third quarter up $1.02 or approximately 2% year-over-year. On a per account basis, average revenue grew by $2.72 or 2% year-over-year. Third quarter tower rental revenues increased by 6% year-over-year. As shown at the bottom of the slide, adjusted operating income was $213 million, a decrease of 8% year-over-year. As I commented earlier, total operating revenues were $1.016 billion, a 1% decrease year-over-year. Total cash expenses were $803 million, an increase of $8 million or 1% year-over-year. Total system operations expense increased 1% year-over-year. Excluding roaming expense, system operations expense increased by 7% due to higher circuit costs, cell site rent and maintenance expense. Roaming expense decreased $8 million or 17% year-over-year driven by lower data rates and lower voice usage. Cost of equipment sold decreased $5 million or 2% year-over-year due to a significant decline in Connected Device sales, partially offset by slightly higher average cost per unit sold as a result of the mix shifting more heavily toward smartphone sales. Selling general and administrative expenses increased $11 million or 3% year-over-year, driven primarily by an increase in bad debts expense and cost associated with supporting enterprise projects and billing system upgrades. Adjusted EBITDA for the quarter was $262 million, a decrease of $20 million or 7% year-over-year. First, we have narrowed our guidance for service revenues to range of $3.075 billion to $3.125 billion, maintaining the midpoint. For adjusted operating income and adjusted EBITDA, we are maintaining our guidance ranges of $850 million to $950 million and $1.025 billion to $1.125 billion respectively. For capital expenditures, we are decreasing our guidance range to $700 million to $800 million as we are moving certainly equipment and project spend into 2022, this shift did not impact our 2021 build plan and as LT mentioned our multi-year 5G and network modernization program remains on track. TDS Telecom grew its footprint 6% from a year ago, now serving $1.4 million service addresses across its market. In addition, we are now capable of delivering 2 gig Internet speeds in our Spokane, Washington and Meridian, Idaho market and going forward, we will launch 2 gig product in all of our new fiber expansion market. 2 gig provides an exceptional customer experience, doubling our previous maximum speed offering and helping to further differentiate us from the cable competition. Also in the quarter, we completed fiber to the home construction in our Southern Wisconsin cluster where we are seeing total broadband penetration of 38% in the fully launched cluster. In total, during the quarter, we added 20,000 fiber service addresses surpassing 40% of our wireline service addresses, a key milestone for us. From a financial perspective, overall, we grew our topline 2% while planned investment spending on new market launches resulted in lower adjusted EBITDA as expected. Moving to Slide 19, total residential connections increased 3% due to broadband growth in new and existing markets, partially offset by a decrease in voice connection. Total telecom broadband residential connections grew 7% in the quarter as we continue to fortify our network with fiber and expand into new market. Overall, higher value product mix and price increases drove a 4% increase in average residential revenue per connection. Our focus on fast reliable service has generated a 13% increase in total residential broadband revenue. We are offering 1 gig broadband speeds to 57% of our total footprint, including both our fiber and DOCSIS 3.1 market. The 1 gig product along with our 2 gig product in certain expansion markets are important tool that will allow us to defend and to win new customers. In areas where we offer 1 gig service, we are now seeing 20% of our new customers taking the superior product. A majority of TDS Telecom's residential customers take advantage of bundling options as 63% of customers subscribed to more than one service which helps to keep our churn well. Residential video connections were nearly flat, wireline growth of 6% driven by our expansion market nearly offset losses in the cable market. For example, we are experiencing a 38% video attachment rate to every broadband connection in our wireline market where we offer IPTV services. The rollout of this product currently cover 61% of our total operations including cable. As a result of this strategy, 40% of our wireline service addresses are now served by fiber, which is up from 34% a year ago. This is driving revenue growth while also expanding the total wireline footprint 8% to 891,000 service addresses. In total, these communities add more than 270,000 additional service addresses to our existing fiber deployment plan. Through the third quarter, we have 358,000 total fiber service addresses and are working to build out the footprint in these announced market growing to 929,000 service addresses over the next several years. Year-to-date, we completed construction of 51,000 fiber addresses, adding 20,000 service addresses in the quarter. For example in Meridian, Idaho, we experienced a temporary delay on more than 35,000 service addresses and just recently have restarted construction. On Slide 25, total revenues increased 2% year-over-year to $252 million driven by the strong growth in residential revenue, which increased 6% in total. Incumbent wireline markets also showed solid residential growth of 3% due to increases in broadband connections as well as increases from within the broadband product mix, partially offset by a 4% decrease in residential voice connection. Cable residential revenue grew 6%, also due to increases in broadband connections as well as the product mix. Commercial revenues decreased 6% in the quarter, primarily driven by lower CLEC connections, partially offset by a 5% increase in broadband connection, wholesale revenues decreased 5% due to certain state USF support timing. Total revenues increased 2% from the prior year as growth from our fiber expansions that increases in broadband subscribers exceeded the declines we experienced in our legacy business. Cash expenses increased 3% due to both supporting our current growth as well as spending related to future expansion into new market, which is not yet reflected in our revenue. As a result, adjusted EBITDA decreased 2% to $77 million as expected. Capital expenditures were down 1% to $91 million as increased investment in fiber to finance were offset by decreased cent on core operation and on Slide 27, we provided our updated 2021 guidance. We expect revenues to be between $990 million and $1 billion, $20 million and adjusted EBITDA to be between $295 million and $315 million. With the construction delays and build challenges I mentioned earlier, we are lowering our expectations for capital expenditures to be between $400 million and $450 million.

Total operating revenues for the third quarter were $1.016 billion, a decrease of $11 million or 1% year-over-year. As I commented earlier, total operating revenues were $1.016 billion, a 1% decrease year-over-year. Also in the quarter, we completed fiber to the home construction in our Southern Wisconsin cluster where we are seeing total broadband penetration of 38% in the fully launched cluster. For example, we are experiencing a 38% video attachment rate to every broadband connection in our wireline market where we offer IPTV services.

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During the first quarter 2022, we restarted 10 additional ships, resulting in 60% of our fleet capacity in guest cruise operations for the whole of the first quarter. This was a substantial increase from 47% during the fourth quarter 2021. As of today, 75% of our fleet capacity has resumed guest cruise operations. And we now expect each brand's full fleet to be back in guest cruise operations for its respective summer season where we historically generate the largest share of our operating income. For the first quarter, occupancy was 54% across the ships in service. However, we had anticipated first quarter occupancy would exceed the 58% achieved in the fourth quarter of 2021. We started the quarter with over 55% cabin occupancy booked for the first quarter and expected to improve upon that during the quarter. All of this inhibited our ability to build on our cabin occupancy book position for the first quarter 2022 during the first quarter, resulting in occupancy for the first quarter 2022 at 54% being lower than the 58% occupancy we achieved in the fourth quarter of 2021. Despite all that, during the first quarter, we carried over one million guests, which was nearly a 20% increase from the fourth quarter 2021. Revenue per passenger day for the first quarter 2022 increased approximately 7.5% compared to a strong 2019 despite our lucrative world cruises and exotic voyages being shelved this year. Over the past 2.5 years, we have offered and our guests have chosen more and more bundled package options. On the cost side, our adjusted cruise cost without fuel per available lower berth day, or ALBD as it is more commonly called, for the first quarter 2022 was up 25%. The increase in adjusted cruise costs without fuel per ALBD is driven essentially by five things: first, the cost of a portion of the fleet being in pause status; second, restart related expenses; third, 15 ships being in dry dock during the quarter, which resulted in nearly double the number of dry dock days during the first quarter versus the first quarter 2019; fourth, the cost of maintaining enhanced health and safety protocols; and finally, inflation. We anticipate that many of these costs and expenses driving adjusted cruise costs without fuel per ALBD higher will end during 2022 and will not reoccur in 2023. As a result of all of the above, we expect to see a significant improvement in adjusted cruise costs, excluding fuel per ALBD, from the first half of 2022 to the second half of 2022 with a low double-digit increase expected for the full year 2022 compared to 2019. We ended the first quarter 2022 with $7.2 billion in liquidity versus $9.4 million at the end of the fourth quarter. The change in liquidity during the quarter was driven essentially by four things: first, an improved negative adjusted EBITDA of $1 billion due to our ongoing resumption of guest cruise operations despite the impact of the omicron variant. Second, our investment of $400 million in capital expenditures net of export credits. Third, $500 million of debt principal payments. And fourth, $400 million of interest expense during the quarter. Since the middle of January, we have seen an improving trend in booking volumes for future sailings. Recent weekly booking volumes have been higher than at any point since the restart of guest cruise operations. We continue to expect that occupancy will build throughout 2022 and return to historical levels in 2023. Our cumulative advanced book position for the first half of 2023 continues to be at the higher end of the historical range, also at higher prices with or without FCCs normalized for bundled packages as compared to 2019 sailings. However, as I've already said, adjusted EBITDA over the first half of 2022 has been or will be impacted by the restart-related spending and dry dock expenses as 39 ships, over 40% of our fleet, will have been in dry dock during the first half of fiscal 2022. Given all these factors combined, we expect monthly adjusted EBITDA to continue to improve and turn consistently positive at the beginning of our summer season. We continue to expect a net loss for the second quarter of 2022 on both a U.S. GAAP and adjusted basis. However, we expect the profit for the third quarter of 2022. Looking to brighter days ahead in 2023, with the full fleet back in service all year, 8% more capacity than 2019 and improved fleet profile with nearly a quarter of our capacity consisting of newly delivered ships, continuing momentum on our outstanding Net Promoter Scores and occupancy returning to historical levels, we are looking forward to providing memorable vacation experiences to nearly 14 million guests and generating potentially greater adjusted EBITDA than 2019.

As of today, 75% of our fleet capacity has resumed guest cruise operations. And we now expect each brand's full fleet to be back in guest cruise operations for its respective summer season where we historically generate the largest share of our operating income. Despite all that, during the first quarter, we carried over one million guests, which was nearly a 20% increase from the fourth quarter 2021. Revenue per passenger day for the first quarter 2022 increased approximately 7.5% compared to a strong 2019 despite our lucrative world cruises and exotic voyages being shelved this year. We anticipate that many of these costs and expenses driving adjusted cruise costs without fuel per ALBD higher will end during 2022 and will not reoccur in 2023. As a result of all of the above, we expect to see a significant improvement in adjusted cruise costs, excluding fuel per ALBD, from the first half of 2022 to the second half of 2022 with a low double-digit increase expected for the full year 2022 compared to 2019. We ended the first quarter 2022 with $7.2 billion in liquidity versus $9.4 million at the end of the fourth quarter. Since the middle of January, we have seen an improving trend in booking volumes for future sailings. Recent weekly booking volumes have been higher than at any point since the restart of guest cruise operations. We continue to expect that occupancy will build throughout 2022 and return to historical levels in 2023. Our cumulative advanced book position for the first half of 2023 continues to be at the higher end of the historical range, also at higher prices with or without FCCs normalized for bundled packages as compared to 2019 sailings. Given all these factors combined, we expect monthly adjusted EBITDA to continue to improve and turn consistently positive at the beginning of our summer season. We continue to expect a net loss for the second quarter of 2022 on both a U.S. GAAP and adjusted basis. However, we expect the profit for the third quarter of 2022.

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Revenue in the quarter was $20.2 million, $16.7 million was organic and $3.5 million was due to the acquisition of Barber-Nichols that closed June 1. Defense revenue was 35% of total revenue in the quarter. We do expect that defense revenue will approach 50% of total quarterly revenue with Barber-Nichols fully in future quarters. You might recall that our first quarter last year operated at nominally 50% capacity due to COVID-19, thus impacting revenue and profitability due to under-absorption. Orders from our crude oil refining and chemical/petrochemical markets were very low during the third and fourth quarters last fiscal year where non-Navy orders totaled $17.5 million for both quarters. Orders in the first quarter were $20.9 million and were principally organic. Barber-Nichols orders were $200,000 for the month of June. Somewhat encouragingly, there were strong orders from our crude oil refining market in the quarter that totaled $11.5 million. And now, 25 years later, we won back the installation and replaced the original supplier with our own vacuum systems. Consolidated backlog at June 30 was $236 million, of which 80% is for defense. As announced earlier today and as Debbie had mentioned, I'm very pleased to confirm that I will retire effective August 31 at the end of this month and Dan Thoren will succeed me as President and CEO of the corporation. It has been a tremendous honor and great privilege for me to serve Graham shareholders and the corporation as its Principal Executive Officer since 2006. As I discuss that first quarter, I would like you to keep in mind that our full year guidance is unchanged. Sales in the quarter improved by $3.5 million, which was due to the one month that we owned Barber-Nichols. However, in that quarter, we did have a $5 million project which was recognized on a completed contract basis and because of COVID had shifted from fiscal 2020 into Q1 of 2021. We also had a small amount of acquisition expenses, about $169,000 pre-tax, and the first month of purchase price accounting related costs for Barber-Nichols. To clarify the latter, the purchase accounting amortization costs were $225,000 before taxes in June. Before we move on, I want to mention that we expect approximately $2.7 million pre-tax and $2.15 million after-tax related to acquisition purchase accounting. 90% of this is amortization costs, with the rest being a step-up in depreciation and inventory. We expect the amount of amortization will be similar in fiscal 2023 as fiscal 2022 since we will have 12 rather than 10 months of amortization in fiscal 2023. It will decrease in future years and level off at approximately $1.1 million pre-tax. We have added $20 million of low-cost term debt as part of the acquisition and we have access to a much larger revolving line of credit. We expect the acquisition of Barber-Nichols to be accretive in fiscal 2022, even with the $2.15 million or approximately $0.20 a share in added amortization costs. With a $236 million backlog, we are well positioned for long-term growth. 80% of that backlog is in the defense market, which provides an excellent baseline for our business, not just this year, but in upcoming years as well. Before I pass it over to Dan, I would be remiss if I didn't recognize Jim for his 37 years of service at Graham, the last 15 years being as leader. Graham manufacturing second quarter orders are $9.5 million to date, while Barber-Nichols has booked $9.1 million. Based on the timing of customers' projects, we are holding our revenue guidance at $130 million to $140 million of which Barber-Nichols is expected to contribute between $45 million and $48 million. Combined, the Defense segment is expected to account for almost half of the revenue and EBITDA is expected to be in the $7 million to $9 million range. Capital expenditures are planned to be in the $3.5 million to $4 million range, including the Barber-Nichols capital expenditure.

Revenue in the quarter was $20.2 million, $16.7 million was organic and $3.5 million was due to the acquisition of Barber-Nichols that closed June 1. Defense revenue was 35% of total revenue in the quarter. And now, 25 years later, we won back the installation and replaced the original supplier with our own vacuum systems. As I discuss that first quarter, I would like you to keep in mind that our full year guidance is unchanged.

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CMC's exceptional fiscal-2021 performance translated to a return on invested capital of 14%, more than double the average for the three-year period proceeding our fiscal 2019 rebar asset acquisition. CMC shipped more product out of our mills than ever before, with six of our 10 mills setting all-time shipment records and seven achieving best-ever production levels. To underscore the strength of this accomplishment, particularly with an inflationary environment, I would point out that over the same time frame, the Census Bureau's producer price index increased almost 10%. Following the full closure of CMC's former Steel California operations, we're now capturing an annual EBITDA benefit of approximately $25 million, while continuing to serve the West Coast market effectively and efficiently with bar source from lower-cost CMC mills. When these actions complete, we are halfway to our stated target of $50 million on an annual optimization benefits. On the sustainability front, CMC published its latest report in June, featuring enhanced disclosures and a commitment to achieve ambitious environmental goals by the year 2030. CMC has been sustainable since its inception 106 years ago as a single location recycling operation in Dallas, Texas, and we have carried that legacy forward into the 21st century. CMC generated earnings from continuing operations of $152.3 million or $1.24 per diluted share. Excluding the impact of a small one-time charge related to the write down of a recycling asset, adjusted earnings from continuing operations were $154.2 million, or $1.26 per diluted share. This level of adjusted earnings represents a 21% sequential increase and a 62% year-over-year increase, driven by strong margins on steel products and raw materials, as well as robust demand from nearly every end market we serve. During the quarter, CMC generated an annualized return on invested capital of 20%, which is far in excess of our cost of capital and a clear indication of the economic value we are creating for our shareholders. The only comment to add is that during the two months of commercial production at our new rolling line, EBITDA on an annualized basis far exceeded the $20 million target used to justify the project. Construction of our revolutionary third micro mill the Arizona 2 remains on schedule for an early calendar 2023 start-up. When CMC announced the construction of Arizona 2 in August of 2020, we also indicated that a meaningful portion of the investment costs would be funded through the sale of the land underlying our former Steel California operations. On September 29, CMC entered into an agreement to sell that parcel for roughly $300 million. I would note that the sale price was much higher than the figure we estimated in August 2020 when we gave an expected net investment figure of $300 million for Arizona 2. The new rate of $0.14 per share of CMC common stock is payable to stockholders of record on October 27, 2021. Additionally, as announced yesterday, the board of directors also authorized a new share repurchase program of $350 million. As Barbara noted, we reported record earnings from continuing operations of $152.3 million or $1.24 per diluted share, more than double prior-year levels of $67.8 million and $0.56, respectively. Results this quarter include a net after-tax charge of $1.9 million related to the write-down of recycling assets. Excluding the impact of this item, adjusted earnings from continuing operations were $154.2 million or $1.26 per diluted share. Core EBITDA from continuing operations was $255.9 million for the fourth quarter of 2021, up 45% from a year-ago period and 11% on a sequential basis. Both of our North America and Europe segments contributed significantly to year-over-year earnings growth, while core EBITDA per ton of finished steel reached a record level of $155 per ton. The fourth quarter marked the tenth consecutive quarter in which CMC generated an annualized return on invested capital at or above 10%, which is above our cost of capital. North American segment recorded adjusted EBITDA of $212 million for the quarter, an all-time high, compared to adjusted EBITDA of $174.2 million in the same period last year. The largest drivers of this 22% improvement were significant increase in margins on steel products and raw materials, as well as solid volume growth. Selling prices for steel products from our mills increased by $300 per ton on a year-over-year basis and $106 per ton sequentially. Margin over scrap on steel products increased by $103 per ton from a year ago and $41 per ton sequentially. The average selling price of downstream products increased by $44 per ton from the prior year, reaching $1,014. Shipments of finished product in the fourth quarter increased 2% from a year ago. Volumes of merchant and other steel products hit a record level during the quarter, increasing 29% on a year-over-year basis and were 20% higher than the trailing three-year average. Downstream product shipments were impacted by a reduced backlog we had at the beginning of the year and resulted in a 3% volume decline from the fourth quarter of fiscal 2020. Our Europe segment generated record adjusted EBITDA of $67.7 million for the fourth quarter of 2021, compared to adjusted EBITDA of $22.9 million in the prior-year quarter. I should note that the prior-year period included a roughly $11 million energy credit that the current period does not. Margins over scrap increased by $119 per ton on a year-over-year basis and were up $27 per ton from the prior quarter. Tight market conditions provided the backdrop to achieve the segment's highest average selling price in more than a decade, reaching $763 per ton during the fourth quarter. This level represented an increase of $317 per ton compared to a year ago and $99 per ton sequentially. Europe volumes increased 21% compared to the prior year and reached their highest level on record. The new share repurchase program equates to roughly 9% of our market capitalization and will replace the previous program enacted in 2015. As of August 31, 2021, cash and cash equivalents totaled $498 million. In addition, we had approximately $699 million of availability under our credit and accounts receivable programs. During the quarter, we generated $134 million of cash from operations despite a $48 million increase in working capital. As can be seen on Slide 17, our net debt-to-EBITDA ratio now sits at just 0.8%, while our net debt to capitalization is at 17%. CMC's effective tax rate for the quarter was 21%. For the year, our effective tax rate was 22.7%. Absent enactment of any new corporate tax legislation, we forecast our tax rate to be between 25% and 26% in fiscal '22. We currently expect to invest between $450 million to $500 million this year with a little over half of which can be attributed to Arizona 2. Total gross investment for Arizona 2 is forecast to be approximately $500 million. Against which, we'll apply roughly $260 million net after-tax proceeds from the land transaction. This nets out to be $240 million of spend for the new mill, compared to the $300 million net investment figure we had previously provided. We entered fiscal 2022 confident about what lies ahead. The PCA expects growth in cement consumption of 2.2% in fiscal 2022 and 1.4% in 2023. The AIA consensus outlook for private nonresidential spending anticipates an increase of roughly 5% in 2022.

CMC generated earnings from continuing operations of $152.3 million or $1.24 per diluted share. Excluding the impact of a small one-time charge related to the write down of a recycling asset, adjusted earnings from continuing operations were $154.2 million, or $1.26 per diluted share. The new rate of $0.14 per share of CMC common stock is payable to stockholders of record on October 27, 2021. As Barbara noted, we reported record earnings from continuing operations of $152.3 million or $1.24 per diluted share, more than double prior-year levels of $67.8 million and $0.56, respectively. Excluding the impact of this item, adjusted earnings from continuing operations were $154.2 million or $1.26 per diluted share. We entered fiscal 2022 confident about what lies ahead.

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And I'm pleased to announce that we have appointed Tolani Azis, a six-year Fluor employee with 20 years of EPC experience, to lead our diversity, equity and inclusion efforts. Currently, well over 90% of our project sites and about 80% of our offices are operating at limited operations or better. Our 1,500 New Delhi employees are all now working safely and productively from home. In the first quarter, our book-to-bill ratio was 1.25, with new awards led by the Dos Bocas in our Energy Solutions Group. On April 5, we announced a $40 million equity contribution from JGC. We know JGC well, having executed projects with them for more than 10 years. In Energy Solutions, this quarter, our ICA Fluor joint venture was awarded three contracts totaling $2.8 billion for the PEMEX Dos Bocas refinery in Mexico. We have a long and successful history of PEMEX contracts, and we are pleased to be adding our $1.4 billion share of this refinery program to backlog. And as a result, we removed approximately $1 billion from backlog while slightly increasing Energy Solutions total backlog to $11.1 billion. In infrastructure, we completed the handover for the 183 South Highway project outside of Austin, just a few miles from the Oak Hill Parkway project we booked in 2020. We are currently completing FEED work that represents $20 billion of potential projects, and we see a robust pipeline of FEED and feasibility studies ahead of us. As we have seen over the last 18 months, vaccine development is an integral part of our global economy, and facilities like this one will be essential going forward in protecting the population. This reimbursable 12-month contract with two six-month options is valued at $690 million. Peter is the last of a long line of family members to serve the company since our founding in 1912. Joining the Board in 1984, he continued the Fluor family legacy of a commitment to excellence, integrity and ethics, always putting the safety and well-being of employees first and recognizing that teamwork is a key component of our success. For the first quarter of 2021, we are reporting adjusted earnings per share of $0.07. Our overall segment profit for the quarter was $60 million or 2% and includes the $29 million embedded derivative in Energy Solutions and quarterly NuScale expenses of $15 million. This compares favorably to $55 million in the first quarter of 2020. Removing NuScale expenses and the effect of the embedded derivative would improve our total segment profit margin to 3.6%. We anticipate project activities will accelerate as we move through 2021. As David mentioned, we received a $40 million investment in NuScale from JGC this quarter and are anticipating other significant investments in the near future. Note here that even though partners are meeting NuScale's cash needs, we will continue to expense 100% of this investment on our income statement on a consolidated basis. Our G&A expense in the quarter was $66 million. We have identified cost savings above the $100 million target previously discussed. On Slide 12, our ending cash for the quarter was $2 billion, 25% of this domestically available. Our operating cash flow for the quarter was an outflow of $231 million and was negatively impacted by increased funding of COVID costs on our projects, higher cash payments of corporate G&A, including the timing and extent of employee bonuses, and increased tax payments. We used approximately $50 million in cash for challenged legacy projects in the first quarter. As I stated in February, we expect to spend an additional $65 million over the balance of 2021 to fund these projects. As we announced earlier this week, we have divested our AMECO North America business for $73 million. We are maintaining our adjusted earnings per share guidance of between $0.50 and $0.80 for the full year. We are also maintaining our previous segment level guidance and expect 2021 full year segment margins to be approximately 2.5% to 3.5% in Energy Solutions, which excludes any fluctuation from the embedded foreign currency derivative; 2% to 3% in Urban Solutions; and 2.5% to 3% in Mission Solutions.

For the first quarter of 2021, we are reporting adjusted earnings per share of $0.07. We anticipate project activities will accelerate as we move through 2021. We are maintaining our adjusted earnings per share guidance of between $0.50 and $0.80 for the full year.

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For the first quarter, organic growth was negative 1.8% which positions us for a very strong recovery for 2021. Getting back to our organic growth by geography, in the United States organic growth was down 1% an improvement of over 8% from the fourth quarter. The UK was down 6.4%, about half the decline in the fourth quarter. The Euro and the non-Euro markets were down 3.2% as compared to a negative 9.2% in Q4. As you turn positive in Q1 with organic growth of 2.5% Australia continued to perform well and we saw a significant return to growth in our events business in China which combined with improvements in the other operations in the market resulted in double-digit growth. Latin America experienced negative 2.4% growth in Q1 and meaningful sequential improvement compared to the fourth quarter. EBIT margin in the first quarter was 13.6% as compared to 12.3% in the first quarter of 2020. Net income for the quarter was $287.8 million, an improvement of 11.5% from 2020 and earnings per share was $1.33 per share, a year-over-year increase of 11.8%. We generated $383 million in free cash flow in the quarter and ended with $4.9 billion in cash. This follows our recent decision to increase our dividend by 7.7% to $0.70 per share. Since we launched Omni 3 years ago, we've continued to [Indecipherable] and insights platform. In Q2, we will be launching Omni 2.0 using next generation API connections to seamlessly orchestrate, identity sources and platforms -- insights and superior decisioning for our clients across all our networks and practice areas. Just as important Omni 2.0 continues to build on our commitment to consumer privacy and transparency. At the same time, we orchestrate datasets from about 100 privacy compliance sources to provide a comprehensive view of the consumer across devices. Through this master framework agreement, Omnicom will produce work for Alliance on a global and local level, offering creative solutions to activate the global brand strategy for more than 70 countries, where Alliance operates. BBDO, TBWA and Goodby Silverstein & Partners, were all named to Fast Company's prestigious list of Most Innovative Companies for 2021 making Omnicom the only holding company -- there are three agencies ranked in the top 10 in the advertising sector. With our launch of OPEN2.0 last year, we have made a clear action plan for achieving systemic equity across Omnicom. As John said, as we move through the first quarter of 2021, we continue to see an improvement in business conditions particularly when compared to the peak of the pandemic during the second quarter of 2020. As we anticipated, we again saw a sequential improvement in organic revenue performance, a decrease of 1.8% in the first quarter of this year which is a considerable improvement in comparison to the last three quarters of 2020. Turning to slide 3 for a summary of our revenue performance for the first quarter, organic revenue performance was negative $60.6 million or 1.8% for the quarter. The decrease represented a sequential improvement versus the last three quarters of 2020, including the unprecedented decrease in organic revenue of 23% in Q2 11.7% in Q3 and 9.6% in Q4. The impact of foreign exchange rates increased our revenue by 2.8% in the quarter. Above the 250 basis point increase we estimated entering the quarter, as the dollar continued to weaken against some of our larger currencies compared to the prior year. The impact on revenue from acquisitions, net of dispositions decreased revenue by 0.4% in line with our previous projection, and as a result our reported revenue in the first quarter increased 0.6% the $3.43 billion when compared to Q1 of 2020. Returning to slide one, our reported operating profit for the quarter was $465 million, up 10.8% when compared to Q1 of 2020 and operating margin for the quarter improved to 13.6% compared to 12.3% during Q1 of 2020. Our operating profit and the 130 basis point improvement in our margins this quarter was again positively impacted from our actions to reduce payroll and real estate costs during the second quarter of 2020, as well as continued savings from our discretionary addressable spend cost categories including T&E general office expenses, professional fees, personnel fees and other items, including cost savings resulting primarily from the remote working environment. Our reported EBITDA for the quarter was $485 million and EBITDA margin was 14.2% also up 130 basis points when compared to Q1 of last year. They increased by about $7 million in the quarter but excluding the impact of exchange rates, these costs were down by about 2.6%. In comparison, these costs which are directly linked to changes in our revenue decreased nearly 40% in the second quarter of last year, 20% in the third quarter and 12.7% in the fourth quarter of 2020, consistent with the decline in our revenues across all of our businesses in those quarters. Occupancy and other costs, which are less linked to changes in revenue declined by approximately $18 million reflecting our continuing efforts to reduce our infrastructure Call as well as the decrease in general office expenses since the majority of our staff has continue to work remotely. In addition, finally, depreciation and amortization declined by 3.7 million. Net interest expense for the quarter was $47.5 million compared to Q1 of last year and down $500,000 versus Q4 of 2020 -- 2020 our gross interest expense was down $1.5 million an interest income decreased by $1 million. When compared to the first quarter of 2020, interest expense was down -- from $4.7 million, mainly resulting from $7.7 million charge we took in Q1 of 2020 in connection with the early retirement of $600 million of senior notes that were due to mature in Q3 of 2020. That was offset by the incremental increase in interest expense from the additional interest on the incremental $600 million of debt we issued at the onset of the pandemic in early April 2020. Net interest expense was also negatively impacted by a decrease in interest income of $6.4 million versus Q1 of 2020 due to lower interest rates on our cash balances. Our effective tax rate for the first quarter was 26.8% up a bit from the Q1 2020 tax rate of 26% but in line with the range, we estimate for 2021 of 26.5% to 27%. As a result, our reported net income for the first quarter was $287.8 million up 11.5% or 29.7% million when compared to Q1 of 2020. Our diluted share count for the quarter decreased 0.3% versus Q1 of last year to 216.8 million shares. As a result, our diluted earnings per share for the first quarter was $1.33 up $0.14 or 11.8% per share when compared to the prior year. While helped by FX -- was [Technical Issues] or up $20 million 0.6% from Q1 of 2020. The net impact of changes in exchange rates increased reported revenue by 2.8% or $95.7 million in revenue for the quarter. In light of the recent strengthening of our basket of foreign currencies against the US dollar and where currency rates currently are, our current estimate is that FX could increase our reported revenues by around 3.5% to 4% in the second quarter and moderate in the second half of 2021 resulting in a full year projection of approximately 2% positive. The impact of our acquisition and disposition activities over the past 12 months resulted in a decrease in revenue of $15.1 million in the quarter or 0.4% which is consistent with our estimate entering the year. As previously mentioned, our organic revenue decreased $60.6 million or 1.8% in the first quarter when compared to the prior year. We expect to return to positive organic growth in the second quarter and for the full year. For the first quarter -- the split was 59% for advertising and 41% for marketing services. As for the organic change by discipline, advertising was up 1.2% Our media businesses achieved positive organic growth for the first time since Q1 of 2020 and our global and national advertise -- when compared to the last three quarters although performance mixed by agency. [Technical Issues] 7.2% on a continued strong performance and the delivery of a superior [Technical Issues] service offering. CRM commerce and brand consulting was down 4.2% mainly related to decreased activity in our shopper marketing businesses due to client losses in prior quarters. In the quarter, the discipline was down over 33%. CRM Execution and Support was down 13% as our field marketing non-for profit and research businesses continue to lag. PR was negative 3.5% in Q1 on mixed performance from our global PR agencies, and finally, our healthcare agencies again facing a very difficult comparison back to the performance of Q1 2020 when they experienced growth in excess of 9% were flat organically. Now, turning to the details of our regional mix of business on page 5 you can see the quarterly split was 54.5% in the US, 3% for the rest of North America. 10.4% in the UK, 17.1% for the rest of Europe, 11.7% for Asia-Pacific, 1.8% for Latin America and 1.5% for the Middle East and Africa. In reviewing the details of our performance by region, organic revenue in the first quarter in the US was down $18 million or 1%. Our advertising discipline was positive for the quarter on the strength of our media businesses and our CRM precision [Technical Issues] which once again experienced our largest organic decline over 34% in the US while our other disciplines were down single-digits [Technical Issues] down 3.2%. These were down 6.4% organically. The rest of Europe was down 3.2% organically. Outside the Eurozone organic growth was up around 5% during the quarter and organic revenue performance in Asia-Pacific for the quarter was up 2.5%. Latin America was down 2.4% organically in the quarter. And lastly, the Middle East and Africa was down 10% for the quarter. Turning to our cash flow performance on Slide 7, you can see that in the first quarter, we generated $382 million of free cash flow, excluding changes in working capital which was up about $20 million versus the first quarter of last year. As for our primary uses of cash on Slide 8 dividends paid to our common shareholders were up $140 million, effectively unchanged when compared to last year. The $0.05 per share increase in the quarterly dividend that we announced in February will impact our cash payments from Q2 forward. Dividends paid to our non-controlling interest shareholders totaled $14 million. Capital expenditures in Q1 were $12 million, down as expected when compared to last year. Acquisitions including earn-out payments totaled $9 million and since we stopped stock repurchases, the positive $2.7 million in net proceeds in net proceeds represents cash received from stock issuances under our employee share plans. As a result of our continuing efforts to prudently manage the use of our cash, we were able to generate $210 million in free cash flow during the first 3 months of the year. Regarding our capital structure at the end of the quarter, our total debt is $5.76 billion, up about $650 million since this time last year, but down $50 million as of this past year end. When compared to March 31 of last year, the major components of the change were the issuance of $600 million of 10-year senior notes due in 2030, which were issued in early April at the outset of the pandemic. Along with the increase in debt of approximately $80 million resulting from the FX impact of converting our billion-euro denominated borrowings into dollars at the balance sheet date. Our net debt position as of March 31 was $863 million up about $650 million from last year-end, but down $1.5 billion when compared to Q1 of 2020. The increase in net debt since year-end was the result of the typical uses of working capital that historically occur which totaled about $840 million and was partially offset by the $210 million we generated in free cash flow during the past three months. Over the past 12 months, the improvement of net debt is primarily due to our positive free cash flow of $860 million. Positive changes in operating capital of $537 million and the impact of FX on our cash and debt balances which decreased our net debt position by about $190 million. As for our debt ratios, our total debt to EBITDA ratio was 3.1 times and our net debt to EBITDA ratio was 0.5 times and finally, moving to our historical returns on Slide 10.

EBIT margin in the first quarter was 13.6% as compared to 12.3% in the first quarter of 2020. Net income for the quarter was $287.8 million, an improvement of 11.5% from 2020 and earnings per share was $1.33 per share, a year-over-year increase of 11.8%. As John said, as we move through the first quarter of 2021, we continue to see an improvement in business conditions particularly when compared to the peak of the pandemic during the second quarter of 2020. The impact on revenue from acquisitions, net of dispositions decreased revenue by 0.4% in line with our previous projection, and as a result our reported revenue in the first quarter increased 0.6% the $3.43 billion when compared to Q1 of 2020. Returning to slide one, our reported operating profit for the quarter was $465 million, up 10.8% when compared to Q1 of 2020 and operating margin for the quarter improved to 13.6% compared to 12.3% during Q1 of 2020. As a result, our diluted earnings per share for the first quarter was $1.33 up $0.14 or 11.8% per share when compared to the prior year. We expect to return to positive organic growth in the second quarter and for the full year.

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Our underlying underwriting income of $572 million pre-tax was up $254 million over the prior-year quarter, benefiting from solid net earned premium and a 3.5 point improvement in the underlying combined ratio to a strong 91.4%. For us in the quarter, $114 million of direct losses and $63 million of audit premium adjustments were about offset by initial estimates of favorable loss activity, most of which is in short-tail lines. As I shared last quarter, our high quality surety book was effectively stress tested in the 2008 financial crisis and performed well. We're very pleased with our production results, excluding the other premium refunds we provided to our customers, net written premiums grew by 2% as the impact of COVID-19 on insurance exposures was more than offset by strong renewal rate change in all three segments. In Business Insurance, we achieved renewal rate change of 7.4%, the highest level since 2013 and close to the record level we achieved that year. In Bond & Specialty Insurance, net written premiums increased by 3%, as our domestic management liability business achieved a record renewal rate change while maintaining strong retention. In Personal Insurance, excluding the auto premium refund, net written premiums increased by 6% driven by strong retention and new business in both Agency Auto and Agency Homeowners. In our Agency Homeowners business, renewal premium change remained strong at 7.7% and we hit a record for new business. And on top of that, the pandemic and related economic fallout, added sense of incremental uncertainty making this feel like one of those times, not unlike in the wake of 9/11 and Hurricane Katrina when the market recalibrates risk. Our core loss for the second quarter was $50 million compared to core income of $537 million in the prior year quarter. Our second quarter results include $854 million of pre-tax cat losses compared to only $367 million in last year second quarter. This quarter's cat's includes severe storms in several regions of the United States as well as $91 million of losses related to civil unrest. Regarding our property aggregate catastrophe XOL treaty for 2020, as of June 30th, we have accumulated about $1.4 billion of qualifying losses toward the aggregate retention of $1.55 billion. The treaty provides aggregate coverage of $280 million out of $500 million of losses, above that $1.55 billion retention. The underlying combined ratio was 91.4%, which excludes the impacts of cats and PYD improved by 3.5 points compared to 94.9% in last year's second quarter. The underlying loss ratio improved by more than 4 points and benefited from a lower level of non-cat weather losses, favorable frequency in personal auto from the shelter-in-place environment, net of related premium refunds and the impact of earned pricing in excess of loss trend. The expense ratio of 31% is 0.8 of a point higher than the prior year quarter and above our recent run rate. The net impact of COVID-19 and its related effects on the economy were modest in terms of our overall second quarter underwriting result. Our top-line was resilient, excluding the premium refunds in Personal Insurance, net written premiums increased by 2% driven by strong renewal rate change in all three segments that more than offset lower insured exposures. For example, losses directly related to COVID-19 totaled $114 million, primarily workers' comp in Business Insurance and management liability losses in our Bond & Specialty business. Taking a step back, on a year-to-date basis, the impact on our results excluding net investment income from COVID-19 and its related effects is a net charge of about $50 million pre-tax. In Bond & Specialty Insurance, we saw larger losses than expected in management liability, resulting in prior year strengthening of $33 million, largely offsetting the favorable development in Personal Insurance. After-tax net investment income decreased by 54% from the prior year quarter to $251 million, somewhat better result than we had previewed in our call last quarter. Fixed income returns decreased by $24 million after tax as the benefit from higher levels of invested assets was more than offset by the decline in interest rates and the mix change, as we chose to maintain a somewhat higher level of liquidity and held more short-term investments than in prior quarters. For the remainder of 2020, we expect that fixed income NII will decrease by approximately $35 million to $40 million after-tax per quarter compared to the corresponding periods of 2019. Turning to capital management, Operating cash flows for the quarter of $1.7 billion were again, very strong. All our capital ratios were at or better than target levels and we ended the quarter with holding company liquidity of slightly more than $2 billion, well above our target level. Recall that in April, we pre-funded as we normally do, $500 million of debt coming due in November, with the new 30-year $500 million debt issuance at 2.55%. Investment yields decreased as credit spreads tightened during the second quarter and accordingly, our net unrealized investment gains increased from $1.8 billion after tax as of March 31st, to $3.6 billion after tax at June 30th. Adjusted book value per share, which excludes net unrealized investment gains and losses was $92.01 at quarter end, down less than 1% from year-end and up 2% year-over-year. We returned $218 million of capital to our shareholders this quarter via dividends. In the annual reset for the 2020 hurricane season the attachment point was adjusted from $1.79 billion to $1.87 billion, while the total cost of the program was flat year-over-year. As for the quarter's results, business Insurance had a loss for the quarter of $58 million due to lower net investment income and higher catastrophe losses, as both Alan and Dan discussed. The combined ratio of 107.1% included more than 10 points of catastrophes, impacted by both weather related losses and civil unrest. The underlying combined ratio of 97% improved by 0.4 points, reflecting a 0.2 point improvement in each of the underlying loss ratio and expense ratio. Turning to the top line, net written premiums were 3% lower than the prior-year quarter due to the impact of the economic disruption on insured exposures. Turning to domestic production, we achieved strong renewal rate change of 7.4% while retention remained high at 83%. The renewal rate change of 7.4% was up almost 4 points from the second quarter of last year and more than a point from the first quarter of this year, not withstanding the persistent downward pressure in workers' compensation pricing. We achieved positive rate at about 80% of our middle market accounts this quarter, which was up from about two-third in the second quarter of last year. At these rate levels, our rate change continues to exceed loss trend even after about a 0.5 point increase toward loss trend assumption. New business of $473 million was down 10% from the prior-year quarter. As for the individual businesses, in Select, renewal rate change was up to 2.1% making the sixth consecutive quarter where renewal rate was higher than the corresponding prior-year quarter while retention was strong at 82%. In Middle Market renewal rate change was up to 7.9% while retention remained strong at 86%. The 7.9% was up almost 4.5 points from the second quarter of 2019 and 1.5 points from the first quarter of 2020. New business of $255 million was down from the prior-year quarter, driven by both economic disruption and our continued focus on disciplined risk selection underwriting and pricing. Segment income was $72 million, a decrease of $102 million from the prior-year quarter. As Dan mentioned, the combined ratio of 93.8% reflects unfavorable prior-year reserve development in the quarter as compared to favorable PYD in the prior-year quarter and a higher underlying combined ratios. The underlying combined ratio of 88.1% increased 7.1 points from the prior-year quarter, primarily driven by the impacts of higher loss estimates for management liability coverages, about half of which was due to COVID-19 and related economic conditions. Turning to the top line, net written premiums grew 3% for the quarter, reflecting strong growth in our management liability and international businesses, partially offset by lower surety production. In our domestic management liability business, we are pleased that renewal premium change increased to 7.8%. As Alan noted, renewal rate change was a record for the quarter, while retention remained at a historically high 89%. Domestic management liability new business for the quarter decreased $13 million reflecting a disruption associated with COVID-19 and our thoughtful underwriting in this elevated risk environment. Domestic surety net premium, net written premium was down $24 million in the quarter, reflecting the impact of COVID-19, which slowed public project procurement and related bond demand. Personal Insurance segment income for the second quarter of 2020 was $10 million down from $88 million in the prior year quarter, driven by a higher level of catastrophe losses and lower net investment income. Our combined ratio for the quarter was 101.3%, an increase of 1.1 points, and a 12.5 point increase in catastrophe losses was largely offset by a 10.6 point improvement in the underlying combined ratio. The increase of 2.6 points on the underwriting expense ratio was primarily driven by the reduction in net earned premiums resulting from the auto premium refunds. Excluding the impact of premium refunds of $216 million, net written premiums grew 6%. Agency homeowners and other net written premiums were up an impressive 13% and agency automobile net written premiums were up 3% excluding premium refunds. Agency automobile delivered strong results with a combined ratio of 85.7% for the quarter. The loss ratio improved over 12 points while the underwriting expense ratio increased by about 4 points. The underlying combined ratio of 84.2% improved 9.6 points relative to the prior year quarter, continuing to reflect improvements in frequency, primarily due to fewer miles driven as a result of the pandemic. In the U.S., the program provided a 15% premium refund on April, May and June premiums. In agency homeowners and other, the second quarter combined ratio was 113.9%, 9.4 points higher than the prior year quarter due primarily to higher catastrophes, partially offset by a lower underlying combined ratio. This quarter, we experienced significant storm activity, resulting in 34 points of catastrophe losses, an increase of 21 points compared to the prior year quarter where catastrophes were relatively low. The underlying combined ratio for the quarter was 81.4%, down over 11 points from the prior year quarter, driven primarily by lower non-catastrophe weather-related losses. Agency automobile retention was 85% and new business increased 7% from the prior year quarter. Renewal premium change was 1.5% as we continue to moderate pricing given the improved performance in our book over the past few years. Agency homeowners and other delivered another very strong quarter, with retention of 87%, renewal premium change of 7.7% and a 17% increase in new business as we continue to seek to improve returns while growing the business. Higher new business levels again benefited from the successful roll out of our Quantum Home 2.0 product, now available in over 40 markets. We introduced Quantum Home 2.0 in four new states including California. In addition, we launched IntelliDrive 2.0 which add distracted driving monitoring to our auto telematics product and delivers significant improvements to the user experience. And after reaching our goal of planting one million trees for customer enrollment in paperless billing, we extended our partnership with American Forests to plant another 500,000 trees by Earth Day 2021. Finally, I'll remind you that on a year-to-date basis, setting aside net investment income, the impact on our results from COVID-19 and its related effects is a net charge of about $50 million pre-tax.

Our second quarter results include $854 million of pre-tax cat losses compared to only $367 million in last year second quarter. The underlying combined ratio was 91.4%, which excludes the impacts of cats and PYD improved by 3.5 points compared to 94.9% in last year's second quarter. The expense ratio of 31% is 0.8 of a point higher than the prior year quarter and above our recent run rate. The net impact of COVID-19 and its related effects on the economy were modest in terms of our overall second quarter underwriting result. Adjusted book value per share, which excludes net unrealized investment gains and losses was $92.01 at quarter end, down less than 1% from year-end and up 2% year-over-year.

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We now expect to achieve ROE in the range of 16% to 17% this year, above our long-term target of 15%. Our year-to-date free cash flow is $602 million, down $10 million from the prior year as higher vehicle capital spending was largely offset by higher proceeds from the sale of used vehicles and property. We're increasing our full-year free cash flow forecast to $650 million to $750 million, up from $400 million to $700 million, primarily to reflect the anticipated impact from delays for new vehicle deliveries from the OEMs. We're encouraged by our performance and by the market trends we're seeing in the areas that we're investing for future growth. RyderVentures, our corporate venture capital fund, aims to invest $50 million over the next five years through direct investment in start-ups, primarily where we can partner to develop new products and services for our customers. We're enhancing RyderView's capabilities and plan to launch Version 2.0 later this year. We're also rolling out a customer experience that is branded for our customers, the retailer so that RyderView 2.0 serves as an extension of their brand. We're confident that RyderView 2.0 will be a market differentiator that will enhance the customer experience and propel further profitable growth for Ryder Last Mile. Operating revenue of $1.9 billion in the second quarter increased 18% from the prior year, reflecting double-digit revenue growth across all three of our business segments. Comparable earnings per share from continuing operations was $2.40 in the second quarter as compared to a loss of $0.95 in the prior year. Year-to-date free cash flow was $602 million below prior year as planned. Fleet Management Solutions operating revenue increased 14%, primarily reflecting higher rental and lease revenue. Rental revenue increased 58%, driven by higher demand and pricing. Rental pricing increased by 13%, which is significantly higher than we've seen historically, reflecting pricing actions taken over the past year, prior year COVID effects, and a larger mix of higher-return pure rental business in the current quarter. ChoiceLease revenue increased 5%, reflecting higher pricing and miles driven, partially offset by smaller fleet. FMS realized pre-tax earnings of $158 million are up by $262 million from the prior year. $131 million of this improvement resulted from lower depreciation expense related to the prior residual value estimate changes and higher used vehicle sales results. Rental utilization on the power fleet was 80% in the quarter, significantly above the prior-year 56%, which included COVID impact, and was close to historical second quarter high. FMS EBT as a percentage of operating revenue was 12.9% in the second quarter and surpassed the company's long-term target of high single digits. For the trailing 12-month period, it was 6.3%, primarily reflecting higher depreciation expense from prior residual value estimate changes. Globally, year-over-year proceeds were up 73% for tractors and 72% for trucks. Sequentially, tractor proceeds were up 22% and truck proceeds were up 27% versus the first quarter. As you may recall, in the second quarter of last year, we provided a sensitivity noting that a 10% price increase for trucks and a 30% price increase for tractors in the U.S. would be needed by 2022 in order to maintain current policy depreciation residual estimates. Since the second quarter 2020, U.S. truck proceeds were up 59% and tractor proceeds were up 67%. During the quarter, we sold 6,000 used vehicles, down 5% versus the prior year, reflecting lower trailer sales. Used vehicle inventory held for sale was 4,300 vehicles at quarter-end and is below our target range of 7,000 to 9,000 vehicles. Inventory is down by 9,700 vehicles from the prior year and down by 1,900 vehicles sequentially. Operating revenue versus the prior year increased 32% due to new business and increased volumes and COVID effects in the prior year. SCS pre-tax earnings increased 11%, benefiting from revenue growth, partially offset by strategic investments in marketing and technology as well as increased incentive compensation and medical costs. SCS EBT as a percent of operating revenue was 7.7% for the quarter and below the company's long-term target of high-single digits. However, it was 8.2% for the trailing 12-month period, in line with our long-term target of high single digits. Moving to dedicated on Page 11. Operating revenue increased 12% due to new business and higher volumes. DTS earnings before tax decreased 38%, reflecting increased labor costs, higher insurance expense, and strategic investments. DTS EBT as a percentage of operating revenue was 5.1% for the quarter. It was 6.9% for the trailing 12-month period, below our high single-digit target. Lease capital spending of $501 million was above prior year as planned due to increased lease sales activity. Rental capital spending of $397 million increased significantly year-over-year, reflecting higher planned investment in the rental fleet. We plan to grow the rental fleet by approximately 13% in 2021, mostly in light- and medium-duty vehicles in order to capture increased demand expected from strong e-commerce and free-market activity. Our full-year 2021 forecast for gross capital expenditures of $2.2 billion to $2.3 billion is at the high end of our initial forecast range and is shown in the chart at the bottom of the page. Our 2021 free cash flow forecast has increased to a range of $650 million to $750 million from our previous forecast of $400 million to $700 million. Balance sheet leverage this year is expected to finish below 250%, which is the bottom end of our target range. Importantly, as Robert mentioned, we now expect to achieve ROE of 16% to 17% this year, with a declining depreciation impact and a stronger-than-expected recovery in the used vehicle sales market. Turning now to our earnings per share outlook on Page 14. We're raising our full-year comparable earnings per share forecast to $720 million to $750 million from a prior forecast of $550 to $590 and well above a loss of $0.27 in the prior year, which included COVID effects. We're also providing a third-quarter comparable earnings per share forecast of $1.95 to $2.05, significantly above our prior year of $1.21. We're forecasting quarterly gains around $35 million for the balance of the year, reflecting higher pricing, partially offset by fewer vehicles sold due to low inventory levels. In FMS, the depreciation impact from prior residual value estimate changes is expected to continue to decline, resulting in a year-over-year benefit of approximately $40 million in the third quarter of 2021. In supply chain and dedicated, we're on track to meet or exceed our high single-digit revenue growth targets. Our multi-year maintenance cost initiative delivered more than $50 million in annual savings through the end of last year, and we are on track to achieve an additional $30 million in savings in 2021. Substantially, all leases, with the exception of those signed in 2013, are expected to perform above our target return. The leases signed in 2013 represent only 8% of our lease fleet. Although we are encouraged that we expect to exceed our target ROE of 15% in 2021, we remain focused on taking action -- additional actions to position our business to generate long-term returns of 15% ROE over the cycle. As a reminder, in recent years, we significantly lowered the residual value estimates for our entire fleet to a level where used tractor prices have only been below these estimates in four of the last 21 years. We expect these changes will increase depreciation expense in 2021 by $18 million, representing approximately 1% of total depreciation expense for the year.

Comparable earnings per share from continuing operations was $2.40 in the second quarter as compared to a loss of $0.95 in the prior year. Our full-year 2021 forecast for gross capital expenditures of $2.2 billion to $2.3 billion is at the high end of our initial forecast range and is shown in the chart at the bottom of the page. We're also providing a third-quarter comparable earnings per share forecast of $1.95 to $2.05, significantly above our prior year of $1.21. In supply chain and dedicated, we're on track to meet or exceed our high single-digit revenue growth targets. Substantially, all leases, with the exception of those signed in 2013, are expected to perform above our target return.

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With our full year coming into better view, we are poised for continued returns-focused growth expanding our scale to about $6 billion in revenues and generating a return on equity of roughly 20%. As for the details of the quarter, we produced total revenues of $1.44 billion and diluted earnings per share of $1.50. We achieved an operating income margin of 11.3% driven by several factors. Our profitability per unit grew meaningfully on a sequential basis to nearly $47,000. With the progression of our work in process and our success in accelerating starts, we are confident in our ability to achieve full-year deliveries of between 14,000 and 14,500 homes. We recently completed a $390 million debt offering, the net proceeds from which together with a portion of our existing cash will be used to retire our '21 maturity in full. In the second quarter, we invested $575 million in land acquisition and development, expanding our lot position sequentially by 7,800 lots to roughly 77,500 lots owned or controlled with 45% of the total optioned. In addition, we are pursuing moderately sized deals in our preferred submarkets averaging between 100 and 150 lots and staying on strategy and positioning these new communities to be attainable near the median household income for that sub-market. Along with our success in Seattle and recent reentry into Charlotte, we are announcing today that we have started up a division in Boise, Idaho, a top 25 housing market. We now have over 900 lots under control and anticipate our first land parcel closing in the third quarter. We successfully opened 33 new communities in the second quarter. And although it operates at a higher ASP, it is still below the median resale price of homes in its submarkets which are as much as $100,000 higher and selling within a few weeks of being listed. Although we offer floor plans below 1,600 square feet in over 75% of our communities, buyers are still selecting homes averaging 2,100 feet, which is consistent with their choices over the past couple of years. The first is an acute shortage of supply stemming not only from limited resale inventory, but also from the under production of new homes over the past 15 years. These demographic groups value personalization and we believe we are well positioned to capture increases in home sales given our expertise in serving the first-time buyer which represents 64% of our deliveries this past quarter with our built-to-order approach. Net orders were 4,300, our best second quarter since 2007 with strength throughout the quarter resulting in year-over-year growth of 145%. We are matching starts to sales and in the first half of this year we have quickly scaled up our production to start over 8,500 homes. To put this in context, the homes we started in the past two quarters represent about 75% of the total homes we started for the full year 2020. Almost 95% of the homes in production are already sold and we remain committed to our built-to-order business model. Nearly 80% of our orders in the second quarter were for personalized homes, which also creates an additional revenue stream from our design studios and with lot premiums. Our studio revenue per unit rose sequentially in the second quarter and is continuing to average about 9% of our higher base prices. Between studio revenue and lot premiums, we are averaging about $40,000 per home today and believe there is opportunity to continue to grow this going forward. We ended the quarter with a robust backlog value of $4.3 billion, up 126% year-over-year representing over 10,000 homes. KBHS Home Loans, our mortgage joint venture, continued to be a solid partner for our customers handling the financing for 75% of the homes we delivered in the second quarter. These buyers have a strong and consistent credit profile with an average down payment of about 13% or over $50,000 and an average FICO score that inched up to 727. We've been on this journey for over 15 years. We have built over 150,000 ENERGY STAR certified homes to-date, more than any other builder, and have the lowest published average Home Energy Rating System, or HERS, index score among production homebuilders. And we're striving to be even better with an aggressive goal to further improve our average HERS score from 50 down to 45 by 2025, a level which translates into an additional estimated reduction in a KB Home's carbon emission of about 8% per year. With our operations performing well, we leveraged 58% growth in housing revenues to generate a 216% increase in operating income for the quarter. In addition, our net orders reached their highest second-quarter level in 14 years. Our housing revenues of $1.44 billion for the quarter increased from $910 million in the prior-year period, reflecting a 40% increase in homes delivered and a 13% increase in overall average selling price. Considering our current backlog and construction cycle times, we anticipate our 2021 third quarter housing revenues will be in a range of $1.5 billion to $1.58 billion. For the full year, we are projecting housing revenues in the range of $5.9 billion to $6.1 billion. We believe we are very well positioned to achieve this top line performance due to our strong second quarter net orders and ending backlog of over 10,000 homes, representing nearly $4.3 billion in ending backlog value. In the second quarter, our overall average selling price of homes delivered increased to nearly $410,000, reflecting strong housing market conditions, which enabled us to raise prices in the vast majority of our communities, as well as product and geographic mix shifts of homes delivered. For the 2021 third quarter we are projecting an overall average selling price of $420,000. We believe our ASP for the full year will be in a range of $415,000 to $425,000. Homebuilding operating income significantly improved to $162.9 million as compared to $51.6 million in the year-earlier quarter, reflecting an increase of 560 basis points in operating income margin to 11.3% due to meaningful improvements in both our housing gross profit margin and SG&A expense ratio. Excluding inventory related charges of $0.5 million in the current quarter and $4.4 million of inventory-related charges and $6.7 million of severance charges in the year-earlier quarter, this metric improved to 11.4% from 6.9%. We expect our homebuilding operating income margin, excluding the impact of any inventory-related charges, to further improve to a range of 11.7% to 12.1% for the 2021 third quarter. For the full year, we expect our operating margin, excluding any inventory-related charges, to be in the range of 11.5% to 12%. Our housing gross profit margin for the second quarter expanded to 21.4%, up 320 basis points from the prior-year period. Excluding inventory related charges, our gross margin for the quarter increased to 21.5% from 18.7% for the prior-year period. Our adjusted housing gross profit margin, which excludes inventory-related charges as well as the amortization of previously capitalized interest, was 24.2% for the 2021 second quarter compared to 21.9% for the same 2020 period. Assuming no inventory-related charges, we expect a sequential increase in our 2021 third quarter housing gross profit margin to approximately 21.7% and further improvement in the fourth quarter. Considering this expected favorable trend, we believe our full year housing gross profit margin, excluding inventory-related charges, will be within the range of 21.5% to 22% representing a 215 basis point year-over-year increase at the midpoint. Our selling, general and administrative expense ratio of 10.1% for the quarter improved from 12.6% for the 2020 second quarter. The 250 basis point improvement reflected the continued benefit of overhead cost reductions implemented last year in the early stages of the pandemic, increased operating leverage from higher revenues and the severance charges in the year-earlier quarter. Considering anticipated increases in future revenues and our continuing actions to contain costs, we believe that our 2021 third quarter SG&A expense ratio will be approximately 9.8% and our full year ratio will be in a range of 9.8% to 10.2%. Our income tax expense for the quarter of $30.3 million, which represented an effective tax rate of 17%, reflected the favorable impact of $14.8 million of federal energy tax credits recorded in the quarter relating to qualifying energy-efficient homes. We expect our effective tax rate for the full year to be approximately 20%, including the expected favorable impact of additional federal energy tax credits in the third and fourth quarters. Overall, we produced net income for the second quarter of $143.4 million or $1.50 per diluted share compared to $52 million or $0.55 per diluted share for the prior-year period. Turning now to community count, our second quarter average of 205 communities decreased 17% from the year-earlier quarter. We ended the quarter with 200 communities as compared to 244 communities at the end of the 2020 second quarter. On a sequential basis, our average community count decreased 8% from the first quarter and ending community count was down 4%. The decreases were due to our strong absorption pace of seven monthly net orders per community during the quarter, which show 42 close-outs as well as community openings that were delayed to the third quarter. Over the past 12 months our robust absorption pace has driven the close-out of over 150 selling communities. Although they will not generate additional net orders, we will continue to produce revenues and profit in future quarters associated with nearly 80% of these sold-out communities as we work through the construction and delivery of the sold homes. We anticipate our 2021 third quarter ending community count will increase sequentially by approximately 5%, followed by another modest sequential improvement in the fourth quarter. Favorable operating cash flow in the quarter generated primarily from homes delivered net of higher levels of land investment resulted in quarter and total liquidity of approximately $1.4 billion including $608 million of cash and $788 million available under our unsecured revolving credit facility. Earlier this month, we completed the $390 million issuance of 4% 10-year senior notes and used a portion of the proceeds to redeem approximately $270 million of tendered 7% notes that mature on December 15, 2021. We expect to realize a charge of approximately $5 million for this early extinguishment of debt in the third quarter. It is our intention to redeem the remaining $180 million of the 7% notes at par value on September 15. Once completed, this redemption, partially offset by the new issuance, will result in a net $16 million reduction in debt and an annualized interest savings of nearly $16 million, contributing to our continuing trend of lowering the interest amortization included in future housing gross profit margins. In addition, we believe the $350 million of our maturity in 2022 of 7.5% senior notes represents another opportunity to reduce incurred interest and enhanced future gross margins. In summary, given the size and composition of our quarter-end backlog of over 10,000 homes, along with our expanded production capacity, we expect further improvement in our financial results and return metrics in 2021 as compared to our expectations at the time of our last earnings call. Using the midpoints of our new guidance ranges, we now expect a 45% year-over-year increase in housing revenues and further expansion in our operating margin to 11.75%. This profitability level should drive a return on average equity of approximately 20% for the full year.

As for the details of the quarter, we produced total revenues of $1.44 billion and diluted earnings per share of $1.50. Net orders were 4,300, our best second quarter since 2007 with strength throughout the quarter resulting in year-over-year growth of 145%. Our housing revenues of $1.44 billion for the quarter increased from $910 million in the prior-year period, reflecting a 40% increase in homes delivered and a 13% increase in overall average selling price. Overall, we produced net income for the second quarter of $143.4 million or $1.50 per diluted share compared to $52 million or $0.55 per diluted share for the prior-year period.

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As to the details of the quarter, we generated total revenues of $1.14 billion and diluted earnings per share of $1.02, up 62% year-over-year. Texas is our largest market by units and the severe weather shut down our operations for roughly 10 days in mid-February. Our profitability was substantially higher year-over-year with a more than 400 basis point increase in our operating income margin to 10.4%, excluding inventory-related charges. Our profitability per unit grew meaningfully to over $41,000 in the first quarter, 73% higher than in the prior-year period. In the first quarter, we increased our land investments by 37% year-over-year to roughly $560 million. We grew our lot position by approximately 3,000 lots since year-end to nearly 70,000 lots owned and controlled and maintained our option lots at 40% of our total. This division has increased its annual deliveries by almost 50% in the last three years and has achieved the number one ranking in the market. In the first quarter, we successfully opened 22 new communities out of the approximately 150 openings we anticipate for this year. We remain well positioned to extend this growth into 2022 and still expect year-over-year community count expansion of at least 10% next year. Our monthly absorption per community accelerated to 6.4 net orders during the first quarter, a year-over-year gain of 39%. Municipalities have increased our capacity for processing permits, heightening our ability to accelerate our starts, which were up 40% year-over-year in the first quarter. We offer floor plans below 1,600 square feet in approximately 75% of our communities. However, the median square footage of our homes in backlog is almost 2,100 square feet which is consistent with the median footage of homes we delivered in 2020. As to overall market conditions, supply remains tight with existing home inventory down nearly 30% year-over-year. In terms of demand, mortgage rates while higher relative to where they were in January, are down year-over-year and remain attractive generally around the low 3% range for a 30-year fixed-rate mortgage. Most notably, demographic trends are favorable especially with respect to first-time buyers as over 70 million millennials are in their prime homebuying years with an even larger Gen Z cohort right behind them now entering their homebuying age. Net orders in the first quarter grew 23% year-over-year to nearly 4,300, a solid result given the strength in net orders that we experienced in the prior year's first quarter. The increasing presence of this cohort in our order activity is naturally translating into a higher percentage of deliveries to first-time buyers at 65% of our deliveries in the first quarter up 11 percentage points year-over-year. We lead the industry in building ENERGY STAR certified new homes having delivered more than 150,000 of these homes to date as well as over 11,000 solar-powered homes. Our backlog value grew substantially in the first quarter to $3.7 billion. The 9,200 homes we have in backlog together with our first-quarter deliveries represent about 85% of the deliveries that were implied in our full year outlook we provided in January. Our JV handled the financing for 79% of our deliveries in the first quarter, up 8 percentage points year-over-year, producing a significant increase in its income. Consistent with the past few years, conventional loans represented the majority of KBHS volume and the credit profile of our buyers remained very healthy with an average down payment of about 13% and an average FICO score of 724 which is striking considering our high percentage of first-time buyers. We are positioned for remarkable 2021 and achieving our objectives of expanding our scale and improving our profitability while driving a meaningfully higher return on equity which we now anticipate will be above 18%. We are very pleased with our first quarter results with higher housing revenues and considerable expansion in our operating margin driving a 62% increase in our diluted earnings per share. In addition, strong net orders in the quarter combined with our substantial beginning backlog resulted in a 74% year-over-year increase in our quarter-end backlog value supporting our raised revenue and margin outlook for 2021. In the first quarter our housing revenues of $1.14 billion rose 6% from a year ago, reflecting increases in both homes delivered and the overall average selling price of those homes. Looking ahead to the 2021 second quarter, we expect to generate housing revenues in the range of $1.42 billion to $1.5 billion. For the full year, we are forecasting housing revenues in the range of $5.7 billion to $6.1 billion, up $150 million at the midpoint, as compared to our prior guidance. We believe we are well positioned to achieve this top line performance supported by our first quarter ending backlog value of approximately $3.7 billion and our expectation of continued strong housing market conditions. In the first quarter, our overall average selling price of homes delivered increased 2% year-over-year to approximately $397,000 reflecting variances ranging from a 5% decline in our West Coast region to an 11% increase in our Southwest region. For the 2021 second quarter we are projecting an average selling price of approximately $405,000. We believe our overall average selling price for the full year will be in the range of $405,000 to $415,000, a relatively modest year-over-year increase and a result of our focus on offering affordable product across our footprint. Homebuilding operating income for the first quarter increased 90% to $114.1 million from $60.2 million for the year-earlier quarter. The current quarter included inventory related charges of $4.1 million versus $5.7 million a year ago. Our homebuilding operating income margin improved to 10% compared to 5.6% for the 2020 first quarter. Excluding inventory related charges, our operating margin for the current quarter increased 430 basis points year-over-year to 10.4%, reflecting improvements in both our gross margin and SG&A expense ratio which I will cover in more detail in a moment. For the 2021 second quarter, we anticipate our homebuilding operating income margin, excluding the impact of any inventory related charges, will be in a range of 10% to 10.5%. For the full year, we expect this metric to be in a range of 11% to 11.8%, which represents an improvement of 310 basis points at the midpoint, as compared to the prior year. Our 2021 first quarter housing gross profit margin improved 340 basis points to 20.8%. Excluding inventory related charges, our gross margin for the quarter increased to 21.1% from 17.9% for the prior-year quarter. Assuming no inventory related charges, we are forecasting a housing gross profit margin for the 2021 second quarter in a range of 20.5% to 21.1%. We expect our full year gross margin, excluding inventory related charges, to be in a range of 21% to 22%, an improvement of 70 basis points at the midpoint compared to our prior guidance and up 190 basis points year-over-year. Our selling, general and administrative expense ratio of 10.7% for the first quarter reflected an improvement of 110 basis points from a year ago, mainly due to the continued containment of costs following overhead reductions implemented in the early stages of the COVID-19 pandemic, lower advertising costs and increased operating leverage from higher housing revenues. We are forecasting our 2021 second quarter SG&A ratio to be in a range of 10.4% to 10.8%, a significant improvement compared to the pandemic impacted prior-year period as we expect to realize favorable leverage impacts from an anticipated increase in housing revenues. We still expect that our full year SG&A expense ratio will be approximately 9.9% to 10.3%, which represents an improvement of 120 basis points at the midpoint compared to the prior year. Our income tax expense of $26.5 million for the first quarter represented an effective tax rate of approximately 21% and was favorably impacted by excess tax benefits from stock-based compensation and federal tax credits relating to current-year deliveries of energy-efficient homes, the cornerstone of our industry-leading sustainability program. We currently expect our effective tax rate for both the 2021 second quarter and full year to be approximately 24%, including the impact of energy tax credits relating to current-year deliveries. Overall, we reported net income of $97.1 million or $1.02 per diluted share for the first quarter compared to $59.7 million or $0.63 per diluted share for the prior-year period. Our first-quarter average of 223 was down 11% from the corresponding 2020 quarter primarily due to strong net order activity driving accelerated community close-outs over the past 12 months. Consistent with our forecast, we ended the quarter with 209 communities, down 16% from a year ago. While we expect this dynamic to result in a sequential increase of five to 10 communities by the end of the second quarter, we anticipate our second-quarter average community count will be down by a low to mid double-digit percentage on a year-over-year basis. Given our land pipeline and current schedule of community openings, we are confident that we will achieve at least a 10% increase in our 2022 community count to support further market share gains and growth in housing revenues. During the first quarter to drive future community openings, we invested $556 million in land and land development including a 43% year-over-year increase in land acquisition investments to $275 million. At quarter-end total liquidity was approximately $1.4 billion, including $788 million of available capacity under our unsecured revolving credit facility. Our debt-to-capital ratio was 38.9% at quarter-end and we expect continued improvement through the end of the year. In summary, using the midpoints of our new guidance ranges, we expect a 42% year-over-year increase in housing revenues and significant expansion of our operating margin to 11.4% driven by improvements in both gross margin and our SG&A expense ratio. In addition, achieving our new revenue and profitability expectations would drive a return on equity of over 18% for the year.

As to the details of the quarter, we generated total revenues of $1.14 billion and diluted earnings per share of $1.02, up 62% year-over-year. Net orders in the first quarter grew 23% year-over-year to nearly 4,300, a solid result given the strength in net orders that we experienced in the prior year's first quarter. In addition, strong net orders in the quarter combined with our substantial beginning backlog resulted in a 74% year-over-year increase in our quarter-end backlog value supporting our raised revenue and margin outlook for 2021. In the first quarter our housing revenues of $1.14 billion rose 6% from a year ago, reflecting increases in both homes delivered and the overall average selling price of those homes. Overall, we reported net income of $97.1 million or $1.02 per diluted share for the first quarter compared to $59.7 million or $0.63 per diluted share for the prior-year period.

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I want to begin my remarks by highlighting an exciting milestone, we took past 15% of our patients dialyzing at home. This means that approximately 30,000 of our patients receive the clinical and lifestyle benefits of home dialysis. Our current network of centers provides that easy access such that 80% of our dialysis patients live within 10 miles of a DaVita home center. On to our Q3 results. Q3 operating income grew approximately 9% year-over-year, and adjusted earnings per share grew by more than 31% over the same period However, the ongoing COVID pandemic continues to take its toll on too many human lives in the world at large, and among our patients. Incremental mortality increased from fewer than 500 in Q2 to approximately 2000 in Q3. After quarter end, COVID infections continue to decline, with our new case count during the week ending October 16 down by approximately 60%, relative to the recent Delta peak. Switching to vaccines, approximately 73% of our patients have now been vaccinated. At the end of Q3, we now have over 22,000 patients in some form of integrated care arrangements, representing 1.7 billion of value-based care contracts. Operating income was $475 million and earnings per share was $2.36. Our Q3 results include a net COVID headwind of approximately $55 million, an increase relative to the quarterly impact that we experienced in the first half of the year. As Javier mentioned, the latest COVID surge resulted in excess mortality in the quarter of approximately 2000 compared to fewer than 500 in Q2. Our current view of the OI impact of COVID for the year is worse by approximately $40 million compared to our expectations from last quarter. For 2021, we now expect a total net COVID impact of approximately $210 million. Treatments per day were down by 536 or 0.6% in Q3 compared to q2. In addition, the quarter had a higher ratio of Tuesdays, Thursdays and Saturdays, which lowered treatments per day for the quarter by approximately 300. Revenue per treatment was essentially flat quarter-over-quarter, patient care cost per treatment was up approximately $5 quarter-over-quarter, primarily due to higher teammate compensation and benefit expenses. Other loss for the quarter was 7.6 million, primarily due to a $9 million decline in the mark to market of our investment in Miromatrix. The value of this investment at quarter end was $14 million. Now that we've seen the impact of the Delta surge, we are increasing our estimate of COVID impact for the year by $40 million. Given where we are in the year, we are now incorporating this COVID impact into our revised adjusted OI guidance of $1.76 billion to $1.81 billion. We are also narrowing our guidance for adjusted earnings per share to $8.80 to $9.15 per share. And we are maintaining our free cash flow guidance of $1 billion to $1.2 billion, although there is some chance that our free cash flow may fall below the bottom end of the range, depending on the timing of our DSO recovery. Our guidance anticipates Q4 operating income to be negatively impacted by approximately $75 million of seasonally high or one-time items, including certain compensation expenses, elevated training costs, higher health benefit expenses, and G&A. We anticipate a year-over-year incremental investment in the range of $15 million as we continue to grow our ITC business. And we will also begin depreciating our new clinical IP platform, which we expect to be approximately $40 million. We are anticipating the end of the temporary sequestration suspension, which would be a $70 million headwind for the full year. Our current estimate is a net headwind of $50 million to $75 million. While the range of potential outcomes for 2022 is broad, a reasonable scenario could result in an OI decline of $150 million from our 2021 guidance. Finally, during the third quarter, we repurchase 2.7 million shares of our stock and in October to date, we repurchased an additional 1.2 million shares.

On to our Q3 results. Operating income was $475 million and earnings per share was $2.36. We are also narrowing our guidance for adjusted earnings per share to $8.80 to $9.15 per share.

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Subscription revenues were up 31%. Subscription billings were up 30%. Operating margin was 25%. And the number of deals greater than $1 million was 51, up 28% year over year. Free cash flow for the first half of the year was up 34% year over year. The global economy is recovering at the fastest pace in 80 years. Every 30 million parts are processed daily and are dispatched to more than 4,000 supplier locations to production centers in Europe and Mexico. ServiceNow analyzes 300,000 data points per month, optimizing the performance of each aspect of the value chain. ITSM was in 16 of our top 20 deals, with 14 deals over $1 million. ITOM was in 15 of our top 20 deals, with six deals over $1 million. Employee Workflows were in 13 of our top 20 deals, with six deals over $1 million. Customer Workflows were in 10 of our top 20 deals, with four deals over $1 million. We now have over 2,000 customers running customer service management. IDC predicts that more than 500 million apps will be developed by 2023. This is equivalent to the total number of apps that were developed in the past 40 years. Manufacturing transportation incidents have dropped 20%. In Q2, Creator Workflows were in 18 of our top 20 deals. Also in our partner ecosystem, we recently announced our integration with Microsoft Windows 365. Q2 subscription revenues were $1.33 billion, $35 million above the high end of our guidance range and growing 31% year over year, inclusive of a 450-basis-point tailwind from FX. Remaining performance obligations, or RPO, ended the quarter at approximately $9.5 billion, representing 35% year-over-year growth. Current RPO was approximately $4.7 billion, representing 34% year-over-year growth and a four-point beat versus our guidance. Currency was a 300 basis point tailwind year over year. Q2 subscription billings were $1.328 billion, representing 30% year-over-year growth and a $73 million beat versus the high end of our guidance. The Now Platform remains a mission-critical part of our customers' operations, reflected by our strong 97% renewal rate. As of the end of Q2, we had 1,201 customers paying us over $1 million in ACV, up 25% year over year. This included 62 customers paying us over $10 million in ACV. Overall, we closed 51 deals greater than $1 million net new ACV in the quarter. We're also seeing robust net new ACV growth from new customers, with the average deal size growing over 50% year over year. In Q2, 18 of our top 20 deals included three or more products. Operating margin was 25%, three points above our guidance, driven by the strong revenue beat, cost savings and some marketing spend that was pushed into the second half of the year. Our free cash flow margin was 19%. Our Knowledge 2021 event in May included two amazing weeks of keynotes, panels and discussions that brought together experts and thought leaders of every industry across 141 countries to focus on these topics. The pipeline generated per attending account was up 45% year over year. We are raising our subscription revenue outlook by $73 million at the midpoint to a range of $5.53 billion to $5.54 billion, representing 29% year-over-year growth, including 250 basis points of FX tailwind. We are raising our subscription billings outlook by $123 million at the midpoint to a range of $6.315 billion to $6.325 billion, representing 27% year-over-year growth. Excluding the early customer payments in 2020, our normalized subscription billings growth outlook for the year would be 31% at the midpoint. Growth includes the net tailwinds in FX and duration of 200 basis points. We continue to expect 2021 subscription gross margin at 85%, and we are raising our full-year 2021 operating margin from 23.5% to 24.5%. We are raising our full-year 2021 free cash flow margin by one point from 30% to 31%. I'd note that from a seasonality perspective, we're expecting 40% of our total free cash flow in Q4. And lastly, we expect diluted weighted average outstanding shares of 202 million. For Q3, we expect subscription revenues between $1.4 billion and $1.405 billion, representing 28% to 29% year-over-year growth, including the 150-basis-point FX tailwind. We expect CRPO growth of 30% year over year, including 150-basis-point FX tailwind. We expect subscription billings between $1.32 billion and $1.325 billion, representing 22% to 23% year-over-year growth. Growth includes a net tailwind from FX and duration of 50 basis points. On that basis, our Q3 subscription billings guidance would represent 31% year-over-year growth. We expect an operating margin of 23%. There's 202 million diluted weighted outstanding shares for the quarter. We are the platform company for digital business, and we are well on our way to becoming a $15 billion revenue company.

On that basis, our Q3 subscription billings guidance would represent 31% year-over-year growth.

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We've certified over 25,000 professionals to serve the complex tax and financial needs of small business owners. These efforts are paying off as we grew third-quarter revenue over 30% at Wave, continuing on the path toward pre-pandemic levels. As a result, we reported revenue of $308 million for our third quarter, a decline of 41%. This was primarily related to the delayed return volume, while approximately $69 million was due to the deferral of tax prep fees and the delayed recognition of refund transfer fees to Q4. Partially offsetting this decline was continued strong performance at Wave, where we posted an increase of over 30% for the second consecutive quarter. Total operating expenses decreased 15% to $572 million. Interest expense declined $4 million, which reflects lower draws on our line of credit, as well as a lower interest rate on our debt issuance earlier in the fiscal year. The changes in revenue and expenses resulted in pre-tax loss from continuing operations of $284 million. GAAP loss per share increased from $0.66 to $1.27, while adjusted loss per share increased from $0.59 to $1.17. Turning to our outlook for the fiscal year. Based on these expectations and the positive trends Jeff mentioned earlier, we continue to expect revenue in the range of $3.5 billion to $3.6 billion and EBITDA of $950 million to $1 billion. We have identified additional favorability in corporate taxes and, as such, now expect our effective tax rate to come in at the low end of our 18% to 20% outlook range. All in, these costs total approximately $20 million to $25 million in fiscal '21. The health of our business and our outlook for the future have allowed us to increase the dividend in four of the last five years, amounting to a total increase of 30% during that span. This fiscal year, we have repurchased 5% of shares outstanding. And during my tenure as CFO, we have repurchased 19% of shares outstanding. The dedication and resolve they've shown over the past 12 months are truly remarkable.

As a result, we reported revenue of $308 million for our third quarter, a decline of 41%. GAAP loss per share increased from $0.66 to $1.27, while adjusted loss per share increased from $0.59 to $1.17. Turning to our outlook for the fiscal year.

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These strengths were evident in our third quarter results with revenue up 8%, gross margin up 310 basis points to a record 51% and solid adjusted earnings per share performance at $0.31. Let's turn next to our regions, starting with North America, where revenue was up 8% to $1 billion, indicative of improving brand health in our largest market, we had stronger-than-expected back-to-school and direct-to-consumer demand. Compared to 2019, North American revenue was up 2% in the third quarter. Revenue in our Asia Pacific region was up 19%, driven primarily by wholesale growth. We attribute this to the investments we're making into marketing, CRM and store expansions, including opening our 1,000th store in the region. Versus 2019, third quarter APAC revenue was up 37%, so solid progress on a two year stack. Next up is EMEA, where revenue was up 15%, driven by wholesale, which saw continued momentum from our distributor partnerships and a solid direct-to-consumer performance. Versus 2019, third quarter revenue in EMEA was up 50%. And finally, our Latin America region was up 27%, driven by strength in our full-price wholesale and distributor businesses. Versus 2019, third quarter revenue in Latin America was up 8%. Another highlight is the performance of our direct-to-consumer business, which was up 12%. Versus 2019, direct-to-consumer was up 31% for the third quarter. Compared to the prior year, revenue was up 8% to $1.5 billion. Third quarter wholesale revenue was up 10%, driven by higher-than-expected demand in our full-price business, particularly in North American wholesale, which was tempered by a reduction in sales to the off-price channel as we continue to work to elevate our brand positioning. Our direct-to-consumer business increased 12%, led by 21% growth in our owned and operated retail stores, partially offset by a 4% decline in e-commerce, which faced a difficult comparison to last year's third quarter. But I would also note that when compared to the third quarter of 2019, our e-commerce business was up over 50%. And licensing revenue was up 24%, driven by improving strength within our North American partner businesses. By product type, apparel revenue was up 14% with strength across all categories, particularly in train and golf. Footwear was up 10%, driven primarily by strength in running. And our accessories business was down 13% due to lower sales of our sports masks compared to last year's third quarter. Relative to gross margin, our third quarter improved 310 basis points over last year, landing at 51%. This expansion was driven by 400 basis points of pricing improvements due primarily to lower promotional activity within our DTC channel, along with lower promotions and markdowns within our wholesale business and 120 basis points of benefit due to channel mix, primarily related to lower mix of off-price sales versus last year's third quarter. Partially offsetting these improvements was about 100 basis points of negative impact related to the absence of MyFitnessPal and 90 basis points of negative impacts from higher freight and logistics costs due to COVID-related supply chain pressures. SG&A expenses were up 8% to $599 million due to increased marketing investments, incentive compensation and nonsalaried workforce wages. Relative to our 2020 restructuring plan, we recorded $17 million of charges in the third quarter. So we now expect to recognize total planned charges ranging from $525 million to $575 million. Thus far, we've realized $500 million of pre-tax restructuring and related charges. Our third quarter operating income was $172 million. Excluding restructuring and impairment charges, adjusted operating income was $189 million. After tax, we realized a net income of $113 million or $0.24 of diluted earnings per share during the quarter. Excluding restructuring charges, loss on extinguishment of $169 million in principal amount of senior convertible notes and the noncash amortization of debt discount on our senior convertible notes. Our adjusted net income was $145 million or $0.31 of adjusted diluted earnings per share. In this respect, we are excited to report that the $0.71 of adjusted diluted earnings per share that we've realized year-to-date has surpassed our highest previous full year split adjusted earnings, thus solid traction and excellent progress. Inventory was down 21% to $838 million, driven by improvements in our operating model and inbound shipping delays due to COVID-related supply chain pressures. Our cash and cash equivalents were $1.3 billion at the end of the quarter and we had no borrowings under our $1.1 billion revolving credit facility. With respect to debt, during the third quarter, we entered into exchange agreements with certain convertible bondholders for $169 million in principal amount of our outstanding convertible notes and terminated certain related cap call transactions. We utilized net $168 million in cash, issued 7.7 million shares of our Class C stock and recorded a related loss of approximately $24 million, which is captured in other income and expenses. Following this transaction and our actions in the second quarter, $81 million of convertible notes remain outstanding. Let's start with revenue, which we now expect to be up approximately 25% for the full year. On a GAAP basis, we expect the full year rate to be up approximately 130 basis points against our 2020 adjusted gross margin of 48.6%, with benefits from pricing and changes in foreign currency being partially offset by higher expected freight expenses and the sale of MyFitnessPal, which carried a high gross margin rate. Versus 2020, we now expect that full year SG&A will be up 6% to 7%. With that, we now expect operating income to reach approximately $425 million this year or $475 million on an adjusted basis. Translated to rate, we expect to deliver an operating margin of just under 8% or an adjusted operating margin of approximately 8.5% in 2021. All of this takes us to an expected diluted earnings per share of approximately $0.55 or adjusted diluted earnings per share of approximately $0.74 in 2021, with an average weighted diluted share count of approximately 468 million shares. And finally, from a balance sheet perspective, we expect to end the year with inventory relatively flat against 2020's year-end and we expect to close the year with approximately $1.5 billion in cash and cash equivalents.

These strengths were evident in our third quarter results with revenue up 8%, gross margin up 310 basis points to a record 51% and solid adjusted earnings per share performance at $0.31. Compared to the prior year, revenue was up 8% to $1.5 billion. Relative to gross margin, our third quarter improved 310 basis points over last year, landing at 51%. After tax, we realized a net income of $113 million or $0.24 of diluted earnings per share during the quarter. Our adjusted net income was $145 million or $0.31 of adjusted diluted earnings per share. Inventory was down 21% to $838 million, driven by improvements in our operating model and inbound shipping delays due to COVID-related supply chain pressures. Let's start with revenue, which we now expect to be up approximately 25% for the full year. On a GAAP basis, we expect the full year rate to be up approximately 130 basis points against our 2020 adjusted gross margin of 48.6%, with benefits from pricing and changes in foreign currency being partially offset by higher expected freight expenses and the sale of MyFitnessPal, which carried a high gross margin rate. With that, we now expect operating income to reach approximately $425 million this year or $475 million on an adjusted basis. All of this takes us to an expected diluted earnings per share of approximately $0.55 or adjusted diluted earnings per share of approximately $0.74 in 2021, with an average weighted diluted share count of approximately 468 million shares.

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Our recordable incident rate at the end of September was just 0.24 incidents per 200,000 labor hours, significantly better than industry averages. Our trailing 12-month net cash from operations was $1.7 billion and free cash flow was $1 billion. While there is always some uncertainty about the volume of ammonia that will be applied in Q4, given the dependency on weather, we would expect full year 2021 adjusted EBITDA to land between $2.2 billion and $2.4 billion. On the balance sheet, we are quickly closing in on our target of $3 billion of gross debt and expect to repay the remaining $500 million outstanding on our 2023 notes on or before their maturity. And as such, the Board has authorized a new $1.5 billion share repurchase program to facilitate the return of capital to shareholders. Meanwhile, lower global production and government actions have created a supply constrained global market. The impact of this can be seen on Slides 11 and 12, where both our spot cost curve and 2022 cost curve are much higher and steeper than in recent years. For the first nine months of 2021, the company reported net earnings attributable to common stockholders of $212 million or $0.98 per diluted share. EBITDA was $984 million and adjusted EBITDA was approximately $1.5 billion. The trailing 12 months net cash provided by operating activities was approximately $1.7 billion and free cash flow was $1 billion. In 2021, we completed a record level of maintenance activity that included turnarounds at seven of our 17 ammonia plants. As a result, we expect to return to our typical high ammonia utilization rates, with gross ammonia production between 9.5 million and 10 million tons. We expect to sell everything we produce and achieve sales volume between 19 million and 20 million tons in 2022. As Tony said, our Board authorized the new $1.5 billion share repurchase program, which becomes effective January 1, 2022. We continue to operate under our existing program, which has enabled us to acquire more than 11 million shares to be repurchased since 2019. We expect the business to produce between $2.2 billion to $2.4 billion of adjusted EBITDA this year.

Meanwhile, lower global production and government actions have created a supply constrained global market. For the first nine months of 2021, the company reported net earnings attributable to common stockholders of $212 million or $0.98 per diluted share.

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The indirect lending business had a great Q2 with outstandings up 8% over Q1. Deposit service fees continue to rebound from the pandemic impact and were up 18% from the depressed Q2 of 2020. Our financial services businesses were the star performers of the quarter with combined revenues up 14% and pre-tax earnings of 25% over 2020. As we announced last week, our Board has approved a $0.01 per quarter increase in our dividend, which marks the 29th consecutive year of dividend increases and we think a validation of our disciplined and diversified business model. As Mark noted, the second quarter earnings results were solid with fully diluted GAAP and operating earnings per share of $0.88. The GAAP earnings results were $0.22 per share or 33.3% higher than the second quarter of 2020 GAAP earnings results, and $0.12 per share or 15.8% better on an operating basis. Comparatively the company recorded GAAP earnings and operating earnings per share of $0.97 in the linked first quarter of 2021. The company reported total revenues of $151.6 million in the second quarter of 2021 a $6.7 million or 4.6% increase over the prior year's second quarter revenues of $144.9 million. The increase in total revenues between the periods was driven by a $5.3 million or 13.7% increase in financial services business revenues and a $1.2 million or 8.6% increase in banking-related non-interest revenues. Net interest income of $92.1 million was up $0.2 million or 0.2% over the second quarter 2020 results. Total revenues were down $0.9 million or 0.6% from the linked quarter first quarter driven by a $1.9 million decrease in net interest income, offset in part by higher non-interest revenues. The company's tax equivalent net interest margin for the second quarter of 2021 was 2.79%. This compares to 3.03% in the first quarter of 2021 and 3.37% one year prior. The tax equivalent yield on earning assets was 2.89% in the second quarter of 2021 as compared to 3.15% in the linked first quarter and 3.56% one year prior. During the second quarter, the company recognized $3.9 million of PPP-related interest income, including $2.9 million of net deferred loan fees. This compares to $6.9 million of PPP-related interest income recognized in the first quarter, including $5.9 million of net deferred loan fees. The company's total cost of deposits remained low, averaging 10 basis points during the second quarter of 2021. Employee benefit services revenues were up $3.4 million or 14.2% over the prior year's second quarter, driven by increases in employee benefit trust and custodial fees. Wealth management revenues were also up $1.9 million or 29.2%, driven by a higher investment management advisory and trust services revenues. The increase in banking-related non-interest revenues was driven by a $2.3 million or 17.6% increase in deposit service and other banking fees, offset in part by a $1 million decrease in mortgage banking income. During the second quarter of 2021, the company reported a net benefit in the provision for credit losses of $4.3 million. This compares to a $9.8 million provision for credit losses reported in the second quarter of 2020, $3.2 million of which was due to the acquisition of Steuben Trust Corporation with the remaining $6.6 million largely driven by pandemic-related factors. During the second quarter of 2021, the company reported 3 basis points of net loan recoveries and the post-vaccine economic outlook remain positive. In addition, at the end of the second quarter, there were only 12 borrowers representing $2.4 million in loans outstanding and that remained in the pandemic-related forbearance. This compares to 47 borrowers in pandemic-related forbearance representing $75.6 million at the end of the first quarter, and 3,700 borrowers with approximately $700 million of loans outstanding one year earlier. The company recorded $93.5 million in total operating expenses in the second quarter of 2021 as compared to $87.5 million in the second quarter of 2020, excluding $3.4 million of acquisition-related expenses. The $6 million or 6.9% increase in operating expenses was attributable to a $3.2 million or 5.8% increase in salaries and employee benefits, a $1.9 million or 17.8% increase in data processing and communications expenses, and a $0.7 million or 7.7% increase in other expenses and a $0.5 million or 5.3% increase in occupancy and equipment expense, offset, in part, by a $0.3 million or 7.9% decrease in the amortization of intangible assets. In comparison, the company recorded $93.2 million of total operating expenses in the first quarter of 2021, $0.3 million or 0.3% lower than the second quarter 2021 total operating expenses. The effective tax rate for the second quarter of 2021 was 23.1%, up from 20.3% in the second quarter of 2020. The company closed the second quarter of 2021 with total assets of $14.8 billion. This was up $181.1 million or 1.2% from the end of the linked first quarter and up $1.36 billion or 10.1% from a year earlier. Average interest earning assets for the second quarter of 2021 of $13.37 billion were up $680.6 million or 5.4% from the linked first quarter of 2021, and up $2.27 billion, or 20.4% from one year prior. The very large increases in total assets and average interest earning assets over the prior 12 months was driven by the second quarter 2020 acquisition of Steuben and margin flows of government stimulus-related deposit funding PPP originations. The company's ending loan balances of $7.24 billion were down $124.2 million or 1.7% from the end of the first quarter. Excluding the net decrease in PPP loans of $126.1 million and the seasonal decrease in municipal loans totaling $41.2 million, ending loans increased $43.1 million or 0.6%. As of June 30, 2021, the company's business lending portfolio included 317 first draw PPP loans with a total balance of $72.5 million and 2,254 second draw PPP loans with a total balance $212.3 million. The company expects to recognize, through interest income, the majority of its remaining first draw net deferred PPP fees totaling $0.9 million during the third quarter of 2021 and the majority of its second draw net deferred PPP fees totaling $9.2 million over the next few quarters. On a linked quarter basis, the average book value of the investment securities portfolio increased $290.2 million or 7.9% from $3.67 billion during the first quarter to $3.96 billion during the second quarter. During the second quarter, the company's average cash equivalents of $2.07 billion represented approximately 16% of the company's average earning assets. This compares to $1.67 billion in average cash equivalents during the first quarter of 2021 and $823 million in the second quarter of 2020. The $408 million or 24.5% increase in average cash equivalents during the quarter was driven by the continued inflow of federal stimulus funds and the origination of second draw PPP loans and first draw PPP loan forgiveness. The company's net tangible equity to net tangible assets ratio was 9.02% at June 30, 2021. This was down from 10.08% a year earlier, but up 8.48% at the end of the first quarter. The company's Tier 1 leverage ratio was 9.36% at June 30, 2021, which is nearly 2 times the well-capitalized regulatory standard of 5%. Borrowing availability at the Federal Reserve Bank, borrowing capacity at the Federal Home Loan Bank and unpledged available-for-sale investment securities portfolio provides the company with over $6.1 billion of immediately available sources of liquidity. At June 30, 2021, the company's allowance for credit losses totaled $51.8 million or 0.71% of of loans outstanding. This compares to $55.1 million or 0.75% of total loans outstanding at the end of the first quarter of 2021 and $64.4 million or 0.86% of total loans outstanding at June 30, 2020. Non-performing loans decreased in the second quarter to $70.2 million or 0.97% of loans outstanding, down from $75.5 million or 1.02% of loans outstanding at the end of the linked first quarter of 2021, but up from $26.8 million or 0.36% of loans outstanding at the end of the second quarter of 2020 due primarily to the reclassification of certain hotel loans under extended forbearance from accrual to non-accrual status between the periods. The specifically identified reserves held against the company's non-performing loans totaled only $2.8 million at June 30, 2021. Loans 30 to 89 days delinquent totaled 0.25% of loans outstanding at June 30, 2021. This compares to 0.37% one year prior and 0.27% at the end of the linked first quarter.

As Mark noted, the second quarter earnings results were solid with fully diluted GAAP and operating earnings per share of $0.88. The company reported total revenues of $151.6 million in the second quarter of 2021 a $6.7 million or 4.6% increase over the prior year's second quarter revenues of $144.9 million. Net interest income of $92.1 million was up $0.2 million or 0.2% over the second quarter 2020 results.

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We delivered very strong revenue growth of 32% year over year, which also represents growth above 2019 levels, driven by robust and sustained consumer demand and the execution of our pricing actions. Next, our decisive response plan to address volatile industry dynamics and broad supply constraints delivered ongoing earnings per share of $6.64, a $4.57 improvement year over year. Ongoing EBIT margin of 11.4%, a year-over-year improvement of 640 basis points overcoming 400 basis points of cost inflation. Additionally, we generated positive free cash flow of $769 million, led by strong earnings and the successful completion of a partial tender offer of our Whirlpool China business and the divestiture of our Turkish subsidiary. The execution of these actions and the sustained consumer demand delivered very strong Q2 results and give us the confidence to significantly raise our guidance to approximately $26 per share. Price and mix delivered 600 basis points of margin expansion driven by reduced promotions and the further implementation of a previously announced cost-based pricing actions. Additionally, structural cost takeout actions, higher volumes, and ongoing cost productivity initiatives delivered 550 basis points of net cost margin improvement. These margin benefits were partially offset by a raw material inflation, particularly steel and resins, which resulted in an unfavorable impact of 400 basis points. Lastly, increased investment in marketing and technology and the continued impact from currency in Latin America impacted margin by a combined 100 basis points. In North America, we delivered 22% revenue growth driven by sustained strong consumer demand in the region. Double-digit growth in all key countries drove a fourth consecutive quarter of revenue growth above 10% in the region. Additionally, the region delivered year-over-year EBIT improvement of $97 million led by increased revenue and strong cost take-out overcoming inflationary pressures. Net sales increased 76% led by strong demand across Brazil and Mexico, and the continued growth of our direct-to-consumer business. The region delivered very strong EBIT margins of 9.7% with continued robust demand and the execution of cost-based price actions, offsetting inflation and currency devaluation. In Asia, revenue decline of 1% reflects the successful partial tender offer for our Whirlpool China business which was completed in May. Despite this disruption, the region delivered year-over-year EBIT growth of $23 million led by pricing and cost productivity actions. We are raising our guidance and are expecting to drive net sales growth of, approximately, 16% and EBIT margin of 10.5% plus. Additionally, we now expect to deliver $1.7 billion in free cash flow or 7.5% of net sales, driven by higher earnings and the completed divestitures. Excluding the impact of divestitures, we expect to deliver on our long-term goal of free cash flow at 6% of net sales. Finally, we are significantly raising our earnings per share guidance to approximately $26, a year-over-year increase of over 40%. We continue to expect 600 basis points of margin expansion driven by price and mix as we demonstrate the disciplined execution of our go-to-market strategy and capture the benefits of our previously announced cost-based pricing actions. We have increased our expectation for net cost to 175 basis points as we realize further efficiencies from higher revenues and strong cost takeout initiatives. As we closely monitor cost inflation globally, particularly in steel and resins, we continue to expect our business to be negatively impacted by about $1 billion due to peak increases to materialize in the third quarter. Increased investments in marketing and technology and unfavorable currency, primarily in Latin America, are expected to impact the margin by 125 basis points. Overall, based on our track record, we are confident in our ability to continue to navigate this uncertain environment, and delivered 0.5%-plus EBIT margin, representing our fourth consecutive year of margin expansion. We have increased our North America industry expectation to 10% plus to reflect the continued demand strength. This brings our EBIT guidance for North America to approximately 17%. Lastly, we continue to expect to deliver strong growth and significant EBIT expansion across our international regions with each region contributing to our global EBIT margin of 10.5% plus. We now expect to drive free cash flow of approximately $1.7 billion, an increase of $450 million. Driven by expectations for stronger top line growth and improved EBIT margins, we increased our cash earnings guidance by $250 million. This represents free cash flow generation of 7.5% of sales delivering above our long-term goal of 6%. We continue to expect to invest over $1 billion in capital expenditures and research and development, highlighting our commitment to driving innovation and growth in the future. This includes industry-leading externally recognized innovation, such as our newly launched 2-in-1 Removable Agitator in our top-load laundry machine in North America and the launch of new products in EMEA, such as our new built-in refrigerator, which is recognized as the quietest built-in fridge in the marketplace. Next, with a clear focus on returning strong levels of cash to shareholders and a signal of our confidence in the business, we expect to increase our rate of share repurchases in the second half of 2021 to at or above $300 million. Lastly, we repaid a $300 million maturing bond and issued our inaugural sustainability bond, focusing on actions to drive positive environmental and social impacts.

We delivered very strong revenue growth of 32% year over year, which also represents growth above 2019 levels, driven by robust and sustained consumer demand and the execution of our pricing actions. Next, our decisive response plan to address volatile industry dynamics and broad supply constraints delivered ongoing earnings per share of $6.64, a $4.57 improvement year over year. We are raising our guidance and are expecting to drive net sales growth of, approximately, 16% and EBIT margin of 10.5% plus.

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During our first fiscal quarter, industry same restaurant sales decreased 26%. The progress we made in these areas combined with our operating results, gave us the confidence to repay the $270 million term loan and reinstate a quarterly dividend. At the end of August, we had completed installation in just over 500 restaurants in our total portfolio. For our three largest brands combined, more than 50% of our off-premise sales during the quarter were fully digital transactions where guest ordered and paid online. The results of all these efforts to transform our business model can be seen in the fact that we generated adjusted EBITDA of $185 million for the quarter. Olive Garden delivered strong average weekly sales per restaurant of $70,000 while significantly strengthening our business model, resulting in higher segment profit margin than last year. Olive Garden same-restaurant sales for the quarter declined 28.2%, 220 basis points below the industry benchmark. In fact, restaurants that had some level of dining room capacity for the entire quarter averaged more than $75,000 in weekly sales, retaining nearly 80% of their last year's sales. Additionally, off-premise continue to see strong growth with off-premise sales increasing 123% in the quarter, representing 45% of total sales. Same-restaurant sales declined 18.1%, outperforming the industry benchmark by 790 basis points. Off-premise sales grew by more than 240%, representing 28% of total sales. And lastly, our other business segment also delivered strong operational improvement with segment profit margin of 12.8%. This was only 130 basis points below last year despite a 39% decline in same-restaurant sales. For the quarter, total sales were $1.5 billion, a decrease of 28.4%. Same-restaurant sales decreased 29%. Adjusted EBITDA was $185 million. And adjusted diluted net earnings per share were $0.56. However, beef inflation of over 7%, primarily impacting LongHorn, drove food and beverage expense 20 basis points higher than last year for the company. Restaurant labor was 20 basis points lower than last year, with hourly labor as a percent of sales improving by over 350 basis points, driven by operational simplifications. Restaurant expense, including $10 million of business interruption insurance proceeds related to COVID-19 claims submitted in the fourth quarter of fiscal 2020. Excluding this benefit, we reduced restaurant expense per operating week by over 20% this quarter. For marketing, we lowered absolute spending by over $40 million, bringing marketing as a percent of sales to 1.9%, 130 basis points less than last year. As a result, restaurant-level EBITDA margin was 17.8%, 20 basis points below last year, but particularly strong given the sales decline of 28%. General and administrative expenses were $10 million lower than last year as we effectively reduced expenses and rightsized our support structure. Interest was $5 million higher than last year, mostly related to the term loan that was outstanding for the majority of the quarter. And finally, our first quarter adjusted effective tax rate was 9%. All of this culminated in adjusted earnings after-tax of $73 million, which excludes $48 million of performance-adjusted expenses. Approximately $10 million of this expense is non-cash and the remaining will be cash outflows through Q2 of fiscal 2022. This restructuring resulted in a net 11% reduction in our workforce in the restaurant support center and field operations leadership positions. It is expected to save between $25 million and $30 million annually. Despite a sales decline of 28%, Olive Garden increased segment profit margin by 110 basis points to 22.1%. LongHorn Steakhouse, Fine Dining and the other business segment delivered strong positive segment profit margins of 15.1%, 11.9% and 12.8% respectively despite a significant sales decline experienced in the quarter. In the first quarter, 68% of our restaurants operated with at least partial dining room capacity for the entire quarter. These restaurants had average weekly sales per restaurant of $69,000 and the same-restaurant sales decline of 21.9%. And while Olive Garden and the Fine Dining segment had fewer dining rooms opened than our average, these restaurants had the highest average weekly sales per restaurant of almost $76,000 and $90,000 respectively. At the start of the second quarter, we had approximately 91% of our restaurants with dining rooms opened operating in at least limited capacity. We fully repaid the $270 million term loan we took out in April. We ended the first quarter with $655 million in cash and another $750 million available in our untapped credit facility, giving us over $1.4 million of available liquidity. We generated over $160 million of free cash flow in the quarter and improved our adjusted debt to adjusted capital to 59% at the end of the quarter, well within our debt covenant of below 75%. The board declared a quarterly cash dividend of $0.30 per share. This dividend represents 53% of our first quarter adjusted earnings after-tax within our long-term framework for value creation. We anticipate EBITDA between $200 million and $215 million and diluted net earnings per share between $0.65 and $0.75 on a diluted share base of 131 million shares. Based on our strong business model enhancements, we now think we can get to our pre-COVID EBITDA dollars at approximately 90% of pre-COVID sales, while still making appropriate investments in our business.

Olive Garden same-restaurant sales for the quarter declined 28.2%, 220 basis points below the industry benchmark. And adjusted diluted net earnings per share were $0.56. For marketing, we lowered absolute spending by over $40 million, bringing marketing as a percent of sales to 1.9%, 130 basis points less than last year. We anticipate EBITDA between $200 million and $215 million and diluted net earnings per share between $0.65 and $0.75 on a diluted share base of 131 million shares.

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Providence core earnings of $0.43 per share were impacted by continued margin compression, albeit slight and increased expenses primarily from consulting fees related to CECL modeling and implementation. Our core return on average assets was 1.13% and core return on average tangible equity was 11.36% for the quarter. We experienced only 2 basis points of margin compression in Q4 and forecast it being relatively neutral in 2020. Regulatory costs were being $10 billion and technology investments to remain relevant in the new digital banking paradigm. We can fund our organic growth and support a solid and consistently above average cash dividend with only a 54% pay-out ratio and supportive buybacks when they meet our total return criteria. Our net income was $26 million or $0.40 per diluted share compared with $35.8 million or $0.55 per diluted share for the fourth quarter of 2018 and $31.4 million or $0.49 per diluted share in the trailing quarter. Current [Phonetic] quarter earnings were adversely impacted by a $2 million or $0.03 per basic and diluted share net of tax expense increase in the estimated fair value of the contingent consideration liability related to the April 1st, 2019 acquisition of New York City-based RAI Tirschwell & Loewy. At December 31st, 2019, the contingent liability was $9.4 million with maximum potential future payments totaling $11 million. Excluding this charge, the Company would have reported net income of $27.9 million or $0.43 per basic and diluted share and net income of $114.6 million or $1.77 per basic and diluted share for the quarter and year ended December 31st, 2019 respectively. Our net interest margin contracted 2 basis points versus the trailing quarter and 23 basis points versus the same period last year. This deposit rate management coupled with an $80 million or 21% annualized increase in average non-interest bearing deposits resulted in a 3 basis point decrease in the total cost of deposits this quarter to 65 basis points. Noninterest-bearing deposits averaged $1.6 billion or 23% of average total deposits for the quarter. Quarter-end loan totals increased $66 million or 3.6% annualized from September 30th as growth in CRE construction and residential mortgage loans was partially offset by net reductions in C&I multifamily and consumer loans. Loan originations excluding line of credit advances reached their best levels of the year, up $106 million or 30% versus the trailing quarter to $461 million. But payoffs remained elevated, up $46 million or 18% versus the trailing quarter to $298 million. The pipeline at December 31st decreased to $905 million from $1.1 billion at the trailing quarter end, reflecting strong year-end closing activity. The pipeline rate has decreased 14 basis points since last quarter to 3.97% at December 31st. Our provision for loan losses was $2.9 million for the current quarter compared with $0.5 million in the trailing quarter. Our annualized net charge-offs as a percentage of average loans were 26 basis points for the quarter and 18 basis points for the full year. Overall, credit metrics remained stable this quarter with non-performing assets totalling 55 basis points of total assets at quarter end. The allowance for loan losses to total loans decreased to 76 basis points from 79 basis points in the trailing quarter largely as a result of improvements in qualitative allowance factors. Non-interest income decreased slightly versus the trailing quarter to $17.7 million as lower swap fee income offset increased bank-owned life insurance benefits and loan prepayment fees. Excluding the increase in the fair value of the contingent consideration liability related to the T&L acquisition, non-interest expenses were an annualized 2.05% of average assets for the quarter. Core expenses increased $1.2 million versus the trailing quarter with consultancy and audit costs related to CECL implementation, additional examination and consulting fees that totaled $1.4 million driving the increase. We did, once again, benefit this quarter from an FDIC insurance small bank assessment credit of $758,000 and our total remaining FDIC credit potentially realizable in future quarters is $1 million. Our effective tax rate decreased to 23.6% from 24% for the trailing quarter and we are currently projecting an effective tax rate of approximately 24% for 2020.

Our net income was $26 million or $0.40 per diluted share compared with $35.8 million or $0.55 per diluted share for the fourth quarter of 2018 and $31.4 million or $0.49 per diluted share in the trailing quarter.

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For the first quarter of 2021, we are reporting $475 million in total revenues and diluted earnings per share of $0.70 a share, down 7% and 40%, respectively, compared to the prior year's prepandemic first quarter. Our results this quarter were impacted by approximately $86 million of rental revenues we did not recognize in the quarter due to cash versus accrual basis revenue recognition and lease restructurings. We took delivery of approximately $600 million in new aircraft in the quarter, which is $200 million more than we originally anticipated. 87% of these deliveries by dollar value occurred in the last seven business days of March, providing minimal rental contribution for the quarter, but providing long-term rental contributions thereafter. Our cash collections and lease utilization rate remained solid in the first quarter at 84% and 99.6%, respectively, albeit both slightly lower than what we saw in Q4. To date, we have agreed to accommodations with approximately 63% of our lessees, with deferrals totaling approximately $243 million. As of today, our net deferrals stand at $131 million as compared to $144 million as of our last call in February, and almost half of all the deferrals we have granted to date have been repaid. Our net deferrals represent less than 2% of our available liquidity at the end of the first quarter. As such, our lease placements remain strong at 95% of our order book placed on long-term leases for aircraft delivery through 2022 and 80% through 2023. So looking ahead, we technically have OEM-contracted commitments to take delivery of 64 aircraft in the remainder of 2021. But given continued OEM and pandemic delays, we currently expect to deliver approximately 44 aircraft, and that number could change. We expect a range of approximately $3 billion to $4.3 billion in aircraft investments for the full year 2021. As of today, we are anticipating approximately $1.2 billion of these deliveries to occur in the second quarter. We're pleased that 787 deliveries have resumed. And in the first quarter, we delivered one 787 to Air Premia in South Korea. As you saw from our quarterly fact sheet release, we also delivered four 737-8MAX aircraft this quarter. As it relates to the recent grounding notice issued regarding the electrical power system on the 737 MAX aircraft, we did have six aircraft delivered to our customers, subject to this order. Until this process with the FAA is concluded, we may experience further delivery delays of the 787. However, we anticipate our overall sales in 2021 will not reach prepandemic level. In fact, in just a 100-day period, we sourced in the secondary market over $600 million of aircraft suited specifically for Blackbird Capital II, of which two delivered in the first quarter and the remaining aircraft will deliver over future quarters. As such, I'm proud to announce that ALC is donating $100,000 to the relief efforts in India. Over the last decade, Air Lease has focused on growing our company organically to now over $25 billion in assets, and our fleet and order book are comprised of the aircraft we personally selected. In the United States last year, at this time, TSA was seeing below 200,000 passengers a day. And as of this last Sunday, the TSA had over 1.6 million passengers pass through their security checkpoints. For example, Greece recently announced that it is reopening its doors to COVID-free tourists from more than 30 countries as they take the so-called baby steps back to normalcy. It was recently reported that consumers around the world had accumulated an extra $5.4 trillion of savings since the pandemic has begun, and we've heard executives across a broad spectrum of industry discussing pent-up demand that they believe exists. For example, John mentioned the two 787-9 aircraft that we recently delivered to China Southern and Air Premia in Korea took another 787-9s. In addition, we delivered the first of what will be five new 737 aircraft to Belavia, the national carrier of Belarus. These aircraft will replace the airlines aging Boeing 737-300 and 737-500 aircraft. We also delivered our third 737-8 to Cayman Airways in the Caribbean, the national flag carrier of Cayman Islands, which is retiring its last 737-300 aircraft and replacing it with our new 737-8 model, and the first of which, 10 737-8 aircraft that we just delivered to Blue Air in Romania. Blue Air is a ULCC carrier in Eastern Europe, which is also accelerating the retirement of their classic fleet of 737-300s and 500s in favor of more environmentally friendly and economic narrow-body aircraft. We have also placed our first 15 Airbus A220-300 aircraft from our 50 aircraft per motor of that type. On the used aircraft side, our young fleet of 777-300ERs and A330-200s and 300s remain well placed with our customers, with only a modest number of lease expirations in the next 12 to 24 months, all of which are manageable. We've also successfully extended the leases on a number of our 777-300 aircraft in the last six months. Finally, let me add one additional comment to John on the 737 MAX program. China, in particular, is a very large marketplace for the 737 family and the MAX. Recovery of the Boeing 737 program will not be complete until these countries certify and can obtain clearances to operate the 737 MAX in their country and for overflights. ALC remains fully committed to the 737 program, but I do feel compelled to point out that these remaining obstacles, including the very frustrating current grounding, need to be overcome by Boeing with haste. The progress of U.S.A. and European summer traffic growth will also play a role in the pace of new 737 absorption by airlines for the remainder of 2021. As John mentioned, revenues were impacted by $86 million from the lease restructuring agreements and cash basis accounting, of which $49 million came in from lessees on a cash basis, where the lease receivables exceeded the lease security package and collection was not reasonably assured. This compares to $25 million in the third quarter and $21 million in the fourth quarter of last year. In total, our cash basis lessees represented 15.3% of our fleet by net book value as of March 31, as compared to 7.8% as of December 31. The remaining $37 million is from lease restructuring agreements, the majority of which went into effect in 2020. Our total deferrals, net of repayments to date, is approximately $131 million, of which is down 9% from $144 million as of our last call in February. Since our last call, repayment activity has continued, with total repayments of $112 million or 46% of the gross deferrals granted and is reflected in our operating cash flow. Our composite rate decreased to 3% from 3.2% in the first quarter of 2020. Depreciation continues to track the growth of our fleet, while SG&A remained relatively low compared to last year, down 5%, representing 5.7% of total revenues. We have maintained our dividend policy and our Board has extended our share buyback authorization of $100 million through the end of December 2021. Utilizing unsecured debt is our primary form of financing and have $23.7 billion in unencumbered assets at quarter end. And we ended the year with a debt-to-equity ratio of 2.5 times. In addition to the senior unsecured note issuances we completed in January at a record low of 0.7%, we returned to the preferred market in February for our second raise in the space, issuing $300 million of perpetual preferred stock at a rate of 4.65%. Finally, as just announced last week, we extended the final maturity of our bank revolver to 2025 and upsized the facility by an additional $200 million, bringing our total revolving unsecured line of credit to $6.4 billion. As mentioned, ALC continues to have a robust liquidity position with $7.5 billion of available liquidity at the end of the first quarter and continue to access the investment-grade markets. As I shared in the past, our balance sheet was originally designed to support $6 billion in aircraft investments annually, and we are well above what we anticipate taking in 2021, leaving us plenty of dry powder to explore further opportunities.

For the first quarter of 2021, we are reporting $475 million in total revenues and diluted earnings per share of $0.70 a share, down 7% and 40%, respectively, compared to the prior year's prepandemic first quarter. However, we anticipate our overall sales in 2021 will not reach prepandemic level. We also delivered our third 737-8 to Cayman Airways in the Caribbean, the national flag carrier of Cayman Islands, which is retiring its last 737-300 aircraft and replacing it with our new 737-8 model, and the first of which, 10 737-8 aircraft that we just delivered to Blue Air in Romania.

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Approximately 10% have asked for additional relief. The common equity Tier 1 ratio improved by 31 basis points to 9.81%. At the same time, the allowance for loan losses grew to 1.79% of loans, positioning M&T to meet the needs of our customers and communities. Diluted GAAP earnings per common share were $2.75 for the third quarter of 2020 compared with $1.74 in the second quarter of 2020 and $3.47 in the third quarter of 2019. Net income for the quarter was $372 million compared with $241 million in the linked quarter and $480 million in the year-ago quarter. On a GAAP basis, M&T's third-quarter results produced an annualized rate of return on average assets of 1.06% and an annualized return on average common equity of 9.53%. This compares with rates of 0.71% and 6.13%, respectively, in the previous quarter. Included in GAAP results in the recent quarter were after-tax expenses from the amortization of intangible assets amounting to $3 million or $0.02 per common share, little change from the prior quarter. M&T's net operating income for the third quarter, which excludes intangible amortization, was $375 million compared with $244 million in the linked quarter and $484 million in last year's third quarter. Diluted net operating earnings per common share were $2.77 for the recent quarter compared with $1.76 in 2020 second quarter and $3.50 in the third quarter of 2019. Net operating income yielded annualized rates of return on average tangible assets and average tangible common shareholders' equity of 1.1% and 13.94% for the recent quarter. The comparable returns were 0.74% and 9.04% in the second quarter of 2020. Taxable equivalent net interest income was $947 million in the third quarter of 2020, marking a decline of $14 million or 1% from the linked quarter. That decrease primarily reflects the impact on loan yields from the 20 basis point decline in average one-month LIBOR compared to the second quarter. The net interest margin declined by 18 basis points to 2.95% compared with 3.13% in the linked quarter. Average interest-earning assets increased by $4 billion to $128 billion for the third quarter, primarily reflecting a $4.4 billion increase in funds invested with either the Federal Reserve Bank of New York or into resale agreements. The increase in cash equivalent investments caused an estimated 10 basis points of pressure on the net interest margin while having little effect on net interest income. For context, since the fourth quarter of 2019, the combination of short term liquidity investments primarily placed at the Fed and investment securities has increased by $9.1 billion, reducing the net interest margin by approximately 25 basis points, while incrementally benefiting net interest income. Average total loans increased by $413 million or a little less than one half percent compared with the previous quarter. On an average basis, compared with the linked quarter, commercial and industrial loans declined by $1.4 billion or 5%, primarily the results of a $1.2 billion decline in vehicle dealer floor plan loans. PPP loans were effectively unchanged from the end of the second quarter at $6.5 billion. Commercial real estate loans grew by less than 1% compared with the second quarter. Residential real estate loans increased by just under $1 billion or 6%, reflecting loans purchased from Ginnie Mae servicing pools, pending resolution, partially offset by repayments. Consumer loans were up by 4%, reflecting higher indirect recreation finance loans, partially offset by lower auto loans and home equity lines of credit. Average core customer deposits, which exclude deposits received at M&T's Cayman Islands office and CDs over $250,000, grew by $4 billion, primarily in interest and noninterest checking or about 4% compared with the second quarter. Non-interest income totaled $521 million in the third quarter compared with $487 million in the prior quarter. The recent quarter included $3 million of valuation gains on equity securities, largely on our remaining holdings of GSE preferred stock, while the second quarter included $7 million of such gains. Mortgage banking revenues were $153 million in the recent quarter, improving from $145 million in the linked quarter. Residential mortgage loans originated for sale were $1.2 billion in the quarter, up 7% from $1.1 billion in the second quarter. Total residential mortgage banking revenues, including origination and servicing activities, were $119 million in the third quarter, improved from $111 million in the prior quarter. Commercial mortgage banking revenues totaled $34 million, encompassing both originations and servicing and which was little changed from the second quarter. Trust income was $150 million in the recent quarter, down slightly from $152 million in the previous quarter. Recall that second quarter figures included $5 million of seasonal tax preparation fees. Service charges on deposit accounts were $91 million, improved sharply from $77 million in the second quarter. Similarly, the $20 million improvement in other revenues from operations compared with the linked quarter reflects a rebound in COVID-19-impacted payments revenues that are not included in service charges, such as credit card interchange and merchant discount with a slight improvement in loan-related fees, including syndications. Operating expenses for the third quarter, which exclude the amortization of intangible assets, were $823 million compared with $803 million in the second quarter. The $20 million linked quarter increase in salaries and benefits reflect the impact of one additional workday during the quarter and higher compensation tied to the uptick in both mortgage banking and trust related activity compared with the prior quarter. Recall that other cost of operations for each of the first and second quarters included a $10 million addition to the valuation allowance on our capitalized mortgage servicing rights. The efficiency ratio, which excludes intangible amortization from the numerator and securities gains or losses from the denominator, was 56.2% in the recent quarter compared with 55.7% in the second quarter and 56% in the third quarter of 2019. Net charge-offs for the recent quarter amounted to $30 million. Annualized net charge-offs as a percentage of total loans were 12 basis points for the third quarter compared with 29 basis points in the second quarter. The provision for loan losses in the third quarter amounted to $150 million, exceeding net charge-offs by $120 million and increasing the allowance for credit losses to $1.8 billion or 1.79% of loans. Our forecast assumes the quarterly unemployment rate increases to 9% in the fourth quarter of this year, followed by a sustained high single-digit unemployment rate through 2022. The forecast assumes GDP contracts 5.1% during 2020 and recovers to prerecession peak levels by the third quarter of 2022. Nonaccrual loans as of September 30 amounted to $1.2 billion, an increase of $83 million from the end of June. At the end of the quarter, nonaccrual loans as a percentage of loans was 1.26%. Excluding the impact of PPP loans, the ratio of the allowance for credit losses to loans would be 1.91%. Similarly, the ratio of nonaccrual loans to total loans would be 1.35% and annualized net charge-offs as a percentage of total loans would be 13 basis points. Loans 90 days past due, on which we continue to accrue interest, were $527 million at the end of the recent quarter. Of these loans, $505 million or 96% were guaranteed by government-related entities. A significant majority of commercial loans that were granted COVID-19 payment relief were for 90 days, with the ability for clients to request a second 90 days. For example, substantially all of the $4.2 billion of forbearance as of June 30 given to vehicle dealers was for 90 days, and less than $100 million are under some form of forbearance relief at the end of the third quarter. For the total commercial and industrial portfolio, including the aforementioned dealer portfolio, loans under COVID-19 forbearance have declined by 85% to slightly higher than $800 million or about 3% as of September 30. In total, deferrals in the CRE portfolio have declined by 41% to $5.1 billion. We'll know more over the next 60 days or so as the 180-day deferrals reach their end of term. For the consumer portfolios, deferrals declined from just under $700 million at June 30 to under $150 million or less than 1% at the end of September. For residential mortgage loans we own, nongovernment-guaranteed loans under deferral amount to $1.6 billion, down about 19% from the second quarter. Total deferrals have increased to $3.3 billion from $2.3 billion 90 days ago. All of these figures do not include approximately $10 billion of forbearance on residential mortgage loans we service for others. M&T's common equity Tier 1 capital ratio was an estimated 9.81% as of September 30 compared to 9.5% at the end of the second quarter. As those deposits and associated short-term investments decline, we'd expect that the net interest margin would benefit by about two to three basis points per $1 billion decline, with limited impact on net interest income. To be more specific, the $13.4 billion notional amount of active cash flow hedges will step up to $17.4 billion this quarter and then remain at those levels for about one year.

Diluted GAAP earnings per common share were $2.75 for the third quarter of 2020 compared with $1.74 in the second quarter of 2020 and $3.47 in the third quarter of 2019. Diluted net operating earnings per common share were $2.77 for the recent quarter compared with $1.76 in 2020 second quarter and $3.50 in the third quarter of 2019. Taxable equivalent net interest income was $947 million in the third quarter of 2020, marking a decline of $14 million or 1% from the linked quarter. The provision for loan losses in the third quarter amounted to $150 million, exceeding net charge-offs by $120 million and increasing the allowance for credit losses to $1.8 billion or 1.79% of loans.

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For the year, our free cash flow generation was positive overall at $168 million pre-pension contributions, free cash flow exceeded our full year guidance by 18%. We ended the year with more than $950 million of total liquidity, including nearly $650 million of cash on hand. We eliminated approximately $170 million of costs in 2020. We expect total cost reductions to grow to at least $270 million over the next few quarters as actions implemented in the second half of 2020 reached their full run rate. Importantly, we expect about $100 million of these cost savings to become structural, continuing to benefit ATI as we return to growth over time. In 2021, our share of jet engine materials and components on key programs is increasing. You may recall, we're exiting standard stainless sheet products by year-end 2021 as we redeploy our capital to high return opportunities. Second, we're on track to exit 100% of standard value stainless sheet products by year-end 2021. In the fourth quarter, sales of these products represented 17% of AA&S segment revenues down from 22% in full year 2019. This investment of $65 million to $85 million spread over three years will be largely self-funded through working capital releases, triggered by the transformation. Naval nuclear products in support of the U.S. Navy's increased long-term demand for new ships grew by nearly 50%. Our fourth quarter oil and gas and chemical processing submarket sales dropped by more than 35%. Sales to our specialty energy markets were more resilient declining only 6% versus the prior year. We expect these negative trends to continue until vaccination programs reach critical mass. For ATI, it started with 737 MAX challenges that carried over from 2019. In fact, Q4 revenue increased 10% to $658 million versus Q3 levels. Our adjusted EBITDA increased 39% to $23 million in Q4 from Q3 levels. Adjusted earnings per share was a loss of $0.33 per share in Q4. This was better than the optimistic end of our earnings per share guidance range, which was a loss of between $0.36 and $0.44 per share. Speaking of cost reductions, in our early 2020 we announced targets to cut costs by between $110 million and $135 million for the year. In the last earnings call, we shared a target of $160 million to $170 million of 2020 savings. The final tally, reductions near the high-end of our guidance and nearly $170 million in 2020. That means a run rate of $270 million to $180 million of cost reductions that will benefit full year 2021. Those cost reductions, continue to contribute to favorable detrimental margins, which are below 30% for the third consecutive quarter. We expect approximately $100 million of those reductions to be structural. Our free cash flow was $168 million for full year 2020, well in excess of the top end of our guidance range of $135 million to $150 million. We're extremely pleased that we closed 2020, with nearly $650 million in cash and more than $950 million of total liquidity. We ended Q4 with managed working capital at 41% of revenue, down 1,000 basis points from the end of Q3, great progress. Our goal is to reduce managed working capital for less than 30% of revenue over time. We started 2020 with a CapEx forecast $200 million to $210 million. Actual CapEx spend in 2020 totaled $1.37 million, 33% below the initial forecast. We ended 2020 with a net pension liability of $674 million that's nearly $60 million lower than the opening 2020 level. Strong pension asset performance and Company contributions in 2020 more than offset an 80 basis point decrease in discount rates. Weakness in airframe materials will continue throughout 2021 consistent with our prior estimates. We expect to Q1 2021 adjusted earnings per share loss of between $0.23 and $0.30 per share. We expect to generate between $20 million and $60 million of free cash flow in 2021 prior to our required US defined benefit pension contributions. Now CapEx; we plan to spend between $150 million and $170 million on capital investments in 2021. As you know contributions to the US pension plans in 2020 were $130 million. Due in part to strong 2020 pension asset returns required contributions to the US plans are anticipated to be $87 million in 2021, a reduction of more than $40 million year-over-year. 2021 pension expense will also decrease dropping $17 million year-over-year. Pension expense will be $23 million in 2021, down from $40 million of recurring pension expense in 2020. We will pursue our goal of returning working capital levels to 30% of sales as our key end markets recover. However we can say that we expect to pay between $10 million and $15 million in cash taxes during the year.

We expect total cost reductions to grow to at least $270 million over the next few quarters as actions implemented in the second half of 2020 reached their full run rate. In 2021, our share of jet engine materials and components on key programs is increasing. You may recall, we're exiting standard stainless sheet products by year-end 2021 as we redeploy our capital to high return opportunities. We expect these negative trends to continue until vaccination programs reach critical mass. In fact, Q4 revenue increased 10% to $658 million versus Q3 levels. Adjusted earnings per share was a loss of $0.33 per share in Q4. Weakness in airframe materials will continue throughout 2021 consistent with our prior estimates.

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PSEG reported non-GAAP operating earnings for the third quarter of 2020 of $0.96 per share versus $0.98 per share in last year's third quarter. PSEG's GAAP results for the third quarter were $1.14 per share compared with $0.79 per share in the third quarter of 2019. Our results for the third quarter bring non-GAAP operating earnings for the year-to-date to $2.78 per share, up 5.3% compared to the $2.64 per share in the first months of 2019. We are updating PSEG's non-GAAP operating earnings guidance for 2020 to a range of $3.35 to $3.50 per share, which removes $0.05 per share from the lower end of our original guidance range. The BPU's landmark decision on energy efficiency will enable PSE&G to invest $1 billion over three years to help bring universal access to energy efficiency for all New Jersey customers. PSE&G's Clean Energy Future Energy Efficiency program will also establish a clean energy jobs training program, create over 3,200 direct jobs and enable everyone in New Jersey to benefit from the avoidance of 8 million metric tons of carbon emissions through 2050. The $1 billion of remaining CEF programs we proposed to implement, which in the energy cloud or otherwise known as advanced metering infrastructure, to expand electric vehicle infrastructure and energy storage, are entering hearing stages later this year and we expect them to conclude in the first quarter of 2021. Our service area experienced significantly warmer weather during the first half of the summer, which along with the continued reopening of the New Jersey economy, served to moderate the 7% load loss seen earlier in the year caused by the COVID-19 pandemic. In early August, tropical storm, Isaias, wreaked havoc across the New York, New Jersey area with powerful winds and heavy rains; and the fast-moving storm did left approximately 1 million of our customers in New Jersey and Long Island without power. PSE&G and PSEG Long Island worked around the clock alongside nearly 3,000 mutual aid personnel in New Jersey and over 5,000 on Long Island to restore service. In New Jersey, we restored 90% of our customers within 72 hours. We were able to restore 80% of customers who lost service within 72 hours. At the state level, the energy efficiency decision authorizing a $1 billion investment over three years represents an annual run rate of about $350 million, which is nearly a tenfold increase from our previous annual energy efficiency spend. These investments will receive recovery of and on capital through a clause mechanism at the current authorized return-on-equity of 9.6% and be amortized over 10 years with no incentives or penalties applied during the first five years from the start of the program. The 10-year energy efficiency programs approved by the BPU will help New Jersey achieve its preliminary energy savings target of 2.15% for electricity and 1.1% for gas within five years. These persistent conditions kept PJM day ahead around the clock prices in the mid-teens to low $20 per megawatt hour for most days during the third quarter, despite a few weather-driven spikes above $30 per megawatt hour over the summer. The addition of the next jury hearings for the second ZEC proceeding will improve transparency and we believe our application supports the need for more than a $10 per megawatt attribute repayment for the Salem and Hope Creek units. A new Brattle report estimates that preservation of our New Jersey nuclear units through an extension of the $10 per megawatt hour attribute payment saves customers approximately $175 million per year in lower energy costs over the next 10 years. The New Jersey Department of Environmental Protection also weighed in through a recently issued report evaluating the states progress in reducing its greenhouse gas emission with a goal of 80% by the year 2050. One of the recommendations in the DEPs 80/50 report, is to retain existing carbon-free resources, including the Stage 3 nuclear power plant. And regarding governance, we continue to garner first tier scores for our contributions disclosure and transparency, as cited in the 2020 update of the Corporate Political Disclosure and Accountability Index, also known as the CPA-Zicklin Index, with a score of 85.7, which exceeds both the S&P 500 company average as well as the Utility average score of 77.2. As I mentioned, we are narrowing PSEG's non-GAAP operating earnings guidance for full year 2020 by removing $0.05 per share off the lower end. This updates our guidance range to $3.35 to $3.50 per share, based on solid results through the first nine months of the year and our ongoing confidence that we can effectively manage costs at both businesses, continue executing our PSE&Gs investment programs and provide New Jersey with safe, reliable sources of efficient and zero-carbon sources of electricity. We continue to expect regulated operations to contribute nearly 80% of total non-GAAP operating earnings for the year, reflecting the benefits of PSE&Gs ongoing investments in New Jersey's energy infrastructure. We also remain on-track to execute on the PSEG five-year $13 billion to $15.7 billion capital plan without the need to issue new equity, and our liquidity position at September 30 stood at nearly $5 billion. PSEG continues its due diligence and negotiations with Orsted, in preparation of making a final recommendation to our Board of Directors on whether to invest up to a 25% equity stake in the Ocean Wind project. As Ralph said, PSEG reported non-GAAP operating earnings for the third quarter of 2020 of $0.96 per share versus $0.98 per share in last year's third quarter. PSE&G reported net income of $0.61 per share for the third quarter of 2020 compared with net income of $0.68 per share for the third quarter of 2019, as shown on Slide 14. Investment in transmission added $0.04 per share third quarter net income. Electric margin was a $0.01 per share favorable compared to the year-earlier quarter, driven by higher weather normalized residential volumes, mostly offset by lower commercial and industrial demand. Summer 2020 weather was a $0.01 per share ahead of weather experienced in the third quarter of 2019. O&M expense was $0.03 unfavorable versus the third quarter of 2019, primarily reflecting our internal labor costs on tropical storm Isaias and timing of certain maintenance activities, partly offset by the reversal of certain COVID-19-related cost recognized in prior quarters. To reflect that order, PSE&G deferred certain COVID-19-related O&M and gas bad debt expense previously recorded and established a corresponding regulatory asset of approximately $0.05 per share for future recovery. Obviously, offsetting this timing item, PSE&G reversed a $0.04 accrual of revenue under the weather normalization costs for collection of lower gas margins resulting from the warmer-than-normal winter earlier in the year due to recovery limitations under that quarters earnings test. Distribution-related depreciation lowered net income by a $0.01 per share and non-operating pension expense was a $0.01 per share favorable compared with last year's third quarter. Flow through taxes and other items lowered net income by $0.07 per share compared to the third quarter of 2019, driven largely by timing of taxes and taxes related to bad debt expense. Summer weather in the third quarter is measured by the Temperature-Humidity Index, was nearly 18% warmer than normal and 7% warmer than the third quarter of 2019. Weather normalized electric sales for the quarter declined by approximately 1% versus last year, again reflecting the increases that we've seen in residential volumes, which only partially offsets lower commercial industrial sales. Residential weather normalized sales were up 7% due to the COVID-19 work-from-home impact. However, C&I sales declined by approximately 6% with many parts of the New Jersey economy not yet fully reopened. On a net margin basis, however, residential margins -- which are driven by volumes, are 5% year-to-date, weather normalized -- have offset the margin impact of lower C&I demands. PSE&G invested approximately $700 million in the third quarter and $1.9 billion through September 30th, as part of its 2020 capital investment program of approximately $2.7 billion in infrastructure upgrades to its transmission and distribution facilities to maintain reliability, increase resiliency and replace aging energy infrastructure. The Clean Energy Future Energy Efficiency Investment will begin later this year and ramp up to approximately $125 million in 2021 before reaching a full annual run rate of about $350 million in 2022. We continue to forecast that over 90% of PSEGs planned capital investment will be directed to the utility over the 2020 to 2024 timeframe. PJM cost reallocations will more than offset the higher revenue requirements of approximately $119 million and result in a net reduction in costs to PSE&G customers when implemented in January of 2021. PSE&Gs forecast of net income for the full year has been updated to $1,325 million to $1,355 million from $1,310 million to $1,370 million. PSEG Power reported non-GAAP operating earnings for the third quarter of $0.33 per share, and non-GAAP adjusted EBITDA of $349 million. This compares to non-GAAP operating earnings of $0.29 per share and non-GAAP adjusted EBITDA of $322 million for the third quarter of 2019. And we've also provided you with more detail on generation for the quarter and for year-to-date 2020 on Slides 21 and 22. PSEG Power's third quarter non-GAAP operating earnings were positively affected by several items that have improved results by $0.04 per share compared to the year ago quarter. The scheduled rise in PJM's capacity revenue on June 1, increased non-GAAP operating earnings comparison by $0.03 per share compared with the third quarter of 2019. Reduced generation volumes lowered results by $0.02 per share versus the third quarter of '19, reflecting the sale of the Keystone and Conemaugh coal units last year, as well as some lower market demand. Recontracting and market impacts reduced results by $0.02 per share versus the year ago quarter. And gas operations were $0.02 per share higher. Lower O&M expense was $0.03 per share favorable compared to last year's third quarter, reflecting lower fossil maintenance costs, including the absence of a major outage at Lindon that occurred in the third quarter of 2019. Lower interest and depreciation expense combined to add a $0.01 per share versus the year ago quarter. And also during the quarter, New Jersey enacted an increase in the corporate surtax to 2.5% as part of the fiscal year 2021 budget, which lowered comparisons of $0.01 per share for the third quarter of 2019. Gross margin for the third quarter was $33 per megawatt hour, an improvement of $2 per megawatt hour over the third quarter of 2019, nearly reflecting the scheduled increase in capacity prices with the new energy year that began June 1st. Total generating output declined 9% to 14.9 terawatt hours for the third quarter, reflecting the sale of Keystone and Conemaugh. PSE&G Power's combined cycle fleet produced 6.7 terawatt hours of output, down 7%, reflecting lower market demand driven by ongoing COVID-19-related impacts on economic activity in the state. The nuclear fleet operated at an average capacity factor of 95.9% -- I'm sorry, 95.7% for the quarter, producing 8.2 terawatt hours, up 5% over the third quarter of '19, and represent 55% of total generation. PSE&G Power continues to forecast total output of 2020 of 50 to 52 terawatt hours. For the remainder of 2020, Power has hedged approximately 95% to 100% of production at an average price of $36 per megawatt hour. For 2021, Power has hedged 75% to 80% of forecast production of 48 to 50 terawatt hours, at an average price of $35 per megawatt hours. And Power is also forecasting output for 2022 of 48 to 50 terawatt hours, and approximately 35% to 40% of Power's output in 2022 is hedged at an average price of $34 per megawatt hour. We are updating the forecast of both Power's non-GAAP operating earnings for 2020 to a range of $385 million to $430 million from $345 million to $435 million, and estimate of non-GAAP operating EBITDA to a range of $980 million to a $1,045 million from $950 million to $1,050 million. We reported net income of $8 million or $0.02 per share for the third quarter of 2020 compared to net income of $6 million or $0.01 per share in the third quarter of 2019. And the forecast for PSEG Enterprise and other for 2020 has been updated to a net loss of $10 million from a net loss of $5 million. PSEG ended the third quarter with over $4.9 billion of available liquidity, including cash on hand of about $966 million and debt representing 52% of our consolidated capital. In August, PSEG issued $550 million five-year senior notes at 80 basis points and $550 million 10-year senior notes at 1.6%, and retired $500 million of the 364-day term loan agreements issued in the spring. PSEG has also offered $700 million of floating rate term loans that will mature in November 2020. Also, in August, PSE&G issued $375 million of 30-year secured medium term notes at a coupon rate of 2.05% and retired $250 million of MTN's at maturity. Power's debt as a percentage of capital declined to 28% at September 30th, and we still expect to fully fund PSEG's five-year $13 billion to $15.7 billion capital investment program over the 2020 to 2024 period without the need to issue new equity. And as Ralph mentioned, we've narrowed our non-GAAP operating earnings guidance for the full year by removing $0.05 per share from the lower end of the original guidance, and updated range to $3.35 per share to $3.50 per share.

PSEG reported non-GAAP operating earnings for the third quarter of 2020 of $0.96 per share versus $0.98 per share in last year's third quarter. PSEG's GAAP results for the third quarter were $1.14 per share compared with $0.79 per share in the third quarter of 2019. We are updating PSEG's non-GAAP operating earnings guidance for 2020 to a range of $3.35 to $3.50 per share, which removes $0.05 per share from the lower end of our original guidance range. This updates our guidance range to $3.35 to $3.50 per share, based on solid results through the first nine months of the year and our ongoing confidence that we can effectively manage costs at both businesses, continue executing our PSE&Gs investment programs and provide New Jersey with safe, reliable sources of efficient and zero-carbon sources of electricity. As Ralph said, PSEG reported non-GAAP operating earnings for the third quarter of 2020 of $0.96 per share versus $0.98 per share in last year's third quarter. And as Ralph mentioned, we've narrowed our non-GAAP operating earnings guidance for the full year by removing $0.05 per share from the lower end of the original guidance, and updated range to $3.35 per share to $3.50 per share.

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On behalf of all of those at Spectrum Brands, I'm particularly pleased to report that full year fiscal '21 total Company sales were $4.614 billion, an increase of $650 million over the period a year ago. Adjusted EBITDA was $689.2 million, increasing $109 million over the period a year ago and our adjusted diluted earnings per share was $6.53. In addition to the tuck-in acquisitions in our Global Pet Care unit and our Home & Garden business, as we previously disclosed, we have entered into an agreement to sell our HHI business for $4.3 billion in cash to ASSA ABLOY. Also, from a capital allocation perspective, we did repurchase 1.6 million shares of our common stock for approximately $125.8 million. Total pro forma Spectrum Brands results were in line with our earnings framework of mid-teen top line growth with revenue actually accelerating 16.4%, and we delivered adjusted EBITDA growth in the high teens at 18.8% growth. We also delivered adjusted free cash flow of $273 million as compared to our earnings framework of $260 million to $280 million. We are extremely pleased to report that we grew revenue by $650 million this fiscal year, and we grew our adjusted EBITDA by $109 million, delivering on the earnings framework we communicated to our shareholders in a very challenging operating environment. Organic sales, excluding the impact of FX and acquisitions, actually decreased 3.4% in the quarter as we compare the results of the fourth quarter of fiscal 2020, which was an exceptionally high sales quarter due to recovery from COVID-driven supply disruptions in the third quarter of fiscal 2020. Fourth quarter net income from continuing operations was $6.1 million compared to a loss of $9.6 million during the fourth quarter of last year. Adjusted EBITDA for the quarter was $79 million, resulting from volume growth, pricing actions, our Global Productivity Improvement Program savings and favorable comparisons to last year's variable compensation change from stock to cash payouts. Our balance sheet remains strong, and we ended the year with net leverage of about 3.5 times, and we have over $760 million in total liquidity. We were also able to fund $490 million worth of acquisitions during the past year without substantially increasing our leverage ratio. Also, from a capital allocation perspective, we did repurchased 1.6 million shares of our common stock for approximately $125.8 million. As we discussed on our HHI transaction announcement call in September, we expect to deleverage our balance sheet to approximately 2.5 times gross leverage upon the closure of the HHI sale. We have subsequently adjusted our long-term net leverage range to a more conservative 2 to 2.5 times net leverage. This is after absorbing an expected additional level of inflation of around $230 million to $250 million. Our goal is to achieve approximately 70% to 80% price coverage for inflation by the end of fiscal 2022, but we do expect our first half margins to be pressured due to the timing of these price increases. Net sales increased 2.8%. Excluding the impact of $5.1 million of favorable foreign exchange and acquisition sales of $41.2 million, organic net sales decreased 3.4% as fourth quarter fiscal '20 was an exceptionally high sales quarter for both Global Pet Care and Home & Garden due to recovery after COVID-driven supply disruptions in Q3 fiscal 2020. Gross profit increased $4 million and gross margins of 34.1% decreased 40 basis points, driven by commodity and freight inflation, partially offset by favorable pricing, mix and improved productivity from the Company's Global Productivity Improvement Program. SG&A expense of $218.2 million increased 8.8% at 28.8% of net sales, with the dollar increase driven by acquisitions, higher marketing investments and inflation. Operating income declined from $30.5 million to a loss of $4 million, driven by higher restructuring and transaction-related expenses. Adjusted diluted earnings per share decreased 2.6% due to the decline in operating income from higher SG&A. Adjusted EBITDA increased 8.5% primarily driven by volume growth from acquisitions, as well as productivity improvements and positive pricing, partially offsetting margin pressure from commodity and freight inflation. Recall that we had a change in our incentive compensation payout methodology during Q4 of last year that resulted in a reduction of stock-based compensation expense and consolidated adjusted EBITDA of $12.7 million during the fourth quarter of fiscal 2020. Q4 interest expense from continuing operations of $20.1 million decreased $4.2 million. Cash taxes during the quarter of $6.3 million were $1.1 million lower than last year. Depreciation and amortization from continuing operations of $29.6 million was $2.9 million higher than the prior year. Separately, share and incentive-based compensation increased by $8.2 million from last year to $7.5 million driven by a change to incentive compensation payout methodology in last year's fourth quarter, which resulted in a reduction of stock-based comp expense for Q4 and the full year in fiscal 2020. Cash payments for transactions were $6 million, down from $6.2 million last year. Restructuring and related payments in the fourth quarter were $13.6 million versus $10.3 million last year. The Company had a cash balance of $188 million and approximately $575 million available on its $600 million cash flow revolver. Debt outstanding was approximately $2.5 billion, consisting of approximately $2 billion of senior unsecured notes, nearly $400 million in term loans and just over $100 million of finance, leases and other obligations. Additionally, net leverage was 3.5 times at the end of the fiscal 2021. Capital expenditures were $23.2 million in the quarter versus $16.5 million last year. Net sales increased 14.3%. Excluding the impact of $49.5 million of favorable foreign exchange and acquisition sales of $122.7 million, organic net sales increased 7.8%, as we experienced growth across all businesses with double-digit organic growth in our Home & Personal Care business. Gross profit increased $157 million and gross margins of 34.5% increased 100 basis points, driven by favorable pricing, mix and improved productivity from the Company's GPIP program partially offset by commodity and freight inflation. Adjusted EBITDA increased 21% primarily driven by volume growth, including acquisitions, as well as productivity improvements and positive pricing, partially offset by margin pressure from commodity and freight inflation. We currently expect mid-to-high single digit reported net sales growth in 2022, with foreign exchange expected to have a slightly positive impact based upon current rates. This includes continued benefits from our GPIP program and approximately eight months of results from the recent Rejuvenate transaction, which, last fiscal year, generated about $66 million of full year revenue. EBITDA is expected to grow despite incremental inflation headwinds of $230 million to $250 million, which are mostly offset by annualization of current pricing actions and planned further price increases, as well as additional productivity actions. Depreciation and amortization is expected to be between $120 million and $130 million, including stock-based comp of approximately $25 million to $30 million. Full year interest expense is expected to be between $80 million and $90 million, including approximately $5 million of non-cash items. Restructuring and transaction-related cash spending is expected to be between $55 million and $60 million. Capital expenditures are expected to be between $95 million and $105 million. We ended fiscal '21 with approximately $725 million of usable federal NOLs and expect to use substantially all of them to offset the gain on the sale of HHI. Cash taxes are expected to be between $20 million and $30 million. For adjusted EPS, we use a tax rate of 25% including state taxes. Regarding our capital allocation strategy, after the closure of the HHI sale, we're targeting a near-term gross leverage target with approximately 2.5 times. After full deployment of the HHI proceeds, we are targeting 2 to 2.5 times net leverage for our long-term target. First, GAAP accounting for discontinued operations will allow us to allocate about $40 million to $45 million of interest to discontinued operations for the full year fiscal 2022. Our actual expected interest expense reduction is about $20 million higher than that on an annual basis after planned debt reductions. Continuing operations will carry about $20 million higher interest expense than we would expect in fiscal 2023, all else being equal. Second, as compared to our historical allocation approach to HHI, technical GAAP accounting will not allow us to allocate approximately $20 million of center-led cost to discontinued operations in our GAAP financials. After the sale closes, we would expect to be reimbursed for these costs under TSAs and our contractual agreements with the buyer for periods ranging from 6 to 24 months depending on the enabling function and region of the world. Second, continuing operations free cash flow will be reduced by the $20 million of interest that I mentioned earlier. Third, we expect heavier than normal investments and capital expenditures, primarily due to our investments in our new S/4 Hana SAP upgrade program of about $30 million to $40 million, as well as heavier cash spend in restructuring and acquisition and integration costs due to the sale of HHI, the S/4 Hana program, as well as the completion of the Global Pet Care DC transition in the US. Reported and organic net sales increased 2.3% and 1.1%, respectively. Adjusted EBITDA decreased 36.1% to $14.5 million. Reported net sales grew 9.1%, while organic net sales declined just under 1% due to six fewer shipping days in Q4 of fiscal '21 versus fiscal '20, as well as impacts from supply chain constraints. Adjusted EBITDA grew 7.4% driven primarily by the impacts of acquisitions. Fourth-quarter reported net sales decreased 7.3% and adjusted EBITDA decreased 19.4%. However, the full year reported net sales increased over 10% and the adjusted EBITDA increased 10.6%, closing a very successful year for this business. Fourth-quarter sales were 28% ahead of a more normal Q4 fiscal '19, driven by organic growth from strong consumer demand and continued market share gains. Our market data indicates that during Q4, we had double digit POS growth and in the 2021 season, we increased our overall leading market share position by an estimated 50 basis points. We are reaffirming our gross savings target of $200 million of savings by the end of fiscal 2022. Our teams have already captured over $175 million of gross savings, since the program inception and this has helped us offset some of the adverse impacts of tariffs and inflation. And adjusting for continuing operations only, the savings are about $150 million in total with approximately $135 million achieved through the end of fiscal 2021. First, our fourth quarter financial results conclude a very successful fiscal '21 for us, where we saw a 14% growth in sales and a 21% growth in adjusted EBITDA from continuing operations. Secondly, we are driving a strategic shift for Spectrum Brands with the sale of our HHI business for $4.3 billion. We expect to deleverage the balance sheet to approximately 2.5 times gross leverage upon the closure of the HHI sale, and we have adjusted our long-term average leverage target range to a more conservative 2 to 2.5 times net leverage. In addition, we expect to have approximately $2 billion of capital to deploy and to maintain this target leverage range.

We currently expect mid-to-high single digit reported net sales growth in 2022, with foreign exchange expected to have a slightly positive impact based upon current rates.

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I'm proud to say that for the first time in Eagle's history, we sold over 2 million tons of cement during the quarter. Our Wallboard shipments were up 7% over the same quarter a year ago. This is in an environment where national shipments were down about 5%. In this regard, it's worth noting that this quarter, our net leverage declined by $150 million for March 31st and total liquidity improved to over $450 million at June 30th. We still have more to executing the separation, which at this moment has been delayed by COVID uncertainties. First quarter revenue was a record $428 million, an increase of 15% from the prior year. Excluding the recently acquired businesses and the effects of the business we sold in northern California, revenue improved 2% from the prior year. First quarter diluted earnings per share were $2.31, an improvement of 146%. Excluding these and other non-routine items, first quarter adjusted earnings per share improved 39%. Revenue in the sector increased 30%, driven primarily by the contribution from the recently acquired Kosmos Cement Business and a 7% increase in like-for-like cement sales volume. Operating earnings improved 62%, again reflecting a contribution for Kosmos and improved sales volume as well as lower diesel prices in our concrete operations. In addition, given the concerns around having contractors onsite during the COVID-19 pandemic, we adjusted the timing extents of our cement maintenance outages and delayed approximately $6 million of maintenance costs from the first quarter into the second and third. Quarterly operating earnings in this sector declined 8% to $44 million, as improved Wallboard earnings were offset by higher recycled fiber costs and the inefficiencies of starting up the paper mill after the expansion project in March. The earnings impact from start-up was approximately $2 million and by the end of the quarter, our operating efficiencies at the mill were much improved. In the Oil and Gas Proppants sector, revenue was down 93% and we had an operating loss of $1 million. During the first quarter, operating cash flow improved 88% to $95.3 million, reflecting strong earnings and disciplined working capital management. Total capital spending improved or increased to $26 million, as we completed several projects initiated last year and purchased land in Oklahoma, which will provide our two Wallboard plants with over 20 million tons of additional shifts and reserves. We continue to expect total capital spending in a range of $60 million to $70 million for fiscal 2021. At June 30th, our net debt to cap ratio was 55% and we had a $199 million of the cash on hand. Our net debt to EBITDA leverage ratio was 2.5 times and total liquidity at the end of the quarter was $459 million and we have no near-term debt maturities.

We still have more to executing the separation, which at this moment has been delayed by COVID uncertainties. First quarter revenue was a record $428 million, an increase of 15% from the prior year. First quarter diluted earnings per share were $2.31, an improvement of 146%.

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We continue to enhance our product mix with a record contribution from our sub-1 megawatt plus interconnection category. Our full-spectrum product offering continues to blossom with record sub-1 megawatt bookings in the second quarter and regional highs in both EMEA and APAC. Together, with interconnection, the sub-1 megawatt category comprised nearly half of our total bookings, demonstrating customers' enthusiastic adoption of PlatformDIGITAL to help accomplish their digital transformation initiatives. I'll discuss our sustainable growth initiatives on Page 3. During the second quarter, we published our third annual ESG report, detailing our 2020 sustainability initiatives, including the utilization of renewable energy for 100% of our energy needs across our entire portfolio in Europe as well as our U.S. colocation portfolio and reaching 50% of our global needs. We also recently underscored our commitment to transparency and accountability on our diversity, equity and inclusion journey with the publication of our EEO-1 report. Let's turn to our investment activity on Page 4. We are continuing to invest in our global platform with 39 projects underway around the world as of June 30, totaling nearly 300 megawatts of incremental capacity, most of which is scheduled for delivery over the next 12 months. We are investing most heavily in EMEA with 19 projects totaling over 150 megawatts of capacity under construction. Demand remains strong across these metros, and each continues to attract service providers as well as enterprise customers from around the world, many of which contributed to a truly standout performance by the region during the second quarter in the up-to-1 megawatt category. We have 30 megawatts under construction in Portland or, more specifically, Hillsboro, that are now fully pre-leased, while our Toronto connected campus continues to gain momentum as the premier Canadian hub for global cloud service providers and enterprise customers. Demand for this scarce capacity is robust, and we have another 18 megawatts largely presold and scheduled to open this quarter. Let's turn to the macro environment on Page 5. The first of these trends is the growing importance of data gravity for Global 2000 enterprises. Market Intelligence firm, Gartner, recently conducted its 6th annual survey of chief data officers, and less than 35% of these executives reported their business have achieved their data sharing objectives, including data exchange with external data sources that drive revenue-generating business outcomes. Recent research indicates that enterprise workflows utilize an average of 400 unique data sources, while exchanging data with 27 external cloud products. Let's turn to our leasing activity on Page 7. We signed total bookings of $113 million in the second quarter, including a $13 million contribution from interconnection. Network and enterprise-oriented deals of 1 megawatt or less reached an all-time high of $41 million, demonstrating our consistent momentum and the growing success of PlatformDIGITAL as we continue to capture a greater share of enterprise demand. We landed 109 new logos during the second quarter, with a strong showings across all regions, again, demonstrating the power of our global platform. The geographic and product mix of our new activity was quite healthy, with APAC and EMEA, each contributing approximately 20%, the Americas representing nearly 50%, and interconnection responsible for a little over 10%. A Global 2000 enterprise data platform is adopting PlatformDIGITAL in Amsterdam, Dublin and Frankfurt to orchestrate workloads across hundreds of ecosystem applications, delivering improved performance, security, cost savings, and simplicity. Turning to our backlog on Page 9. The current backlog of leases signed but not yet commenced ticked down from $307 million to $303 million as commencement slightly eclipsed space and power leases signed during the quarter. Moving on to renewal leasing activity on Page 10. We signed $178 million of renewals during the second quarter in addition to new leases signed. The weighted average lease term on renewals signed during the second quarter was just under three years, again, reflecting a greater mix of enterprise deals smaller than 1 megawatt. We retained 77% of expiring leases, while cash releasing spreads on renewals were slightly positive, also reflective of the greater mix of sub-1 megawatt renewals in the total. In terms of second quarter operating performance, overall portfolio occupancy ticked down by 60 basis points as we brought additional capacity online across six metros during the quarter. Same capital cash NOI growth was negative 1.5% in the second quarter, largely driven by the churn in Ashburn at the beginning of the year. Let's turn to our economic risk mitigation strategies on Page 11. Given our strategy of matching the duration of our long-lived assets with long-term fixed-rate debt, a 100 basis-point move in benchmark rates would have roughly a 75 basis-point impact on full year FFO per share. In terms of earnings growth, second quarter core FFO per share was flat year-over-year but down 8% from last quarter driven by $0.12 noncash deferred tax charge related to the higher corporate tax rate in the U.K., which came into effect during the second quarter. As you could see from the bridge chart on Page 12, we expect our bottom line results to improve sequentially over the balance of the year as the deferred tax charge comes out of the quarterly run rate and the momentum in our underlying business continues to accelerate. Last, but certainly not least, let's turn to the balance sheet on Page 13. As you may recall, we closed on the sale of a portfolio of noncore assets in Europe for $680 million late in the first quarter, which impacted second quarter adjusted EBITDA to the tune of approximately $10 million. Fixed charge coverage ticked down slightly, also reflecting the near-term impact from asset sales, but remains well above our target and close to an all-time high at 5.4x, reflecting the results of our proactive liability management. In mid-May, we redeemed $200 million of preferred stock at 6.625%, which brought total preferred equity redemptions over the prior 12 months to $700 million at a weighted average coupon of just over 6.25%, effectively lowering leverage by 0.3 turns. In mid-June, we issued 0.5 million shares under our ATM program, raising approximately $77 million. In early July, we raised another $26 million with the sale of the balance of our Megaport stock. We also took our first trip to the Swiss bond market in early July, raising approximately $595 million in a dual tranche offering of Swiss green bonds with a weighted average maturity of a little over six and a half years and a weighted average coupon of approximately 0.37%. As you can see from the chart on Page 13, our weighted average debt maturity is nearly six and a half years, and our weighted average coupon is down to 2.2%. dollar-denominated, reflecting the growth of our global platform and serving as a natural FX hedge for our investments outside the U.S. 90% of our debt is fixed rate to guard against a rising rate environment, and 98% of our debt is unsecured, providing the greatest flexibility for capital recycling. Finally, as you can see from the left side of Page 13, we have a clear runway with nominal near-term debt maturities and no bar too tall in the out years.

As you may recall, we closed on the sale of a portfolio of noncore assets in Europe for $680 million late in the first quarter, which impacted second quarter adjusted EBITDA to the tune of approximately $10 million.

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Our human resource team, led by Noreen Dishart, worked tirelessly to shape and execute the remote work plan that allowed 95% of our employees to work from home. For the second quarter, we reported a net loss of $18.1 million or a loss of $0.34 per share and an operating loss of $32.4 million or $0.60 per share. Accordingly, the $18.6 million loss in the current quarter from our LPs and LLCs is a result of the impact of the disruption in global financial markets during the first quarter due to COVID-19. We've recorded consolidated net realized investment gains of $20 million in the second quarter. This was driven by increases in the fair value of our equity portfolio and convertible securities as financial markets began to stabilize following the initial shock of the pandemic, representing a recovery in fair value of approximately 40% since the first quarter. Excluding the impacts of these items, the consolidated current accident year net loss ratio decreased 1.5 percentage points, driven by our Specialty Property & Casualty and Lloyd's Syndicates segment, partially offset by higher current accident year net loss ratio in our Workers' Compensation Insurance segment. We've recognized $17.1 million in net favorable prior accident year development, stemming from all of our segments other than the Lloyd's segment. Our consolidated underwriting expense ratio was 28.3% in the second quarter, a decrease of 1.7 percentage points from the year ago period, driven by the effect of the tail premium earned associated with the large national healthcare account. This leads us to a combined ratio of 130.1% for the second quarter. The Specialty Property & Casualty segment recorded a second quarter loss of $56.6 million, primarily due to a tail policy issued to a large national healthcare account. We recognized what we assume will be a full limits loss for this tail policy, which resulted in a $45.7 million net underwriting loss in the quarter. The establishment of a $10 million reserve related to COVID-19 also contributed to the operating loss, which I'll expand upon shortly. Gross premiums written were $107.1 million, a decrease of 16.3% quarter-over-quarter. In relation to these strategic underwriting efforts, premium retention in the segment was 71% for the quarter, primarily driven by a 29% retention in our Specialty lines. The lower Specialty retention was driven by the loss of two large accounts, representing premium writings of $11.8 million, which includes the aforementioned large national account. Notably, the premium level for this book of business has been reduced by 75% in the past year. In our Standard Physicians line, retention was 82%, primarily impacted by our state strategy pricing adjustments in challenging venues and competitive market conditions. The lower premium retention was offset by renewal premium increases of 20% in Specialty and 12% in Physicians. We are pleased to report strong premium retention results in our Medical Technology Liability business and Small Business Unit, which were 88% and 91% respectively. New business writings in the Specialty Property & Casualty segment were $4.6 million in the quarter compared to $8.1 million in the second quarter of 2019. New business writings in our Medical Technology business increased to $2 million compared to $1.3 million in the second quarter of 2019. The current accident year net loss ratio was 137.7% in the second quarter, a 43.7 percent point [Phonetic] increase from the year ago period, primarily attributable to the large national account tail policy written in the quarter. To a lesser extent, the increase also reflects the $10 million reserve related to COVID-19. Excluding the COVID reserve and the impact of the national health account, the current accident year net loss ratio was 93%. We've recognized net favorable prior year development of $15.4 million compared to $12.4 million in the prior year quarter. The Specialty Property & Casualty segment reported an expense ratio of 19.9% in the second quarter, a 3.8-percentage point decrease from the same quarter in 2019. The reduction in the expense ratio also reflects the incremental improvements during the past year due to organizational structure enhancements, improved operating efficiency, and expense reductions, offset by 0.4 percentage points of one-time charges related to restructuring costs. To be more specific, we processed approximately $3.7 million of premium reductions and $5.3 million of premium deferrals during the quarter. As previously mentioned, we established a $10 million COVID loss reserve. The Workers' Compensation Insurance segment produced operating income of $1 million and a combined ratio of 98.7% for the second quarter of 2020. During the quarter, the segment booked $57.2 million of gross premiums written, a decrease of 10.9% quarter-over-quarter. Renewal price decreases were 4% for the quarter and are representative of the continued competitive pressures in our underwriting territories despite COVID-19 and the associated economic conditions. Premium renewal retention was 87% for the 2020 quarter compared to 81% in 2019, as we continue to see stronger premium retention each month during the pandemic. New business writings were relatively flat quarter-over-quarter at $6.5 million in 2020 compared to $6.6 million in 2019. Audit premium for the second quarter of 2020 was approximately $200,000 compared to $1.2 million for 2019. The calendar year loss ratio was consistent quarter-over-quarter, reflecting an increase in the current accident year loss ratio from 68.2% in 2019 to 70.6% in 2020, offset by higher prior-year net favorable development of $1.5 million in 2020 compared to $1.1 million in 2019. Despite a 39% decrease in reported claim frequency during the pandemic, we concluded that it was prudent to continue recording a higher accident year loss ratio, given the many uncertainties surrounding COVID-19. Our claims operation closed almost 35% of 2019 and prior claims during 2020, which is consistent with historical claim closing rates. The underwriting expense ratio in the quarter was 31.7%, an increase of slightly less than 1 percentage point from the same quarter in 2019, primarily due to the decrease in net premiums earned, partially offset by a decrease in general expenses. Moving to the Segregated Portfolio Cell Reinsurance segment, operating income was approximately $1.6 million for the quarter, which represents our share of the net underwriting profit and investment results of the segregated portfolio cell captive programs in which we participate to varying degrees. Gross written premium and the SPC reinsurance segment decreased to $15 million for 2020 from $17 million in 2019. This reflects premium renewal retention in 2020 of 87%, new business writings of $741,000, and renewal rate decreases of 5%. Excluding the effect of the 2019 E&O policy discussed on previous calls, the SPC reinsurance 2020 calendar year loss ratio decreased from 52% in 2019 to 45.9% in 2020, the result of a decrease in the current accident year loss ratio, offset by slightly lower net favorable reserve development of $1.9 million in the quarter. For mid-March to the end of July, we have endorsed 992 policies mid-term for a total premium reduction of $2.6 million. We have processed 224 policy cancellations, resulting from business closures, which reduced our premiums by less than $1 million through the end of July. To date, we have received less than 250 requests to defer premium installment payments on a policyholder base of more than 13,700. We continue to monitor closely COVID demographics in our 19 core states that represent 99% of our in-force book of business. According to data from the Center for Disease Control, as of the end of July, the combined number of cases reported from the largest county in each of our 19 core states represents approximately 17% of total COVID cases reported, while the number of cases reported from our largest county in these same 19 states is less than 8% of the total. In our Workers' Compensation Insurance segment, we have 271 COVID cases reported as of July 31, with an undeveloped gross incurred value of approximately $1.3 million. The total incurred on this claim represents approximately $550,000 of the $1.3 million. In our Segregated Portfolio Cell Reinsurance segment, which contains more than half of our long-term care exposure, there are 236 COVID cases reported through July, with an undeveloped gross incurred of $400,000. Of the four Senior Care programs in this segment, we have an ownership interest in just one, and that ownership is 25%. The projections we disclosed in our Q1 release have held and we booked approximately $1.5 million related to the virus in the second quarter, net of reinsurance. We estimate we will recognize an additional $1.4 million, net of reinsurance, in the third quarter of this year. This was the first quarter in which our reduced participation in Syndicate 1729 came through our results, a change that brought down gross premiums written in the segment, but also one we expect will bring down volatility going forward. Because of this reduced participation, we expect to receive a return of approximately $33 million of our funds at Lloyd's during the third quarter of 2020.

For the second quarter, we reported a net loss of $18.1 million or a loss of $0.34 per share and an operating loss of $32.4 million or $0.60 per share.

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88% of 2019 revenues restored and managed business demand ahead of our expectations for December. It's amazing, when in the first three weeks we had roughly 5,000 employees test positive for COVID, with employee cases roughly two and a half times what they were during the delta variant. I'm pleased to report though that over the last few weeks, the operation and staffing has stabilized, and we've seen performance even better than during the holidays. Yesterday, for example, we were 95% on time, which I'm just usually proud of. To maintain sufficient available staff, we extended incentive pay programs for ops employees through early February. Hiring is part of the equation, of course, and we met our 2021 hiring goals and we are on track with plans to add at least 8,000 employees this year. And as we continue retiring older 737-700 aircraft and taking the MAX aircraft this year, in support of our fleet modernization initiatives as well. All combined, these initiatives are expected to deliver incremental EBIT of 1 to 1.5 billion in 2023, and we continue to expect roughly half of that value this year, given the initiatives in place. We reported a $68 million profit in fourth quarter or $0.11 per diluted share. And excluding special items, we reported an $85 million profit or $0.14 per diluted share. For full year 2021, our net income was 977 million or $1.61 per diluted share, driven by 2.7 billion of payroll support program proceeds. Excluding this temporary benefit to salary, wages, and benefits expense, and other smaller special items, our full year net loss was 1.3 billion or a $2.15 loss per diluted share. As a result, our first quarter unit cost inflation compared with first quarter 2019 and excluding fuel special items and profit sharing has increased about 10 points. Roughly half of that increase is driven by the 150 million of additional incentive pay we are offering to operations employees to early February, and the other half is associated with flying fewer ASMs than we were planning. Market fuel prices have continued to rise here, which also resulted in a $0.10 increase in our fuel cost per gallon guidance. Our estimated first quarter fuel price in the $2.25 to $2.35 per gallon range is also roughly $0.25 higher than our first quarter 2019 fuel price, and that's inclusive of an estimated $0.35 of hedging gains here in the first quarter. Our planned flight schedule adjustments take some capacity upside optimism off the table for this year and reduces our full year 2022 capacity outlook by about four points from roughly flat to down 4% versus 2019. I've already covered the 150 million of additional incentive pay in first quarter. And in order to be more competitive on the hiring front, in particular for ground operations, we are raising starting wage rates from $15 per hour to $17 per hour, which is estimated to be a 20 to $25 million total impact to this year. Although it is early based on our current plan for 2022 and preliminary plan for 2023, we expect 2023 CASM-X will decline year over year compared with 2022. We currently have 77 MAX firm orders and 37 MAX options with Boeing this year. While our plan assumes we will exercise the remaining 37 options this year, we maintain the flexibility to evaluate that intention as decision points arise. As I have mentioned to you all before, we won't incur a material CASM-X penalty from holding on to extra aircraft in the event we temporarily park some of our -700 while capacity is moderated this year. We ended 2021 with liquidity of 16.5 billion, our leverage is at a very manageable 54%, and we continue to be the only U.S. airline with an investment-grade rating by all three rating agencies, which I believe is one of our key competitive advantages. The negative revenue impact to Q3 was $300 million. At that time, we estimated negative revenue impact to Q4 of $100 million. Our operating revenues finished within guidance, down 11.8%. And managed business revenues came in better than guidance, down 50% in December. The negative revenue impact from the delta variant came in lower than we thought at around $60 million as we saw a continued rebound in demand and yields throughout the quarter. However, we saw some choppiness in late December from decelerating bookings and increasing cancellations, and we had a $30 million negative revenue impact from the omicron variant as COVID cases increased. Combined, this $90 million COVID impact in Q4 was slightly less than our original estimate of $100 million from COVID as we were able to mitigate some of the load factor decrease through higher yields. While we can't share the specifics about the incremental revenue from our new credit card agreement, you can see that other revenues in fourth quarter 2021 increased 20% compared with Q4 2019 while outpacing the recovery in passenger revenue, and we are on track for expected benefits in 2022. Now, looking at first quarter, we estimate the weather-related and staff-related flight cancellations in January, resulting in a $50 million negative impact to operating revenues. We expect the omicron-related negative revenue impact to January and February combined to be roughly $330 million. We expect first quarter managed business revenues to be down 45 to 55% versus 2019, and improve sequentially from January through March. When you put all these moving parts together, that gets us to our first quarter operating revenue guidance of down 10 to 15% versus first quarter 2019. The result of this exercise, combined with the flight cancellations we have experienced so far this month, is a three-point reduction in first quarter 2022 capacity from down 6% to down 9% compared with the first quarter 2019. And for full year 2022, as Tammy mentioned, it's a four-point reduction from roughly flat to down 4% compared with the full year 2019. As of March 2022, we are roughly 75% restored based on trips, and we continue to expect to restore the vast majority of our route network by the end of 2023. And our on-time performance for that period was 87%, and that was better than our five-year average. So, we ran a similar play over the Christmas holiday, and our daily trips there increased to roughly 3,600 a day. And because we had those people to pitch in to pick up extra shifts during that week of Christmas, we had a completion factor of 99.2%, and we had less than 1% of our flights canceled in the face of that COVID surge. All told, we ended up the fourth quarter with an on-time performance of 72.6%, mainly due to some of the challenges we faced in October. And we had roughly 5,000 employees become sick in the first three weeks of January. And that week, we canceled roughly 3,800 flights. About 1,900 of those were for weather, and about 1,600 of those were for staffing. And then our on-time performance of that period was 41.5%. And so from January 9th through the 25th, our on-time performance jumped to almost 87%, and that leads the industry for marketing carriers, and the incentive pay program runs through February 8. And just by way of example, we had over 700 pilots and 1,500 flight attendants that were able to work in that time frame. Those COVID numbers have dropped substantially since then to roughly 100 to 150 people for each group, and that's a lot closer to what we originally expected. For the over 8,000 employees that we intend to hire this year, about 40% of them are fly crews, about 40% of them are ground operations.

I'm pleased to report though that over the last few weeks, the operation and staffing has stabilized, and we've seen performance even better than during the holidays. To maintain sufficient available staff, we extended incentive pay programs for ops employees through early February. And excluding special items, we reported an $85 million profit or $0.14 per diluted share. Although it is early based on our current plan for 2022 and preliminary plan for 2023, we expect 2023 CASM-X will decline year over year compared with 2022. However, we saw some choppiness in late December from decelerating bookings and increasing cancellations, and we had a $30 million negative revenue impact from the omicron variant as COVID cases increased. While we can't share the specifics about the incremental revenue from our new credit card agreement, you can see that other revenues in fourth quarter 2021 increased 20% compared with Q4 2019 while outpacing the recovery in passenger revenue, and we are on track for expected benefits in 2022. When you put all these moving parts together, that gets us to our first quarter operating revenue guidance of down 10 to 15% versus first quarter 2019. The result of this exercise, combined with the flight cancellations we have experienced so far this month, is a three-point reduction in first quarter 2022 capacity from down 6% to down 9% compared with the first quarter 2019. As of March 2022, we are roughly 75% restored based on trips, and we continue to expect to restore the vast majority of our route network by the end of 2023.

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Organic sales were strong of 4% in the quarter and included the impact of pricing actions implemented in the second and third quarters. In North America Personal Care organic sales were, up 11%, driven by mid single-digit increases in both net selling price and volume. In D&E markets personal care, organic sales were up 7% organic sales increased double digits in Argentina, Brazil, China, India, Eastern Europe and South Africa. We also continue to focus on cost with our teams delivering solid savings of $150 million in the quarter. Now, clearly our margins and earnings were disappointing, as higher inflation and supply chain disruptions increased our costs well beyond the expectation we established just last quarter. Third, energy cost were up dramatically in Europe, where natural gas prices have risen as high as 6 times year-ago levels. These steps include further pricing actions, additional initiatives to ensure we achieve our cost savings goals, and tightening discretionary spending.

In D&E markets personal care, organic sales were up 7% organic sales increased double digits in Argentina, Brazil, China, India, Eastern Europe and South Africa. Now, clearly our margins and earnings were disappointing, as higher inflation and supply chain disruptions increased our costs well beyond the expectation we established just last quarter. These steps include further pricing actions, additional initiatives to ensure we achieve our cost savings goals, and tightening discretionary spending.

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Today, we announced second-quarter reported earnings of $0.45 per share. Adjusting for special items, second-quarter earnings from ongoing operations were $0.55 per share, compared with $0.58 per share a year ago. This included shifting about 35% to 40% of our workforce or more than 4,500 employees to work from home, and creating additional separation for those who must still report to a PPL facility due to the nature of their jobs. While the most recent tropical storm Isaias, impacted about 70,000 of our customers in Pennsylvania, we were able to restore power to most of them within 24 hours and all of them within 48 hours, reinforcing again, little to no impact from COVID-19 on our ability to serve our customers even in the worst of conditions. Finally, from a financial perspective, we've maintained a strong liquidity position of over $4 billion. We've seen some recent developments pertaining to the next price control period, RIIO-2. Ofgem has been very clear about three things in their RIIO-2 messaging. On average, Ofgem cut the gas investment plans by about 20% and cut the transmission plans by about 45%. We've led the way in RIIO-1 in terms of stakeholder engagement and we'll continue to lead in this area as we begin our business planning process toward the end of this year. Therefore, we reiterated our earnings guidance range for 2020 of $2.40 to $2.60 per share, with results expected to track toward the lower end of our forecast range given COVID and unfavorable weather in the first half of the year. Regarding 2021, we are withdrawing our prior 2021 forecast as a result of today's announcement regarding the potential sale of the U.K. business, and we will provide an updated 2021 forecast at the conclusion of the process, which we expect to occur in the first half of 2021. First, I'd like to highlight that the estimated impact from COVID on our second-quarter results was about $0.06 per share, which was primarily due to lower sales volumes in the U.K. and lower demand revenue in Kentucky. As we outlined in our projections on the first-quarter call, about two-thirds of the impact or $0.04 per share is recoverable through the U.K. decoupling mechanism on a two-year lag. During the second quarter, we experienced a $0.01 favorable variance due to weather, compared to the second quarter of 2019, primarily in Pennsylvania. Compared to our forecast, weather in the second quarter was about $0.01 unfavorable variance with stronger load in Pennsylvania being offset by more mild weather in the U.K. and Kentucky versus normal conditions. In terms of dilution, we saw a $0.03 impact in the quarter primarily driven by the November 2019 draw on our equity forward contracts. Moving to the segment drivers, excluding these items, our U.K. regulated segment earned $0.33 per share in the second-quarter 2020. This represents a $0.01 decrease compared to a year ago. These decreases were partially offset by higher realized foreign currency exchange rates compared to the prior period, with Q2 2020 average rates of $1.63 per pound, compared to $1.36 per pound in Q2 2019. I'll note that we layered on additional hedges since our last quarterly call and are now hedged at 95% for the balance of 2020 at an average hedge rate of $1.47 per pound. Moving to Pennsylvania, we earned $0.15 per share, which was $0.02 higher than our comparable results in Q2 2019. We earned $0.10 per share, a $0.03 decrease from our results one year ago. Results at corporate and other were $0.01 higher compared with a year ago, driven by several factors, none of which were individually significant. For example, in Kentucky and Pennsylvania, we went from 15% to 20% C&I load declines at the peak of the lockdowns in April to more modest declines of 8% and 2%, respectively, for the month of June. In the U.K., we saw some positive momentum as the U.K. government downgraded its alert level midmonth, although the recovery was more modest with June demand down about 11% versus the prior year. We expect the annualized load sensitivities by segment that we provided last quarter will remain as good guide as we move through the balance of the year. We've already communicated our targets of reducing CO2 emissions by at least 70% by 2040 and at least 80% by 2050.

Today, we announced second-quarter reported earnings of $0.45 per share. Adjusting for special items, second-quarter earnings from ongoing operations were $0.55 per share, compared with $0.58 per share a year ago. Therefore, we reiterated our earnings guidance range for 2020 of $2.40 to $2.60 per share, with results expected to track toward the lower end of our forecast range given COVID and unfavorable weather in the first half of the year. Regarding 2021, we are withdrawing our prior 2021 forecast as a result of today's announcement regarding the potential sale of the U.K. business, and we will provide an updated 2021 forecast at the conclusion of the process, which we expect to occur in the first half of 2021. We expect the annualized load sensitivities by segment that we provided last quarter will remain as good guide as we move through the balance of the year.

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Overall, revenue at constant currency grew 6% and EBIT grew 16%. The business recorded its third consecutive quarter of year-over-year EBIT growth and continues to maintain its EBIT margin above 30%. Revenue was $899 million and grew 6% over prior year. Adjusted earnings per share was $0.11 and included a $0.03 tax benefit in the quarter. Free cash flow was $87 million, and cash from operations was $79 million, which was a solid performance in the quarter and in line with our expectations. Although down from prior year, it is important to remember that last year included $66 million contribution from the decline in our finance receivables, which was largely COVID related. During the quarter, we paid $9 million in dividends and made $5 million in restructuring payments. We spent $40 million in capex as we continue to invest in our network and productivity initiatives across the business. We ended the quarter with $814 million in cash and short-term investments. Total debt was $2.4 billion, which is down $289 million. When you take our finance receivables and cash into account, our implied operating debt is $567 million. Equipment sales grew 46%. Supplies grew 14% and business services grew 6%. We have decline in support services of 1%; rentals of 2%; and financing of 16%. Gross profit of $301 million improved about $17 million over prior year on growth across all segments. Gross margin was 33%, which was slightly down from the same period last year, but an improvement from the last two quarters. SG&A was $236 million and approximately $3 million higher than prior year. SG&A was 26% of revenue, which was nearly a two point improvement over prior year. Within SG&A, corporate expenses were $56 million, which was up about $7 million from prior year, largely due to higher employee variable related costs. R&D was $11 million or 1% of revenue, which was up approximately $4 million from prior year. During the quarter, we received the remaining insurance proceeds of $3 million for the Ryuk Ransomware attack. EBITDA was $96 million, an increase of $6 million over prior year, and EBITDA margin was 11%, which was flat to prior year. EBIT was $56 million, an increase of $8 million over prior year, and EBIT margin was 6%, which was a slight increase over prior year. Interest expense, including finance interest was $36 million. Our tax provision was a benefit of about $300,000 and includes a benefit related to a U.K. tax legislation change, which also contributed about $0.03 to earnings per share in the quarter. Shares outstanding were approximately 179 million. Within e-commerce, revenue grew 3% to $418 million and also grew from first quarter levels. Domestic parcel volumes were $44 million in the quarter. Compared to the second quarter of 2019, e-commerce revenue grew 48%. We also continue to have success with bundling our services which now represents close to 50% of all new business. EBITDA for the quarter was $8 million. EBIT was a loss of $11 million. We also made significant progress sequentially where second quarter's EBIT margins improved nearly 400 basis points as compared to first quarter, as we were able to improve our productivity and work through some of the residual impact from last year's peak that we saw earlier in the first quarter. Within Presort, revenue was $135 million and grew 14% compared to the second quarter of 2019, Presort revenue grew 5%. Average daily volumes grew 10% over prior year, largely driven by growth in first-class volumes of 4% and Marketing Mail volumes of 39%. EBITDA was $23 million and EBITDA margin was 17%. EBIT was $16 million and EBIT margin was 12%. We remained focused on our productivity initiatives, having improved pieces fed per labor hour by 3%, resulting in 60,000 less processing hours versus prior year. Within SendTech, revenue was $346 million and grew 6%. SendTech's SaaS-based shipping products grew at a low double-digit rate over prior year to $31 million this quarter. The number of labels printed through our shipping offering grew over 30% and paid subscriptions grew about 70% over prior year. Additionally, shipping volumes that our U.S. clients finance grew nearly 70% over prior year. Equipment sales grew 46% over prior year. Compared to the second quarter 2019, equipment sales grew 1%, which is an important metric as this is a key indicator for future streams in the traditional side of the SendTech business. EBITDA was $115 million and EBITDA margin was 33%. EBIT was $107 million and EBIT margin was 31%. Let me now turn to our full year outlook, which is in line with what we have previously communicated. We still expect adjusted earnings per share to grow over prior year and more specifically, to be in the $0.35 to $0.42 range. Taking the midpoint of our adjusted earnings per share guidance into consideration, we currently expect our third quarter to represent nearly 20% of our full year attainment.

Revenue was $899 million and grew 6% over prior year. Adjusted earnings per share was $0.11 and included a $0.03 tax benefit in the quarter. Our tax provision was a benefit of about $300,000 and includes a benefit related to a U.K. tax legislation change, which also contributed about $0.03 to earnings per share in the quarter. Let me now turn to our full year outlook, which is in line with what we have previously communicated. We still expect adjusted earnings per share to grow over prior year and more specifically, to be in the $0.35 to $0.42 range.

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We are very pleased to report third quarter core income of $798 million or $3.12 per diluted share, and core return on equity of 13.5%. Our bottom-line result this quarter reflects strong underlying underwriting income resulting from record net earned premium of $7.4 billion and an underlying combined ratio that improved 2.6 points to a strong 91.5%. I'll note that the combined and underlying combined ratios were still under 90% generating a solid return in a challenging environment. Profitability in all three segments continues to reflect the benefit of our strategic focus on productivity and efficiency, resulting in a sub-30% consolidated expense ratio. Core income for the quarter also included catastrophe losses of $397 million pre-tax, which were meaningfully above the 10-year average per quarter. Of the 100,000 or so claim notices we received so far this year, arising out of the record number of PCS catastrophes in the US, our claims team has met our objective of closing over the 90% of the claims within 30 days. This quarter, we again benefited from our well-defined and consistent investment philosophy with our high-quality investment portfolio generating net investment income of $566 million after tax. Net written premiums in the quarter grew by 3% driven by strong renewal rate change and retention in all three segments. In Business Insurance, we achieved record renewal rate change of 8.2%, 4 points higher than the prior year quarter, while retention remained strong. In Bond & Specialty Insurance, net written premiums increased by 4% as renewal premium change in our domestic management liability business rose to 8.1%, including record renewal rate change while retention remained at an historical high. In Personal Insurance, net written premiums increased by 8%, driven by strong retention and new business in both Agency Auto and Agency Homeowners. In our Agency Homeowners business, we achieved renewal premium change of 8.2%, its highest level since 2014. Just as one example, our BOP 2.0 small commercial product, which we launched in 2019 benefits from both. In the states in which we rolled it out, we've seen about a 15% increase in both submissions and new business premiums. We rolled this out in nine states during the second and third quarters and have plans to launch in an additional 10 states in the fourth quarter. We're observing a nearly 30% increase in the rate of adoption for IntelliDrive and have received strong agent feedbacks. Our core income for the third quarter was $798 million, generating core ROE of 13.5%, both up significantly from core income of $378 million and core ROE of 6.5% that we reported in the prior year quarter. Our third quarter results include $397 million of pre-tax cat losses compared to $241 million in last year's third quarter. We have recognized a full recovery under that treaty in our third quarter results with $233 million pre-tax benefit in the cat line and $47 million pre-tax benefiting non-cat weather in our underlying results. The underlying combined ratio of 91.5%, which excludes the impacts of cats and QID improved by 2.6 points from 94.1% in last year's third quarter. The underlying loss ratio improved by 2.4 points, and benefited from favorable auto frequency related to COVID-19 and the impact of earned pricing in excess of loss trends, partially offset by an increase in non-cat weather losses including wildfires. The expense ratio of 29.3% is two-tenths of a point favorable to last year's third quarter results, and reflects our strategic focus over a number of years on improving productivity and efficiency. Setting aside quarter-to-quarter variability, our year-to-date expense ratio of approximately 30% is a figure we're comfortable with. Our top-line proved to be resilient with a 3% increase in net written premium, as continued strong renewal rate change and retention, in all three segments, more than offset modestly lower insured exposures in the commercial businesses. For the quarter, losses directly related to COVID-19 totaled $133 million pre-tax with $92 million in Business Insurance driven primarily by workers' comp and $41 million in our Bond & Specialty business predominantly driven by management liability. The net impact of the COVID environment on the consolidated underlying combined ratio amounted to a benefit of about 2 points, mostly in Personal Insurance. Looking at the year-to-date impact of direct COVID losses, net of related frequency benefits and other underwriting items, our underwriting results have benefited by a little more than $100 million pre-tax or about 0.5 point on a consolidated underlying combined ratio, including the impact of premium refunds to policyholders. As previously disclosed, third quarter includes approximately $400 million of pre-tax benefit from the PG&E subrogation. About 80% of that benefit is reflected in Personal Insurance, with the remainder reflected in Business Insurance. In Personal Insurance, net favorable development of $40 million pre-tax was driven by auto results coming in better than expected for recent accident years. In Business Insurance, we recognized unfavorable development of $295 million pre-tax as a result of our annual asbestos review. Favorable development in workers' comp was offset by an increase to the reserves from legacy liabilities in our run-off book, related to a single insured arising out of policies issued more than 20 years ago. After-tax net investment income increased by 7% from the prior year quarter to $566 million. Fixed income returns decreased by $31 million after tax as the benefit from higher levels of invested assets was more than offset by the decline in interest rates, consistent with our comments on last quarter's call. Also consistent with our prior commentary, we expect after-tax fixed income NII in the fourth quarter to be down $35 million to $40 million compared to a year ago. Looking ahead to 2021, our current expectation is for after-tax fixed income NII to be between $420 million and $430 million per quarter. Operating cash flows for the quarter of $2.3 billion were again very strong, all our capital ratios were at or better than target levels and we ended the quarter with holding company liquidity of approximately $2.3 billion, well above our target level. Recall that in April we pre-funded the $500 million of debt coming due in November with a new 30-year $500 million debt issuance. Investment yields decreased as credit spreads tightened during the third quarter, and accordingly, our net unrealized investment gain increased from $3.6 billion after tax as of June 30 to $3.8 billion after tax at September 30. Adjusted book value per share, which excludes net unrealized investment gains and losses was $94.89 at quarter end, up 2% from year-end of 2019 and up 5% year-over-year. We returned $218 million of capital to our shareholders this quarter via dividends. Business Insurance produced $365 million of segment income for the quarter, a significant increase over the prior year quarter with prior year development, underlying underwriting income and net investment income, all contributing to the year-over-year increase. The underlying combined ratio of 94% improved by almost 2 points, driven by more than 1 point of earned rate in excess of loss trend. A modest favorable net impact from the pandemic contributed about 0.5 point to the improvement. As for the top-line, net written premiums were 1% lower than the prior year quarter, with strong rate and high retentions mostly offsetting modestly lower insured exposures and lower levels of new business. We achieved record renewal rate change of 8.2%, up 4 points from the third quarter of last year and almost 1 point from the second quarter of this year, while retention remained high at 83%. New business of $505 million was 9% lower than the prior year quarter. As for the individual businesses, in select, renewal rate change increased to 2.9%, marking the seventh consecutive quarter in which renewal rate change was higher than the corresponding prior-year quarter. Retention of 80% was down a couple of points from recent periods, largely driven by policy cancellations that were deferred to the second quarter due to our pandemic-related billing relief program. In middle market, renewal rate change increased to 8.3%, while retention remained strong at 85%. The 8.3% was up by more than 4.5 points from the third quarter of 2019, and we achieved positive rate of more than 80% of our accounts this quarter, up from about two-thirds in the third quarter of last year. Segment income was $115 million, a $24 million decrease from the prior year quarter as the benefit of higher volumes was more than offset by a higher underlying combined ratio. The underlying combined ratio of 89% increased 5.4 points, primarily driven by estimated losses from COVID-19 and related economic conditions. Net written premiums grew 4% for the quarter, reflecting strong growth, driven by improved pricing in our management liability business, partially offset by lower surety production due to the continued economic impact of COVID-19 on public project procurement and related bond demand. In our domestic management liability business, we are pleased that the renewal premium increased to 8.1%, driven by record rate. Retention remained at a historically high 90%. Domestic management liability new business for the quarter decreased $14 million, primarily reflecting our thoughtful underwriting in this elevated risk environment. In Personal Insurance, this quarter, we are very pleased with our continued execution in the marketplace as we delivered excellent profitability and grew net written premiums by 8%, achieving record levels of domestic policies in force. Personal Insurance segment income for the third quarter was $392 million, up $261 million from the prior year quarter, driven by the pre-tax impacts of an improvement of $163 million in the underlying underwriting gain, and $343 million of higher net favorable prior year reserve development, partially offset by $174 million of higher catastrophe losses, net of reinsurance. Our combined ratio for the quarter was 86.4%, an improvement of 11.6 points from the prior year quarter, driven primarily by the increase in net favorable prior year reserve development. Agency Automobile profitability was very strong with a combined ratio of approximately 80% for the quarter. The underlying combined ratio of 81% improved nearly 12 points, continuing to reflect favorable frequency levels. Approximately 8 of the 12 points of improvement relate to current quarter favorability. For the third quarter, data from our IntelliDrive program indicates that miles driven increased relative to last quarter, but continue to be down from pre-COVID- 19 levels. In Agency Homeowners and Other, the third quarter combined ratio was 92.8%, an improvement of 9.2 points from the prior year quarter, resulting from 26 points of higher net favorable prior year reserve development, mostly from the PG&E subrogation recoveries, partially offset by elevated levels of catastrophe losses and an increase in the underlying combined ratio, driven by higher non-catastrophe weather-related losses. Our catastrophe and non-catastrophe experience reflects a very active quarter with a record 31 PCS events. Agency Automobile retention was 84% and new business increased 9% from the prior year quarter, both contributing to accelerating growth in policies-in-force. Agency Homeowners and Other delivered another very strong quarter with retention of 86% and a 22% increase in new business. Renewal premium change increased to 8.2% as we remain focused on improving returns and property while growing the business. And after reaching our goal of planting 1 million trees for customer enrollment and paperless billing, we extended our partnership with American Forests to plant an additional 500,000 trees by Earth Day 2021.

We are very pleased to report third quarter core income of $798 million or $3.12 per diluted share, and core return on equity of 13.5%. Our third quarter results include $397 million of pre-tax cat losses compared to $241 million in last year's third quarter.

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We had two important product launches in the quarter, Overwatch Herbicide based on our Isoflex active in Australia and Xyway fungicide in the U.S. Isoflex is one of 11 new active ingredients we plan to launch this decade. Both launches have exceeded our expectations and have delivered approximately $50 million of Q1 sales. We returned over $135 million to shareholders in the quarter through our recently increased dividend and share repurchases. We reported $1.2 billion in first quarter revenue, which reflects a 4% decrease on a reported basis and a 5% decrease organically. Adjusted EBITDA was $307 million, a decrease of 14% compared to the prior year period and $2 million above the midpoint of our guidance range. EBITDA margins were 25.7%, a decrease of 290 basis points compared to the prior year. Adjusted earnings were $1.53 per diluted share in the quarter, a decrease of 17% versus Q1 2020, but also $0.03 above the midpoint of our guidance range. Q1 revenue decreased by 4% versus prior year, driven by a 4% volume decrease and a 1% price decline. Sales in Asia increased 18% year-over-year and 13% organically, driven by double-digit growth in Australia, Japan, the Philippines, Thailand and Vietnam. EMEA sales were down 4% year-over-year and 8% organically. In North America, sales decreased 8% year-over-year. Sales decreased 22% year-over-year and 13% organically. As a reminder, we were facing a particularly difficult comparison in Latin America, where sales increased 26% year-over-year and 38% organically in Q1 2020. Brazil's cotton business was very strong for us a year ago, which did not repeat this season as cotton hectares were down 15%. EBITDA in the quarter was down $50 million year-over-year due to a very strong Q1 2020 comparison. FMC full year 2021 earnings are now expected to be in the range of $6.70 and to $7.40 per diluted share, a year-over-year increase of 14% at the midpoint. Our 2021 revenue forecast remains in the range of $4.9 billion to $5.1 billion, an increase of 8% at the midpoint versus 2020 and 8% organic growth. EBITDA is still expected to be in the range of $1.32 billion to $1.42 billion, representing 10% year-over-year growth at the midpoint. Guidance for Q implies a year-over-year sales growth of 6% at the midpoint on a reported basis and 5% organically. We are forecasting EBITDA growth of 1% at the midpoint versus Q2 2020, and earnings per share is forecasted to be up 3% year-over-year. Revenue is expected to benefit from 6% volume growth, with the largest growth in Asia and a 2% contribution from higher prices. We expect new products to contribute $400 million in revenue this year. We are taking cost control actions to limit the net cost headwind to an incremental $10 million versus what we showed in February. We also intend to offset the higher raw material costs with an additional $10 million in price increases, which will come primarily in the second half of the year. On the revenue line, we are expecting positive contributions from all categories: volume 4%, pricing 1% and FX 1%. We forecast year-over-year revenue growth of 15% in the second half driven by five main elements. Cotton in Brazil is the most obvious to us, as growers have indicated, a 15% increase in hectares for next season. Our guidance also implies a 30% year-over-year EBITDA growth in the second half of the year. FX was a modest tailwind for revenue growth in Q1 at 1% versus our expectations of a 2% headwind, as the U.S. dollar weakened against many currencies with the notable exception of the Brazilian reais. Interest expense for the first quarter was $32.4 million, down $8.4 million from the prior year period, with the benefit of lower LIBOR rates as well as lower foreign debt and lower term loan balances, partially offset by higher average commercial paper balances. We continue to anticipate interest expense between $130 million and $140 million for the full year. Our effective tax rate on adjusted earnings for the first quarter was 13.1% as anticipated and in line with our continued expectation for a full year tax rate between 12.5% and 14.5%. Gross debt at the end of the quarter was $3.6 billion, up over $300 million from the prior quarter, with the expected seasonal build of working capital. Gross debt to trailing 12-month EBITDA was 3.0 times at the end of the first quarter, while net debt-to-EBITDA was 2.7 times. Free cash flow for the first quarter was negative $354 million. We continue to expect to generate full year free cash flow within a range of $530 million to $620 million, with the vast majority of this cash flow coming in the second half of the year. We returned $137 million to shareholders in the quarter via $62 million in dividends and $75 million of share repurchases, buying back 696,000 shares in the quarter at an average price of $107.73 per share. We continue to anticipate paying dividends approaching $250 million and repurchasing $400 million to $500 million of FMC shares this year. We are on track to deliver more than $700 million to shareholders this year, building on a trend since 2018 of improving cash generation and returning excess cash to shareholders.

We reported $1.2 billion in first quarter revenue, which reflects a 4% decrease on a reported basis and a 5% decrease organically. Adjusted earnings were $1.53 per diluted share in the quarter, a decrease of 17% versus Q1 2020, but also $0.03 above the midpoint of our guidance range. FMC full year 2021 earnings are now expected to be in the range of $6.70 and to $7.40 per diluted share, a year-over-year increase of 14% at the midpoint. Our 2021 revenue forecast remains in the range of $4.9 billion to $5.1 billion, an increase of 8% at the midpoint versus 2020 and 8% organic growth.

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Base salaries were reduced by 10% for all exempt salaried employees and by 15% for all executives. My salary was reduced by 25%. Second, our board of directors elected to reduce by 25% both their cap retainers for the next six months and their annual equity award. Fourth, we suspended our share repurchase activity. As a point of reference, in recent years, buybacks have averaged approximately $55 million annually. Finally, we reduced our capital expenditure budget for 2020 from approximately $65 million to $35 million. Our planned growth investment spending for 2020 is being maintained at a reduced level of approximately 50%. In total, we currently anticipate $60 million to $65 million of cost improvement during 2020 as compared to 2019 with the full run rate expected by mid-Q2. Domestic office furniture orders are down 35% versus prior year period. In fact, our e-commerce orders are up 120% versus the prior year levels, in large part due to a huge spike in demand for home office products. Orders for our Hearth business during the same period are down 20%. In each of the last two downturns, the commercial furniture industry volume declined a little over 30%. Consolidated non-GAAP net income per diluted share was $0.21, which represented a substantial increase versus the $0.02 reported in the first quarter of 2019. First quarter consolidated organic sales decreased 2.5% versus the prior year to $469 million. Including the benefit of acquisitions, sales were down 2.2%. In the Office Furniture segment, first quarter sales decreased 4.3% year-over-year. We again generated strong profit growth in Office Furniture with first quarter non-GAAP operating income improving $4 million. Sales in our Hearth Product segment increased 2.6% year-over-year organically or 3.5% when including acquisitions. Within the Hearth segment, new residential construction revenue grew 3.2% organically and sales of remodel and retrofit products increased 1.9% year-over-year. Hearth non-GAAP operating profit increased 17% versus the prior year quarter. For HNI overall, first quarter gross profit margin expanded 220 basis points year-over-year to 37.6%. Non-GAAP operating profit grew 279% versus the prior year. And non-GAAP operating margin in the first quarter expanded 220 basis points to 3% of net sales. Our non-GAAP results exclude $37.7 million of charges related to intangible impairments and one-time items related to the COVID-19 crisis. At the end of the first quarter, we had $230 million in total debt, representing a gross leverage ratio of 1.0. This is well below the 3.5 times gross leverage covenant in our existing loan agreements. Liquidity, as measured by the combination of cash and available capacity on our lending facilities, totaled more than $350 million at quarter end. First, we would be able to manage to a 25% deleverage or decremental margin with our cost actions. What it showed is we can support nearly $270 million in debt with zero cash earnings. This is due in part to the $77 million in annual depreciation and amortization we incur.

Base salaries were reduced by 10% for all exempt salaried employees and by 15% for all executives. My salary was reduced by 25%. Second, our board of directors elected to reduce by 25% both their cap retainers for the next six months and their annual equity award. Fourth, we suspended our share repurchase activity. Finally, we reduced our capital expenditure budget for 2020 from approximately $65 million to $35 million. Consolidated non-GAAP net income per diluted share was $0.21, which represented a substantial increase versus the $0.02 reported in the first quarter of 2019. Including the benefit of acquisitions, sales were down 2.2%. Our non-GAAP results exclude $37.7 million of charges related to intangible impairments and one-time items related to the COVID-19 crisis. First, we would be able to manage to a 25% deleverage or decremental margin with our cost actions.

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Market demand continued to remain robust, and we delivered sales of $477 million, 10% higher than last year, and earnings per share of $1.25, an increase of 16%. Operating cash flow was $69 million and free cash flow was $46 million, and we made progress to lower our debt levels by paying down $20 million of debt. The combination of these dynamics led to higher plant operating costs and delayed shipments, resulting in about $5 million of reduced income in the quarter. To demonstrate this transition over the past few years, revenue from our consumer-oriented businesses has doubled and today, they comprise 30% of our total sales portfolio. Sales increased 17% over last year to $1.9 billion. Operating income was up 13% to $241 million, and our earnings per share grew 26% to $5.02. Our teams work closely and transparently with our customers to manage through these dynamics, and we were successful in implementing a broad array of strategic pricing actions across our portfolio to offset the $50 million in extra costs we had to absorb. We demonstrated this in 2021 by deploying $86 million to fund high-return organic projects, as well as to maintain and improve the performance and safety of our facilities. We acquired Normerica and the Specialty PCC assets, while also returning $82 million to our shareholders through share repurchases and dividends. Most of these businesses are in our household, personal care, and specialty product line, and they performed very well with sales growth of 21%. We've also realized significant sales increases in other specialty applications, such as edible oil purification and personal care, which grew by 48% and 80%, respectively, last year. Metalcasting sales were up 21% in Asia as we expanded our customer base and further penetrated into China with sales of our pre-blended products increasing by 20%. We continue to demonstrate our value in other countries and specifically in India, where sales of our blended products were up nearly 40% in 2021. Our PCC business continues to grow geographically with a 22% sales increase in Asia. We benefited from 280,000 tons of new capacity that came online over the past year. In addition, we signed two new satellite contracts in 2021, totaling around 70,000 tons, which will be commissioned by the end of this year. In 2021, we signed long-term contracts worth $100 million through the deployment of our new portfolio of differentiated refractory products and high-performance laser measurement solutions. Our growth this past year in wastewater remediation was 15%, and we see this trajectory continuing in 2022. And during the same time frame, we've increased the sales generated from new products by more than 60%. Sales in the fourth quarter were 10% higher than the prior year and 1% higher sequentially. Organic growth for the company was 4% versus the prior year, and the acquisition of Normerica contributed the remainder of the growth. Operating income, excluding special items, was $54.7 million, and operating margin was 11.5%. The year-over-year operating income bridge on the top right of this slide shows that we experienced $27.4 million of inflationary cost increases versus the prior year, which we offset with $18.6 million of pricing. As we move through the fourth quarter, inflationary costs accelerated to nearly $10 million, including higher energy costs in Europe and Turkey. These challenges, including the delayed sales volume and the unexpected spike in energy costs, resulted in approximately $5 million lower operating income than we originally expected for the quarter. Meanwhile, we continue to control overhead expenses with SG&A as a percentage of sales at 10.8%, 80 basis points below the prior year. Earnings per share, excluding special items, was $1.25 and represented 16% growth versus the prior year. Full-year earnings per share was $5.02, a record for the company and represented 26% growth versus the prior year. Fourth-quarter sales for Performance Materials were $256.2 million, 17% higher than the prior year and 2% higher sequentially. The acquisition of Normerica contributed 13% growth versus the prior year, and organic sales contributed an additional 4%. Household, personal care, and specialty product sales were 24% above the prior year and 4% higher sequentially, driven by Normerica and continued strong demand for consumer-oriented products. Metalcasting sales were 9% higher than the prior year and 16% higher sequentially, driven by strong demand globally, continued penetration of green sand bond technologies in Asia, and the return of volumes from the third quarter seasonal foundry maintenance outages. Environmental product sales grew 13% versus the prior year on improved demand for environmental mining systems, remediation, and wastewater treatment. Building Materials sales grew 21% versus the prior year on higher levels of project activity. Operating income for the segment was $29.1 million and operating margin was 11.4% of sales. Margin was temporarily impacted this quarter by approximately $3 million of logistics challenges and inflationary cost increases that could not be passed through contractually until January 1 of this year, primarily in Pet Care and our Metalcasting business in China. And overall, we expect the operating income for this segment to be approximately 20% higher sequentially. Specialty Minerals sales were $141.5 million in the fourth quarter, 2% higher than the prior year, and 4% lower sequentially. PCC and Process Mineral sales were both 2% above the prior year. Segment operating income was $14.5 million and represented 10.2% of sales. In total, operating income was impacted by $4 million in the quarter, which came from approximately $2 million of unexpected energy inflation and additional $2 million due to the sales and productivity impact resulting from logistics and labor challenges, primarily in our Northeast U.S. plants. Overall, for the segment, we expect first-quarter operating income to be 20% to 25% higher than the fourth quarter. Refractory segment sales were $79.2 million in the fourth quarter, 7% higher than the prior year, and 4% higher sequentially on new business volumes and continued strong steel market conditions in North America and Europe. Segment operating income remained strong at $12.4 million, 12% higher than the prior year, and operating margin was 15.7% of sales. We expect another strong operating performance from this segment with operating income up 20% on incremental volumes from new business. We did see a slight moderation in steel utilization rates in North America in the fourth quarter from the mid-80% range to the low 80s. Full-year cash flow from operations was $232.4 million. Capital expenditures were $86 million as we invested in high-return growth and productivity projects, as well as sustaining our operations. Free cash flow was $146.4 million. The company used a portion of free cash flow to repurchase $75 million of shares, completing the prior-year share repurchase authorization and beginning the new $75 million 1-year share repurchase program that the board of directors authorized in October. As of the end of the fourth quarter, total liquidity was over $500 million, and our net leverage ratio was 2.1 times EBITDA. Our capital spend will be in the range of $85 million to $95 million for 2022. And overall, we expect free cash flow increasing to the $150 million to $160 million range for the full year. Overall, for the company, we expect a strong performance in the first quarter, with operating income in the range of $63 million to $65 million, 15% to 20% higher than the fourth quarter, and with earnings per share around $1.25. With sales growth of 10% to 15% expected this year, combined with our distinct operational capabilities, we have all the elements in place to deliver a very strong performance in 2022.

Market demand continued to remain robust, and we delivered sales of $477 million, 10% higher than last year, and earnings per share of $1.25, an increase of 16%. Earnings per share, excluding special items, was $1.25 and represented 16% growth versus the prior year. Overall, for the company, we expect a strong performance in the first quarter, with operating income in the range of $63 million to $65 million, 15% to 20% higher than the fourth quarter, and with earnings per share around $1.25.

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I'm pleased to report that the strong momentum we saw throughout last year has accelerated further in the first quarter with our sales now 9% above pre-pandemic levels. Our operating margin has improved 8.5 points compared to fiscal year '20 even as we've reinvested in key growth drivers for our business. Our three unique brands are enabled by our talented teams, technology infrastructure, globally diversified supply chain and a 90% direct to consumer model. In fact, we acquired approximately 1.6 million new customers across our direct channels in North America, an increase of 20% with growth in both stores and online. As a result, retention improved year-over-year at each brand, including strong reengagement with the 4 million customers acquired last year in our North America digital channels. Sales rose close to 50% with digital penetration now nearly 4 times pre-pandemic levels. While I'll cover resurgences during the quarter, impacted traffic across the industry, we delivered sales growth of over 25%. Compared to pre-pandemic levels, sales increased roughly 65% accelerating versus the prior quarter. Revenue rose 27% representing an increase of 15% compared to pre-pandemic levels or a 13 point sequential improvement. Operating margin expanded fueled by gross margin, which reached nearly 75%, the highest rate in any quarter in the last 10 years. In the quarter, we acquired over 900,000 new customers across our North America channels, a high-teens increase compared to the prior year. In addition, we are led by Stuart Vevers creative vision who is building on 80 years of iconic Coach codes, notably the Signature C and Horse and Carriage, both of which have supported increasing sales across all channels. In the first quarter, e-commerce increased over 60% representing a sequential improvement on both a one and two-year basis underscoring the significant opportunity that this channel represents. Sales rose over 25% compared to last year with improvements across stores and e-commerce as we diversify our approach to meet the customer where they want to shop. And fifth, we outperformed in the men's business, in keeping with our ambition to deliver $1 billion in sales in the category over our planning horizon. In the quarter, we maintained a consumer-centric approach in our execution acquiring over 650,000 new customers across channels in North America, a significant increase over last year. And fifth, we utilized our already strong digital platform to continue to grow e-commerce sales, which rose over 15% in the quarter as we test, learn and scale innovative and new ways to engage the consumer online. We have significant [Technical Issues] in our ability to achieve $2 billion in revenue at high teens operating margins over the planning horizon. Our e-commerce channels rose over 30% globally driven by customer experience upgrade to improve conversion. And in China, a market that remains a significant opportunity for the brand, revenue increased over 25%. This was a key driver of the gross margin expansion of over 250 basis points. Total sales increased 26% versus prior year and outperformed expectations. Compared to pre-pandemic levels, revenue rose 19% representing an 8 point acceleration compared to the prior quarter fueled by improvements across all channels, stores, digital and wholesale. Earnings per diluted share for the quarter was $0.82, an increase of 42% compared to the prior year and more than doubling pre-pandemic levels. Now turning to our balance sheet and cash flow as well as an update to our capital deployment plans, we ended the quarter in a strong position with $1.7 billion in cash and investments and total borrowings of $1.6 billion. As such, we now expect to return approximately $1.25 billion to shareholders in the fiscal year, a meaningful increase compared to our previous outlook to return $750 million to shareholders in fiscal '22. This return reflects approximately $1 billion of share repurchases in the fiscal year which consist of $600 million to complete our existing program inclusive of the 250 million of shares already repurchased in the first quarter and we expect to utilize approximately $400 million under our new program in fiscal '22. In addition, our shareholder return plans continue to forecast approximately $250 million returned through our dividend program. In addition, we still intend to repay our July 2022 bonds totaling $400 million by the end of the fiscal year. As Joanne mentioned we've acted early and boldly to maintain the momentum we're seeing across each of our brands, while we're not immune to external factors nor can we predict future challenges that may come, the bold actions we're taking to secure supply along with our experience at reacting with agility to a constantly changing landscape over the last 18 months or so, it gives us confidence to increase our annual guidance. We now expect revenue to approach $6.6 billion which would mark a record for the Company. Excluding this additional freight impact of approximately 200 basis points, we are driving continued underlying gross margin expansion through lower discounting, improved SKU productivity along with price increases that will be implemented for the balance of the year across brands. We continue to expect about $300 million in structural gross run rate expense savings as a result of the acceleration program. As previously shared, we are reinvesting these benefits to fuel growth including $90 million in higher marketing spend or approximately 3 percentage points higher than fiscal '19. Net interest expense for the year is expected to be $65 million and the tax rate is estimated at 18.5% assuming a continuation of current tax laws. We're now forecasting weighted average diluted share count to be in the area of 278 million shares incorporating a planned $1 billion in share repurchases. So taken together, we now expect earnings per share to be in the range of $3.45 to $3.50 incorporating the first quarter's outperformance and an approximate $0.05 benefit from additional share repurchases. We continue to expect capex to be about $220 million for the year. Of this spend, we anticipate approximately 45% of it related to store development primarily in China, with the balance dedicated to our digital and IT initiatives. Operating income is projected to be in the area of prior-year levels, which contemplates incremental airfreight of approximately $70 million in the quarter or roughly 350 basis points. As a reminder, GST is expected to benefit the full year by almost 50 basis points.

And fifth, we outperformed in the men's business, in keeping with our ambition to deliver $1 billion in sales in the category over our planning horizon. Total sales increased 26% versus prior year and outperformed expectations. Earnings per diluted share for the quarter was $0.82, an increase of 42% compared to the prior year and more than doubling pre-pandemic levels. This return reflects approximately $1 billion of share repurchases in the fiscal year which consist of $600 million to complete our existing program inclusive of the 250 million of shares already repurchased in the first quarter and we expect to utilize approximately $400 million under our new program in fiscal '22. We're now forecasting weighted average diluted share count to be in the area of 278 million shares incorporating a planned $1 billion in share repurchases.

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In the third quarter, Cullen/Frost earned $106.3 million or $1.65 per share compared with earnings of $95.1 million or $1.50 per share reported in the same quarter of last year. And this compared with $116.4 million or $1.80 per share in the second quarter. Average deposits continued their strong increase in the third quarter and were $39.1 billion, an increase of 19% compared with $32.9 billion in the third quarter of last year. Overall, average loans in the third quarter were $16.2 billion compared with $18.1 billion in the third quarter of 2020, but this included the impact of PPP loans. Excluding PPP loans, third quarter average loans of $14.8 billion were essentially flat from a year ago but up an annualized 6% on a linked quarter basis. New loan commitments booked through the third quarter excluding PPP loans were up by 11% compared to the first nine months of last year. For the quarter, new loan commitments were up by 6% on a linked quarter basis. We were especially pleased that the linked quarter increase was due primarily to C&I commitments, which were up 30%. Our current weighted pipeline is 41% higher than one year ago and 22% higher than last quarter. The increases are in both C&I, up 22%; and CRE, up 28%. In the third quarter, 69% of the deals we lost were due to structure compared to 50% in the quarter before. We also continue to add to our commercial customer base, and we recorded 619 new commercial relationships during the quarter. And while this was down from the same quarter a year ago when we were experiencing incredible PPP success, it is 2/3 higher than the quarter immediately before the PPP program. Net charge-offs for the third quarter totaled $2.1 million compared with $1.6 million in the second quarter. Nonaccrual loans were $57.1 million at the end of the third quarter, a slight decrease from the $57.3 million at the end of the second quarter. Overall, delinquencies for accruing loans at the end of the third quarter were $95.3 million or 60 basis points of period-end loans, and these are manageable pre-pandemic levels. What started out as $2.2 billion in 90-day deferrals granted to borrowers early in the pandemic were completely gone as of the end of the third quarter. Total problem loans, which we define as risk grade 10 and higher, were down slightly to $635 million at the end of the third quarter compared with $666 million at the end of the second quarter. In the third quarter, we continued making progress toward our goal of mid-single-digit concentration level in the energy portfolio over time, with energy loans falling to 6.5% of our non-PPP portfolio at the end of the quarter. The total of these portfolio segments excluding PPP loans represented $695 million at the end of the third quarter, and our loan loss reserve for these segments was 8.8%. Our numbers of new households were 134% of target and represented more than 12,200 new individuals and businesses. Our loan volumes were 177% of target and represented $371.4 million in outstandings, and about 80% of this represents commercial credits with about 20% consumer. Deposits surpassed $0.5 billion and were 111% of target. Commercial deposits accounted for 2/3 of the total. For example, through the first six months of this year, we had already surpassed consumer banking's all time annual growth for new customer relationships, which was 12,700 in 2019. At the end of the third quarter this year, this had risen to 19,974 net new checking customers. That's already more than 150% of our previous annual record. HELOC, home improvement and purchase money second loans, which has steadily grown to in excess of $1.3 billion. Nearly 90% of the 32,500 loans or $4.7 billion have already been helped with the loan forgiveness process. That includes upwards of 97% of the first-round loans from 2020. Our net interest margin percentage for the third quarter was 2.47%, down 18 basis points from 2.65% reported last quarter. Interest-bearing deposits at the Fed averaged $15.3 billion or about 35% of our average earning assets in the third quarter, up from $13.3 billion or 31% of average earning assets in the prior quarter. Excluding the impact of PPP loans, our net interest margin percentage would have been 2.27% in the third quarter, down from an adjusted 2.37% for the second quarter, with all of the decrease resulting from the higher level of balances at the Fed in the third quarter. The taxable equivalent loan yield for the third quarter was 4.16%, down 12 basis points from the previous quarter. Excluding the impact of PPP loans, the taxable equivalent loan yield would have been 3.74%, down six basis points from the prior quarter. To add some additional color on our PPP loans, total PPP loans at the end of September were $828 million, down from $1.9 billion at the end of June. At the end of the third quarter, we had only about $11.5 million in net deferred fees remaining to be recognized, and we currently expect about 75% of that to be recognized in the fourth quarter. The total investment portfolio averaged $12.5 billion during the third quarter, up about $209 million from the second quarter. The taxable equivalent yield on the investment portfolio was 3.35% in the third quarter, down one basis point from the second quarter. The yield on the taxable portfolio which averaged $4.1 billion was 2.03%, up two basis points from the second quarter. Our municipal portfolio averaged about $8.4 billion during the third quarter, up $230 million from the second quarter, with a taxable equivalent yield of 4.04%, down five basis points from the prior quarter. At the end of the third quarter, 78% of the municipal portfolio was pre-refunded or PSF-insured. The duration of the investment portfolio at the end of the third quarter was 4.5 years, up slightly from 4.4 years in the second quarter. We made investment purchases toward the end of September of approximately $1.5 billion, consisting of about $900 million in MBS agency securities with a yield of about 2%, about $500 million in treasuries yielding 1.07% with the remainder in municipal securities. Regarding noninterest expense, looking at the full year 2021, we currently expect an annual expense growth rate of around 3% over our 2020 total reported noninterest expenses, which is consistent with our previous guidance. Regarding the estimates for full year 2021 earnings, given our third quarter results and the recognition of lower PPP fee accretion for the fourth quarter, we currently believe that the current mean of analyst estimates of $6.48 is reasonable.

In the third quarter, Cullen/Frost earned $106.3 million or $1.65 per share compared with earnings of $95.1 million or $1.50 per share reported in the same quarter of last year.

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For the past 20 months, we've worked our way through, hopefully, once-in-a-lifetime global pandemic. So like other challenges in years past, the financial crisis back in 2008, the Great Recession that followed, and the cotton crisis in 2011. We're forecasting sales this year at about 98% of the pre-pandemic level in 2019. We focused our product offerings on fewer, better and higher margin choices, and reduced SKUs by about 20%. Relative to 2019, our sales forecast this year reflects the closure of over 100 low-margin retail stores, a $50 million reduction in clearance sales, a nearly 50% reduction in low-margin off-price sales and lower demand from international guests, who historically were drawn to our low-margin clearance sales. Cambodia and Vietnam now produce over 50% of our unit volume. By comparison, we source less than 10% of our products from China. There's been a 30% increase in shipping container volume this year. By comparison, trucking capacity is up only 8%. To put it in perspective, a mid-single-digit wholesale price increase is about $0.30 per unit. Our stores are expected to be the highest contributor to our annual revenue this year with store sales projected to exceed $1.1 billion. The profitability of our stores is forecasted to grow by over 30% relative to 2019 on nearly $150 million less revenue driven by our reduction in SKUs and closure of low-margin stores, leaner inventories, fewer clearance sales and improved price realization. Our U.S. eCommerce penetration is forecasted to be nearly 40% this year, up from less than 32% in 2019. With our investment in RFID capabilities, we're expecting higher productivity of inventory and faster shipping by leveraging over 70% of our stores to fulfill online orders. Year-to-date, nearly 30% of our online orders were fulfilled by our stores. They spend nearly 3 times more a year than our single-channel customers. Our average remaining lease term is less than 2.5 years, which gives us the flexibility to negotiate better rates or exit the site. We renegotiated over 25% of our leases this year, and over 70% of those renewals were at a lower cost. Relative to 2020, we're forecasting higher wholesale margins and nearly 20% earnings growth for our Wholesale segment this year. Going forward, our annual freight costs are expected to be a fraction of the nearly $40 million investment we're planning this year. No other company in children's apparel has the scope of distribution we've built over the past 20 years with our brands sold in over 19,000 store locations, and on the largest, most successful online platforms. Together with our wholesale customers, the online sales of our brands this year have exceeded $1 billion, up over 50% compared to 2019. International sales are projected to exceed 13% of our annual sales this year, which would be a record level of sales and profitability. Despite extensive COVID-related store closures in the first half, our sales in Canada are projected up 16% this year, including over 10% growth in store sales and nearly 30% growth in e-commerce sales. Our brands are sold in over 90 countries through wholesale relationships, including Amazon, Walmart and Costco. We expect our international eCommerce sales to exceed $100 million this year, more than double the pre-pandemic period. Our brands have withstood the test of time in many market disruptions over the past 100 years. Net sales were $891 million, up 3% from last year. Reported operating income was $124 million, up 9%, and reported earnings per share was $1.93, up 4% compared to $1.85 a year ago. Last year's adjustments totaled $6 million in pre-tax expenses. These delays had particular impact on our U.S. wholesale business where we've estimated we achieved about $70 million less in sales than we had planned. Our adjusted operating margin was also strong at nearly 14%. When including dividends paid, our cumulative return of capital to shareholders through the third quarter was $145 million. Building on the 3% growth in net sales, gross profit grew 7% to $409 million, and gross margin improved 150 basis points to 45.9%, both records, as I've mentioned, our gross margin expansion was driven by strong consumer demand and less promotional activity, which resulted in improved price realization. Royalty income was down about $1 million. On a year-to-date basis, royalty income has grown by 13%. Adjusted SG&A increased 7% to $293 million, compensation provisions, which were significantly curtailed a year ago in response to the pandemic, were higher as was spending on brand marketing and technology initiatives. Adjusted operating income was $124 million, up 4% compared to last year, and adjusted operating margin improved 10 basis points to 13.9%. Second, our effective tax rate was higher than last year, 21.6% compared to 19% in last year's third quarter. For the full year, we're forecasting an effective tax rate of approximately 23% versus around 19% last year. So on the bottom line, adjusted earnings per share were $1.93 compared to $1.96 in last year's third quarter. We ended the quarter with nearly $950 million in cash, and total liquidity of $1.7 billion when including available borrowing capacity under our credit facility. Quarter end net inventories were 12% higher than last year. At quarter end, we had $272 million of in-transit inventory, an increase of over 100% versus a year ago. Year-to-date cash flow from operations was $7 million compared to $319 million last year. As a reminder, our operating cash flow in 2019 was nearly $400 million. We resumed share repurchases in Q3, buying back $110 million of our stock. Share repurchases under our current trading plan have continued in the fourth quarter, bringing cumulative repurchases in 2021 to just over $190 million. This brings our cumulative return of capital year-to-date, including dividends, to over $200 million. All in, our consolidated adjusted operating margin improved to 13.9%. Year-to-date sales were up 19%, and our profitability is up significantly with adjusted operating income growth of 171%, and our adjusted operating margin expanding to 15%. Now moving to some individual business segment highlights for the quarter, beginning in U.S. retail on Page 10. Net sales in our U.S. retail segment grew 4%, with comparable sales growing nearly 6%. Regarding fixed costs, our store optimization program has allowed us to eliminate about $30 million of annual costs related to low-margin stores, which we've now closed. On Page 11, we have several significant technology initiatives underway in retail currently, two of which we've summarized here. Our initial experience has indicated it is as much as 50% faster. Now turning to Page 12, and some of our Carter's marketing in the third quarter. Turning to Page 13, and the OshKosh brand. This campaign resulted in $2.5 billion earned media impressions and a strong lift across all key brand metrics. Turning to Page 14. In the spirit on Page 15, in addition to beautiful holiday products, we're continuing to develop new and innovative ways to drive consumers to our stores and to our award-winning website throughout the holiday season with exclusive giveaways and child and parent-focused experiences. On Page 16, we're continuing to leverage social media as a key way to connect with parents. We've recently expanded into new social channels such as TikTok, and we've increased our video content as we continue to increase our relevance to in connection with today's parents, especially those from Gen Z. This strategy continues to pay dividends as we captured over 70% of kids apparel social engagement on Instagram in Q3, and continue to grow our community of parents. Moving to Page 17, and our U.S. wholesale business. Wholesale segment sales were $294 million compared to $302 million in last year's third quarter, a decline of 3%. Because of these inventory issues, we realized about $70 million less in wholesale sales in the third quarter than we had planned, with these orders rolling from Q3 into the fourth quarter. Fortunately, the majority of this $70 million has now shipped. Adjusted segment income was $40 million compared to $67 million in last year's quarter. Segment margin was 13.7%, down from 22.3% last year. One very notable driver has been the very significant expenditures for air freight in the wholesale segment, which were about $15 million in the third quarter. Year-to-date wholesale margins are up 360 basis points over last year. Moving to Pages 18 and 19. Our wholesale partners provide 19,000 points of distribution across North America. On Page 19, we show some of the rich holiday marketing planned by Kohl's and Macy's, which will prominently feature the Carter's brand. Turning to Page 20, and International segment results. Reported segment sales grew 15% in the third quarter. On a constant currency basis, segment sales grew 10%. Sales in Canada grew 5%, reflecting growth in both eCommerce and stores since launching omni-channel capabilities. Earlier this year, Canada's omni-channel demand has ramped nicely, with stores supporting over 25% of online orders. Sales to international wholesale customers grew 70% over last year, principally driven by demand from our partner in Brazil and Amazon outside the United States. Profitability in the International segment increased meaningfully over last year, with adjusted operating margin increasing 17.4%. On Page 21, we continue to make good progress holding our business in Mexico despite significant COVID-related disruption in this market over the past 20 months. Turning to an update on our supply chain on Page 23. As a point of reference, we've estimated that raw cotton represents about 16% of the cost of a finished good. Now for our outlook for the balance of the year, beginning on Page 25. We're expecting to post sales of over $1 billion in the fourth quarter with adjusted operating income of $127 million and adjusted earnings per share of approximately $2 per share. For the full year then, on Page 26, we were encouraged by our profit performance in Q3, a combination of improved gross margin despite incurring extraordinary transportation costs and overall effective management of other spending across the business. The charts on Page 26, show our performance for 2019 and 2020, in addition to our current outlook for 2021's full year results. We're now targeting full year net sales of approximately $3.450 billion. Adjusted operating income of $490 million, up from our previous forecast of $475 million, and adjusted earnings per share of $7.57, up from our previous guidance of $7.28.

Reported operating income was $124 million, up 9%, and reported earnings per share was $1.93, up 4% compared to $1.85 a year ago. So on the bottom line, adjusted earnings per share were $1.93 compared to $1.96 in last year's third quarter. Adjusted operating income of $490 million, up from our previous forecast of $475 million, and adjusted earnings per share of $7.57, up from our previous guidance of $7.28.

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In Q1, it sure did as we achieved record operating EBITDA of $1.16 billion and robust cash from operations of $1.12 billion. Combine this with the broader economic trends and all indicators show that our full-year revenue, adjusted operating EBITDA and free cash flow are on track to meet or exceed the upper end of the guidance ranges we provided in February. And based on the success of the integration so far, we are increasing our synergy expectations to $150 million of total annual run rate synergies, $130 million coming from operating costs and SG&A savings and $20 million coming from capital savings. For 2021, we now expect synergies of between $75 million and $85 million, all coming from cost savings. With approximately $15 million of annualized synergies captured in 2020, we expect to exit 2021 on an annual run rate synergy level of around $100 million. The remaining $50 million is expected to be captured in 2022 and 2023 from a combination of operating costs, SG&A and capital expenditures. Organic revenue grew 2.1% as disciplined pricing and improved recycling results overcame modest volume declines. Pricing performance for the quarter was very solid with both core price of 3.4% and collection and disposal yield of 2.8%, outpacing our expectations. Notably, our commercial yield rebounded sequentially from 3.1% -- to 3.1% from 1.9% in the fourth quarter. As economic reopening progressed during the first quarter, collection and disposal volumes improved again sequentially to a decline of 2.3% from 2.7% in the fourth quarter. In the first quarter, net new business turned positive, churn improved meaningfully to 8.2% and service increases expanded. While volumes have recovered meaningfully from the second quarter of 2020 collection and disposal decline of 10.9%, as Jim pointed out, WM is positioned to benefit from further improvements in North American economies. For example, at the end of the first quarter, we have recovered about 72% of the commercial yards lost due to COVID, providing room for considerable improvement in commercial volumes as we progress through the year. Residential yield doubled year over year to 4.2% as we made strides to improve the profitability in this line of business. This is the highest residential yield we have achieved since 2008 and it showcases our success in demonstrating the value of our service and pricing it appropriately. The increased yield drove operating EBITDA margins in the residential line of business to the highest level in the past 12 months despite still elevated residential container rates. Landfill core price was 3.2%, a strong result when you consider the impact of lower volumes related both to the pandemic and severe winter weather. While our other top recycling quarters had an average commodity price of $127 per ton, we achieved our strong first-quarter results with a price of $79 per ton. First-quarter operating expenses as a percentage of revenue improved 130 basis points to 61.1%, demonstrating that we are maintaining our cost discipline as volumes recover. Revenue growth is expected to be 12.5% to 13%, with combined internal revenue growth from yield and volume in the collection and disposal business of four and a half percent or greater. For adjusted operating EBITDA, we now expect to generate between $4.875 billion and $4.975 billion, a $100 million increase at the midpoint from our prior guidance. The improved outlook for adjusted operating EBITDA translates directly into incremental free cash flow, and we now expect that we will generate between $2.325 billion and $2.425 billion of free cash flow for the year. Net cash provided by operating activities grew $355 million. In the first quarter, capital spending was $270 million, a $189 million decrease from the first quarter of 2020. For the full year, we expect capital spending to be at the high end of our $1.78 billion to $1.88 billion guidance range as we invest in our business to support growth, reduce our cost to serve and extend our environmental sustainability efforts. Putting it all together, our business generated free cash flow of $865 million in the first quarter. In the first quarter, we used our free cash flow to pay $247 million in dividends and allocated $250 million to share repurchases. SG&A was 10.7% of revenue in the first quarter. Our deliberate increased level of investment in technology as well as higher incentive compensation accruals are the driver of SG&A as a percentage of revenue being above our long-term target of less than 10% of revenue, but we are committed to ensuring we return to that optimized cost structure in the near term. Our first-quarter leverage ratio of 3.04 times has improved from the fourth quarter due to our strong operating EBITDA growth. Our strong first-quarter results and increased expectations for current year operating EBITDA and free cash flow, position us to purchase at least $1 billion of our shares in 2021, and at the same time, achieve our target leverage of 2.75 times by the end of the year.

Combine this with the broader economic trends and all indicators show that our full-year revenue, adjusted operating EBITDA and free cash flow are on track to meet or exceed the upper end of the guidance ranges we provided in February. Revenue growth is expected to be 12.5% to 13%, with combined internal revenue growth from yield and volume in the collection and disposal business of four and a half percent or greater. For adjusted operating EBITDA, we now expect to generate between $4.875 billion and $4.975 billion, a $100 million increase at the midpoint from our prior guidance.

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This quarter, we grew sales by a very healthy 16% and we increased earnings per share by 4.7%. If you exclude the impact of amortization, then our earnings per share was up even more significantly at 9.1%. This quarter, we returned more than $30 million to our shareholders in the form of dividends and buybacks. And we're still in a net cash position of more than $90 million. In our WPS business, sales were down by 7.8%. In our Identification Solutions business, we continue to post excellent results with sales growth of 25.4% and segment profit growth of 21.2%. And if you exclude the impact of amortization expense, segment profit would have been up a robust 26.4%. Even with these inflationary pressures, our gross profit margin was still an enviable 48.2%, which was right in line with the 48.2% experience in the fourth quarter of last year. But our cost increases have neither been large enough nor fast enough to fully keep up with rising costs, resulting in our gross margins being down around 70 basis points and year-over-year basis. We believe that these gross margin challenges are temporary and that in the near term we'll return to our historical gross margin levels of close to 50%. I'll start the financial review on slide number 3. Sales in the first quarter were $321.5 million, which was an increase of 16% when compared to the same quarter last year, and GAAP pre-tax earnings increased 5.8% to $44.7 million. If you exclude amortization expense from all periods presented, and our pre-tax earnings would have increased by 11.3% to $48.5 million. GAAP diluted earnings per share was $0.67, which was an increase of 4.7% over last year's first quarter. And if you exclude amortization expense, then earnings per share would have increased by 9.1% to $0.72 this quarter compared to $0.66 in the first quarter of last year. Our 16% sales increase consisted of organic sales growth of 7%, and increase from acquisitions of 8.3% and an increase from foreign currency translation of 0.7%. Organic sales growth in our ID Solutions Business was a robust 13.2% in Q1. As a result of these tough comparables, we saw a decline in WPS organic sales of 8.6% this quarter. If we compare our sales levels to the pre-pandemic period, which for us would be the first quarter of fiscal 2020, you'll see that our total sales are up a full 12% over pre-pandemic levels. And if you compare sales by division, you'll see that Identification Solutions is 15.6% above pre-pandemic levels and workplace safety is 1.2% above pre-pandemic levels. Turning to slide number 5, you'll see our gross profit margin trending. Our gross profit margin was 48.2% this quarter, compared to 48.9% in the first quarter of last year. As Michael mentioned, we're seeing inflationary pressures, and we're finding it difficult to fill open manufacturing roles. On slide number 6, you'll find our SG&A expense trending. SG&A was $96.7 million this quarter, compared to $83 million in the first quarter of last year. Amortization expense was $1.4 million in the first quarter of last year and was $3.8 million in the first quarter of this year. And as a percent of sales, SG&A was 30.1% this quarter, compared to 30% in the first quarter of last year so effectively, right in line with the prior year. However, if you exclude amortization expense from both the current year and the prior year then SG&A would have declined from 29.5% of sales last year to 28.9% of sales this year. Slide number 7 is the trending of our investments in research and development. This quarter, we invested $13.9 million in R&D. Slide number 8 illustrates our pre-tax income trends. Pretax earnings increased 5.8% on a GAAP basis and increased 11.3% if you exclude amortization expense from all periods. Slide number 9 illustrates our after-tax income and earnings per share trends. As I mentioned, our GAAP earnings per share was $0.67 this quarter compared to $0.64 in last year's first quarter, an increase of 4.7%. And if you exclude the after-tax impact of amortization, our earnings per share would have increased by an even stronger 9.1%. On slide number 10, you'll find a summary of our cash generation. We generated $27.5 million of cash flow from operating activities and free cash flow was $16.2 million this quarter. This quarter, we purchased two previously leased manufacturing facilities for a total cash outlay of $7.6 million. Over the last six months, we've increased our inventories by approximately $30 million. Even after returning more than $30 million to our shareholders in the form of dividends and buybacks, having heightened capex and intentionally increasing inventory levels, on October 31, we were still in a net cash position of more than $90 million. We've now increased our annual dividend for 36 consecutive years, which puts us in a pretty elite group of companies. Slide number 12 summarizes our guidance for the year ending July 31, 2022. Our full-year diluted earnings per share guidance, excluding amortization remains unchanged at a range of $3.12 to $3.32 per share. On a GAAP basis, our full-year diluted earnings per share guidance also remains unchanged at a range of $2.90 to $3.10 per share. Included in our GAAP earnings per share guidance is an increase in after-tax amortization expense of approximately $6 million. After-tax amortization increases from about $5.5 million in fiscal 2021 to about $11.5 million in fiscal 2022, which is a delta of about $0.12 per share. We also expect total sales growth to exceed 12% for the full year ending July 31, 2022, which is inclusive of both organic sales growth as well as sales growth from the recently completed acquisitions. We did just buy back $18.9 million worth of shares last quarter, and we'll continue to look for acquisitions where the price is right and the strategic fit is clear. Slide number 13 outlines the first quarter financial results for our Identification Solutions business. IDS sales increased 25.4% to $248.6 million. This very robust sales growth is comprised of organic growth of 13.2%, acquisition growth of 11.6% and an increase of 0.6% from foreign currency translation. Segment profit as a percentage of sales was 19.6%, which was down from 20.3% last year. However, if you exclude the sizable increase in amortization that Aaron mentioned, then segment profit as a percentage of sales would have increased from 21% of sales to 21.1% of sales, so an increase of about 10 basis points compared to the first quarter of last year. Regionally, organic sales in Asia were strong this quarter with growth of over 15% compared to the first quarter of last year. This is the fourth consecutive quarter of Asian organic sales growth in excess of 10%. Organic sales were also up more than 15% in EMEA despite several lockdowns continuing throughout most of the first quarter. We also had organic sales growth of nearly 12% in the Americas. We saw growth in all product lines and geographies throughout the quarter and we were especially pleased with the bounce back in our healthcare product line where organic sales growth increased approximately 11%. Moving to slide number 14, you'll find a summary of Workplace Safety financial performance. WPS sales declined 7.8%, which consisted of an organic sales decline of 8.6% and an increase from foreign currency of 0.8%. Our WPS sales were $72.9 million this quarter, which were above the pre-pandemic sales experienced in the first quarter of fiscal 2020. During the pandemic, our Australian business grew organic sales over 10% in last year's first quarter. All in, these incremental investments were approximately $2.5 million. In addition to these investments, our WPS business also experienced gross margin compression as a result of raw materials, freight and wage inflation as I mentioned. WPS' segment profit was $2.3 million, compared to $8 million in last year's first quarter. We're in a net cash position even after making three acquisitions toward the end of last year and returning more than $30 million to our shareholders in the form of buybacks and dividends this quarter.

Sales in the first quarter were $321.5 million, which was an increase of 16% when compared to the same quarter last year, and GAAP pre-tax earnings increased 5.8% to $44.7 million. GAAP diluted earnings per share was $0.67, which was an increase of 4.7% over last year's first quarter. As Michael mentioned, we're seeing inflationary pressures, and we're finding it difficult to fill open manufacturing roles. As I mentioned, our GAAP earnings per share was $0.67 this quarter compared to $0.64 in last year's first quarter, an increase of 4.7%. Our full-year diluted earnings per share guidance, excluding amortization remains unchanged at a range of $3.12 to $3.32 per share. On a GAAP basis, our full-year diluted earnings per share guidance also remains unchanged at a range of $2.90 to $3.10 per share. In addition to these investments, our WPS business also experienced gross margin compression as a result of raw materials, freight and wage inflation as I mentioned.

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We begin 2021 with momentum with our backlog value up over 60% year-over-year and the potential to generate as much as $6 billion in housing revenues this year as we focus on building our scale. As for the details of the quarter, we generated total revenues of $1.2 billion, and diluted earnings per share of $1.12. Having said this, we earn more on a per unit basis with a housing gross margin of 21%, excluding inventory related charges, up 110 basis points year-over-year. The strength of our gross margin was the key factor driving improvement in your operating income per unit to over $44,000, a sequential increase of $7,000 per home. In the fourth quarter, we increased our land investments by over 60% year-over-year to $650 million. With disciplined execution, we grew our lot position by 7,000 lots since the third quarter to end the year with over 67,000 lots owned and controlled. Our lot position is well-diversified both across and within our regions, with our own lots representing 3.8 years of supplies and a higher level of option lots now comprising 40% of our total. Charlotte is a top 10 homebuilding market and we hired an industry veteran with deep roots and an extensive network to lead this effort, which has allowed us to move quickly on three land deals. Our top priority is to expand our community count and we successfully opened 38 new communities in the fourth quarter, including 4 communities that opened ahead of schedule. Looking beyond 2021, we are well-positioned with the lots we own and control to sustain its growth sequentially throughout 2022 and we are committed to growing our community count a minimum of 10% next year; a target that we believe is realistic, given our balance sheet, cash-flow, level of profitability and the infrastructure already in place. Our monthly absorption pace per community accelerated to 5.6 net orders during the fourth quarter representing a year-over-year increase of 51%. We achieved this higher pace, even as we increased prices in over 90% of our communities, balancing pace and price in each community to optimize our assets and returns. Today, we continue to offer these smaller square footage plans, with nearly 60% of our communities offering plans below 1,500 square feet. Moving just a little off the footage plans, above 75% of our community offer plans that are below 1,600 square feet. Floor plans in this 1,500 to 1,600 foot range are well suited for millennials. The existing single-family home inventory has been, and continues to decline, now sitting at just 2.3 months supply and below that level in many of our markets, particularly at our price points. We believe this last point is very favorable for us given our experience in serving first time buyers, who accounted for 61% of our delivery in the fourth quarter, an increase of eight percentage points year-over-year. At the time of our last earnings call in September, our net orders were on 32% for the first three weeks of our fourth quarter. Demand remained strong throughout the quarter, resulting in year-over-year net order growth of 42% to nearly 4,000 homes. Millennial buyers continue to lead our buyer cohorts, representing 57% of our net orders, increasing six percentage points year-over-year. In addition, buyers continue to demonstrate a preference for Built-to-Order homes, which represented over 90% of our net orders, compared to just under, 70% in the prior-year period. Net order growth in the fourth quarter drove a 50% year-over-year increase in our net order value, which in turn fueled the expansion of our backlog value to $3 billion, an increase of 63% year-over year on roughly 7,800 units. We accelerate our pace and home starts in the fourth quarter by 40% year-over-year and that's continued to do so in the first quarter, as we line our starts to net orders. Given our strong net order trends throughout the fourth quarter, our backlog continues to be more heavily weighted to the early stages of construction, either un-started or a foundation with those two buckets comprising roughly 55% of our backlog, as compared to about 44%, in the year-ago quarter. As the net orders in the first quarter of 2021, they are up 44% for the first six weeks over the comparable prior year period. The growth in the JV's capture rate to 81% in the fourth quarter produced a 20% year-over-year increase in its income, despite the lower deliveries in the quarter, reflecting a more profitable business. The JV is steadily increasing its contribution to our overall performance and for the full year, generated year-over-year income growth of over 70% to $21 million. In closing, we finished 2020 strong and we are poised for a tremendous 2021, and the resumption of our growth into a larger more profitable company. We will expand our scale with our considerable backlog, together with continued robust market conditions contributing to the potential for as much as $6 billion in revenues in 2021. As a result, we're expecting our operating margin to hit double digits, thereby driving our projected return on equity to above 17% compared to roughly 12% in 2020. During the fourth quarter, we continued to produce sequential improvement in our key profitability and credit metrics and generated outstanding growth in our net orders, which contributed to a significant year-over-year increase in backlog value to its highest level in 15 years. In the fourth quarter, our housing revenues of $1.19 billion were down 23% from a year ago, reflecting a decrease in homes delivered that was partially offset by a 5% increase in the overall average selling price of those homes. Looking ahead to the 2021 first quarter, we expect to generate housing revenues in a range of $1.14 billion to $1.22 billion. For the 2021 full year, we are forecasting housing revenues in a range of $5.5 billion to $6 billion, up $450 million at the midpoint as compared to our prior guidance. Having ended our 2020 fiscal year with a backlog value of approximately $3 billion, we believe we are well-positioned to achieve this topline performance. In the fourth quarter, our overall average selling price of homes delivered increased to approximately $414,000. For the 2021 first quarter, we are projecting an average selling price of approximately $390,000 due to a regional mix shift of homes delivered. We believe our overall average selling price for the 2021 full year will be in the range of $400,000 to $410,000. Homebuilding operating income for the fourth quarter totaled $115.7 million compared to $162.5 million for the year earlier quarter. The current quarter included inventory related charges of $11.7 million versus $4.1 million a year ago. Our homebuilding operating income margin was 9.7% down 80 basis points from the 2019 fourth quarter. Excluding inventory related charges, our operating margin was 10.7% for both periods as the gross margin improvement in the current year quarter was entirely offset by an increase in our SG&A expense ratio that reflected reduced operating leverage from lower housing revenues. For the 2021 first quarter, we anticipate our homebuilding operating income margin, excluding the impact of any inventory related charges will be in the range of 9% to 9.3%. For the 2021 full year, we expect this metric to be in the range of 10.4% to 11%, which represents a year-over-year improvement of 230 basis points at the midpoint. Our 2020 fourth quarter housing gross profit margin improved 40 basis points to 20%. Excluding inventory related charges, our gross margin for the quarter increased by 110 basis points to 21% from 19.9% for the prior year quarter. Assuming no inventory related charges, we are forecasting a housing gross profit margin for the 2021 first quarter in a range of 20% to 20.3%, up more than 200 basis points as compared to the prior year period. We expect our 2021 full year gross margin, excluding inventory related charges to be in the range of 20.5% to 21.1% with margins of 20% or above in each quarter. Our selling, general and administrative expense ratio of 10.3% for the fourth quarter was up 120 basis points from a year ago, mainly due to the unfavorable impact of decreased operating leverage from lower housing revenues, partly offset by the effects of our ongoing focus on reducing overhead costs. We are forecasting our 2021 first quarter SG&A expense ratio to be in the range of 10.8% to 11.2% as we continue to prioritize containing overhead costs and expect to realize favorable leverage impacts from an anticipated year-over-year increase in housing revenues. We expect that our 2021 full year SG&A expense ratio will be approximately 9.9% to 10.3%. Our income tax expense of $20 million for the fourth quarter, which was favorably impacted by $8.6 million of federal energy tax credits represented an effective tax rate of approximately 16%. We currently expect our effective tax rate for both the 2021 first quarter and full year to be approximately 24%. Overall, we reported net income of $106.1 million or $1.12 per diluted share for the fourth quarter compared to $123.2 million or $1.31 per diluted share for the prior year period. For the 2020 full year, our net income of $296.2 million or $3.13 per diluted share rose 10% compared to 2019. Turning now to community count, our fourth quarter average was 234 -- of 234 was down, 8%, from 253 in the corresponding 2019 quarter, primarily due to accelerated close-outs in the second half of the year, driven by strong net order activity in both the third and fourth quarters. We ended the year with 236 communities, down 6% from a year ago with approximately half of this decline, due to a reduction in the number of communities that were previously classified as land held for future development. As Jeff mentioned, our goal is to drive an increase in community count of at least 10% in 2022 to support further market share gains and growth in housing revenues. During the fourth quarter, to drive future community openings, we invested $651 million in land and land development with $376 million or 58% of the total representing land acquisitions. In 2020, we invested nearly $1.7 billion in land acquisition development and generated $311 million of net operating cash flow. At year-end, total liquidity was approximately $1.5 billion including $788 million of available capacity under our unsecured revolving credit facility. Our debt-to-capital ratio was 39.6% at year end and we expect further improvement in 2021 given our anticipated earnings growth. We expect to generate significant cash flow in the current year to fund levels of land investment sufficient to support our targeted 2021 and 2022 growth in community count and housing revenues. Our year-end stockholders' equity was $2.67 billion as compared to $2.38 billion at the end of the prior year, and our book value per share increased by nearly 10% to $29.09. In summary, using the midpoints of our guidance ranges, we expect a 39% year-over-year increase in housing revenues and significant expansion of our operating margin to 10.7%, driven by improvements in both gross margin and our SG&A expense ratio. These anticipated scale and margin improvements, should drive our return on equity to above 17%, up over 500 basis points year-over-year.

As for the details of the quarter, we generated total revenues of $1.2 billion, and diluted earnings per share of $1.12. Net order growth in the fourth quarter drove a 50% year-over-year increase in our net order value, which in turn fueled the expansion of our backlog value to $3 billion, an increase of 63% year-over year on roughly 7,800 units. In closing, we finished 2020 strong and we are poised for a tremendous 2021, and the resumption of our growth into a larger more profitable company. In the fourth quarter, our housing revenues of $1.19 billion were down 23% from a year ago, reflecting a decrease in homes delivered that was partially offset by a 5% increase in the overall average selling price of those homes. Overall, we reported net income of $106.1 million or $1.12 per diluted share for the fourth quarter compared to $123.2 million or $1.31 per diluted share for the prior year period. We expect to generate significant cash flow in the current year to fund levels of land investment sufficient to support our targeted 2021 and 2022 growth in community count and housing revenues.

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Over the last 18 months, we've made significant changes to our operating model, moving to 20 focused operating units as well as making major enhancements to our culture and incentives. Now let's look at our third quarter results, starting with our market share performance. About 60% of our businesses held or won share in the last calendar quarter. While that's down slightly from last quarter due to some supply constraints and where certain businesses are in their product cycles, it is a significant improvement from where Medtronic was just 18 months ago. In cardiac rhythm management, one of our largest businesses, we continue to build on our category leadership, adding over 1.5 points of share. And we recently launched our Micra AV leadless pacemaker in Japan and Micra VR in China, resulting in international Micra growth of over 50% in Q3. In Respiratory Interventions, despite the year-over-year headwind as ventilator sales continue to return to pre-pandemic levels, we estimate we gained about 400 basis points of share. We won share in premium ventilation with our Puritan Bennett 980, in video laryngoscopes with our McGRATH MAC, and in core airways with our Taperguard endotracheal tubes. And in Brain Modulation, while we continue to face headwinds from replacement devices, our business grew 15% on strong adoption of our Percept Neurostimulator with BrainSense technology, paired with our SenSight directional lead. Medtronic is the only company with sensing capabilities on our deep brain stimulators, which drove about 10 points of new implant share and over a point of overall DBS share in Q3, and we expect this momentum to continue. Our flow diversion launches in Japan, CE Mark countries, and the United States, coupled with broader portfolio growth in China, propelled neurovascular to 12% growth this quarter. In our structural heart and aortic business, we lost share in Aortic due to supply constraints and continued pressure from our Valiant Navion recall and competitive launches. In our surgical innovations business, we lost a little over 0.5 points of share overall due to acute resin shortage that impacted our flagship LigaSure vessel sealing portfolio. And in Europe, we continue to see success and strong adoption of our 780G with the Guardian 4 sensor. We've launched over 200 products in the U.S., Western Europe, Japan, and China in the last 12 months, and these are having an impact across our businesses. We believe Aurora will accelerate adoption of EV ICDs and make this a $1 billion market by 2030. In cardiac ablation solutions, we're advancing a number of technologies to become a leader in the $8 billion EP ablation market. We'll then submit the data to the FDA as ON MED is the final piece of our submission to seek approval for Symplicity. In diabetes, our MiniMed 780G insulin pump, combined with our Guardian 4 sensor, continue to be under active review with the FDA, with approval subject to our warning letter. Simplera is fully disposable, easy to apply and half the size of Guardian 4. We believe that DPN market opportunity will reach $300 million by FY '26, and with an annual TAM of up to $1.8 billion, making DPN for SCS one of the biggest market opportunities in med tech. With its designed best-in-class battery, constant current, and full-body MRI compatibility at both 1.5 and 3 Tesla, we expect this device will extend our category leadership in sacral neuromodulation. Our third quarter organic revenue increased 2%. While we were tracking to our quarterly guidance in early January, the impacts from this latest wave of COVID affected our revenue in the last month of the quarter. Despite the challenging revenue, we controlled expenses and delivered adjusted earnings per share in line with our guidance and $0.01 ahead of consensus. From a geographic perspective, our U.S. revenue was flat, and non-U.S. developed markets grew 1%, given the impacts of omicron. Our emerging markets were relatively stronger, growing 7%, with strength in South Asia, Latin America and the Middle East, and Africa. Our year-to-date free cash flow was $4.3 billion, up 23% from last year, and we continue to target a full year conversion of 80% or greater. Since the beginning of last fiscal year, we've announced eight acquisitions totaling over $3.2 billion in total consideration, including last month's acquisition of Affera in our cardiac ablation business. We have a commitment to return more than 50% of our free cash flow to our shareholders, primarily through our attractive and growing dividend. And fiscal year to date, we paid over $2.5 billion in dividends to our shareholders. Fiscal year to date, we've repurchased over $1.1 billion of our stock. Assuming that holds, for the fourth quarter, we're comfortable with current Street consensus for our organic revenue growth of approximately 5.5%. At recent foreign exchange rates, currency would be a headwind on fourth quarter revenue of approximately $185 million. By segment, we would model cardiovascular at 7% to 8% growth, neuroscience at 2.5% to 3.5% growth, medical surgical at 7.5% to 8.5% growth, and diabetes down 6% to 7%, all on an organic basis. On the bottom line, we expect fourth quarter non-GAAP diluted earnings per share in the range of $1.56 to $1.58, in line with current consensus. While colorectal is one of the most preventable cancers, low screening rates make it one of the deadliest, with mortality rates 40% higher for the black population in the United States.

Now let's look at our third quarter results, starting with our market share performance. In our structural heart and aortic business, we lost share in Aortic due to supply constraints and continued pressure from our Valiant Navion recall and competitive launches. We'll then submit the data to the FDA as ON MED is the final piece of our submission to seek approval for Symplicity. Our third quarter organic revenue increased 2%. While we were tracking to our quarterly guidance in early January, the impacts from this latest wave of COVID affected our revenue in the last month of the quarter. From a geographic perspective, our U.S. revenue was flat, and non-U.S. developed markets grew 1%, given the impacts of omicron. Assuming that holds, for the fourth quarter, we're comfortable with current Street consensus for our organic revenue growth of approximately 5.5%. On the bottom line, we expect fourth quarter non-GAAP diluted earnings per share in the range of $1.56 to $1.58, in line with current consensus.

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The rig count fell to historic lows, and RPC's quarterly revenues fell to their lowest level since 2004. For the second quarter of 2020, revenues decreased to $89.3 million compared to $358.5 million in the prior year. Adjusted operating loss for the second quarter was $35.9 million compared to an operating income of $8.4 million in the second quarter of the prior year. Adjusted EBITDA for the second quarter was negative $17.8 million compared to EBITDA of $51.2 million in the same period of the prior year. For the second quarter of 2020, RPC reported a $0.10 adjusted loss per share compared to $0.03 diluted earnings per share in the prior year. Cost of revenues during the second quarter was $80 million or 89.6% of revenues compared to $265.1 million or 73.9% of revenues during the second quarter of 2019. Selling, general and administrative expenses decreased to $28.8 million in the second quarter compared to $43.3 million in the second quarter of the prior year. Depreciation and amortization decreased to $19.6 million in the second quarter of 2020 compared to $42.9 million in the second quarter of prior year. Our Technical Services segment revenues for the quarter decreased 76.2% compared to the same quarter in the prior year. Operating loss in the second quarter was $34.1 million compared to a $6.9 million operating profit in the second quarter of the prior year. Our Sports Services segment revenues for the quarter decreased 57.2% compared to the same quarter in the prior year. Operating loss in the second quarter of 2020 was $1.9 million compared to a $4 million operating profit in the second quarter of the prior year. On a sequential basis, RPC's second quarter revenues decreased 63.4% to $89.3 million from $243.8 million in the prior quarter. Cost of revenues during the second quarter of 2020 decreased by $101.9 million or 56%, due to lower materials and supplies and fuel expenses caused by decreased activity and lower employment costs resulting primarily from headcount reductions. As a percentage of revenues, cost of revenues increased significantly from 74.6% in the first quarter to 89.6% in the second quarter. Selling, general and administrative expenses during the second quarter decreased 21.2% to $28.8 million from $36.5 million in the prior quarter. RPC incurred an adjusted operating loss of $35.9 million during the second quarter compared to an adjusted operating loss of $13.2 million in the prior quarter. RPC's adjusted EBITDA was negative $17.8 million in the second quarter compared to adjusted EBITDA of $25.8 million in the prior quarter. Despite the rapid decline in activity, our decremental EBITDA margin was only 28% due to our cost reduction efforts. Technical Services segment revenues decreased $147.2 million or 64.6% to $80.5 million in the second quarter. RPC's Technical Services segment incurred a $34.1 million operating loss compared to an operating loss of $12.2 million in the prior quarter. Our Support Services segment revenues decreased by $7.3 million or 45.5% to $8.8 million in the second quarter. Operating loss was $1.8 million compared to $1.5 million operating profit in the prior quarter. At the end of second quarter of 2020, RPC's pressure pumping capacity remained at approximately 728,000 hydraulic horsepower. Second quarter 2020 capital expenditures were $14 million, and we currently estimate full year capital expenditures to be $50 million to $60 million. In fact, our $145 million in cash at the end of the second quarter was the highest in decades.

For the second quarter of 2020, RPC reported a $0.10 adjusted loss per share compared to $0.03 diluted earnings per share in the prior year. On a sequential basis, RPC's second quarter revenues decreased 63.4% to $89.3 million from $243.8 million in the prior quarter.

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Third quarter reported and adjusted earnings per share were $0.38 and $0.29, respectively. The combination of supply chain, logistics and labor availability shifted approximately $60 million of expected revenue out of the quarter. Our third quarter bookings of $912 million represented a 13% increase over prior year, continuing this year's trend of strong year-over-year quarterly growth. Aftermarket orders of $495 million increased 16% and are at pre-COVID levels. Original equipment bookings increased 9% year-over-year to $417 million. Our project or original equipment business continues to lag in the recovery with less than a handful of larger projects awarded in the quarter with only two project orders in the $10 million to $20 million range. Each of our core end markets delivered year-over-year growth in the third quarter, with oil and gas up 33%, while chemical and power were both up 17%. Water bookings were also particularly strong, up 46% and included a $10 million desalination award. Some of these markets were up over 30%. We do expect our overall bookings to recover more toward our first half 2021 quarterly run rate of approximately $950 million in the fourth quarter. We believe full year bookings will grow year-over-year in the 10% range. Approximately $60 million of revenue and $20 million in gross profit that we had previously expected to recognize in the period was deferred from the third quarter due to supply chain issues, global logistics and labor availability. And we are seeing the benefits from the supplier consolidation and the quality work that was completed in the Flowserve 2.0 transformation. Our reported earnings per share of $0.38 exceeded our adjusted earnings per share of $0.29 due to a $16.6 million discrete tax adjustment from the reversal of certain deferred tax liabilities. Partially offsetting the $0.13 gain on taxes, our adjusted earnings per share also excludes $0.04 of items, including realignment expenses, below-the-line FX impact and certain costs incurred in our debt refinancing. In addition to the revolver, we also obtained a $300 million fully drawn term loan, which included participation from a minority-owned depository institution in addition to most of the syndicate banks in the revolver. In September, we also accessed the debt capital markets and issued $500 million in new 2.8% 10-year senior notes. In October, we used all the proceeds from the term loan and senior notes in addition to some excess cash, together totaling $842 million, to fully redeem our senior notes with maturities in 2022 and 2023. As Scott mentioned, the third quarter was impacted by supply chain, logistics and labor headwinds that delayed roughly $60 million of expected revenue out of the quarter. Revenue decreased 6.3% to $866 million, largely due to the deferred revenue I just mentioned. All in, we had an 11% decline in original equipment, or OE, sales, driven by FPD's 20% decrease, but partially offset by FCD's 2% increase. Beyond the challenges in the third quarter, FPD continues to be impacted by its 2021 beginning OE backlog, which was down roughly 25% versus the start of 2020. Aftermarket sales remained relatively resilient in total, down roughly 1%, where FCD's 12% increase was offset by FPD's 3% decline. Our third quarter adjusted gross margin decreased 190 basis points to 29.6%, primarily due to the OE sales decline and the related under-absorption particularly at our engineer-to-order sites in both segments, the other previously mentioned disruptive impacts as well as higher logistics costs, which increased 25% year-over-year. These headwinds were partially offset by a 3% mix shift toward higher-margin aftermarket sales. On a reported basis, the gross margin decreased 160 basis points to 29.3% was driven by the factors previously mentioned and were partially mitigated by the $3 million decrease in realignment charges versus prior year. Third quarter adjusted SG&A increased $7.4 million to $200 million versus prior year, primarily due to a $3 million increase in expense related to our incurred but not reported potential reserves, increased R&D spending and the return from travel costs which were a temporary benefit in 2020 as well as headwinds from foreign exchange. Reported SG&A was flat to the prior period, and these increases were offset by a $7 million decrease in adjusted items and disciplined cost control offset the return of some of last year's temporary cost benefits. Third quarter adjusted operating margins of 7% decreased 390 basis points year-over-year as did FPD's adjusted operating margin, primarily due to increased under-absorption related to a 20% OE revenue decline. FPD's adjusted operating margin decreased 170 basis points year-over-year to 10.5% due to sales mix and slightly higher SG&A as a percent of sales. And to that point, had Flowserve not experienced the $60 million revenue deferral, our adjusted operating margins would have been flat to modestly up on a sequential basis. Third quarter reported operating margin decreased 280 basis points year-over-year to 6.6%, where the previously discussed challenges more than offset the $10 million reduction of adjusted items. Our third quarter adjusted tax rate of 15.2% was driven by our income mix globally and favorable resolution of certain foreign audits in the quarter. The full year adjusted tax rate is expected to normalize in the 20% range. Our third quarter cash balance of $1.5 billion reflected the debt refinancing discussed earlier as well as solid cash flow performance in the quarter. Our net debt position of $652 million at the end of the third quarter has declined by over $300 million in the last three years. On a year-to-date basis through the third quarter, operating cash flow of $151 million is up nearly $37 million versus the prior year, while free cash flow of $117 million has increased 73% or $49 million over the prior year. In the third quarter, we delivered $78 million or approximately 67% of our year-to-date free cash flow total. This third quarter performance is up versus the comparable period in 2020 despite voluntary funding of a $20 million pension contribution during the quarter compared to no funding a year ago. And with our typically seasonally strong fourth quarter ahead, we are confident in our ability to stay on pace to deliver a free cash flow conversion of over 100% of our adjusted net income once again in 2021. Working capital was a cash source of $56 million in the third quarter and a $47 million increase versus last year. As a percentage of sales, primary working capital saw a modest 40 basis point sequential increase to 29.8% due primarily to the market disruptions in the quarter. Since year-end 2020, backlog has increased $115 million, while inventory and contract assets and liabilities have declined $16 million. Major uses in the third quarter include dividends and capex of $26 million and $11 million, respectively. As I just mentioned, we also contributed $20 million to our U.S. cash balance pension plan to keep it largely fully funded. In the fourth quarter, major uses expected include the completed retirement of the 2022 and 2023 senior notes, the $26 million October dividend and a higher level of capex spend. Turning now to our outlook for the remainder of 2021. We now expect a full year revenue decline of 3.5% to 4.5% and reported an adjusted full year earnings per share of $1.05 to $1.10 and $1.40 to $1.45, respectively. In terms of other guidance metrics, our net interest expense remains unchanged at $55 million to $60 million and we modestly lowered our full year adjusted tax rate guidance to approximately 20%. From a bookings standpoint, we now expect full year 2021 bookings to increase in the 10% range year-over-year. The major categories of our full year cash usages include the October debt retirement, dividends and share repurchases of roughly $120 million, capital expenditures in the $65 million range, the third quarter's pension contribution and the funding of our now modest realignment programs. We are still in the early innings of tapping into this growing market, and our third quarter bookings included over $25 million of energy transition work, including biodiesel conversions, solar power projects and energy efficiency upgrades. The facility will produce sustainable aviation fuel that when compared to fossil jet fuel has the potential to cut life cycle emissions from aviation by up to 80%. The project is expected to reduce CO2 emissions from diesel production by up to 600,000 tons per year. We are currently working with over 40 customers and have connected nearly 5,000 assets. As I indicated earlier, we expect fourth quarter bookings to be roughly $950 million, depending on the level of project activity. By achieving this level, our 2021 bookings would deliver a 10% year-over-year growth rate. Flowserve 2.0 has provided the visibility and business processes to address these issues, and our teams are currently working to resolve and mitigate the issues that arose in the third quarter. We believe in the company's long-term ability to achieve our original targets, including operating margins in the 15% to 17% range, ROIC of 15% to 20% and to continue free cash flow conversion in excess of 100%, which we've already demonstrated.

Third quarter reported and adjusted earnings per share were $0.38 and $0.29, respectively. Our reported earnings per share of $0.38 exceeded our adjusted earnings per share of $0.29 due to a $16.6 million discrete tax adjustment from the reversal of certain deferred tax liabilities. Turning now to our outlook for the remainder of 2021. We now expect a full year revenue decline of 3.5% to 4.5% and reported an adjusted full year earnings per share of $1.05 to $1.10 and $1.40 to $1.45, respectively.

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This was further enhanced by government employee retention assistance that contributed to our solid adjusted earnings per share of $1.31 a share. Our adjusted EBITDA margin was excellent at 19.4%, and our cash flow was strong at $24 million. Our parts and consumable revenue made up 66% of total revenue. On a sequential basis, parts revenue was up 6% to $103 million in the third quarter. Product mix improved operating leverage and solid execution led to a strong adjusted EBITDA margin of 27.5% for the third quarter, up 70 basis points from the same period last year. Although demand for aftermarket parts was solid and made up 69% of total revenue in the quarter, customer delays in capital project execution and the inability of our employees to engage face-to-face with customers and prospects due to the pandemic suppressed our bookings performance. Looking ahead to the fourth quarter, we expect Q4 to show improvement in terms of both capital project bookings and demand for parts and consumables. Revenue in this segment declined 16% to $62 million year-over-year and down 5% sequentially. Parts and consumables revenue, on the other hand, was solid and made up 68% of total revenue in the third quarter. Encouragingly, U.S. housing starts continue to show strength and were $1.4 million in September, up 11% compared to the same period last year, which benefits our customers producing OSB and dimensional lumber. Just last week, for example, we received a large order for a turnkey recycled stock preparation system from a containerboard producer in the U.S. with a value of approximately $11 million. Parts and consumables revenue in the third quarter made up 60% of total revenue, but still below historical run rates. Capital bookings in our material handling segment increased 34% sequentially, led by increased demand for our balers used in agricultural and waste processing applications. As a result, we will not be providing guidance for Q4. Our GAAP diluted earnings per share was $1.28 in the third quarter, down 9% compared to $1.41 in the third quarter of 2019. Our GAAP diluted earnings per share in the third quarter includes $0.03 of restructuring costs, $0.03 from a discrete tax benefit, $0.02 of acquired backlog amortization and $0.01 of acquisition costs. In addition, our third quarter results included pre-tax income of $2.7 million or $0.18 net of tax attributable to government employee retention assistance programs related to the pandemic. Consolidated gross margins were 44.2% in the third quarter of 2020, up 140 basis points compared to 42.8% in the third quarter of 2019. Approximately 110 basis points of this increase was due to the receipt of government assistance benefits related to the pandemic. The remaining 30 basis point improvement is principally due to better product mix related to a higher percentage of parts and consumables. Parts and consumables as a percentage of revenue increased to 66% in the third quarter of 2020 compared to 61% last year. SG&A expenses were $43.9 million or 28.4% of revenue in the third quarter of 2020 compared to $47.1 million or 27.1% of revenue in the third quarter of 2019. The $3.2 million decrease in SG&A expense was principally due to reduced selling and travel-related expenses and a $1 million benefit from government assistance programs. Adjusted EBITDA decreased to $30 million or 19.4% of revenue compared to $32.3 million or 18.6% of revenue in the third quarter of 2019. On a sequential basis, adjusted EBITDA increased 13% due to increased profitability in our Flow Control and Industrial Processing segments. Operating cash flows were $24.4 million in the third quarter 2020, which included a modest negative impact of $0.8 million from working capital compared to operating cash flows of $25.7 million in the third quarter of 2019. On a sequential basis, operating cash flows increased 11%. We repaid $25.5 million of debt, paid a $2.8 million dividend on our common stock and paid $1.8 million for capital expenditures. Free cash flow increased 7% sequentially to $22.6 million in the third quarter of 2020. Free cash flow decreased 4% compared to $23.6 million in the third quarter of 2019. In the third quarter of 2020, GAAP diluted earnings per share was $1.28, and our adjusted diluted earnings per share was $1.31. In comparison, the third quarter of 2019, our GAAP diluted earnings per share was $1.41, and our adjusted diluted earnings per share was $1.38, which included a $0.02 discrete tax benefit. As shown in the chart, the decrease of $0.07 and adjusted diluted earnings per share in the third quarter of 2020 compared to the third quarter of 2019 consists of the following: $0.55 due to lower revenue, $0.01 due to higher weighted average shares outstanding. These decreases were partially offset by $0.18 due to government assistance programs, $0.17 due to lower operating costs, $0.10 due to lower interest expense, $0.02 due to higher gross margin percentages and $0.02 from an acquisition. Collectively, included in all the categories I just mentioned, was a $0.01 favorable foreign currency translation effect in the third quarter of 2020 compared to the third quarter of last year due to the weakening of the U.S. dollar. Our cash conversion days, which we calculate by taking days in receivables plus days in inventory and subtracting days in accounts payable, was 140 at the end of the third quarter 2020 compared to 128 at the end of the second quarter of 2020 and 122 at the end of the third quarter of 2019. Working capital as a percentage of revenue was 15.6% in the third quarter of 2020 compared to 14.8% in the second quarter of 2020 and 14.6% in the third quarter of 2019. Our net debt, that is debt less cash, decreased $18 million or 8% to $204 million at the end of the third quarter of 2020 compared to $222 million at the end of the second quarter of 2020. We repaid $25.5 million of debt in the third quarter and have repaid $41.9 million in debt in the first nine months of 2020. During the quarter, we repaid our real estate loan, which had a remaining principal balance of $18.9 million by borrowing from our revolving credit facility. This effectively swapped debt with an annual interest rate of 4.45% under the real estate loan for U.S. revolver debt currently at 1.65%, which at current rates would reduce interest expense by over $500,000 on an annual basis. In addition, our leverage ratio calculated in accordance with our credit facility decreased to 1.88 at the end of the third quarter 2020 compared to 2.03 at the end of 2019. As a result of being below 2, the applicable margin on our revolver debt will decrease by 25 basis points, which at current debt levels, would reduce our interest expense by roughly $600,000 on an annual basis. Last quarter on our call, I gave a few directional comments indicating our revenue for the year could decrease roughly 11% to 14% compared to 2019. We recognized $0.5 million in the third quarter and $0.9 million on a year-to-date basis of restructuring costs related to the reduction of employees across our businesses. In aggregate, we expect these year-to-date restructuring activities will reduce our cost structure by approximately $4.1 million annually.

This was further enhanced by government employee retention assistance that contributed to our solid adjusted earnings per share of $1.31 a share. Looking ahead to the fourth quarter, we expect Q4 to show improvement in terms of both capital project bookings and demand for parts and consumables. Revenue in this segment declined 16% to $62 million year-over-year and down 5% sequentially. As a result, we will not be providing guidance for Q4. Our GAAP diluted earnings per share was $1.28 in the third quarter, down 9% compared to $1.41 in the third quarter of 2019. In the third quarter of 2020, GAAP diluted earnings per share was $1.28, and our adjusted diluted earnings per share was $1.31.

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Additionally, we generated $196 million in cash from operations for the year-to-date period, increased our company-owned store footprint with an acquisition, paid dividend, and ended the quarter with no borrowings outstanding on our credit line. Across the La-Z-Boy Furniture Galleries network, written same-store sales increased 34%, demonstrating the strength of our band and its appeal to consumers during uncertain times as well as the ability of our store teams across the network to provide a safe shopping experience for consumers. For the quarter, our backlog grew to record levels, but delivered sales declined 2% to $343 million. This was primarily the result of lower delivery unit volume as our ongoing efforts to significantly increase our production capacity to meet demand were offset by a temporary supply shortage of foam, which reduced sales by more than 2%. However, even with a decline in sales non-GAAP operating margin increased to 12.2%, reflecting tight cost controls with ongoing cost savings projects roughly offsetting investments in our start-up capacity ramping. Our current backlog for the La-Z-Boy branded business is 5 times what it was at the end of Q2 last year and we are quoting lead times of 16 weeks to 26 weeks depending on product category, which also include an estimate of the delivery time to the ultimate customer. And finally, we signed a lease on a 200,000 square-foot facility in Mexico just south of Yuma, Arizona, in San Luis Rio Colorado. Once all of these operations are producing at expected capacity likely later in our fiscal year, these moves will significantly increase our capabilities and capacity to support long-term growth. While it peaked during that time, today our [Indecipherable] e-comm business remains up some 300% versus pre-pandemic levels, concurrent with an increase in store traffic and sales. One of our objectives is to increase consideration among a new generation of consumers, 35 year old to 44 year old, which we view as our opportunity customers. At the same time we want to ensure our marketing campaign continues to resonate with our core 45 year old to 65 year old customers, who have more disposable income and tend to purchase furniture at higher price points. For the quarter, delivered sales increased 9% to $162 million and written same-store sales for the company-owned La-Z-Boy Furniture Galleries stores increased 36%, reflecting strong traffic trends and demand as well as stellar execution at store level, including an increase in conversion and average ticket driven by increased units and more design sales. For the period, delivered same-store sales for the core base of 150 stores increased 6.3%. Non-GAAP operating margin for the segment improved to 9.4% from 5.8% in last year's comparable quarter resulting from fixed-cost leverage on a higher delivered sales volume, lower spending on marketing due to the already strong demand environment and reduced expenses including travel related spending due to COVID. Also during the quarter, in September, we completed the acquisition of six Seattle-based La-Z-Boy Furniture Galleries stores, which had approximately $30 million in annual retail sales in calendar '19 and one distribution center. As the company is already recording a portion of the Seattle-based store volume in its Wholesale segment, the acquisition of these six stores is expected to contribute approximately $15 million of additional sales annually to the company on a consolidated basis, based on their calendar year 2019 sales. For the current second quarter, they added $3.5 million of sales to our retail volume segment. Sales for the second quarter, which are reported in corporate and other, increased 42% to $29 million. Written sales increased 25% in the quarter, reflecting the ongoing strong demand trends that we are seeing across all of our businesses. We believe Joybird is on a run rate to be a $90 million to $100 million business this fiscal year and expect it will be profitable for the full year. Last year's second quarter non-GAAP results exclude a pre-tax charge of $2.8 million, or $0.04 per diluted share related to the company's supply chain optimization initiative, which included the closure of our Redlands, California facility and relocation of our Newton, Mississippi leather cut-and-sew operation, a pre-tax purchase accounting charge of $1.6 million, or $0.03 per diluted share primarily related to Joybird and pre-tax income of $1.9 million, or $0.03 per diluted share related to the 2019 termination of the company's defined benefit pension plan. On a consolidated basis, fiscal '21 second quarter sales increased 2.7% to $459 million, reflecting record demand across all businesses. Consolidated non-GAAP operating income increased to $51 million versus $34 million in last year's quarter and consolidated non-GAAP operating margin increased to 11.1% versus 7.5%. Non-GAAP earnings per share was $0.82 per diluted share in the current year quarter versus $0.52 in last year's second quarter. Consolidated gross margin for the second quarter increased 240 basis points. SG&A as a percent of sales decreased 120 basis points, reflecting ongoing expense management, a decrease in advertising spend given strong order rates, reduced spending including travel and limited furniture market events due to COVID-19 related restrictions and a decline in salaries and wages related to our business realignment plan, including the 10% reduction in force announced in June. On a GAAP basis, our effective tax rate for fiscal '21 second quarter was 26% versus 26.6% in last year's second quarter. Our effective tax rate varies from the 21% federal statutory rate, primarily due to state taxes. For the full fiscal 2021, absent discrete items, we continue to estimate our effective tax rate on a GAAP basis, will be in the range of 25% to 26%. Turning to cash, year-to-date we generated $196 million in cash from operating activities, reflecting strong operating performance and $100 million increase in customer deposits from written orders for the company's retail segment and Joybird. We ended the period with $353 million in cash, nearly triple the $120 million in cash at the end of last year's second quarter. In addition, we held $27 million in investments to enhance returns on cash, compared with $33 million last year. During the quarter, we repaid the $50 million remaining balance on our credit line drawn back in March in conjunction with our COVID-19 action plan. Year-to-date, we have invested $15 million in capital, primarily related to machinery and equipment, upgrades to our Dayton manufacturing facility, which have now been completed, and investments in our retail stores. We expect capital expenditures to be in the range of $40 million to $45 million for fiscal 2021, although spending will be largely dependent on economic conditions, continued business recovery, and liquidity trends. Also during the quarter, given solid business trends and our strong cash position, we reinstated our 401(k) match for employees, as well as full salaries for remaining senior management, thereby reinstating all ongoing cash uses for operations that were temporarily suspended as part of our COVID-19 action plan. Yesterday, our Board declared a quarterly dividend of $0.14 per share, restoring the dividend to the full amount that was in place prior to the pandemic. In August, our Board of Directors elected to reinstate a regular quarterly dividend to shareholders of $0.07 per share, 50% of the quarterly dividend amount paid prior to the pandemic, paying $3.2 million to shareholders in the second quarter. We are pleased to now reinstate the full dividend of $0.14 per share, which will be paid in December. There are 4.5 million shares of purchase availability under our authorized program. First, a reminder that our expected non-GAAP adjustments will continue to include purchase accounting adjustments for acquisitions to date, which are estimated to be in the range of $0.09 to $0.11 per share for the full year. Considering all of these factors, accounting for our best current understanding of new foam availability issues and provided there are no significant shutdowns [Indecipherable] facilities related to the pandemic, we expect to deliver consolidated sales growth in the third quarter of flat to 4% above last year's record high third quarter. For the fourth quarter of fiscal '21, accounting for continued growth in production capacity, announced pricing, and the effects of last year's April pandemic related shutdown in the prior year's fourth quarter base period, we anticipate fiscal '21 fourth quarter sales growth of 40% to 45% versus last year's fourth quarter. On profit, we expect to continue to deliver historically high consolidated operating margins of approximately 9% to 11% for the balance of the year, providing the strong delivered sales volume is achieved.

Across the La-Z-Boy Furniture Galleries network, written same-store sales increased 34%, demonstrating the strength of our band and its appeal to consumers during uncertain times as well as the ability of our store teams across the network to provide a safe shopping experience for consumers. Once all of these operations are producing at expected capacity likely later in our fiscal year, these moves will significantly increase our capabilities and capacity to support long-term growth. Consolidated non-GAAP operating income increased to $51 million versus $34 million in last year's quarter and consolidated non-GAAP operating margin increased to 11.1% versus 7.5%. Non-GAAP earnings per share was $0.82 per diluted share in the current year quarter versus $0.52 in last year's second quarter. We expect capital expenditures to be in the range of $40 million to $45 million for fiscal 2021, although spending will be largely dependent on economic conditions, continued business recovery, and liquidity trends. Yesterday, our Board declared a quarterly dividend of $0.14 per share, restoring the dividend to the full amount that was in place prior to the pandemic. We are pleased to now reinstate the full dividend of $0.14 per share, which will be paid in December. Considering all of these factors, accounting for our best current understanding of new foam availability issues and provided there are no significant shutdowns [Indecipherable] facilities related to the pandemic, we expect to deliver consolidated sales growth in the third quarter of flat to 4% above last year's record high third quarter. For the fourth quarter of fiscal '21, accounting for continued growth in production capacity, announced pricing, and the effects of last year's April pandemic related shutdown in the prior year's fourth quarter base period, we anticipate fiscal '21 fourth quarter sales growth of 40% to 45% versus last year's fourth quarter.

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It jumped in Q2 to above 70. In Q2, our ARR growth accelerated to 127% year over year, and our revenue was up 121%. In Q2, we added the highest number of customers with ARR over $1 million compared to prior quarters. Our net retention rate was the highest it's ever been at 129%. These tiers enable us to bring our technology to a diverse set of buyer types and organizations, from medium-sized businesses all the way to the world's largest Fortune 500 enterprises. We also offer more than 10 modules that extend our platform value to more enterprise needs, from IoT discovery and security to cloud and container workload protection. A human-powered 1-10-60 benchmark is a legacy model. The chief information security officer of a Fortune 500 oil company captured it well saying, "SentinelOne's Storyline technology fundamentally changes EDR. Instead of people having to manually assemble data points, the technology assembles stories for us and even makes decisions in real time. This is a first, and we're already seeing demand for auto-deploy, which helped secure $1 million customer win in Q2, where we replaced legacy AV in one of our other major next-gen competitors. ARR of nearly $200 million and growing 127% is nothing short of astounding. Looking back, it took over three years to reach $100 million in ARR and just three quarters to nearly reach the next $100 million. Over 5,400 customers use our Singularity XDR platform. That's over 2,000 more than last year. When I think about how we're doing in the market, three things capture it most effectively: one, our 97% gross retention rate, which means our customers are happy and staying with us; two, we don't compete with our channel partners. We enable and embrace the channel; and three, we win more than 70% of POCs against the competition. We grew customers with ARR over $100,000 by 140% versus last year. In the past year, we've more than tripled the number of customers with ARR over $1 million. Our net retention rate was 129%, a new record for our company, fantastic execution from our sales and go-to-market teams. Just looking at our modules that cover IoT, cloud, and data, these grew more than six times year over year in Q2 and represent over 10% of the quarter's new business. Feedback has been positive, and we've issued over 2,000 accreditations to date. We achieved record revenue of $46 million, increasing 121%. Fueled by new customers and existing customer expansion, we delivered ARR of $198 million in the quarter, accelerating 127% year over year. Even after backing out the $10 million in acquired ARR from Scalyr, our organic growth was still well into the triple digits. Our non-GAAP gross margin in Q2 was 62% and expanded 900 basis points, a healthy pickup from last quarter. Our non-GAAP operating margin was negative 98%, an improvement over negative 101% in the year-ago quarter, even as we prepared for our IPO. In Q3, we expect revenue of $49 million to $50 million, reflecting growth of 102% at the midpoint. For the full year, we expect revenue of $188 million to $190 million or 103% growth at the midpoint. We expect Q3 non-GAAP gross margin to be between 58% to 59% and full-year gross margin of 58% to 60%. Most importantly, this remains well above 53% we reported in the first fiscal quarter this year and at or above 58% we delivered in fiscal 2021. Finally, for operating margins, we expect negative 96% to 99% in Q3. Our full-year operating margin guidance is for negative 99% to 104%. This is an improvement upon our fiscal year 2021 operating margin of negative 107%. We ended Q2 with total basic shares outstanding of 265 million. If the stock price remains at current levels, it will unlock up to approximately 40 million outstanding shares as of July 31, 2021, excluding vested equity awards.

Over 5,400 customers use our Singularity XDR platform. In Q3, we expect revenue of $49 million to $50 million, reflecting growth of 102% at the midpoint. For the full year, we expect revenue of $188 million to $190 million or 103% growth at the midpoint.

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We reported net income of $96 million or $1.07 per share compared to net income of $81 million or $0.91 per share in the first quarter of last year. In light of the strong quarter and positive outlook, we are reaffirming our 2021 earnings guidance of $2.55 to $2.70 per share, as well as our long-term earnings and dividend growth rates. In February, we restored over 750,000 customer outages, as nearly half of our customers were without power, many of whom experienced multiple outages over a more -- more than 2.5-week period. As of March 31, the cost of the February storm were $87 million, which Jim will discuss in detail. Today versus a year ago, customers are experiencing about 16% less planned outages. Average outage restoration times are about 7% faster and outage text notifications and digital payment options are making a difference in customer satisfaction. Overall, year-over-year, customer count increased more than 1%, and load growth was up 1.2% on a weather-adjusted basis and 2.3% after accounting for the harsh winter conditions. Residential usage was up 3% weather-adjusted, offsetting commercial declines of 5%. Industrial usage grew an impressive 8%, powered by the strength of the tech and digital sectors. Unemployment currently stands at 5.7% across our service territory. And this quarter, we join the Amazon Climate Pledge in keeping with our commitment to reduce carbon by 80% by 2030 over 2010 levels and our aspirational goal of net zero by 2040. This site aligns with the West Coast clean transit corridor initiative to electrify along the I-5 Corridor from the borders with British Columbia to Mexico. Approximately 40% of Oregonians have had at least one vaccine shot and as of mid-April, K-12 public schools reopened for in-person education, either hybrid or full time. As of March 2021, the unemployment rate in PGE's service territory was 5.7% compared to a 14% peak in April 2020. As Maria said, we reported $1.07 per share compared to $0.91 per share in the first quarter of 2020. First, we saw a $0.06 increase in total revenue. This is composed of $0.04 due to higher loads, which increased 1.2% year-over-year weather-adjusted and a $0.02 positive impact from weather. Additionally, there was $0.02 from the earnings power associated with the Wheatridge Renewable Energy Facility, which was placed in service in the fourth quarter of 2020. Next, a $0.03 decrease in net variable power costs driven by lower hydro wind production in 2021. A $0.07 decrease was associated with higher operating and maintenance administrative expense, which consists of $0.05 of favorable fixed plant O&M primarily due to lower maintenance expense at our generation facilities. This was offset by $0.12 of unfavorable administrative expenses, which included $0.03 of higher employee benefit expenses, $0.03 of higher legal and professional expense and $0.03 from the timing of bad debt recognition under our COVID deferral, and $0.03 from other items. A $0.05 increase was associated with lower depreciation and amortization expense, largely as a result of asset retirements, which were partially offset by capital addition. There was a $0.04 increase in other income, primarily attributed to market returns on the non-qualified benefit trust. It was an $0.11 increase from lower tax expense, primarily driven by a one-time recognition of a benefit from a local flow through tax. Regarding the deferral related to our storm costs, detailed on Slide 6 through March 31, 2021, we've incurred an estimated $87 million in incremental cost due to the February storm, of which $33 million were capital expenditures and $54 million were operating expenditures associated with our transmission and distribution system. We have a storm deferral mechanism that collects $4 million annually from retail customers to cover incremental expenses related to storm damages, and we defer any amount not utilized in the current year. In response to the February storms, we exhausted our storm collection balance for 2021 of $9 million to offset operating expenses. This brings the cumulative incurred cost from the February storm to be estimated at $45 million net as of March 31, 2021. Turning to Slide 7, which shows our updated capital forecast through 2025, we've increased our 2021 capital expenditures by $45 million this year, the majority of which relates to the capital expenditures from the recent storm restoration. Given our guidance today, we raised our O&M guidance by $20 million. $12 million of this increase is associated with the February storm response expense, which is ultimately offsetting revenue and the remaining $8 million is associated with additional initiatives to address wildfire risk, improve our outage restoration estimation and outage response processes. We expect to fund 2021 capital expenditures and long-term debt maturities with cash from operations during 2021, which is expected to range from $600 million to $650 million. We've also increased a long-term debt issuance later this year up to $350 million, which will refinance the short-term notes closed earlier this year and satisfy our 2022 requirements. Total liquidity of $780 million, all of which is available. Earlier this week, our Board approved a dividend increase of $0.09 per share on an annualized basis, which represents a 5.5% increase. This increase is consistent with our long-term dividend growth guidance of 5% to 7%, while observing a dividend payout ratio of 60% to 70%. We are on track to achieve our guided range and finished within the long-term growth guidance of 46% from the 2019 base year.

We reported net income of $96 million or $1.07 per share compared to net income of $81 million or $0.91 per share in the first quarter of last year. In light of the strong quarter and positive outlook, we are reaffirming our 2021 earnings guidance of $2.55 to $2.70 per share, as well as our long-term earnings and dividend growth rates. As Maria said, we reported $1.07 per share compared to $0.91 per share in the first quarter of 2020.

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For the total company, Q2 sales increased 27%, with growth in every reportable segment. On an organic basis, Q2 sales grew 26%. In our Health and Wellness segment, Q2 sales were up 42%, reflecting double digits increases in two of three businesses. Quarterly sales were up 20%, with growth in all three businesses for a third consecutive quarter. In our Lifestyle segment, Q2 sales were up 9%, with double-digit growth in two of three businesses. Q2 sales grew 23%, driven by double-digit shipment growth in all major regions. Organic sales grew 18%. Second quarter sales were up 27%, driven by 23 points of organic volume growth, three points of favorable price/mix and one point of net benefit from acquiring majority control of our Saudi joint venture, partially offset by FX headwinds. On an organic basis, sales grew 26%. Gross margin for the quarter increased 130 basis points to 45.4% compared to 44.1% in the year ago quarter. Second quarter gross margin included the benefit of strong volume growth as well as 160 basis points of cost savings and 140 basis points of favorable price/mix. These factors were partially offset by 420 basis points of higher manufacturing and logistics costs, which, similar to last quarter, included temporary COVID-19 spending. Second quarter gross margin results also reflect about 50 basis points of negative impact from higher commodity costs, primarily from resin. Selling and administrative expenses as a percentage of sales came in at 14.6% compared to 14.5% in the year ago quarter. Advertising and sales promotion investment levels as a percentage of sales came in at about 10%, where spending for our U.S. retail business coming in at about 11% of sales. Our second quarter effective tax rate was 21%, which was equal to the year ago quarter. Net of these factors, we delivered diluted net earnings per share of $2.03 versus $1.46 in the year ago quarter, an increase of 39%. We now anticipate fiscal year sales to grow between 10% to 13%, reflecting the strength of our first half results and higher expectations for the back half. With our overall demand for our products remaining quite strong, we now expect back half sales to be about flat, on top of 19% growth in the year ago period. On an organic sales basis, our outlook assumes 10% to 13% growth. As a reminder, our gross margin expanded 250 basis points in the back half of fiscal year '20. We continue to expect fiscal year selling and administrative expenses to be about 14% of sales, reflecting ongoing aggressive investments and long-term profitable growth initiatives and incentive compensation costs, consistent with our pay-for-performance philosophy. Additionally, we continue to anticipate fiscal year advertising spending to be about 11% of sales. We spent about 10% in the front half of the year and continue to anticipate about 12% in the back half in support of our robust innovation program. We continue to expect our fiscal year tax rate to be between 21% to 22%. Net of these factors, we now expect fiscal year '21 diluted earnings per share to increase between $8.05 and $8.25 or 9% to 12% growth, reflecting strong top line performance, partially offset by a rising cost environment. We now anticipate fiscal year diluted earnings per share outlook to include a contribution of $0.45 to $0.50 from our increased stake in our Saudi Arabia joint venture, primarily driven by a onetime noncash gain. My second message is that Clorox will stay in the driver seat, continuing our posture of 100% offense to make the most of the opportunities in front of us while navigating an ongoing dynamic environment. In addition, our strategic investments are creating a virtuous cycle around engaging and retaining new and existing users, resulting in a consumer retention rate of nearly 90%. As I mentioned, 100% offense will help us extend this momentum, which, as a reminder, includes: investing more across our portfolio to retain the millions of people buying our brands; expanding our public health support to more out-of-home spaces; increasing capital spending for immediate and future production capacity, including wipes expansion in international; and partnering with our retailers to grow our categories. Given the dynamic environment we continue to face, 100% offense also means actively planning for challenges and disruptions in the near and long term, including an inflationary cost environment, elevated competition in light of category tailwinds and accelerating advancements in digital technology that we expect to impact all areas of our business. Achievements this quarter include: being included in the 2021 Bloomberg Gender-Equality Index; achieving 100% renewable electricity in the U.S. and Canada four years early; signing on to the Energy Buyer Federal Clean Energy Policy statement, which calls for a 100% clean energy power sector; and donating $1 million to Cleveland Clinic to establish the Clorox public health research grant in support of science-based public health research.

Second quarter gross margin results also reflect about 50 basis points of negative impact from higher commodity costs, primarily from resin. Net of these factors, we delivered diluted net earnings per share of $2.03 versus $1.46 in the year ago quarter, an increase of 39%. We now anticipate fiscal year sales to grow between 10% to 13%, reflecting the strength of our first half results and higher expectations for the back half. On an organic sales basis, our outlook assumes 10% to 13% growth. Net of these factors, we now expect fiscal year '21 diluted earnings per share to increase between $8.05 and $8.25 or 9% to 12% growth, reflecting strong top line performance, partially offset by a rising cost environment.

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Investing in the energy sector has been very lucrative recently with the energy sector, the best-performing sector of the S&P 500 during 2021. We paid down over $12 billion in debt since 2016 and 2022 marks the fifth consecutive year we have increased our dividend, growing it over those years from $0.50 per share to $1.11 per share. Finally, this is a company run by shareholders for shareholders with our board and management owning about 13% of the company. First, take care of the balance sheet, which we have with our budget showing net debt to EBITDA of 4.3 times, then invest in attractive return projects and businesses we know well at returns that are well in excess of our cost of capital. Our discretionary capital needs are running more in the $1 billion to $2 billion range annually, and at $1.3 billion, we're at the lower end of that range in our 2022 budget, not at the $2 billion to $3 billion that we experienced in the last decade. The final step in the process is return the excess cash to shareholders in the form of an increasing and well-covered dividend that's $1.11 for 2022 and in the form of share repurchases. As we said in our 2022 budget guidance released in December, we expect to have $750 million of balance sheet capacity for attractive opportunities, including opportunistic share repurchases. Transport volumes were down 3% or approximately 1.1 million dekatherms per day versus the fourth quarter 2020 that was driven primarily by continued decline in Rockies production, the pipeline outage on EPNG and FEP contract expirations, which were offset somewhat by increased LNG deliveries and PHP and service volumes. Physical deliveries to LNG facilities off of our pipeline averaged about 5 million dekatherms per day that's a 33% increase versus the fourth quarter of '20. Our market share of LNG deliveries remains around 50%. Our natural gas gathering volumes were up 6% in the quarter. So compared with the third quarter of this year, volumes were up 7%, with a big increase in Haynesville volumes, which were up 19% and Bakken volumes, which were up 9%. In our products pipeline segment, refined product volumes were up 9% for the quarter versus the fourth quarter of 2020. Compared to prepandemic levels using the fourth quarter '19 as a reference point, road fuel, gasoline, and diesel were down about 2% and Jet was down 22%. In Q3, road fuels were down 3% versus the prepandemic number, though we did see a slight improvement. Crude and condensate volumes were down 3% in the quarter versus the fourth quarter of '20. Sequential volumes were down approximately 1%, with a reduction in Eagle Ford volumes, partially offset by an increase in the Bakken. And you look only at our Bakken gathering volumes, they were up 7%. In our Terminals business segment, our liquids utilization percentage remains high at 93%. If you exclude tanks out of service for required inspection, utilization is approximately 97%. We've seen some green shoots in our marine tanker business with all 16 vessels currently sailing under firm contracts. On the bulk side, volumes increased by 8%, and that was driven by coal and bulk volumes are up 2% versus the fourth quarter of '19. In our CO2 segment, crude volumes were down 4%, CO2 volumes were down 13% and NGL volumes were down 1%. We ended approximately $1 billion better on DCF and $1.1 billion better than our EBITDA with respect to -- our EBITDA budget. If you strip out the impact of the storm and you strip out roughly $60 million in pipe replacement projects that we decided to do during the year that impacts sustaining capex, we ended the year on plan for both EBITDA and DCF. So for the fourth quarter 2021, we are declaring a dividend of $0.27 per share, which brings us to $1.08 of declared dividends for full year 2021, and that's up 3% from the dividends declared for 2020. During the quarter, we generated revenue of $4.4 billion, up $1.3 billion from the fourth quarter of 2020. Revenue less cost of sales or gross margin was up $107 million. We generated net income to KMI of $637 million, up 5% from the fourth quarter of 2020. Adjusted net income, which excludes certain items, was up -- was $609 million, up 1% from last year, and adjusted earnings per share was $0.27 in line with last year. For the full year versus plan on sustaining capital, we are $72 million higher and roughly $60 million of that is due to the pipe replacement project that Kim mentioned. The total DCF of $1.093 billion or $0.48 per share is down $0.07 versus last year's quarter, and that's mostly due to the sustaining capital. On the balance sheet, we ended the year with $31.2 billion of net debt with a net debt to adjusted EBITDA ratio of 3.9 times, down from 4.6 times at year-end 2020. Removing the nonrecurring Uri contribution to EBITDA, that ratio at the end of 2021 would be 4.6 times, which is in line with the budget for the year. Our net debt declined $404 million from the third quarter, and it declined $828 million from the end of 2020. To reconcile the change for the quarter, we generated $1.093 billion in DCF. We spent -- or paid out $600 million in dividends, we spent $150 million in growth capex, JV contributions, and acquisitions, and we had a working capital source of $70 million, and that explains the majority of the change for the quarter for the year. We generated $5.460 billion of DCF. We paid out dividends of $2.4 billion. We spent $570 million on growth capex and JV contributions. We spent $1.53 billion on the Stagecoach and Kinetrex acquisitions. We received $413 million in proceeds from the NGPL interest sale, and we had a working capital use of approximately $530 million. And that explains the majority of the $828 million reduction in net debt for the year.

So for the fourth quarter 2021, we are declaring a dividend of $0.27 per share, which brings us to $1.08 of declared dividends for full year 2021, and that's up 3% from the dividends declared for 2020. Adjusted net income, which excludes certain items, was up -- was $609 million, up 1% from last year, and adjusted earnings per share was $0.27 in line with last year.

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Revenue at constant currency grew 23%. And our shipping-related revenues comprised 54% of our total revenue. For the quarter, Global Ecommerce grew 60%, with profit improving from prior year and prior quarters, resulting in positive EBITDA. From an annual perspective, Global Ecommerce turned in $1.6 billion in revenue, growing at a record rate of just over 40%. This certainly wasn't always smooth sailing, but the business is in a much better place than it was 12 months ago. Also notable, U.S. shipments of our low-end and middle-market devices grew 13% for the year. For the full year, revenue was $3.6 billion, which was growth of 11% over prior year and is our fourth consecutive year of constant currency revenue growth. Global Ecommerce grew 41%, Presort Services declined less than 2% and SendTech declined 7%. Adjusted earnings per share was $0.30 and GAAP earnings per share was a loss of $1.06. GAAP cash from operations was $298 million and free cash flow was $279 million. Free cash flow increased $91 million over prior year. Looking at our balance sheet and capital allocation, we ended the year with $940 million in cash and short-term investments. For the year, we used free cash flow to return $34 million to our shareholders in the form of dividends. Our capital expenditures totaled $105 million and reflect investments made throughout the year in new and existing facilities, our technology and our products. As part of our ongoing transformation, we also made $20 million in restructuring payments. Within our Pitney Bowes Bank, customer deposits grew to $617 million and Wheeler Financial funded $16 million in new deals for the year. From a debt perspective, we ended the year with $102.6 billion in total debt, which is a reduction of $175 million from prior year. In terms of our net debt, when you take our cash and short-term investments and finance receivables into consideration, our implied net debt position on an operating company basis was about $550 million at year-end. We delivered $1 billion in revenue, which represents growth of 23%. Global Ecommerce grew 60%, and both Presort and SendTech were flat to prior year. For the quarter, adjusted earnings per share was $0.13 and GAAP earnings per share was $0.11. EPS for the quarter reflects a $0.03 tax benefit, primarily related to deferred tax balances in certain international tax jurisdictions. GAAP cash from operations was $111 million in the quarter and free cash flow was $97 million. Free cash flow grew $16 million over prior year, predominantly driven by the timing of working capital. During the quarter, we used free cash flow to reduce debt $31 million, invest $24 million in capital expenditures and pay $9 million in dividends. Business services grew 43% and equipment sales grew 15%. We had declines in support services of 4% and rentals of 8%, while financing and supplies both declined approximately 10%. Gross profit was $311 million and gross margin was 30%. SG&A was $242 million or just under 24% of revenue, which is a six-point improvement from prior year. Within SG&A, unallocated corporate expenses were $54 million, which were $2.5 million higher than prior year. It is important to note that full-year unallocated corporate expenses were $200 million, which were $11 million lower than prior year, primarily due to lower employee-related expenses. R&D expense was $9.5 million or about 1% of revenue, which was about half-point improvement from prior year. EBIT was $62 million and EBIT margin was 6%. Compared to prior year, EBIT declined $3 million and EBIT margin declined about 2%, largely driven by the lower gross profit. Interest expense, including financing interest expense, was $38 million, which was relatively flat to prior year. The provision for taxes on adjusted earnings was less than $1 million and our tax rate for the quarter was 1%, bringing our annual tax rate to 13%. Average diluted weighted shares outstanding at the end of the quarter were about $177 million. Within Global Ecommerce, revenue was $518 million, which was growth of 60% over prior year and the first time we achieved over $500 million in quarterly revenue. Compared to prior year, volumes grew by 50% or more across each of our lines of business. Domestic parcel volumes grew 76% to just under 65 million parcels. Digital volumes grew 50%, and cross-border volumes grew 76%. Looking at EBIT, we recorded a loss of $15 million. This was an improvement of $3 million from prior year and $5 million from prior quarter. EBITDA was $3 million, which was an improvement from prior year and prior quarters. Within Presort Services, revenue was $135 million, which is flat to prior year. Overall average daily volumes declined 2%. First Class Mail volumes declined 3%, while Marketing Mail volumes grew 2%. Marketing Mail Flats and Bound Printed Matter volumes grew 26%. EBIT was $13 million and EBIT margin was 10%. EBITDA was $21 million and EBITDA margin was 16%. Revenue was $376 million, which was flat to prior year, excluding the impact of currency, and represents growth of 1% on a reported basis. In the fourth quarter, SendTech's shipping-related revenues grew nearly 30% to $35 million and our SaaS-based SendPro online offering grew its paid subscriptions by over 70%. Shipping is a high-margin stream that contributes about 10% to SendTech's overall revenue today, with great opportunity for future growth still in front of us. The impact of shipping is also resonating in our financing portfolio, as those clients through their shipping volumes by 65% over prior year. Equipment sales grew 15% over prior year, driven by strong placements of our SendPro C and MailStation multipurpose products. Since launching in April, we have shipped approximately 20,000 MailStation units. The growth in equipment sales is a significant improvement from prior quarters, particularly against the decline of 32% we saw in the second quarter, at the height of the COVID lock-downs. Supplies declined 10%, which is an improvement from prior quarters on increased usage and demand. In the U.S., 70% of our supplies transactions were conducted online in the fourth quarter, which is up nine points from the same period last year. Support services declined 4%, which is also an improvement from recent quarters. When combined, rentals and financing revenues declined 9% in the quarter. We turned in strong EBIT performance of $118 million, which represents growth of $5 million over prior year. EBIT margin was 31%, which improved one point over prior year and is within the range projected in our long-term model. EBITDA was $126 million and EBITDA margin was 34%, both improving over prior year. We also expect adjusted earnings per share to grow over prior year. Additionally, we expect our annual tax rate on adjusted earnings to be in the 23% to 27% range, which is higher than where we ended 2020. Specifically in the first quarter, we expect revenue to grow over prior year in the high single-digit to low double-digit range and earnings per share to be relatively in line with prior year.

For the quarter, adjusted earnings per share was $0.13 and GAAP earnings per share was $0.11. We also expect adjusted earnings per share to grow over prior year. Specifically in the first quarter, we expect revenue to grow over prior year in the high single-digit to low double-digit range and earnings per share to be relatively in line with prior year.

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Net sales increased 13% in constant dollars with volume growth of 5% and price realization of 8%. Adjusted EBITDA increased 4%, higher volumes and pricing efforts helped mitigate inflationary pressures and supply disruptions, yet our industry-leading margins were still under pressure at 19.2% compared to 21% last year. On a per-share basis, adjusted earnings of $0.86 were up $0.04 compared to last year. We generated free cash flow of $223 million in the first nine months of the year, which compared with $292 million in the first nine months of last year. We are targeting adjusted earnings-per-share growth of greater than 10% and free cash flow conversion of more than 50%. We further strengthened our capital structure with a $600 million new bond issuance in the third quarter. Sales in our Automation portfolio, which includes equipment, services and spare parts, have increased approximately 20% [Phonetic] year-to-date, accounting for 8% of our total sales. Autobag Systems, our fastest-growing automated solution, with year-to-date sales up more than 25%, and bookings up approximately 50%. For the full year, we expect to exceed our $425 million sales target or over 12% growth in Equipment, System and Service. We're confident in our ability to exceed our 2025 target of over $750 million, which is more than $500 million will come from Equipment and Systems. Over the last 12 months, our bookings are up significantly, even though supply disruptions persist. As I noted earlier, we're highlighting the success of our Autobag systems portfolio, with bookings up approximately 50% year-to-date, and more than 60% since the start of the pandemic. The accelerated systems demand will drive up to 7 times, future pull-through for Materials and Services over the equipment lifecycle. As it relates to climate change, we are doing our part with an ambitious pledge to achieve net-zero carbon emissions across our operations by 2040. We are making significant progress on our 2025 Sustainability Pledge, with approximately 50% of our solutions already designed for recyclability, which have reached approximately 20% recycled into a renewable content in those solutions. In Q3, net sales totaled $1.4 billion, up 14% as reported, up 13% in constant dollars. Food was up 12% in constant dollars versus last year, and Protective increased 13%. The Americas and EMEA were both up double digits, with Americas up 14% and EMEA up 13%. APAC was up 6% versus last year. In Q3, overall volume growth was up 5%, with favorable price of 8%. Food volumes were up 6% with growth across all regions. Americas up 5%, EMEA 6%, and APAC 7%. Protective volumes were up 4%, led by EMEA with 16% growth, followed by APAC up 4%, and Americas, essentially flat to prior year. Q3 price was favorable 8% with the Protective at 10%, and food at 7%. For the full year 2021, we now expect to realize more than $275 million in price, given additional pricing announcements since our last call, as well as timing of formula-based pricing. This increase will vary based on region and product offering and will average between 5% and 10%. Having already discussed sales, let me comment on our Q3 adjusted EBITDA performance of $271 million, which was up 4% compared to last year. Margins of 19.2% were down 180 basis points. Despite favorable pricing in the quarter, you can see how the inflationary environment and supply challenges weighed on our results with an unfavorable price cost spread of $18 million. Operational cost decreased approximately $3 million relative to last year, with Reinvent SEE productivity gains and a $5 million benefit related to an indirect tax recovery in Brazil. Our SEE Operating Engine is performing with 40% leverage on our higher volumes. Adjusted earnings per diluted share in Q3 was $0.86 compared to $0.82 in Q3 2020. Our adjusted tax rate was 24.9% compared to 20.6% in Q3 2020. Our weighted average diluted shares outstanding in the quarter were $151 million. We have achieved $43 million of benefits in the first nine months of the year, and remain on track to realize approximately $65 million in 2021. In Q3, food net sales of $797 million were up 12% in constant dollars. Cryovac Barrier Bags and pouches were up for the second consecutive quarter versus last year, and combined, accounted for nearly 50% of the segment sales. Equipment, Parts and Service sales, which account for 7% of the segment, were up low-single-digits in the quarter. Adjusted EBITDA of $169 million in Q3 increased 11% compared to last year, with margins at 21.2% and 40 basis points. In constant dollars, net sales increased 13% to $609 million. Relative to last year, Industrial was up more than 15% and fulfillment up approximately 7%. As a reminder, approximately 55% of our Protective sales are derived from industrial end markets and the remaining 45% from fulfillment and e-commerce. Adjusted EBITDA of $103 million decreased 5.5% in Q3, with margins at 16.9%, down 350 basis points versus last year. In the first nine months of 2021, we generated $243 million of free cash flow. As Ted mentioned, I want to highlight that during Q3, we executed a $600 million five-year senior secured bond at 1.573%. The proceeds of this offering were used to pay down $425 million senior unsecured notes at 4.875%, due in 2022, and $175 million pre-payable term loan debt. As it relates to returning capital to shareholders, we have repurchased 6.6 million shares, for $329 million year-to-date September, reflecting confidence in our future growth. At quarter-end, we have approximately $970 million remaining under our authorized repurchase program. Our net sales we now estimate are approximately $5.5 billion or up approximately 12% as reported growth to reflect the favorable demand environment and pricing actions. This compares to our previous range of $5.4 billion to $5.5 billion. We expect a favorable currency impact of approximately 1.5%. Given the current environment, we now anticipate adjusted EBITDA in the range of $1.12 billion to $1.4 billion. On a reported basis, adjusted EBITDA is expected to grow 6.5% to 8.5%. This compares to our previous guide of $1.12 billion to $1.5 billion. For adjusted EPS, we expect to be in the range of $3.50 to $3.60, the higher end of our previous guidance. This assumes depreciation and amortization of $230 million and adjusted effective tax rate of approximately 26%, and approximately 152.5 million average shares outstanding. And lastly, our outlook for free cash flow is expected to be in the range of $520 million to $540 million. There is no change to our outlook for 2021 Capex of approximately $210 million, and Reinvent SEE restructuring associated payments of approximately $40 million. For cash taxes, we anticipate approximately $110 million, which is net of a $24 million tax refund associated with the retroactive application of the revised US GILTI regulations.

On a per-share basis, adjusted earnings of $0.86 were up $0.04 compared to last year. In Q3, net sales totaled $1.4 billion, up 14% as reported, up 13% in constant dollars. Adjusted earnings per diluted share in Q3 was $0.86 compared to $0.82 in Q3 2020. Adjusted EBITDA of $103 million decreased 5.5% in Q3, with margins at 16.9%, down 350 basis points versus last year. Our net sales we now estimate are approximately $5.5 billion or up approximately 12% as reported growth to reflect the favorable demand environment and pricing actions. This compares to our previous range of $5.4 billion to $5.5 billion. Given the current environment, we now anticipate adjusted EBITDA in the range of $1.12 billion to $1.4 billion. For adjusted EPS, we expect to be in the range of $3.50 to $3.60, the higher end of our previous guidance. And lastly, our outlook for free cash flow is expected to be in the range of $520 million to $540 million.

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In reverse of last year, when we were discussing shutdowns and lower sales, this year's second quarter, we delivered a strong $2.2 billion in sales representing a $1.1 billion improvement as our customers continue to see strong market demand and in many cases, outpaced production as supply chain challenges continue to hamper their operations. Our adjusted EBITDA for the second quarter was $233 million, a $238 million improvement over last year. Adjusted free cash flow was of slight use on the quarter, but was an improvement of $120 million over last year, driven by higher earnings. Diluted adjusted earnings per share was $0.59 for the second quarter of 2021, an improvement of $1.28 per share compared to 2020. ARFF is capable of achieving 28% improved acceleration when fully loaded with the new EV technology. As an added benefit, the Striker Volterra vehicle results in 0 emissions driving during entry and exit of the fire station ion EV mode, so that there's no longer a need for expensive ventilation systems, within the station. The Volterra pumper is serving frontline duty at Station 8, the city of Madison's busiest fire station. To date, the city of Madison has responded to over 500 active emergency calls with this new electric pumper. That is why earlier this month, we announced plans to reduce our annual Scope one and two greenhouse gas emissions by at least 50% by the year 2030, which is a five year pull ahead of our original target of 2035 that was announced last fall. In the second quarter of this year, sales topped $2.2 billion, delivering growth of over $1.1 billion compared to the prior year. Adjusted EBITDA was $233 million for a profit margin of 10.6%, which represents a dramatic improvement over last year's nearly breakeven results, even as this performance is hampered by dramatic material cost inflation and continued supply chain challenges. Adjusted net income in the second quarter of this year was $86 million, $185 million higher than the same period of 2020. The diluted adjusted earnings per share was $0.59, $1.28 improvement from the prior year. And finally, adjusted free cash flow this quarter was a use of $13 million, an improvement of $120 million over the second quarter of last year as higher profit more than funded increases in working capital and capital expenditures to support the growth. First, overwhelmingly, the increase is attributed to the organic growth of nearly $1 billion, as our business laps the trough in sales caused by the onset of pandemic-containment measures last spring and summer. The incremental conversion of 26% exceeds the decremental conversion from the same period in the prior year by about 200 basis points. Second, foreign currency translation increased sales by nearly $90 million as the dollar weakened against a basket of foreign currencies, principally the euro. Gross commodity cost increased by $70 million, and we recovered $45 million of this in the form of higher selling prices to our customers for a recovery ratio of about 65%. These increases compressed our profit margin by approximately 180 basis points and represented the primary impediment to achieving 12% margins in the quarter. Free cash flow was a slight use in the quarter at $13 million. This was a substantial improvement of $120 million compared to the same period last year and was entirely attributed to higher profit, which more than funded the higher capital requirements to support the increased volumes. This represents a $250 million improvement from the previously indicated midpoint of the range and is driven by higher commodity recoveries, stronger foreign currency exchange and higher demand across all three of our end markets. However, we still expect profit near the midpoint of our range, implying a margin of between 10.5% and 11% as the additional contribution margin from the higher demand is offsetting the higher commodity cost net of recoveries. This also implies an adjusted free cash flow margin of approximately 3% of sales. Diluted adjusted earnings per share is expected to move toward the higher end of our range at $2.45 per share due to lower interest and income tax expenses. First, organic growth is now expected to add nearly $1.6 billion in sales, including our new business backlog of $500 million and the slightly higher end market volume increase mentioned on the previous slide. Incremental margins are expected to remain strong in the mid-20s, providing about 350 basis points of margin expansion. Next, we anticipate the impact of foreign currency translation to now be a benefit of approximately $150 million to sales and about $15 million to profit, with no impact to margin. Finally, we now expect gross commodity cost increases approaching $250 million as steel prices have continued to rise. We anticipate recovering about $180 million or 70% of the increase from our customers in the form of higher selling prices, leaving a net profit impact of $70 million, which will compress margins by more than 100 basis points. We expect full year adjusted free cash flow of about $275 million, representing an improvement of more than $200 million compared to last year. Please turn with me now to page 18 for an overview of the debt refinancing we completed in the second quarter.

Diluted adjusted earnings per share was $0.59 for the second quarter of 2021, an improvement of $1.28 per share compared to 2020. The diluted adjusted earnings per share was $0.59, $1.28 improvement from the prior year.

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As of September 30, 2020, Vector Group maintained sufficient liquidity, with cash and cash equivalents of $451 million, including cash of $76 million at Douglas Elliman and $148 million at Liggett, and investment securities and investment partnership interests with a fair market value of $174 million. For the three months ended September 30, 2020, Vector Group's revenues were $547.8 million, compared to $504.8 million in the 2019 period. In addition to increases in revenue in both the Tobacco segment and Douglas Elliman, the 2020 revenues include $20.5 million from the sale of a real estate investment in The Hamptons. Net income attributed to Vector Group for the third quarter of 2020 was $38.1 million, or $0.25 per diluted common share, compared to net income of $36 million, or $0.23 per diluted common share, in the third quarter of 2019. The company recorded adjusted EBITDA of $103.3 million, compared to $73.7 million in the prior year. Adjusted net income was $38.3 million, or $0.25 per diluted share, compared to $36.2 million, or $0.23 per diluted share, in the 2019 period. For the nine months ended September 30, 2020, Vector Group revenues were $1.45 billion and were flat when compared to $1.46 billion in the 2019 period. Our Tobacco segment reported an increase of $63.9 million in revenues, and our Real Estate segment reported a decline in revenues of $80 million. Net income attributed to the Vector Group for the nine months ended September 30, 2020, was $60.7 million, or $0.39 per diluted common share, compared to net income of $90.3 million, or $0.56 per diluted common share, for the nine months ended September 30, 2019. The company recorded adjusted EBITDA of $240 million, compared to $206.9 million in the prior year. Adjusted net income was $106.9 million, or $0.70 per diluted share, compared to $92.3 million, or $0.59 per diluted share, in the 2019 period. For Douglas Elliman's results for the three months ended September 30, 2020, we reported $208 million in revenues, net income of $11.8 million and an adjusted EBITDA of $14.1 million, compared to $201.2 million in revenues, net income of $1.9 million and adjusted EBITDA of $3.4 million in the third quarter of 2019. For the nine months ended September 30, 2020, Douglas Elliman reported $506.5 million in revenues, a net loss of $62.2 million and adjusted EBITDA of $5.3 million, compared to $606 million of revenues, net income of $6.6 million and adjusted EBITDA of $11 million in the first nine months of 2019. Douglas Elliman's net loss for the nine months ended September 30, 2020, included pre-tax and noncash impairment charges of $58.3 million and pre-tax restructuring charges of $3.3 million. To address the impact of COVID-19, in April 2020 Douglas Elliman reduced personnel by 25% and began consolidating some offices and reducing other administrative expenses. These expense reduction initiatives resulted in a decline in Douglas Elliman's third quarter 2020 operating and administrative expenses, excluding restructuring charges, of approximately $17.8 million compared to the third quarter of 2019 and $39.8 million for the nine months ended September 30, 2019. During the third quarter, Liggett continued its strong year-to-date tobacco performance, with revenue increases and margin growth contributing to a 25% increase in tobacco adjusted operating income. As noted on previous calls, we are well into the income growth phase of our Eagle 20's business strategy and remain very pleased with the results to date. Our market-specific retail programs have proven successful, and we remain optimistic about Eagle 20's increasing profit contributions and long-term potential. Pyramid has strong distribution and is currently sold in approximately 98,000 stores nationwide. For the three and nine months ended September 30, 2020, revenues were $318.9 million and $918.4 million, respectively, compared to $303.3 million and $854.5 million for the corresponding 2019 periods. Tobacco adjusted operating income for the three and nine months ended September 30, 2020, was $91.6 million and $240.2 million, respectively, compared to $73 million and $202.5 million for the corresponding periods a year ago. According to Management Science Associates, overall industry wholesale shipments for the third quarter increased by 1.1%, while Liggett's wholesale shipments declined by 2.2%, compared to the third quarter in 2019. For the third quarter, Liggett's retail shipments declined by 1.1% from 2019, while industry retail shipments increased 1.7% during the same period. Liggett's retail share in the third quarter declined slightly, to 4.2%. The modest decline in Liggett's third quarter year-over-year retail share was anticipated, with Eagle 20's volume growth slowing due to increased net pricing. This is consistent with our income growth strategy for Eagle 20's, which began in the second half of 2018. Eagle 20's is now priced in the upper tier of the U.S. deep discount segment. Nonetheless, Eagle 20's retail volume for the third quarter increased by approximately 2% compared to the 2019 period, and it remains the third largest discount brand in the U.S. and is currently being sold in approximately 84,000 stores nationwide. The continued growth of Eagle 20's despite increased pricing also reinforces the effectiveness of our long-term strategy to continue to build volume and margin for our business using well-positioned discount brands providing value to adult smokers. With that in mind, and after identifying volume growth opportunities in the U.S. deep discount segment, in August we expanded the distribution of our Montego brand by 10 states, primarily in the Southeast. Montego represented about 6.8% of Liggett's volume for the third quarter of 2020 and 5.6% of Liggett's volume for the nine months ended September 30, 2020. As we look ahead, we remain focused on generating incremental operating income from the strong sales and distribution base of both Pyramid and Eagle 20's.

For the three months ended September 30, 2020, Vector Group's revenues were $547.8 million, compared to $504.8 million in the 2019 period. Net income attributed to Vector Group for the third quarter of 2020 was $38.1 million, or $0.25 per diluted common share, compared to net income of $36 million, or $0.23 per diluted common share, in the third quarter of 2019. Adjusted net income was $38.3 million, or $0.25 per diluted share, compared to $36.2 million, or $0.23 per diluted share, in the 2019 period.

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We reported second quarter revenue of $43.2 million and a loss per share of $0.45. For the year-to-date, we had revenue of $112.2 million and a loss per share of $0.34. Revenue for the year-to-date was 2% lower than our figure from last year when we had a slow first half that was followed by a strong second half. We continue to estimate our annual tax rate will be in the mid-20% range after adjusting for the impact of charges relating to the vesting of restricted stock, which is consistent with our prior guidance. We ended the quarter with $92.5 million of cash and $306.9 million of debt and we paid down another $15 million of that debt after quarter end. We also declared our usual $0.05 quarterly dividend. And lastly as of quarter end, we have bought back 1.5 million shares and share equivalents for a total cost of $23.8 million and had an additional $26.2 million of repurchase authority available for the year ahead through next January.

We reported second quarter revenue of $43.2 million and a loss per share of $0.45.

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Fourth quarter as reported sales of 1.0744 billion were up 12.5% from 2019, including 9.6 million of favorable foreign currency translations and $7.5 million of acquisition-related sales. Organic sales rose 10.6% volume gains in the van channel, in OEM dealerships and diagnostics and repair information, in our European hand tools business, all demonstrating the abundant opportunities on our runway and our increased ability to take advantage of those opportunities. From an earnings perspective, operating income, opco OI from the quarter of $216.2 million, including 2.8 million of direct costs associated with the virus, 1 million of restructuring charges for actions outside the United States and 1.5 million hit from unfavorable currency was up 26.1%. And the opco operating margin, it was 20.1%, up 220 basis points, overcoming 30 basis points of unfavorable currency, 30 basis points, 30 points of COVID cost impact and 10 basis points of restructuring. For financial services, operating income of 68.5 million increased 10.1% from 2019, all while keeping 60-day delinquencies flat to last year in the midst of the pandemic stress test and that result combined with opco for consolidated operating margin of 24.4%, 190 basis points improvement. The overall quarterly earnings per share was $3.82, including a $0.02 charge for restructuring and that result compared to $3.08 last year, an increase of 24%, I did say new heights. Now, for the full-year, sales were 3.593 billion, a 3.8% organic decline, principally on the first and second-quarter shock of the virus before the sequential gains of accommodation took hold. Opco OI 631.9 million, including $12.5 million of restructuring charges, 11.9 million of direct costs associated with COVID-19 and 13.1 million of unfavorable currency compared to 716.4 million in 2019, which benefited from 11.6 million legal settlement in a patent-related litigation matter. Opco OI margin, including a 30-basis-point impact associated with restructuring, 30 points of direct pandemic expenses, 30 points of unfavorable currency was 17.6% and compared with 19.2% in 2019, which incorporated 30 basis points of the nonrecurring benefit for the legal settlement. But what it says is that despite the great disruption, our full-year OI margin was down only 40 basis points, apples to apples, demonstrating the special Snap-on's resilience that has enabled us to pay dividends every quarter since 1939 without a single deduction. For the year, financial services registered OI of 248.6 million versus the 245.9 million in 2019. Overall, earnings per share for the period of $11.44 was down 7.8% from the $12.41 reported last year -- 2019. Adjusting for the restructuring in the current year and the onetime legal benefit in the prior year, 2020 earnings per share as adjusted reached $11.63, down 5.1%. In C&I, volume in the fourth quarter of $364.4 million, including 7.5 million from acquisitions and 6.5 million of favorable foreign currency, was up 3.3% as reported. From an earnings perspective, C&I operating income of 56.2 million increased 11.2 million, including 1.3 million of unfavorable foreign currency effects and 1 million of COVID-related costs with sales up 3.3% as reported, flat organically. OI grew 24.9%, a nice operating improvement. And the OI margin for the group was 15.4%, up 260 basis points from last year, overcoming 70 basis points of unfavorable currency and 30 points of direct COVID costs. Our new fit and go product line allows buyers to quickly develop semi bespoke kits in foam tool control, consists of more than 200 preconfigured different tool sets designed around 26-inch wide Rock N' Roll Cab available in three standard foam configurations, one-third drawer, two-thirds drawer and a full drawer. As reported, sales of 20.2% to 494.9 million, including 2.2 million of favorable foreign currency and an 81 million or 19.6% organic increase, the second straight quarter of strong gain with the U.S. and International businesses both growing at double digits. In the tools group operating earnings, 93.6 million, including 1.2 million of virus-related costs, that 93 points, including -- in fact, 93.6 million included 1.2 million of virus-related costs. And that 93.6 million compared to last year's 54.3 million, an over 70% improvement. Actually, the tools group recovered to positive territory for the full year, sales were up 2% organically, with OI rising almost 9% and OI margins up 110 basis points. One was the franchise business review, where we were again recognized in the magazine's latest rankings for franchisee satisfaction as a top 50 franchise, marking the 14th consecutive year that Snap-on received that award. That's similar to our Flank Drive systems on socket, 30% more torque applied to the fastener while still minimizing damages, eliminating rounded edges. Second, when the fasteners have already been heavily rounded and are tough to grip, our Talon grip, diamond-serrated jaws, joined at -- located at the pliers tip, generate unparallel clamping forces up 57% -- up to a 57% increase in turning power. Sales of 361.1 million in the fourth quarter, up 7.8%, 7% organically, excluding a 2.4 million of favorable foreign currency, a steep recovery from the depths of the pandemic. RS&I operating earnings of 90 million improved 2.8 million as the mix of lower-margin OEM project sales diluted the volume improvement and as the group recorded $1 million in charges for a small European-focused restructuring. We just began shipping our new 20.4 software update for our diagnostics platforms in North America, full coverage for the 2020 vehicles, additional reprogramming facility, increased functional test capabilities and an expansion of our unique advanced driver assistance or ADAS content, so critical these days for engaging vehicle automation. And the 20.4 is another step in that direction. And that's our fourth quarter; absorbing a shock, driving accommodation, moving onto psychological recovery, keeping our people safe while we serve the essential, all of that is working, building Snap-on's advantage and the results show us sequential gains from the third quarter and significant growth from last year, sales up 12.5%, 10.6% organically, OI margin, 20.1%, 220 basis points higher. Financial service is continuing to deliver, navigating the virus with strength and without disruption, an earnings per share of $3.82, up 24%, all achieved while maintaining and expanding our advantages in products, brands and people, ending the year stronger, ready for more opportunities to come. Net sales of $1.0744 billion in the quarter compared to $955.2 million last year, reflecting a 10.6% organic sales gain, $9.6 million of favorable foreign currency translation and $7.5 million of acquisition-related sales. We've again identified direct costs associated with COVID-19, which totaled $2.8 million this quarter. Also, in the quarter, we recorded $1 million of restructuring cost actions for Europe. Consolidated gross margin of 48% compared to 47.2% last year. The 80-basis-point improvement primarily reflects the higher sales volume and benefits from the company's RCI initiatives, partially offset by 30 basis points of unfavorable foreign currency effects and 10 basis points of direct cost associated with COVID-19. Operating expenses as a percentage of net sales of 27.9%, improved 140 basis points from 29.3% last year, primarily reflecting the impact of the higher sales, which more than offset the 30 basis points related to restructuring and direct costs associated with COVID-19. Operating earnings before financial services of $216.2 million, including $2.8 million of direct costs associated with COVID-19, $1 million of restructuring costs and $1.5 million of unfavorable foreign currency effects compared to $171.4 million in 2019, reflecting a 26.1% year-over-year improvement. As a percentage of net sales, operating margin before financial services of 20.1%, including 30 basis points of direct costs associated to the COVID-19 pandemic and 30 basis points of unfavorable foreign currency effects, improved 220 basis points from 17.9% last year. As a result, our 2020 fiscal year contained 53 weeks of operating results with the extra week relative to the prior year occurring in the fourth quarter. With that said, financial services revenue of $93.4 million in the quarter of 2020 compared to $83.9 million last year, primarily reflecting the extra week of interest income and the growth in the financial services portfolio. Financial services operating earnings of $68.5 million, increased $6.3 million from 2019 levels, principally due to the higher revenue but partially offset by increased variable compensation and other costs; consolidated operating earnings of 284.7 million, including $2.8 million of direct COVID-related costs, $1 million of restructuring costs and $1.3 million of unfavorable foreign currency effects compared to $233.6 million last year. As a percentage of revenues, the operating earnings margin of 24.4% compared to 22.5% in 2019. Our fourth-quarter effective income tax rate of 21.8% compared to 22.3% last year. Finally, net earnings of $208.9 million or $3.82 per diluted share, including a $0.02 charge for restructuring increased $38.3 million or $0.74 per share from 2019 levels, representing a 24% increase in diluted earnings per share. Sales of $364.4 million increased 3.3% from $352.9 million last year, reflecting $7.5 million of acquisition-related sales and $6.5 million of favorable foreign currency translation, partially offset by 0.7% organic sales decline. While organic sales were essentially flat as compared to last year, they did improve sequentially in a more meaningful manner than what we see in our typical seasonal patterns with organic sales up 14.6% from the third quarter of 2020. Gross margin of 37.8% improved 230 basis points year-over-year, primarily due to increased sales and higher gross margin businesses and declines in lower gross margin sales to the military, as well as from benefits of RCI initiatives. These increases were partially offset by 60 basis points of unfavorable foreign currency effects and 20 basis points of direct COVID-19 cost. Operating expenses as a percentage of sales, 22.4% improved 30 basis points as compared to last year. Operating earnings for the C&I segment of $56.2 million, including $1.3 million of unfavorable foreign currency effects and $1 million of direct COVID-19 cost compared to $45 million last year. The operating margin of 15.4% compared to 12.8% a year ago. Sales in the Snap-on tools group of $494.9 million increased 20.2% from $411.7 million in 2019, reflecting a 19.6% organic sales gain and $2.2 million of favorable foreign currency translation. This reflects a 9.5% organic sequential gain over a strong third-quarter 2020 sales performance. Gross margin of 42.9% in the quarter improved 270 basis points, primarily due to the higher sales volumes and benefits from RCI initiatives. Operating expenses as a percentage of sales of 24% improved from 27% last year, primarily due to the impact of higher sales volumes and savings from cost containment actions, which more than offset $1 million or 30 basis points of COVID-19-related costs. Operating earnings for the Snap-on tools group of $93.6 million compared to $54.3 million last year. The operating margin of 18.9% compared to 13.2% a year ago, an increase of 570 basis points. Sales of $361.1 million compared to $335 million a year ago, reflecting a 7% organic sales gain and $2.4 million of favorable foreign currency translation. Sequentially, RS&I organic sales improved by 13.2%. Gross margin of 46.1%, including 10 basis points of unfavorable foreign currency effects, declined 160 basis points from last year, primarily due to the impact of higher sales of lower gross margin businesses, including facilitation program related sales to OEM dealerships. Operating expenses as a percentage of sales of 21.2%, including 30 basis points of cost from restructuring, improved 50 basis points from 21.7% last year, largely reflecting the mix of business activity in the quarter. Operating earnings for the RS&I group of $90 million compared to $87.2 million last year. The operating margin of 24.9%, including the effects of 20 basis points of unfavorable foreign currency effects and 10 basis points of direct costs associated with COVID-19 compared to 26% a year ago. Revenue from financial services of $93.4 million compared to $83.9 million last year. Financial services operating earnings of $68.5 million compared to $62.2 million in 2019. Financial services expenses of $24.9 million increased $3.2 million from last year's levels, primarily due to higher variable compensation and other costs, partially offset by a year-over-year decrease in provisions for credit losses. Compared to the fourth quarter last year, provisions for credit losses were lower by $700,000, while net charge-offs of bad debts were lower by $1.3 million. As a percentage of the average portfolio, financial services expenses were 1.1% and 1% in the fourth quarters of 2020 and 2019, respectively. In the fourth quarter, the average yield on finance receivables of 17.7% in 2020 compared to 17.5% in 2019. The respective average yield on contract receivables was 8.5% and 9.2%. As of the end of the quarter, approximately $13 million of these business operating support loans remain outstanding. Total loan originations of $272.4 million in the quarter increased $10 million or 3.8% from 2019 levels, reflecting a 4.5% increase in originations of finance receivables, while originations of contract receivables were essentially flat. Our year-end balance sheet includes approximately $2.2 billion of gross financing receivables, including $1.9 billion from our U.S. operation. In the fourth quarter, our worldwide gross financial services portfolio increased $20.8 million. The 60-day plus delinquency rate of 1.8% for the United States extended credit is unchanged from last year and reflects the seasonal increase we typically experience in the fourth quarter. As it relates to extended credit or finance receivables, trailing 12-month net losses of $45.6 million represented 2.62% of outstandings at quarter end, down 8 basis points sequentially and down 29 basis points as compared to the same period last year. Cash provided by operating activities of $317.6 million in the quarter increased $120.9 million from comparable 2019 levels, primarily reflecting the higher net earnings and net changes in operating assets and liabilities, including a $53.5 million decrease in working investment, primarily driven by inventory reductions in the period. Net cash used by investing activities of $73.6 million included $35.4 million for the acquisition of AutoCrib, capital expenditures of $26.5 million and net additions to finance receivables of $15.9 million. Free cash flow during the quarter of $275.2 million was 129% in relation to net earnings. Net cash used by financing activities of $111.6 million included cash dividends of $66.8 million and the repurchase of 460,000 shares of common stock for $78.7 million under our existing share repurchase program. Full-year 2020 share repurchases totaled 110,900 shares for $174.3 million. As of year-end, we had remaining availability to repurchase up to an additional $275.7 million of common stock under existing authorizations. Trade and other accounts receivable decreased $53.9 million from 2019 year-end, days sales outstanding of 64 days compared to 67 days of 2019 year-end, inventories decreased $13.9 million from 2019 year-end, including a $40.1 million inventory reduction, partially offset by increases from $23.2 million of currency translation and $3 million from acquisitions, on a trailing 12-month basis, inventory turns of 2.4 compared to 2.6 at year-end 2019 and 2.4 at the end of the third-quarter 2020, our year-end cash position of $923.4 million compared to $184.5 million at year-end 2019, our net debt-to-capital ratio of 12.1% compared to 22.1% at year-end 2019. In addition to cash and expected cash flow from operations, we have more than $800 million in available credit facilities. We anticipate that capital expenditures will be in the range of 90 to $100 million. We currently anticipate absent of any changes to U.S. tax legislation that our full-year 2021 effective income tax rate will be in a range of 23 to 24%. Sales up 12.5% as reported, 10.6% organically. OI margin, 20.1%, up 220 basis points against 30 basis points of unfavorable currency, 10 basis points of restructuring charges and 30 basis points of direct COVID cost, strong improvement. OI margin of 15.4%, rising 260 points. Organic sales up 7% organically, OI of 24.9% down, but still in heavy territory. Sales up 19.6% organically, profits up 72.4%, OI margin of 18.9%, rising 570 basis points, good numbers. And all of that, it all came together to author an earnings per share in the quarter of $3.82, up 24% from 2019; new heights in the great turbulence of 2020.

Organic sales rose 10.6% volume gains in the van channel, in OEM dealerships and diagnostics and repair information, in our European hand tools business, all demonstrating the abundant opportunities on our runway and our increased ability to take advantage of those opportunities. The overall quarterly earnings per share was $3.82, including a $0.02 charge for restructuring and that result compared to $3.08 last year, an increase of 24%, I did say new heights. And that's our fourth quarter; absorbing a shock, driving accommodation, moving onto psychological recovery, keeping our people safe while we serve the essential, all of that is working, building Snap-on's advantage and the results show us sequential gains from the third quarter and significant growth from last year, sales up 12.5%, 10.6% organically, OI margin, 20.1%, 220 basis points higher. Financial service is continuing to deliver, navigating the virus with strength and without disruption, an earnings per share of $3.82, up 24%, all achieved while maintaining and expanding our advantages in products, brands and people, ending the year stronger, ready for more opportunities to come. Net sales of $1.0744 billion in the quarter compared to $955.2 million last year, reflecting a 10.6% organic sales gain, $9.6 million of favorable foreign currency translation and $7.5 million of acquisition-related sales. Finally, net earnings of $208.9 million or $3.82 per diluted share, including a $0.02 charge for restructuring increased $38.3 million or $0.74 per share from 2019 levels, representing a 24% increase in diluted earnings per share. We anticipate that capital expenditures will be in the range of 90 to $100 million. We currently anticipate absent of any changes to U.S. tax legislation that our full-year 2021 effective income tax rate will be in a range of 23 to 24%. Sales up 12.5% as reported, 10.6% organically. And all of that, it all came together to author an earnings per share in the quarter of $3.82, up 24% from 2019; new heights in the great turbulence of 2020.

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We continue to build on the momentum we experienced in the fourth quarter and expect 2021 to be stronger than our expectations 90 days ago. Yesterday, we announced our intent to acquire Airtech Vacuum Group from EagleTree Capital for $470 million. Airtech had revenue of $85 million with EBITDA margin in the mid-30s range in 2020. This deal, which we expect to close in the second quarter, will then create a $200 million pneumatics platform within our Health & Science Technology segment. The positive momentum in order trends continued in the first quarter, both compared to prior year and sequentially, allowing us to build $59 million of backlog in the quarter. Q1 orders were also up 4% organically versus Q1 of 2019. Q1 orders of $711 million were up 10% overall and up 6% organically as we built $59 million of backlog in the quarter. First-quarter sales of $652 million were up 10% overall and 6% organically. We experienced growth across all our segments, with over 75% of our business units increasing year over year. Q1 gross margin contracted 80 basis points to 44.9% but was up 110 basis points sequentially. First-quarter operating margin was 23.9%, up 40 basis points compared to prior year. Adjusted operating margin was 24.3%, up 80 basis points compared to last year, driven by the increased volume and the impact of cost actions taken last year, offset by the gross margin pressure I just mentioned. Our Q1 effective tax rate was 22.6%, which was higher than the prior-year ETR of 20% due to a decrease in the excess tax benefits from share-based compensation. This drove a $0.05 headwind on earnings per share for the quarter. First-quarter adjusted net income was $115 million, resulting in adjusted earnings per share of $1.51, up $0.18 or 14% over prior year. Excluding the $0.05 tax headwind, adjusted earnings per share would have been up $0.23 or 17%. Finally, free cash flow for the quarter was $95 million, up 32% compared to prior year and was 82% of adjusted net income. Adjusted operating income increased $18 million for the quarter compared to prior year. Our 6% organic growth contributed approximately $13 million flowing through at our prior-year gross margin rate. The impact of previous discretionary cost controls contributed $5 million, and we were able to net $4 million from price productivity, partially offset by inflation. After accounting for $2 million of negative mix, our organic flow-through was extremely strong at 58%. Flow-through was then negatively impacted by the $3 million charge related to the inventory reserve I discussed on the last slide and the dilutive impact of acquisitions and FX, getting to a reported flow-through of 32%. For the second quarter, we are projecting earnings per share to range from $1.60 to $1.63, with organic revenue growth of 18% to 20%, and operating margins of approximately 24.5%. The second quarter effective tax rate is expected to be about 23%, and we expect a 2% top-line benefit from the impact of FX. Corporate costs in the second quarter are expected to be around $21 million, with the increase primarily driven by the M&A investments we discussed earlier. We are increasing our full-year earnings per share guidance from $5.65 to $5.95, up to $6.05 to $6.20. We are also increasing our full-year organic revenue growth from 6% to 8%, up to 9% to 10%. We expect operating margins of approximately 24 and a half percent. We expect FX to provide a 1% benefit to top-line results. Our full-year effective tax rate is expected to be around 23%. Capital expenditures are anticipated to be around $55 million. Free cash flow is now expected to be 115% to 120% of net income. And corporate costs are expected to be approximately $74 million for the full year.

First-quarter sales of $652 million were up 10% overall and 6% organically. First-quarter adjusted net income was $115 million, resulting in adjusted earnings per share of $1.51, up $0.18 or 14% over prior year. For the second quarter, we are projecting earnings per share to range from $1.60 to $1.63, with organic revenue growth of 18% to 20%, and operating margins of approximately 24.5%. We are increasing our full-year earnings per share guidance from $5.65 to $5.95, up to $6.05 to $6.20. We are also increasing our full-year organic revenue growth from 6% to 8%, up to 9% to 10%.

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Operating portfolio occupancy increased to 90.2% from 89.9% last quarter and annualized base rent increased to $20.41 from $19.95 last quarter. Our overall foot traffic at our centers in 3Q '21 was 35% higher than the same quarter in 2020. Regarding our financial performance for the quarter, revenue grew by 9% to $32.4 million this quarter compared to $29.9 million in 3Q '20. Same-store net operating income growth of 7% in this quarter and 8% in Q2 was driven by increases in occupancy and annual base rent per square foot as previously noted, as well as positive leasing spreads. Funds from operations core was $0.25 per share and $0.75 per share in the quarter and the nine months ended September 30, 2021 respectively. We reduced our debt to EBITDA, which is now 8.1 times down from 9.4 times a year ago. Our dividend yield of 4.3% remains at a premium and our payout ratio to FFO core is exceptionally strong at 42%. This quarter we reactivated our external growth plan with the acquisition of Lakeside Market in Plano, Texas at a purchase price of $53.25 million. Looking at our current portfolio, we now have 4.6 million of our 5.1 million square feet of space leased. Our approximately 1,500 tenants' average lease space is 3000 square feet per tenant, complemented by a mix of larger square footage leases by our grocery anchors. By doing so, we spread our risk among a group of tenants in a relatively the same space as a larger tenant, achieve higher rent per square foot, annual escalators of 2% or 3% and some of our tenants pay percentage lease of revenues. Some important metrics to highlight that our new lease count for 3Q '21 is 38 versus 35 in the prior quarter and 32 in the prior year. Our leasing spreads for 3Q '21 are 5.4% versus 3.1% in the prior quarter and 2.9% in the prior year, both of which are moving in a positive direction. Total revenue was $32.4 million for the quarter, up 6% from the second quarter and up 9% from the third quarter of 2020. The revenue growth was driven by a sequential 0.3% increase in same-store occupancy from Q2 and a 1.2% improvement compared to Q3 of 2020. We are also benefiting from our ABR per square foot, rising 2.3% sequentially and 5.3% from a year ago along with lower and collectability reserves. Property net operating income was $23.2 million for the quarter, up 5% sequentially and up 9% from the third quarter of 2020. Q3 same-store NOI increased 7% from Q3 of 2020. Net income for the quarter was $0.06 per share, up from $0.02 per share in the prior year quarter. Funds from operations core was $0.25 per share in the quarter, up 9% from the second quarter of 2020 and year-to-date FFO core per share was $0.75 per share, up 9% from the same period of 2020. Our leasing activity in the quarter continued to build on our very strong first and second quarters, with 38 new leases, representing 90,000 square feet of newly occupied spaces. Our new leasing activity for the nine months was 56% higher on a square foot basis than 2020 and 48% higher than 2019. On a total lease value basis, our new leasing activity for the nine months was 112% higher than 2020 and 191% higher than 2019. Leasing spreads on a GAAP basis have been a positive 8.5% over the last 12 months and third quarter leasing spreads increased by 5.4% on new leases and 14.1% on renewal leases signed. Our annualized base rent per square foot on a GAAP basis at the end of the quarter grew 2.3% to $20.41 from $19.95 in the previous quarter and increased 5.3% from a year ago. Total operating portfolio occupancy stood at 90.2%, up 1.2% from a year ago and up 0.3% from the second quarter. Including our newest acquisition Lakeside Market, our total occupancy is 89.9%, up 1% from a year ago. Our tenant receivables decreased by $1 million, an improvement of 4.4% from year-end 2020. Our interest expense was 4% lower than a year ago, reflecting our lower net debt. At quarter end, we had $22 million in accrued rents and accounts receivable. Included in this amount is $17.8 million of accrued straight-line rents and $1.3 million of agreed upon deferrals. Our agreed upon deferral balance is down 43% from year-end reflecting tenants honoring their payment plans. Our total net debt was $616.6 million, down $20.5 million from a year ago, improving our debt to gross book real estate cost ratio to 51% down from 55% a year ago. Our debt to EBITDA ratio improved 1.3 turns from a year ago and 0.1 turn from the second quarter to 8.1 times in Q3. As of quarter end, we have $155.5 million of undrawn capacity and $81.8 million of borrowing availability under our credit facility. During the quarter, we sold 3 million common shares under our ATM program, resulting in $28 million in net proceeds to the company at an average sale price of $9.49 per share.

Regarding our financial performance for the quarter, revenue grew by 9% to $32.4 million this quarter compared to $29.9 million in 3Q '20. Funds from operations core was $0.25 per share and $0.75 per share in the quarter and the nine months ended September 30, 2021 respectively. Funds from operations core was $0.25 per share in the quarter, up 9% from the second quarter of 2020 and year-to-date FFO core per share was $0.75 per share, up 9% from the same period of 2020.

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Additional details on our approach to this crisis are outlined in our COVID-19 Insert, that is found on pages 1 to 5 of our supplemental package. For spec revenue, we are 99% complete, with only 69,000 square feet and $300,000 remaining to achieve our spec revenue target for the year. We had good second quarter leasing activity that 400,000 square feet of both new and renewal activity, with strong rental rate mark-to-market of 19.4% on a GAAP basis and 10.3% on a cash basis. Same-store numbers had been tracking in line with our business plan, but the delayed opening of Philadelphia resulted in about a $2 million NOI decline from our parking operations for the balance of the year. Our parking operations are included in our same-store pool and as such, this NOI decline has reduced our cash and GAAP ranges by about 100 basis points each. Our cash collection rates continue to be extremely good, and we have collected over 99% of our second quarter billings and our July collection rate tracks very well, also with about 98% collected as of yesterday. And we have lowered our estimated full-year 2020 capital ratio by 100 basis points, down to a 11% to 12%, really reflecting the experience we're having with generating short-term extensions that require minimal capital at with outlays and I'll touch on that in a moment. Retention was only 37%, which was mainly driven by known -- the known move out of SHI in our Austin portfolio as they began occupying their newly owned building that we built for them at our Garza Ranch project. As noted previously, we have backfilled 80% of their space, which will commence later this year at a 19% cash mark-to-market. And of the known move-outs, a 183,000 or 51% has already been relet and will recommence in 2020. I should also note that about 70 basis points of our occupancy decline were due to removing Commerce Square from our same-store pool. Most importantly though, we do expect occupancy returning to our targeted range of 92% to 93% by the end of this year. We did post FFO of $0.34, which is in line with consensus and Tom will amplify that in during his comments. We estimate the current occupancy range of our buildings is around 5% to 10% in CBD Philadelphia, up to about 20% our DC assets, Austin is around 10% with some pullback in that given the situation down there, and the Pennsylvania suburban operations seem to be around 15%. The results of those efforts are framed out on page three of our supplemental and have resulted in 73 active tenant discussions totaling about 950,000 square feet that to date have resulted in 28 tenants, totaling about 216,000 square feet, executing leases since March 15th. These leases have an average term of 24 months with a 4.2% cash mark-to-market and a 5% capital ratio. And we've not programmed any additional pull back in construction activity delays this year. Our leasing pipeline stands at 1.5 million square feet and we've actually had better than expected progression in that pipeline during the quarter. Once again, our team has been in an extensive touch with every prospect and the breakdown of the 1.5 million [Phonetic] is as follows: deals progressing but execution uncertain -- timing of that uncertain and we're targeting in the next 90 days that 24% or 354,000 square feet. Deals progressing, but too early to tell when they would actually could execute it about 900,000 square feet or over 60% of the pipeline. Since April's call, many more deals have advanced from the on-hold due to COVID, which right now comprises about 14% of that current pipeline into the deal progressing but too early to call. It's a $115 million preferred equity investment, which represents 30% of the venture's capitalization at a total value of $600 million or $316 per square foot, which we believe is exceptionally strong pricing. The going-in cap rate is 5.1%, that cap rate improves based upon the rollover, but we really view that it's simply a data point due to the pending level of vacancy and the value creation opportunity. So right now over 97%, that does drop to 70% over the next 18 months. After providing for payments for transitional leases and closing costs, Brandywine received over $100 million of net proceeds, which as Tom will amplify added to our excellent liquidity position. The transaction is a 70-30 joint venture with shared control on decisions. Both Brandywine and our partner had each committed $20 million of incremental capital to reposition the properties and retenant known vacancies. Frankly, due to the leasing status and the price, the transaction will have minimal dilution, less than $0.01 a share on '20 [Phonetic] earnings primer and will improve our net debt-to-EBITDA ratio by approximately between 3 and 4 turns between now and the end of the year. The transaction does reduce our Ford [Phonetic] rollover exposure by 1.8 million square feet in our wholly owned portfolio. And Brandywine will also recognize a gain of about $270 million on this transaction. Very important point to note in the structure, given the state of the debt markets and the near-term rollover profile of this property, we closed the venture with the existing $221 million mortgage in place at selling at 37% loan to value. We are projecting to have a $500 million line of credit availability at year-end 2020. And if we refinance rather than pay off an $80 million mortgage later this year, that liquidity increases to $580 million. We have only one $10 million mortgage that matures in 2021. We anticipate generating $55 million of free cash flow after debts and payments for the second half of '20. And our dividend remains extraordinarily well covered with a 56% FFO and 75% CAD payout ratio. First of all, all of our production assets that's Garza and Four Points in Austin, 650 Park Avenue in King of Prussia and 155 in Radnor are all fully approved, fully documented, fully ready to go, subject to identifying pre-leasing. And as we've noted previously, these are near-term completions that we can complete within four to six quarters and there are individual cost range between $40 million and $70 million. As you might expect, we didn't really make any significant advancement in our deal pipeline of almost 600,000 square feet during the quarter and frankly don't really anticipate any significant advancement of some of these major discussions until the crisis begins to abate and there is more focus on return to the workplace. And looking at our existing development projects on 405 Colorado, look, this exciting addition to Austin skyline remains on track for completion in the first quarter of '21, at a very attractive 8.5% cash-on-cash yield. We have a pipeline of 125,000 square feet. On the board and building, delighted to report that's now been placed in service at 94% occupancy and 98% leased. 3000 Market Street is a 64,000 square feet life science renovation that we undertook and within Schuylkill Yards. We expect that lease will commence in the third quarter of next year and deliver a development yield slightly north of 9%. At Broadmoor, we continue fully advancing our development plans on Block A, which is 360,000 square feet of office and 340 apartment units. The overall master plan for Schuylkill Yards provides with at least 2.8 million square feet can be life science space. 3000 Market in the Bulletin Building conversions, I just mentioned, to life science really evidence is the first part of that pivot to create a life science hub. We are also well into the design, development and marketing process for a 400,000 square foot life science building with the goal of being able to start that by Q2 '21, assuming market conditions permit. Finally, we are converting several floors within our Cira Center project to accommodate life science use that the aggregate square footage for that converted space is 56,000 square feet, and we have a current pipeline of 137,000 square feet for that space. Our second quarter net income totaled $3.9 million or $0.02 per diluted share and FFO totaled $57.7 million or $0.34 per diluted share. On our portfolio, operating income, we estimated 8 million -- $80 million in portfolio NOI [Phonetic] and we were $1.1 million higher than that. While we did have parking being about $1 million below our anticipated reduced parking level, primarily due to the transit and monthly parking. Interest expense improved by $0.8 million primarily due to lower interest rates than forecast. Our second quarter fixed charge and interest coverage ratios were 3.4 times and 3.7 times, respectively. As expected, our second quarter annualized net debt-to-EBITDA increased, the increase to 7.0 times was primarily due to the lower anticipated sequential EBITDA outlined in the prior quarter. Adjusting for the Commerce Square transaction on a pro forma basis for the second quarter, that 7.0 were decreased to 6.7. Two reporting items to highlight for the second quarter, cash collections, as reported, overall collection rate for the second quarter was a very strong 99.6% based on actual quarterly billings. However, if we did include the second quarter deferred billings, our core portfolio collections rate would still have been a very strong 97%. In addition, cash same-store as outlined on page one of our supplemental, we have included $2.3 million of rent deferrals in our second quarter results. Looking forward, we have portfolio operating income will total approximately $74 million and will be sequentially lower by $7.1 million. The joint venture will result in deconsolidation of the property and that will lower the NOI by $7.5 million. One good pick up on the other side, if there is $1.2 million of incremental income for the Bulletin Building, which has been placed into service in June and the building is now 94% occupied. FFO contribution from our unconsolidated joint ventures with total $6.5 million for the third quarter, which is up $4.1 million from the second quarter and that's primarily due to Commerce Square joint venture, which has been deconsolidated effective [Indecipherable] with our earnings yesterday. For the full-year 2020, the FFO contribution is estimated to be $19 million. G&A for the third quarter will total 7.3 [Phonetic] and will be sequentially $1 million lower than this -- than the second quarter. Full-year G&A expense will approximate $31 million. Interest expense will be $1.5 million sequentially compared to the second quarter and will total $18 million for the third quarter with 94.5% of our balance sheet debt being fixed rate at the end of the second quarter. The reduction in interest expense is primarily due to the $100 million of net proceeds received from the Commerce Square joint venture paying off our line of credit at Commerce Square mortgage debt. Capitalized interest will approximate $1 million for the third quarter and full-year interest expense were approximately $76 million. We anticipate terminations and other income totaling $2.2 million for the second -- for the third quarter and $10.5 million for the year. Net management, leasing and development fees will be $4 million and will approximate $10 million for the year. And our guidance for investments, we have only the two -- the one property in Radnor, Pennsylvania that we will acquire for $20 million and that is scheduled for redevelopment. Based on that, our CAD range will remain at 71% to 78%. And uses for this year will total $285 million, $67 million of development, $65 million of common dividends, retained -- revenue creating will be $25 million, revenue maintain will be $27 million, mortgage amortization of $1 million. We are including the $80 million pay-off of the mortgage at Two Logan and the acquisition of 250 King of Prussia Road, sources for all those uses. Our cash flow from after interest payments $115 million [Phonetic]. $100 million of net proceeds from Commerce Square joint venture, when you use the line of credit for $39 million, cash on hand of $21 million and land sales of $10 million. We also project that our net debt will range between 6.3 and 6.5. In addition, our net debt -- our debt to GAV will approximate 38%, which is down from 43%, primarily again due the joint venture improvement in that metric. In addition, we anticipate our fixed charge ratio will continue to approximate 3.7 on an interest coverage basis and 4.1 -- 3.7 on a debt service coverage and interest coverage would be 4.1.

We did post FFO of $0.34, which is in line with consensus and Tom will amplify that in during his comments. And we've not programmed any additional pull back in construction activity delays this year. Our second quarter net income totaled $3.9 million or $0.02 per diluted share and FFO totaled $57.7 million or $0.34 per diluted share.

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COVID admissions in the quarter were down to 3% of total, as compared to 10% in the first quarter. On a year-over-year basis, revenues grew 30% to $14.4 billion. Inpatient revenues increased 20%, driven by a 17.5% admission growth. Outpatient revenues grew an impressive 59%, reflecting the resurgence in outpatient demand across most categories. To highlight a few areas, outpatient surgeries were up 53%, emergency room visits grew 40%, cardiology procedures increased 41%, and urgent care visits were up 82%. Compared to 2019, overall inpatient admissions grew almost 3% with commercial admissions growing 8%. Outpatient surgeries grew approximately 3.5%. Emergency room visits were only down 5.5% with the month of June basically flat. Diluted earnings per share, excluding losses and gains on sales of facilities and losses on retirement of debt, increased 35% to $4.37. As noted in our release, earnings per share in the second quarter of 2020 included a $1.73 per diluted share benefit from government stimulus income. As a result of the strong operating performance in the quarter, our cash flow from operations was 2.25 billion, as compared to 8.7 billion in the second quarter of 2020. In the prior-year period, cash flow from operations was positively impacted by approximately 5.8 billion due to CARES Act receipts. And this year, we had approximately 850 million more income tax payments in the quarter than the prior year due to the deferral of our second-quarter 2020 estimated tax payments. Capital spending for the quarter was 842 million, and we have approximately 3.8 billion of approved capital in the pipeline that is scheduled to come online between now and the end of 2023. We completed just under 2.3 billion of share repurchases during the quarter. We have approximately 5 billion remaining on our authorization. Our debt to adjusted EBITDA leverage was 2.65 times, and we had approximately 5.6 billion of available liquidity at the end of the quarter. We have a number of other development transactions in our pipeline to expand our regional delivery networks, including over 15 surgery center additions through both de novo development and acquisitions, as well as a number of urgent care and physician practice acquisitions. We expect full-year adjusted EBITDA to range between 12.1 billion and 12.5 billion. We expect full-year diluted earnings per share to range between $16.30 and $17.10 per share. And our capital spending target remains at approximately 3.7 billion.

We expect full-year diluted earnings per share to range between $16.30 and $17.10 per share.

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Yesterday, we reported first quarter 2021 GAAP earnings of $0.62 per share and operating earnings of $0.69 per share, which is in the upper end of our guidance range. For example, we are stopping all contributions to 501(c)(4)s. This includes our decision in late March to credit our Ohio utility customers approximately $27 million. Together, these actions fully address the requirements approved in Ohio House Bill 128 as well as the related rate impact of House Bill 6 on our customers. If approved, the four-year $50 million program would offer incentives and rate structures to support the development of EV charging infrastructure throughout our New Jersey service territory, in an effort to accelerate the adoption of electric vehicles and provide benefits to our residential, commercial and industrial customers. And in late March the Pennsylvania PUC approved our five-year $390 million energy efficiency and conservation plan, which supports the PUC's consumption reduction targets. In March, we closed the transaction to sell JCP&L's 50% interest in the Yards Creek pump-storage hydro plant and received proceeds of $155 million. And we also announced plans to sell Penelec's Waverly New York distribution assets, which serves about 3,800 customers to a local co-op. We've identified more than 300 opportunities and now we are diving deeper into these ideas, developing detailed executable plans as we prepare for implementation beginning later this quarter. We're off to a great start this year, and yesterday we reaffirmed our 2021 operating earnings guidance of $2.40 to $2.60 per share. For instance, we recently held an event where the Chairman and the Chair of the Compliance subcommittee addressed the company's top 140 leaders, regarding the expectations to act with integrity, in everything we do. A detailed list of the corrective actions we are taking can be found on Pages 8 and 9 of our first quarter FactBook. Yesterday we announced GAAP earnings of $0.62 per share for the first quarter of 2021 and operating earnings of $0.69 per share, which was at the upper end of our guidance range. These drivers were partially offset by $0.10 per share related to the absence of Ohio decoupling revenues and our decision to forgo the collection of lost distribution revenues from our residential and commercial customers. Our total distribution deliveries for the first quarter of 2021 decreased 2% on a weather-adjusted basis as compared to the last year, reflecting an increase in residential sales of 2% as customers continue to spend more time at home in the first quarter of 2021, a decline of 7% in commercial sales and in our industrial class first quarter low decreased 3%. It's worth noting that total distribution deliveries through the first quarter are consistent with our internal load forecast, with residential demand 2% higher versus our forecast, while industrial load is down 2%. We are off to a solid start for the year and are reaffirming our operating earnings guidance of $2.40 to $2.60 per share for 2021. We've also introduced second quarter guidance of $0.48 to $0.58 per share. In addition, our strong focus on cash helped drive a $125 million increase in adjusted cash from operations and a $185 million increase in free cash flow versus our internal plan for the first quarter. In March FirstEnergy transmission issued $500 million in senior notes and a strong well supported bond offering that showcase the strength of our transmission business. We used the proceeds to repay $500 million in short-term borrowings under the FET revolving credit facility. In addition, we repaid $250 million at the FirstEnergy Holding Company. We also successfully issued $200 million in first mortgage bonds at MonPower in April, that was also very well supported. As to more longer term financing needs through the execution of FE Forward, we have reduced our debt financing plan by approximately $1 billion through 2023, mainly at the FirstEnergy and FirstEnergy Transmission holding companies. Additionally, as we have previously mentioned, equity is an important part of our overall financing plan, with plans to raise up to $1.2 billion of equity over 2022 and 2023. These actions combined with new rates at JCP&L and our 60% plus formula rate capital investment program will generate $150 million to $200 million of incremental cash flow each year, while maintaining relatively flat adjusted debt levels through 2023, all of which will support our targeted 12% to 13% FFO to debt range. Our funding status was 81% at March 31, up from 78% at the end of last year, resulting in a $500 million reduction in our unfunded pension obligation, which improves our adjusted debt position with the rating agencies. The extended funding timeframe permitted under the American Rescue plan, together with the modification of interest rate stabilization rules means that we do not expect any funding requirements for the foreseeable future, assuming our plan achieves a 7.5% expected return on assets.

Yesterday, we reported first quarter 2021 GAAP earnings of $0.62 per share and operating earnings of $0.69 per share, which is in the upper end of our guidance range. We're off to a great start this year, and yesterday we reaffirmed our 2021 operating earnings guidance of $2.40 to $2.60 per share. Yesterday we announced GAAP earnings of $0.62 per share for the first quarter of 2021 and operating earnings of $0.69 per share, which was at the upper end of our guidance range. We are off to a solid start for the year and are reaffirming our operating earnings guidance of $2.40 to $2.60 per share for 2021. We've also introduced second quarter guidance of $0.48 to $0.58 per share.

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Lloyd's turned in an excellent result at a little over $4 million. At the consolidated level, we reported net income of $92.1 million in the second quarter or $1.70 per diluted share, driven by a gain on bargain purchase of $74.4 million related to the NORCAL acquisition, partially offset by $20.3 million of pre-tax transaction-related costs. We reported non-GAAP operating income of $26.6 million or $0.49 per share, again, driven by strong performance from our LP and LLC investment portfolio and meaningful year-over-year improvement in our underwriting results. Consolidated gross premiums written increased nearly 13% year-over-year, driven primarily by the addition of NORCAL's premium to our Specialty P&C results, as well as $14 million of new business written in the quarter from our core operating segments. Our consolidated current accident year net loss ratio was 81.9%, a year-over-year improvement of 28.1 points, primarily attributable to the adverse effect of losses associated with significant events in the second quarter of last year in Specialty P&C. We recognized net favorable development of $13.8 million in the current quarter, driven largely by the Specialty P&C segment, which included $2.1 million related to the amortization of the purchase accounting fair value adjustment on NORCAL's assumed reserve. Our consolidated underwriting expense ratio increased in the quarter to 32.3%, driven by the pre-tax transaction costs associated with our acquisition of NORCAL. Excluding those transaction costs, the expense ratio in the quarter was 23.8%, reflecting the continued impact of restructuring efforts, but also included the impact of certain purchase accounting adjustments. As a result, DPAC amortization expense for NORCAL in the second quarter was only $900,000 and represented expenses capitalized and subsequently amortized since the acquisition. This amount is approximately $6.3 million lower than would be considered normal. From an investment perspective, our consolidated net investment result increased year-over-year to $29.3 million, driven by $11.9 million of income from our unconsolidated subsidiaries, which were driven by the results of our investments in LPs and LLCs, as previously discussed. Consolidated net investment income was $17.4 million in the quarter, down slightly from the year ago period, primarily due to lower yields from our short-term investments in corporate debt securities, due to the current low interest rate environment. This decrease was partially offset by $2.7 million of net investment income from additional invested assets that came over from the NORCAL acquisition. Also contributing to profitability in the quarter was $10.5 million of net favorable reserve development spread relatively evenly across lines of business within the segment. Gross premiums written during the second quarter increased by over 30% or approximately $35 million. We benefited from $22.4 million delivered by the NORCAL team and growth in our legacy business of 6.9%. Premium retention for the segment was 86% in the quarter, driven by retention rates that either improved or remained flat in all lines of business. Furthermore, we achieved average renewal price increases of 10% in the segment this quarter, driven by 11% in Standard Physicians and 10% in Specialty Healthcare. Our small business unit and medical technology liability business also achieved increased rate gains of 6% and 8%, respectively. New business written in the quarter totaled $7.2 million, an increase of $2.6 million from the year ago quarter and primarily driven by $3.7 million written in our HCPL specialty business. The Specialty Property and Casualty segment reported an expense ratio of 17.1% for the first quarter -- for the second quarter, an improvement of 2.8 points from the year ago quarter, driven by significantly higher earned premiums, the impact of transaction accounting and benefits from prior organizational restructuring efforts. The Workers' Compensation Insurance segment produced income of $1.1 million and a combined ratio of 99.6% in the second quarter of 2021 compared to 98.7% in 2020. During the quarter, the segment booked $57.8 million of gross premiums written, an increase of 1.1% year-over-year despite negative audit premium. Renewal price decreases in our traditional book of business were 3% in the second quarter of 2021 and premium renewal retention was 85%. Traditional new business writings increased by $300,000 to $6.1 million in the quarter. Audit premium in our traditional book of business decreased $1.3 million year-over-year reflecting the economic conditions associated with the COVID-19 pandemic and its impact on final audits of policyholder payrolls. The increase in the calendar year loss ratio to 68.3% in 2021 reflects an increase in the current accident year loss ratio, partially offset by prior year favorable development of $1.9 million in 2021 compared to $1.5 million in 2020. We booked a current accident year loss ratio of 73% for the second quarter of 2021, which brings the ratio for the six months ended June 30th to 72%. The claims operation closed 15.4% of 2020 and prior claims during the 2021 quarter consistent with second quarter historical trends. The 2021 underwriting expense ratio decreased to 31.3%, primarily due to the restructuring initiatives implemented in August of 2020, partially offset by a decrease in net premiums earned. Other underwriting and operating expenses were $8.3 million in the quarter, a decrease of 7% or approximately $700,000. The Segregated Portfolio Cell Reinsurance segment produced income of $955,000 and a combined ratio of 84.4% for the second quarter of 2021. The SPC Re calendar year loss ratio increased from 45.9% in 2020 to 51.9% in 2021. The 2021 accident year loss ratio was 62.9%, up from 57% in 2020 and reflects both the continuation of intense price competition in the workers' compensation business and the impact of higher claim activity as workers return to employment. Favorable loss reserve development was $1.8 million in the second quarter of 2021 compared to $1.9 million in 2020. As you know, for the 2021 underwriting year, we reduced our participation in Syndicate 1729 from 29% to 5% and our participation in Syndicate 6131 from 100% to 50%. As a result of these reductions, we received a return of capital of $24.5 million. Despite the reduced participation, results improved meaningly meaningfully from the year ago period to $4.3 million.

At the consolidated level, we reported net income of $92.1 million in the second quarter or $1.70 per diluted share, driven by a gain on bargain purchase of $74.4 million related to the NORCAL acquisition, partially offset by $20.3 million of pre-tax transaction-related costs. We reported non-GAAP operating income of $26.6 million or $0.49 per share, again, driven by strong performance from our LP and LLC investment portfolio and meaningful year-over-year improvement in our underwriting results.

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In the first quarter, we delivered core FFO per share of $1.26, which exceeded the high end of our guidance of $1.17. Due to this outperformance and strong visibility into our second and third quarter transient RV bookings, we are raising our 2021 core FFO per share annual guidance range by $0.13 to $5.92 to $6.08 and our expected same community NOI growth for the full year by 190 basis points to a range of 7.5% to 8.5%. For the quarter, same community NOI growth was 2.7% over last year, despite the continued Canadian border closure and the California stay-at-home order which dictated the closure of our California resorts through early February. We achieved total portfolio occupancy of 97.3%, a 60 basis point improvement over the first quarter of 2020 by selling 514 revenue-producing sites. We also delivered approximately 350 ground-up and expansion sites in the first quarter, which include the grand opening of our premier 250 site Sun Outdoors San Diego Bay Resort. Since the beginning of the year, we have deployed $183 million into acquisitions, comprised of two manufactured housing communities, six RV resorts, and four marinas. Furthermore, applications to live in a Sun community remain at record high levels, up 21% over this time last year. In early March, we executed a $1.1 billion equity raise to secure capital to fund our growing acquisition pipeline and other opportunities. With respect to our commitment to diversity, equity, and inclusion, Sun has engaged with a consultancy team with 30 years of experience in the field of equality and justice. For the first quarter, combined same community NOI increased 2.7%. The growth in NOI was driven by a 3.5% revenue gain, supported by a 1.9% increase in occupancy to 98.8% and a 3.5 weighted average rent increase. This was offset by a 5.5% expense increase. Same community manufactured housing NOI increased by 4.9% from 2020 and same community RV NOI declined by 4%. Combined, these two events had a $6 million impact on our transient RV same community revenue as compared to our previously communicated estimate of $8 million to $10 million. Our second quarter transient forecast is already ahead of our original budget by over 20% and trending 57% higher than 2019, which we believe to be a better comparable given COVID-related disruptions in 2020. Likewise, our third quarter transient RV forecast is currently ahead of the original budget by approximately 5% and this is trending ahead of 2019 by almost 40%. Today, digital reservations comprise over 60% of our total reservations for our same community portfolio as compared to 60% [Phonetic] just two years ago. Moving onto total MH and RV portfolio, in the first quarter, we gained 514 revenue-producing sites as compared to 300 in the first quarter of 2020, bringing our total portfolio occupancy to 97.3% from 96.7% a year ago. Of our revenue-producing site gains, over 380 transient RV sites were converted to annual leases with the balance being added in our manufactured housing expansion communities. In the first quarter, we delivered approximately 350 sites, 250 of which in the ground-up development in San Diego and 100 were in MH expansion sites at Sunset Ridge in Texas. As of the end of the quarter, we have approximately 9,700 zoned and entitled sites in our portfolio that once built will contribute to growth in the coming years. We sold 835 homes, an increase of 9.4% versus the first quarter of 2020. Of these, 149 were new home sales, up over 25% and 686 were pre-owned home sales, up 6.5% as compared to the same period last year, respectively. Average home prices for both new and pre-owned homes rose 17.6% and 9.8%, respectively, underscoring the overall geographic market mix as well as sustained demand for our product and the strong desire to live in a Sun community. Brokered home sales throughout Sun's portfolio saw 36% increase year-over-year, as the resale market continues to show strength. Average brokered home prices in our communities increased by over 20%, as compared to the first quarter of 2020. During the quarter, the marina portfolio contributed over $31.4 million to total NOI. For the first quarter, Sun reported core FFO per share of $1.26, 3.3% above the prior year and $0.09 ahead of the top-end of our first quarter guidance range. During and subsequent to quarter-end, we acquired $183 million of operating properties comprised of two manufactured home communities, six RV resorts and four marinas. To support our growth activities, we completed a $1.1 billion equity raise, representing approximately 8 million shares of our common stock. To date, we have settled 4 million shares, receiving $538 million in net proceeds, which was used to pay down borrowings on our credit facility. We expect to settle the remaining 4 million shares no later than March 2022. We ended the first quarter with $4.4 billion of debt outstanding at a 3.4% weighted average rate and a weighted average maturity of 9.5 years. As of March 31, we had $105 million of unrestricted cash on hand and a net debt to trailing 12-month recurring EBITDA ratio of 6.1 times. On a pro forma basis, including the estimated full year EBITDA contribution from Safe Harbor and other acquisitions, our net debt to trailing 12-month recurring EBITDA ratio is in the low-5 times. As a result of our outperformance during the quarter, we are raising our core FFO expectations for full-year 2021 to a range of $5.92 per share to $6.08 per share. We expect core FFO for the second quarter to be in the range of $1.57 per share to $1.63 per share. We are also revising full year same community NOI growth guidance to a range of 7.5% to 8.5%.

In the first quarter, we delivered core FFO per share of $1.26, which exceeded the high end of our guidance of $1.17. Due to this outperformance and strong visibility into our second and third quarter transient RV bookings, we are raising our 2021 core FFO per share annual guidance range by $0.13 to $5.92 to $6.08 and our expected same community NOI growth for the full year by 190 basis points to a range of 7.5% to 8.5%. For the first quarter, Sun reported core FFO per share of $1.26, 3.3% above the prior year and $0.09 ahead of the top-end of our first quarter guidance range. As a result of our outperformance during the quarter, we are raising our core FFO expectations for full-year 2021 to a range of $5.92 per share to $6.08 per share. We expect core FFO for the second quarter to be in the range of $1.57 per share to $1.63 per share.

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We're thrilled to deliver a strong finish to fiscal 2021, driving record results with a Q4 comp of 10.8% and operating margin expansion of 310 basis points. This resilience, coupled with continued execution in our growth initiatives, fueled an annual comp of 22%, operating margin expansion of 350 basis points, and earnings per share growth of 64% to $14.85 per share. In fact, we delivered gross margin expansion of 290 basis points in the quarter. We drove operating margin of 21% and a 37% increase in EPS, both of which demonstrate the durability of our earnings power through execution in our core and growth initiatives, which I'm excited to update you on now. Our B2B business continues to outperform, building its book of business to $753 million in 2021. During 2021, global achieved record revenue up 23% over last year with strong earnings growth. In fiscal '21, approximately 60% of our sales came from cross-brand customers, a record high in terms of percent to total. 21 on Barron's 100 Most Sustainable Companies, and receiving an A rating from CDP for leadership in supplier engagement and our work with suppliers on tackling climate change. West Elm delivered an 18.3% comp in the fourth quarter with all categories driving strong growth. On the full year, West Elm delivered a comp of 33.1%, building to a 48.3% on a two-year basis and continuing to build velocity in its mission to become a $3 billion brand. Pottery Barn delivered another high-performance quarter with a 16.2% comp, driven by strong core franchises in key categories. On the full year, Pottery Barn celebrated a record year with a comp of 23.9%, building to a 39.1% on a two-year basis. Also, we're delighted to report that Pottery Barn has surpassed the halfway mark on its commitment to plant 3 million trees in three years to restore vulnerable forests. And even better, based on the tremendous success of this program, our other brands have joined the effort, doubling our commitment to planting 6 million trees by 2023. In particular, the shutdown in related backlogs from Vietnam had a larger impact on our children's home furnishings business, which ran a negative 6.1% comp for the quarter. Pottery Barn Kids and Teen delivered a full year comp of 11.6%, building to a 28.2% on a two-year basis. Our Williams-Sonoma business drove a fourth quarter comp of 4.5% on top of a 26.2% comp last year, with growth driven by demand for entertaining at home and gift-giving. On the full year, Williams-Sonoma delivered a comp of 10.5%, building to a 34.3% on a two-year basis. And as we look further, we are confident in our long-term outlook, driving at least mid- to high single-digit comps with top-line growth to $10 billion by 2024 and operating margins relatively in line with fiscal 2021. Net revenues surpassed $2.5 billion with another quarter of double-digit comparable brand revenue growth at 10.8%. These strong top-line results were across both channels, including retail at a 20% comp and e-commerce at a 7.2% comp on top of last year's 47.9% for a 55.1% two-year stack. By brand, West Elm delivered an 18.3% comp on top of 25.2% last year. Pottery Barn accelerated from the third quarter to a 16.2% comp. Williams-Sonoma drove a 4.5% comp on top of last year's 26.2%. And our emerging brands accelerated to a 30.3% comp. In the children's home furnishings businesses, Pottery Barn Kids and Teen, comps were a negative 6.1%. This is below their third quarter year-to-date trend of approximately 20% as these brands were the most impacted during the fourth quarter by the supply chain issues from the COVID-related closure of Vietnam. Gross margin came in at a record 45%, a 290-basis-point expansion over last year. The strength of our merchandise margins drove almost all or 270 basis points of this expansion. Occupancy costs at 7.7% of net revenues leveraged approximately 20 basis points, resulting from another quarter of higher sales and lower occupancy dollar growth. Occupancy dollars increased 6.7% to approximately $193 million, which includes a full quarter of incremental costs from our new East Coast distribution center to further support our customer demand, partially offset by our ongoing retail optimization efforts from additional store closures and reduced rent. In fiscal year '21, we closed an additional 37 stores and are on track to close approximately 25% of our total retail fleet. SG&A also leveraged 20 basis points to a historical low of 24% despite absorbing higher year-over-year advertising costs from our reduced spend last year. As a result, we delivered another quarter of record profitability with operating income growth of 28% to $525 million and our highest ever operating margin at 21%, expanding 310 basis points over last year and approximately 500 basis points higher than our last three quarters this year. This resulted in diluted earnings per share of $5.42, up 37% from last year's record fourth quarter earnings per share of $3.95. On the top line, these full year highlights include an additional $1.5 billion in net revenues, growing to over $8.2 billion, including comparable brand revenue growth of 22% on top of last year's 17% or a 39% two-year stack; e-commerce growing to a 14.3% comp and a 58.8% two-year comp with our e-commerce mix at 66% of total revenues; retail growing at a 43.2% comp despite traffic levels at negative 16% to 2019; a second consecutive year of double-digit growth across all brands with significant acceleration across our two largest brands, with West Elm at a 33.1% comp, Pottery Barn at a 23.9% comp, Williams-Sonoma at a 10.5% comp on top of last year's 23.8%; our emerging brands, Rejuvenation and Mark and Graham combined, delivering another year of accelerating double-digit growth; our global business growing 23% to over $425 million; and our cross-brand initiatives outperforming with our business-to-business division growing 109% to over $750 million in demand and contributing approximately 500 basis points to our total company comp. On the bottom line, this top-line strength and strong financial discipline throughout enabled us to grow 2021 operating income to $1.5 billion, over $0.5 billion and 52% higher than last year. Operating margin at 17.7% on the year expanded 350 basis points over last year and was more than two times higher than our 2019 and prior operating margin levels. This was driven by gross margins expanding to record levels or 500 basis points above last year to 44% despite increased costs associated with supply chain disruptions throughout the year. This operating income strength resulted in earnings per share of $14.85, which was $5.81 or 64% above last year and drove our return on invested capital to an all-time high at 57.9%. On the balance sheet, we ended the year with strong liquidity levels with a cash balance of $850 million and no debt or amounts outstanding on our line of credit. The strength of our business generated operating cash flow of almost $1.4 billion during fiscal year 2021, which has allowed us to fund the operations of the business, to invest over $225 million in capital expenditures primarily in technology and supply chain, and to return nearly $1.1 billion to shareholders in the form of $188 million in dividends and 900 million in share repurchases. Merchandise inventories were $1.246 billion, increasing 24% over last year, which includes inventory in transit. Inventory on hand increased 14.8% but was still negative 13% on a two-year basis. We estimate revenues will reach $10 billion by fiscal year 2024, with our brands accelerating or reaching our prior committed targets faster, including Pottery Barn expanding to $3.5 billion in revenues; West Elm adding $1 billion in revenues to over $3.3 billion; Williams-Sonoma will reach almost $1.6 billion in revenues, and our Pottery Barn Kids and Teen businesses will grow to $1.4 billion. This expected top-line growth will also be fueled by growth across our strategic initiatives, such as our B2B business doubling to $1.5 billion in revenues, our marketplace business growing 20% annually to nearly $700 million, our emerging brands expanding to a combined revenue of over $600 million, and our global operations continuing to expand in size to $700 million. We expect to invest approximately $350 million in the business, with over 80% of the spend prioritized on technology and supply chain initiatives primarily to support e-commerce, including the addition of a new automated distribution center in Arizona. For dividends, we announced earlier today another double-digit increase in our quarterly dividend, up 10% or $0.07 to $0.78 per share. We also announced our Board has approved a new share repurchase authorization to $1.5 billion, which will replace the remaining amount outstanding under our prior authorization.

We're thrilled to deliver a strong finish to fiscal 2021, driving record results with a Q4 comp of 10.8% and operating margin expansion of 310 basis points. Net revenues surpassed $2.5 billion with another quarter of double-digit comparable brand revenue growth at 10.8%. This resulted in diluted earnings per share of $5.42, up 37% from last year's record fourth quarter earnings per share of $3.95.

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National Fuel had a great fourth quarter with operating results of $0.95 per share, up 138% over last year. Combined, these projects represent incremental pipeline revenues of more than $75 million and provide much needed capacity out of the basin. Total project costs are expected to come in nearly 15% under budget. In particular, we committed to reduce methane intensity at our major operating segments by 30% to 50% from 2020 levels by 2030. In addition, we pledged to reduce absolute greenhouse gas emissions by 25% again by 2030. As you can see from page 7 of our current IR deck, at $4.50 natural gas prices, we project free cash flow of approximately $320 million in fiscal '22. Our first priority for that free cash flow will be our dividend, which we paid for the last 119 years and grown for the last 51. Production came in at 79.6 Bcfe nearly a 20% increase from the prior year's fourth quarter. For the full year, production increased 36%, which along with significant realized synergies from our acquisition helped to drive a 7% reduction in cash operating unit costs. We've also updated our reserve estimates with proved reserves increasing nearly 400 Bcfe to 3.9 Tcfe up 11% from last year. We remain conservative in our approach to reserve bookings with 84% of our reserves being proved developed. Our ability to ship activity across our three major operating areas is supported by our diverse marketing portfolio including the incremental 330,000 per day of new Leidy South capacity expected to come online in December. Since last quarter, we've converted a significant portion of our existing Leidy South firm sales from a Transco Zone 6 index sale to a NYMEX based sale, providing basis certainty on those volumes. We have another 17% with basis protection that is not hedged, which leaves less than 10% of expected production exposed to in basin pricing. From there production should ramp up in Q2 and Q3, then level out around 1 Bcf a day net toward the end of the fiscal year. In California, our team has done a great job managing through the last 18 months and we are forecasting relatively flat oil production from fiscal '22 to fiscal '20, excuse me, for fiscal '21 to fiscal '22. We also announced our plans to seek a responsible natural gas certification for 100% of our Appalachian production through Ekahau [Phonetic] origin. Additionally, we are working with project canary toward the responsibly sourced gas designation for approximately 300 million a day of our production utilizing their trust well process. National Fuel closed out its fiscal year on a strong note with earnings coming in at $0.95 per share. For the full year after adjusting for several items impacting comparability, operating results were $4.29 per share. Turning to fiscal '22, we now expect earnings to be in the range of $5.05 to $5.45 per share, an increase of $0.65 per share or 14% at the midpoint from our preliminary guidance. We're now forecasting NYMEX natural gas prices of $5.50 per MMBtu for the first half of our fiscal year and $3.75 from April through September. We've also increased our NYMEX crude oil price assumption to $75 per barrel. While we're well hedged for the year approximately 25% of forecasted production remains unhedged. For reference, a $0.25 change in our natural gas price assumption is now expected to impact earnings by $0.12 per share. On the oil side, our sensitivities remain unchanged with a $5 change oil impacting earnings by $0.03 per share. We've increased our range of $0.01 [Phonetic] now projecting $0.83 to $0.86 per Mcfe for the year. We expect us to increase margin at the utility by approximately $4 million for the year. By reducing our OPEB collections from approximately $10 million to zero, we expect to see an equivalent reduction in utility EBITDA. Fiscal '21 came in at $770 million for the year, which was toward the lower end of our guidance range. For fiscal '22, our guidance was $640 million to $760 million remains unchanged. In fiscal '21, funds from operations exceeded cash capital expenditures by approximately $120 million for the year. Adding to that, the proceeds from the sale of our timber assets which closed in December, we generated free cash flow in excess of our $165 million dividend payment for the year. As we look to fiscal '22, we would expect our funds from operations to exceed capital spending by $300 million to $350 million. At this level, our free cash flow, we are projecting more than $150 million of excess cash after funding our dividend for the year. Given the recent run up in prices, we recorded $600 million mark to market liability associated with our hedge portfolio. Well, this is a rather large liability, our investment grade balance sheet minimize collateral requirements such that we were limited to approximately $90 million posted with counterparties at the end of September. Today, the collateral amount has been further reduced now sitting closer to $25 million.

National Fuel had a great fourth quarter with operating results of $0.95 per share, up 138% over last year. National Fuel closed out its fiscal year on a strong note with earnings coming in at $0.95 per share. Turning to fiscal '22, we now expect earnings to be in the range of $5.05 to $5.45 per share, an increase of $0.65 per share or 14% at the midpoint from our preliminary guidance.

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Net sales were up 14% to $1.5 billion and adjusted EBITDA was up 18% to $330 million. For the full year, we generated free cash flow of $497 million. As part of our strategic portfolio realignment, we successfully completed the divestiture of Reflectix, a maker of insulated materials for the construction market, and generated additional after-tax proceeds of $65 million. On Slide 5, we're raising our SEE operating model growth goals for sales and adjusted EBITDA by 200 basis points. Our plan is to more than double our automation business to over $1 billion by 2025. We are digitally connecting more than 100,000 installed assets. This is an example of a $7 million automated protein system, with less than a three-year payback, providing a step-change improvement for our customers' operations. We continue with parts and services being 2x over the equipment life cycle, and the automation and integration opportunities represent 3x as our high-performance materials such as paper and films, along with digital graphics, flow through the system, that takes us well over 10 times the value of the original equipment order. We continue to make significant progress on our 2025 sustainability pledge, with approximately 50% of our solutions already designed for recyclability, and we reached approximately 20% recycled and/or renewable content in those solutions. Approximately 15% of our solutions are fiber-based. In Q4, net sales were up 14% to $1.5 billion. In constant dollars, net sales were up 15%, with 17% growth in food and 13% growth in Protective. The Americas and EMEA were both up double digits, with Americas up 19% and EMEA up 13%, while APAC was up 4% versus last year. In 2021, net sales were up 13% to $5.5 billion. In constant dollars, net sales were up 11%, with 9% growth in food and 15% in Protective. Growth was led by the Americas and EMEA, which were up 13% and 12%, respectively, with APAC up 6% versus last year. In Q4, overall volume growth was up 4%, with favorable price of 12%. In 2021, volume growth and favorable price were both 6%. In the quarter, food volumes were up 6%, with growth across all regions. Americas up 5%; EMEA, up 10%; and APAC up 6%. The Protective volumes were up 1% led by EMEA with 7% growth, flat in Americas and APAC declined 4%. Q4 price was a favorable 12%, with Protective at 13% and food at 11%. For the full year 2021, we realized nearly $300 million in price, of which more than half was realized in Q4 as a result of timing of pricing actions and formula pass-throughs. These increases will vary based on region and product offering and will average between 5% and 10%. Q4 adjusted EBITDA of $330 million, up 18% compared to last year, with margins of 21.5%, up 70 basis points. Full year adjusted EBITDA of $1.132 billion was up 8%, compared to 2020 with margins of 20.4%, down 100 basis points. Higher volume contributed $23 million to Q4 adjusted EBITDA. Full year volume contributed $109 million to adjusted EBITDA. For the first time since Q3 2020, price/cost spread was favorable in the quarter, contributing $36 million to earnings. In 2021, price/cost spread was unfavorable $37 million. Reinvent SEE benefits totaled $21 million in Q4 and $64 million in 2021. Operating costs include labor and other non-raw material cost inflation of about $20 million in Q4, which compares to $13 million in the same period a year ago and $69 million for the full year, which is up from $52 million in 2020. Adjusted earnings per diluted share in Q4 was $1.12, compared to $0.89 in Q4 2020. In 2021, we delivered adjusted earnings per share of $3.55, compared to $3.19 in 2020, an increase of 11%. Our adjusted tax rate was 26%, compared to 24.5% in 2020. Our weighted average diluted shares outstanding in 2021 were 152 million, compared to 156 million, given we were an active buyer of our stock throughout the year, purchasing 7.9 million shares for $403 million or approximately $51 per share. At year-end 2021, we had $896 million remaining under our authorized repurchase program. We achieved $64 million of benefits in 2021, bringing the cumulative benefits of our Reinvent SEE program to $354 million. Cash payments associated with Reinvent SEE were $28 million in 2021 and $193 million since the start of the program. To complete this program, we anticipate $20 million to $25 million in cash payments in 2022, half of which is carryover from 2021. We anticipate $60 million of productivity gains in 2022, of which approximately one-third is coming from Reinvent SEE initiatives. In Q4, food net sales of $877 million were up 17% in constant dollars. Volume growth of 6% was led by double-digit growth in automation and strong growth in materials. Adjusted EBITDA of $204 million in Q4 increased to 20% compared to last year, with margins at 23.3%, up 90 basis points. Net sales increased 14% on an organic basis to $655 million. Volume in the quarter was up 1% as we faced tougher comps and managed through supply disruptions. Adjusted EBITDA of $126 million increased 10% in Q4, with margins at 19.3%, down 40 basis points versus last year. In 2021, we generated $497 million of free cash flow relative to the same period last year, higher earnings and lower restructuring and interest payments were offset by working capital needs, and incremental capex investments to support strong growth. For net sales, we estimate $5.8 billion to $6 billion, an increase of 5% to 8%. Our organic growth forecast is 7% to 11%, of which at the midpoint assumes approximately 3% in volume and approximately 6% in price. We anticipate adjusted EBITDA to be in the range of $1.2 billion to $1.24 billion. Adjusted EBITDA is expected to grow 6% to 10%, and implies an EBITDA margin of approximately 21%. For adjusted EPS, we expect to be in the range of $3.95 to $4.15. This assumes depreciation and amortization of approximately $245 million, an adjusted effective tax rate of approximately 26%, net interest expense of approximately $155 million, and approximately 150 million shares outstanding. And lastly, our outlook for free cash flow is expected to be in the range of $510 million to $550 million. We are increasing capex to $240 million to $260 million to increase capacity to support growth initiatives. For cash tax payments, we anticipate to pay $205 million to $215 million in 2022, reflecting expected earnings growth, $17 million tax payments on the gain from sale of Reflectix, and approximately $30 million impact related to the R&D provision requiring R&D expenses to be deducted over five years versus the prior immediate expensing allowance. Additionally, as previously disclosed, our 2021 cash tax payments were reduced by approximately $24 million refund associated with the retroactive application of the revised U.S. GILTI regulations.

Net sales were up 14% to $1.5 billion and adjusted EBITDA was up 18% to $330 million. In Q4, net sales were up 14% to $1.5 billion. Adjusted earnings per diluted share in Q4 was $1.12, compared to $0.89 in Q4 2020. For net sales, we estimate $5.8 billion to $6 billion, an increase of 5% to 8%. Our organic growth forecast is 7% to 11%, of which at the midpoint assumes approximately 3% in volume and approximately 6% in price. For adjusted EPS, we expect to be in the range of $3.95 to $4.15.

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Revenue of $3.5 billion was the highest quarterly revenue in our company's history. Revenue increased more than $500 million or 17% year-over-year, and adjusted earnings per share grew 40%. This demand, combined with our organizational focus on delivering broader value to our clients, was also reflected in a very strong cross-sales, driving our largest revenue synergy quarter-to-date, increasing our run rate by 50% or $150 million sequentially to $450 million. This sales execution in turn drove a $1.5 billion increase to our backlog, which is now greater than $22 billion. Our strong execution is driving us to raise both our 2021 guidance and increase our year-end revenue synergy target to $700 million. In addition, as we consider client demand across our portfolio of solutions, we are extending our mid-term outlook of 7% to 9% revenue growth through 2024. T. Rowe Price provides yet another example of an industry leader looking to FIS to help them modernize their 401(k) retirement offering with advanced technology. In other retail locations where we have rolled out the solution, we are seeing consumers accept premium paybacks offered to pay with points approximately 50% of the time when they are prompted. The revenue contribution from solutions developed over the past three years continues to grow as a percent of our total revenue mix, up from less than 1% in 2019 to over 4% in 2021. New solutions also contribute meaningfully to our total revenue growth, with contribution increasing from less than 1% in 2019 to more than 2% in total revenue growth in 2021. Looking forward, we expect new solutions to drive up to 3 points of incremental growth each year, supporting our outlook for 7% to 9% revenue growth through the midterm. It's why we are confident in our forward momentum to drive strong 7% to 9% revenue growth through 2024. On a consolidated basis, revenue increased 17% to $3.5 billion, driven by outperformance in each of our operating segments. Organic revenue growth was 16%. Adjusted EBITDA margins expanded 460 basis points to 44%, reflecting strong operating leverage and synergy contribution. As a result, adjusted earnings per share increased 40% year-over-year to $1.61 per share. Given our progress and strength of our pipeline, we are increasing our revenue synergy target for 2021 by $100 million to exit the year at $700 million on an annualized run rate basis. We have more than doubled our initial cost synergy target of $400 million and are on-track to exit the year with approximately $900 million in total annualized savings, including approximately $500 million in operating expense synergies. We repurchased 2.7 million shares worth approximately $400 million during the quarter, bringing share repurchase to a total of $800 million year-to-date at an average price of $145 a share. Our leverage ratio declined to 3.3 times, keeping us on-track to end the year below 3 times leverage. Lastly, we generated free cash flow in excess of $1 billion this quarter, which is the most in our company's history and reflects the highly cash generative nature of our business. Banking revenue growth accelerated to 8% due in part to strong issuer processing growth of 17% and a 30% increase in Modern Banking platform revenue. As Gary noted, we had another 2 MBP wins this quarter as well as an add-on sale and MBP revenue will continue to accelerate as more clients go live. We currently expect MBP revenue growth of nearly 50% for the full year 2021 and for this to further accelerate into 2022. The Banking segment's adjusted EBITDA margin expanded 410 basis points to 46%. Capital markets revenue growth also accelerated to 6% this quarter, reflecting strong recurring revenue growth and sales execution. Capital Markets adjusted EBITDA margin expanded 100 basis points to 46%. Lastly, for Merchant, revenue growth rebounded sharply to 45% in the second quarter, which includes 10 points of yield benefit and the segment generated its largest new sales quarter in the history of the business. Merchants' revenue acceleration included 31% revenue growth in e-commerce. Merchants adjusted EBITDA margin expanded 910 basis points to 50%, primarily reflecting its high contribution margin and synergy benefits. We now anticipate revenue of $13.9 billion to $14 billion for the full year 2021, which represents an increase of $250 million over our prior guidance. We now expect Merchant growth to approach 20% this year, ahead of our initial expectations. Relative to 2019, Merchant revenue growth accelerated 9% in the second quarter or 12% in the U.S. We're also raising our full year 2021 adjusted EBITDA guidance to $6.125 billion to $6.2 billion and increasing our adjusted earnings per share guidance to $6.45 to $6.60 per share. For the third quarter, we expect 9% to 10% revenue growth and to generate revenue of $3.49 billion to $3.52 billion. As a result of the high contribution margins in our business, we expect adjusted EBITDA margin to expand more than 50 basis points sequentially or about 200 basis points year-over-year to approximately 44% for the third quarter. This will result in adjusted earnings per share of $1.66 to $1.69 in the first year. Beyond our guidance for the year, we expect to generate 7% to 9% revenue growth in the midterm through 2024, as Gary discussed. Second, strong new sales and cross-selling activity drove our backlog above $22 billion and increased our revenue synergy attainment by 50% in just one quarter, which will continue to drive future growth into 2022 and beyond.

This will result in adjusted earnings per share of $1.66 to $1.69 in the first year.

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Throughout the last 18 months, our franchisees have continued to step up to the challenge in service to their customers, their communities and their team members. During the second quarter, we delivered 17.1% global retail sales growth, excluding foreign currency impact, driven by a powerful combination of growth in US same-store sales, international same-store sales and global store counts. We also reinforced our leadership position in the pizza category with a very strong quarter of global store growth, highlighted by the opening of our 18,000th store. When you look at it on a trailing four-quarter basis, our pace of net store growth is increased from 624 in Q4 2020 to 884 in Q2 2021. During the quarter, we also completed our $1.85 billion refinancing transaction, lowering the cost of our debt and giving us the capacity to return $1 billion to our shareholders through our recently completed accelerated share repurchase transaction. Overall, Domino's team members and franchisees around the world generated impressive operating results, leading to a diluted earnings per share of $3.06 for Q2. Our diluted earnings per share as adjusted for certain items related to our recapitalization transaction completed during the quarter with $3.12. Global retail sales grew 21.6% in Q2, as compared to Q2 2020. When excluding the positive impact of foreign currency, global retail sales grew 17.1%. Breaking down total global retail sales growth, US retail sales grew 7.4% and international retail sales grew 39.7%. When excluding the positive impact of foreign currency, international retail sales grew 29.5% rolling over a prior year decrease of 3.4%. Turning to comps, during Q2, we continue to lead the broader restaurant industry with 41 straight quarters of positive US comparable sales and 110 consecutive quarters of positive international comps. Same-store sales in the US grew 3.5% in the quarter lapping a prior-year increase of 16.1%. Same-store sales for our international business grew 13.9% rolling over a prior year increase of 1.3%. Breaking down the US comp, our franchise business was up 3.9% in the quarter, while our company-owned stores were down 2.6%. Shifting to unit count, we and our franchisees added 35 net stores in the US during the second quarter, consisting of 39 store openings and foreclosures. Our international business added 203 net stores comprised of 217 store openings and 14 closures. Total revenues for the second quarter were up approximately $112.4 million or 12.2% over the prior year quarter. Changes in foreign currency exchange rates positively impacted our international royalty revenues by $4 million in Q2 2021 as compared to the prior year quarter. Our consolidated operating margin as a percentage of revenues increased to 39.5% in Q2 2021 from 38.8% in the prior year, due primarily to higher revenues from our US franchise business. Company-owned store margin as a percentage of revenues increased to 24.5% from 23.1% primarily as a result of lower labor costs, partially offset by higher food costs. Supply chain operating margin as a percentage of revenues decreased to 11% from 11.9% in the prior year quarter, resulting primarily from higher insurance and food costs, as well as higher fixed operating costs driven by depreciation and our new supply chain facilities opened last year. G&A expenses increased approximately $12.3 million in Q2 as compared to Q2 2020, resulting from higher labor costs, including higher variable performance-based compensation and non-cash compensation expense, partially offset by lower professional fees. Net interest expense increased approximately $6.7 million in the quarter, driven by a higher average debt balance. Our weighted average borrowing rate for Q2 2021 was 3.8%, down from 3.9% in Q2 2020. Our effective tax rate was 19.6% for the quarter as compared to 4.7% in Q2 2020. The effective tax rate in Q2 2021 includes a 2.3 percentage point positive impact from tax benefits on equity-based compensation. This compares to an 18.5 percentage point positive impact in Q2 2020. Combining all of these elements, our second quarter net income was down $2 million or 1.7% versus Q2 2020. On a pre-tax basis, we were up $20.6 million or 16.5% over the prior year. Our diluted earnings per share in Q2 was $3.06 versus $2.99 in the prior year. Our diluted earnings per share as adjusted for the impact of the recapitalization transaction was $3.12, an increase of $0.13 or 4.3% over the prior year. Breaking down that $0.13 increase in our diluted earnings per share as adjusted, most notably, our improved operating results benefited us by $0.53, net interest expense adjusted for the impact of the items affecting comparability I discussed previously negatively impacted us by $0.08, a lower diluted share count driven by share repurchases over the trailing 12 months benefited us by $0.12, and finally our higher effective tax rate, resulting from a lower tax benefits on equity based compensation negatively impacted us by $0.44. During Q2, we generated net cash provided by operating activities of approximately $143 million. After deducting for capex, we generated free cash flow of approximately $126 million. Regarding our capital expenditures, we spent approximately $17 million on capex in Q2, primarily on our technology initiatives, including our next-generation point-of-sale system. As previously disclosed, during Q2, we also entered into an accelerated share repurchase transaction for $1 billion. We received and retired approximately 2 million shares at the beginning of the ASR. The ASR settled yesterday and we received a retired an additional 238,000 shares in connection with this transaction. In total, the average repurchase price throughout the ASR program was $444.29 per share. We also paid a $0.94 quarterly dividend on June 30. Subsequent to the end of the quarter, our Board of Directors declared a quarterly dividend of $0.94 per share to be paid on September 30. We are focused on building the business for the long term and that long-term focus on great product, service, image and technology is precisely why we were able to deliver a terrific quarter, highlighted by 7.4% US retail sales growth, lapping 19.9% from Q2 2020. Turning to same-store sales, perhaps the thing I'm most pleased about when I look at the 3.5% US comp is the fact that we were able to hold orders flat while overlapping the big gains from Q2 2020. At 19.6% for Q2, we saw a material sequential improvement of the two-year stack when compared to the first quarter. Beyond the comps, when you look at the absolute dollars, our second quarter same store average weekly unit sales in the US exceeded $27,000, another sequential uptick from the levels seen in the first quarter. Now turning to the other critical component of our retail sales growth, new store openings, our addition of 35 net stores was softer than we expected. We ran a brief 49% off car-side delivery awareness campaign during the quarter and just recently launched a campaign highlighting our Car Side Delivery 2-Minute Guarantee. Our franchisees and operators have fully embraced car side delivery and we are consistently averaging below 2 minutes out the door and on our way to the customer's cars. Our 29.5% international retail sales growth, excluding foreign currency impact was supported by an exceptional 13.9% comp, continuing the momentum we had in the first quarter. As I discussed earlier with our US business, we're also watching the two-year comp stacks for international, anchoring back to pre-COVID 2019 and we'll continue to do so throughout 2021. Q2 represented a 15.2% two-year stack, a sequential improvement over the first quarter. I'm particularly pleased with our strong momentum on store growth as international provides a significant push toward our two to three-year outlook of 6% to 8% global net unit growth. Our 203 net stores in Q2 increased our trailing four quarter pace of international store growth to 653 net stores. At the end of the quarter, we had fewer than 175 temporary store closures, with many of those located in India, which has been hit particularly hard by COVID. This included a cross-functional team that provided employee assistance 24/7 as well as several COVID isolation centers with oxygen concentrator banks. China passed the 400 store milestone during Q2 and once again Dash, our master franchise partner delivered outstanding retail sales growth for the brand. Japan reached the 800 store milestone in the weeks following the close of our second quarter and continued the outstanding performance under master franchisee Domino's Pizza Enterprises ownership.

Overall, Domino's team members and franchisees around the world generated impressive operating results, leading to a diluted earnings per share of $3.06 for Q2. Our diluted earnings per share as adjusted for certain items related to our recapitalization transaction completed during the quarter with $3.12. Same-store sales in the US grew 3.5% in the quarter lapping a prior-year increase of 16.1%. Same-store sales for our international business grew 13.9% rolling over a prior year increase of 1.3%. Our diluted earnings per share in Q2 was $3.06 versus $2.99 in the prior year. Our diluted earnings per share as adjusted for the impact of the recapitalization transaction was $3.12, an increase of $0.13 or 4.3% over the prior year. Our 29.5% international retail sales growth, excluding foreign currency impact was supported by an exceptional 13.9% comp, continuing the momentum we had in the first quarter. As I discussed earlier with our US business, we're also watching the two-year comp stacks for international, anchoring back to pre-COVID 2019 and we'll continue to do so throughout 2021.

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The favorable pricing environment, along with fundamentally strong underlying demand in many of the key end markets we serve drove record quarterly net sales of $3.85 billion. In addition, strict pricing discipline by our managers in the field helped us generate a strong gross profit margin of 31.5%, which, when combined with our record sales, resulted in a record quarterly gross profit dollars of $1.21 billion in the third quarter of 2021. Despite various supply disruptions and continued increases in metals pricing that drove LIFO expenses of $262.5 million in the third quarter, our record quarterly net sales, along with record gross profit dollars and our continued focus on expense control led to the third consecutive quarter of record quarterly pre-tax income of $532.6 million. As a result, our earnings per diluted share of $6.15 were also a record, representing an increase of 21.1% from our record earnings per share achieved in the prior quarter and substantially exceeded both our guidance and analyst consensus. We estimate that approximately half of our $310 million capital expenditure budget this year will be directed toward new, innovative, value-added processing equipment, along with enhancements to existing equipment to strengthen our value proposition and overall service offerings. On October 1st, we completed our acquisition of Merfish United, a leading master distributor of tubular building products in the U.S. The company is based in Massachusetts and services 47 states through 12 strategically located distribution centers. The Merfish transaction is a bit unique, in that Merfish is not a traditional metal service center and yet the transaction is one of the larger acquisitions that we have completed in our history, as Merfish had approximately $600 million in annual net sales in the 12-month period ending September 30, 2021. During the third quarter of 2021, we also returned $174.7 million to our stockholders through the payment of $43.7 million in dividends and the repurchase of $131 million of Reliance common stock at an average cost of $147.89 per share. In the last five years, Reliance repurchased 11.7 million shares of our common stock at an average cost of $89.92 per share for a total of $1.05 billion. Reliance is a Delaware corporation operating through approximately 300 divisions and subsidiary locations in 40 states and 13 countries outside of the United States, and the relocation of Reliance's principal executive office to Scottsdale reflects our growth and expansion as well as our evaluation of post-pandemic business opportunities and related operating practicalities. Dave has been a strategic and valued partner to Reliance for more than 30 years for his involvement in the metals industry, and Frank is a seasoned and respected public company senior executive and Chief Financial Officer. With the addition of Dave and Frank, Reliance's Board consists of 12 members, 10 of whom are independent. despite the challenges of the ongoing pandemic, supply chain disruptions and tight labor markets and limited metal availability, we sustained our efforts to ensure that we continued to provide value customers with the products they need, often in 24 hours or less. Our tons sold decreased 4.6% and from the second quarter, which was below our guidance of down one percent to up one percent, mainly due to more typical seasonality than we had anticipated combined with various supply chain issues. Our average selling price per tons sold in the third quarter reached another all-time high of $2,862, an increase of 18.4% compared to the second quarter of 2021 and significantly in excess of our guidance of up seven percent to nine percent. The favorable pricing environment, coupled with outstanding execution by our managers in the field, contributed to record quarterly gross profit dollars of $1.21 billion in the third quarter of 2021 and a strong gross profit margin of 31.5%. On a FIFO basis, which we believe better reflects our current operating performance, we achieved a record gross profit margin of 38.3% marking our third consecutive quarter of record FIFO gross profit margin. Favorable metals pricing fueled by limited availability and solid demand trends in the vast majority of key end markets we serve resulted in record quarterly sales of $3.85 billion, up 12.5% from the second quarter of 2021 and up 84.5% from the third quarter of 2020. Strong pricing momentum contributed to the 18.4% increase in our average selling price per tons sold over the second quarter of 2021. In comparison to the same period of the prior year, our average selling price per tons sold was up 77.9% due to increases in metal prices, but the vast majority of the products we sell, notably carbon and stainless steel products. As Karla noted, Reliance has limited exposure to the more volatile and lower-margin hot-rolled coil and sheet products that made up only about 11% of our third quarter sales. While benchmark pricing for hot-rolled coil products was up over 275% from the third quarter of 2020, Reliance's average selling price per tons sold for the same period was up 77.9%. These factors collectively resulted in record quarterly gross profit of $1.21 billion and a strong gross profit margin of 31.5% in the third quarter of 2021 despite including a significant LIFO charge. Our non-GAAP FIFO gross profit margin of 38.3% in the third quarter of 2021 was a record and exceeded the prior quarter by 80 basis points and the prior year period by 650 basis points. We incurred LIFO expense of $262.5 million in the third quarter of 2021 compared to $200 million in the second quarter of 2021. LIFO expense in effect reflects our cost of sales at current replacement costs and removes inventory gains from our results in an environment of rising metal costs and conversely, removes inventory losses from our results in times of declining metal costs. Our guidance for Q3 2021 assumed LIFO expense of $150 million based on our $600 million annual estimate. We revised our 2021 annual LIFO expense estimate from $600 million to $750 million. Accordingly, we had to true up our third quarter 2021 LIFO expense by incurring an incremental charge of $112.5 million, which increased our total third quarter LIFO expense to $262.5 million. Based on our revised annual LIFO expense estimate, we now project LIFO expense for the fourth quarter of 2021 to be $187.5 million or $2.21 per share and $750 million or $8.73 per share for the full year. As of today, the LIFO reserve on our balance sheet at the end of this year is expected to be $865.6 million based on our revised $750 million annual LIFO expense estimate. This provides $865.6 million available to benefit future period operating results, significantly mitigating the impact of declining metal prices on our gross profit and pre-tax income. Our third quarter SG&A expense increased $43.5 million or 7.7% compared to the second quarter of 2021, and increased $157.6 million or 35.1% compared to the prior year period. Overall, our headcount increased slightly compared to both the second quarter of 2021 and the third quarter of 2020, but is nonetheless down approximately 11% from pre-pandemic levels at the end of the third quarter of 2019. As a reminder, approximately 65% of our total SG&A costs are people related. Our pre-tax income of $532.6 million in the third quarter of 2021 was the highest in our company's history. Our pre-tax income margin of 13.8% was also a record. Our effective income tax rate for the third quarter of 2021 was 25.5%, up from 22.6% in the third quarter of 2020, mainly due to higher profitability. We currently anticipate an effective income tax rate of 25.5% for the full year 2021. We generated record quarterly earnings per share of $6.15 in the third quarter of 2021 compared to $5.08 in the second quarter of 2021 and $1.51 in the third quarter of 2020. It's worth emphasizing again that our third quarter 2021 results were impacted by LIFO expense of $3.06 per share. Our third quarter cash flow from operations was $142.2 million after servicing over $325 million in additional working capital requirements. As of September 30, 2021, our total debt outstanding was $1.66 billion with a net debt-to-EBITDA multiple of 0.6 times. We had no borrowings outstanding on our $1.5 billion revolving credit facility and had $638.4 million of cash on hand, providing us with ample liquidity to continue executing on all areas of our capital allocation strategy, including funding our acquisition of Merfish United on October one and our record 2021 capex budget. In addition, we anticipate demand will be impacted by normal seasonal factors including customer holiday-related shutdown and fewer shipping days in the fourth quarter compared to the third quarter. As such, we estimate tons sold will be down 5 percent to eight percent in the fourth quarter compared to the third quarter of 2021. Based on these expectations, we currently anticipate non-GAAP earnings per diluted share in the range of $5.05 to $5.15 for the fourth quarter of 2021.

The favorable pricing environment, along with fundamentally strong underlying demand in many of the key end markets we serve drove record quarterly net sales of $3.85 billion. As a result, our earnings per diluted share of $6.15 were also a record, representing an increase of 21.1% from our record earnings per share achieved in the prior quarter and substantially exceeded both our guidance and analyst consensus. Our average selling price per tons sold in the third quarter reached another all-time high of $2,862, an increase of 18.4% compared to the second quarter of 2021 and significantly in excess of our guidance of up seven percent to nine percent. Favorable metals pricing fueled by limited availability and solid demand trends in the vast majority of key end markets we serve resulted in record quarterly sales of $3.85 billion, up 12.5% from the second quarter of 2021 and up 84.5% from the third quarter of 2020. LIFO expense in effect reflects our cost of sales at current replacement costs and removes inventory gains from our results in an environment of rising metal costs and conversely, removes inventory losses from our results in times of declining metal costs. We generated record quarterly earnings per share of $6.15 in the third quarter of 2021 compared to $5.08 in the second quarter of 2021 and $1.51 in the third quarter of 2020. In addition, we anticipate demand will be impacted by normal seasonal factors including customer holiday-related shutdown and fewer shipping days in the fourth quarter compared to the third quarter. As such, we estimate tons sold will be down 5 percent to eight percent in the fourth quarter compared to the third quarter of 2021. Based on these expectations, we currently anticipate non-GAAP earnings per diluted share in the range of $5.05 to $5.15 for the fourth quarter of 2021.

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Combined with the lapping of prior year pandemic related weakness, sales increased nearly 20% on an organic basis over prior year levels and we're positive on a two-year stack basis. Related organic sales across this automation offering were up over 30% year-over-year in the fourth quarter with order activity remaining strong in recent months. Combined with an accelerating demand recovery in longer and later cycle markets such as industrial OE, process flow and construction segment sales were up 8% organically on a two-year stack basis during the fourth quarter with positive trends continuing in recent months. Combined with a leaner cost structure, our EBITDA increased over 46% year-over-year in the quarter. SD&A expense as a percent of sales was the lowest in 10 years, and EBITDA margins are at record levels. We ended the year with net leverage of 1.8 times, the lowest in four years, an ample liquidity heading into fiscal 2022. Over the past two years, we deployed nearly $340 million on debt reduction, dividends, share buybacks and acquisitions during an uncertain and challenging operating environment, further highlighting the strength of our team and business model. Consolidated sales increased 3.6% over the prior year quarter. Acquisitions contributed 2.1 percentage points of growth and foreign currency drove a favorable 1.7% increase. Netting these factors, sales increased 19.8% on an organic basis. In addition, average daily sales rates increased 6% sequentially on an organic basis in the third quarter, which was approximately 600 basis points above historical third quarter to fourth quarter sequential trends. As it relates to pricing, we estimate the overall contribution of product pricing and year-over-year sales growth, was around 80 to 100 basis points in the quarter. The segment's average daily sales rates improved 4% sequentially from the prior quarter, which likewise was above normal seasonal patterns. Within our Fluid Power and Flow Control segment, sales increased 26.1% over the prior year quarter with our acquisitions of ACS and Gibson Engineering contributing 6.4 points of growth. On an organic basis segment sales increased 19.7% year-over-year and 8% on a two-year stack basis. As highlighted on Page 8 of the deck, gross margin of 29.4% improved 63 basis points year-over-year. During the quarter, we recognized a net LIFO benefit of $3.7 million compared to LIFO expense of $0.8 million in the prior year quarter. The net LIFO benefit relates to year end LIFO adjustments for inventory layer liquidations and had a favorable 52 basis points year-over-year impact on gross margins during the quarter. Selling, distribution and administrative expenses increased 13.9% year-over-year compared to adjusted levels in the prior-year period or approximately 9% on an organic constant currency basis. Year-over-year comparisons exclude $1.5 million of non-routine expense recorded in the prior year quarter. SD&A expense was 20.3% of sales during the quarter, down from 22% in the prior year quarter. Our strong cost control combined with improving sales and firm gross margins resulted in EBITDA growing approximately 46% year-over-year when excluding non-routine expense in the prior year period or 39% when excluding the impact of LIFO in both periods. In addition, EBITDA margin was 10.6% up 165 basis points over the prior year, which includes a favorable 52 basis point year-over-year impact from LIFO. Combined with the reduced interest expense and a lower effective tax rate, reported earnings per share of $1.51 was up 89% from prior year adjusted earnings per share of $0.80. Cash generated from operating activities during the fourth quarter was $38.3 million, while free cash flow totaled $34.6 million. For the full year, we have generated free cash up $226 million, which represented 121% of adjusted net income. Over the past few years, we have generated over $500 million of free cash flow. Given the cash performance and confidence in our outlook, we deployed excess cash through share buybacks during the quarter, repurchasing 400,000 shares for approximately $40 million. In addition, we paid down $106 million of debt during fiscal 2021, including $24 million during the fourth quarter. We ended June with approximately $258 million of cash on hand and net leverage at 1.8 times adjusted EBITDA, below the prior level of 2.3 times and the fiscal 21 third quarter level of 1.9 times. Our revolver remains undrawn with approximately $250 million of capacity and an additional $250 million accordion option combined with incremental capacity on our AR securitization facility and uncommitted private shelf facility, our liquidity remained strong. For fiscal 2022, we're introducing earnings per share guidance in the range of $5 to $5.40 per share based on sales growth of 8% to 10%, including a 7% to 9% organic growth assumption, as well as EBITDA margins of 9.7% to 9.9%. Considering our embedded customer base across our core service center network, an addressable market exceeding $70 billion and growing, we believe this initiative represents a significant opportunity that should expand our share across both legacy and emerging market verticals into fiscal 2022 and beyond. In the interim, we're focused on achieving our financial targets of $4.5 billion in sales and 11% EBITDA margins.

Combined with the reduced interest expense and a lower effective tax rate, reported earnings per share of $1.51 was up 89% from prior year adjusted earnings per share of $0.80. For fiscal 2022, we're introducing earnings per share guidance in the range of $5 to $5.40 per share based on sales growth of 8% to 10%, including a 7% to 9% organic growth assumption, as well as EBITDA margins of 9.7% to 9.9%.

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In the first quarter, we grew our top line revenue at 21% operationally, our best quarter ever, with 25% operational growth internationally and 19% growth in the U.S. China and Brazil led our international performance with 75% and 48% operational growth respectively, exhibiting their strength in both companion animal and livestock product sales. In total, our containment animal portfolio grew 34% operationally based on the strength of our parasiticides and dermatology products, while our livestock portfolio grew 8% operationally with solid growth in cattle, swine and fish products. It is exceeding expectations and has been well received by customers, with a 90% plus penetration rate in our largest U.S. corporate accounts. After several successful innovations in the last few years, these products made up 16% of our total sales in the first quarter and includes such brands as Simparica, Simparica Trio, Revolution, Stronghold and ProHeart. In the containment animal space, we've also continued to be pleased with our diagnostics portfolio, which grew 47% operationally in the first quarter. Looking ahead, we are raising guidance for operational growth and full year revenue to the range of 10.5% to 12%. We've built a comprehensive and rigorous approach through our Driven to Care program, and our goals include support for 10 of the 17 United Nations Sustainable Development Goals. In 2014, our companion animal business was 34% of our total revenue. Last year, it had grown to 55% based on the strength of our innovation and investment in growth, and we see that continuing to expand. In the first quarter, we generated revenue of $1.9 billion, growing 22% on a reported basis and 21% operationally. Adjusted net income of $603 million with an increase of 33% on a reported basis and 34% operationally. Operational revenue grew 21%, resulting entirely from volume increases with price flat for the quarter. Volume growth of 21% includes 13% from other in line products, 5% from new products, and 3% from key dermatology products. Companion animal products led the way in terms of species growth, growing 34% operationally, with livestock growing 8% operationally in the quarter. Following blockbuster sales in year one, Simparica Trio began 2021 with strong first quarter performance, posting revenue of $90 million, growing sequentially each quarter since launch. U.S. market share within the flea, tick and heartworm segment is now at an all-time high of 31%, representing an increase of more than 9% for the first quarter versus the same period in the prior year. Global sales of our key dermatology portfolio were $245 million in the quarter, growing 24% operationally. We remain confident that key dermatology sales will exceed $1 billion this year. Our diagnostics portfolio grew 47% in Q1, led by increases in consumable and instrument revenue. Our swine portfolio grew 19% operationally as large producers continued rebuilding herds as they recover from African swine fever and created significant demand for our products. U.S. revenue grew 19%, with companion animal products growing 32% and livestock sales declining by 4%. While severe weather caused a slight decline in vet clinic traffic for the quarter, revenue per visit was up more than 10%. Our small animal parasiticide portfolio was the largest contributor to companion animal growth, growing 74% in the quarter. Simparica Trio continues to perform well in the U.S. with sales of $83 million. The Simparica franchise generated sales of $112 million in the quarter and is now the number 2 brand in the U.S. flea, tick and heartworm segment. Companion animal diagnostic sales increased 62% in the quarter as the continued recovery at the vet clinic and a favorable prior year comparative period led to significant growth in point-of-care consumable revenue. Key dermatology sales were $157 million for the quarter, growing 16% with significant growth for Apoquel and Cytopoint. U.S. livestock declined 4% in the quarter, driven primarily by poultry as producers switching to lower-cost alternatives unfavorably impacted our business. Cattle grew 6% in the quarter as promotional programs and the timing of generic entrants drove growth across the product portfolio. Revenue in our international segment grew 25% operationally in the quarter, with companion animal revenue growing 37% operationally and livestock revenue growing 17% operationally. Companion animal diagnostics grew 18% in the quarter, led by a 24% increase in point-of-care consumable revenue and a second consecutive quarter of double-digit increase in instrument placement revenue. Swine revenue grew 29% operationally led by growth in China of 128%, marking the third consecutive quarter with swine growth in excess of 100%. Cattle grew 11% operationally in the quarter as a result of marketing campaigns, key account penetration, and favorable export market conditions in Brazil and several other emerging markets. Our fish portfolio delivered another strong quarter, growing 39% operationally driven by strong performance in Chile, the timing of seasonal vaccination protocols, and the 2020 acquisition of Fish Vet Group. China total sales grew 75% operationally, which in addition to the significant growth in swine, delivered 59% operational growth in companion animal. Brazil grew 48% operationally in the quarter as sales of Simparica, the leading oral parasiticide in the Brazilian market, drove a 73% operational increase in companion animal. Adjusted gross margin of 71% increased 70 basis points on a reported basis compared to the prior year as a result of favorable product mix, partially offset by foreign exchange and other costs, including freight. Adjusted operating expenses increased 8% operationally, resulting from increased compensation-related costs and advertising and promotion expense for Simparica Trio. The adjusted effective tax rate for the quarter was 19%, an increase of 230 basis points driven by a reduction in favorable discrete items compared to the prior year's comparable quarter, partially offset by the favorable impact of the jurisdictional mix of earnings. Adjusted net income and adjusted diluted earnings per share grew 34% operationally for the quarter, primarily driven by revenue growth. We resumed our share repurchase program in the first quarter, repurchasing approximately $180 million worth of shares. For revenue, we are raising and narrowing our guidance range, with projected revenue now between $7.5 billion and $7.625 billion and operational revenue growth between 10.5% and 12% for the full year versus the 9% to 11% in our February guidance. Adjusted net income is now expected to be in the range of $2.12 billion to $2.16 billion, representing operational growth of 12% to 14% compared to our prior guidance of 9% to 12%. Adjusted diluted earnings per share is now expected to be in the range of $4.42 to $4.51, and reported diluted earnings per share to be in the range of $4.08 to $4.19.

In the first quarter, we generated revenue of $1.9 billion, growing 22% on a reported basis and 21% operationally. For revenue, we are raising and narrowing our guidance range, with projected revenue now between $7.5 billion and $7.625 billion and operational revenue growth between 10.5% and 12% for the full year versus the 9% to 11% in our February guidance. Adjusted diluted earnings per share is now expected to be in the range of $4.42 to $4.51, and reported diluted earnings per share to be in the range of $4.08 to $4.19.

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For the six months of 2021, we successfully refinanced 12 legacy CIM securitizations supporting more than $5.6 billion of loans. The results of these transactions has lowered our overall cost of debt by approximately 245 basis points, and we expect this cost savings to continue to benefit our shareholders in the future. The National Association of REALTORS recently reported sales of existing homes at 5.9 million annual units, with a median sale price of more than $363,000, up more than 23% from a year ago. The 30-plus day delinquency rate was reported at 4.4% of outstanding loans, down 42% on a year-over-year basis. Over the period, the yield on 10-year treasury notes fell by 27 basis points while the yield on two-year treasury rose by nine basis points. Accordingly, the Bloomberg Barclays U.S. Corporate High Yield Index ended the quarter at 3.75%, its lowest yield ever. As part of our continued call optimization strategy, this quarter, we called and refinanced six CIM legacy deals, representing more than 1.5 billion of loans. Our April deals, CIM 2021-R3 and NR3 on a combined basis, had a total of 813 million of securitized debt supported by 977 million of loans. The combined advance rate was 83%, enabling us to extract 125 million of capital while lowering our cost of debt for these loans by 200 basis points to 2.12%. Chimera retained 164 million of subordinate and IO securities as investments from these deals. In June, we issued 546 million CIM 2021-R4. The deal consisted of 464 million securitized debt, representing an 85% advance rate and a 1.97% cost of debt for these loans. The R4 freed up 98 million of capital and provided cost savings of approximately 180 basis points. Chimera retained 82 million of subordinate and IO securities as investments. We have provided additional details on Page 8 of our earnings supplement to further assist you in the analysis of this quarter's CIM securitizations. We have made meaningful improvements with the average cost of our secured financing for residential credit assets in the second quarter at 3.5%, down from 4.9% at year end. This quarter, through the combination of prepay penalties received from our Ginnie Mae project loans and early pay downs of non-agency credit, we generated onetime nonrecurring income of 38 million. We have resecuritized debt supporting 5.6 billion of loans through seven separate securitizations, lowered our cost of securitized debt by over 245 basis points, lowered the cost of our repo credit facilities by 140 basis points since year end, retired high-cost debt and warrants incurred during the pandemic, issued three jumbo prime securitizations totaling 1.2 billion, purchased more than 200 million of high-yielding fix and flip loans and increased our quarterly dividend by 10% to $0.33. We have successfully refinanced many of our outstanding legacy deals, and we have an additional five deals with 1 billion of unpaid principal balance that are or will become callable over the next six months. GAAP book value at the end of the second quarter was $11.45 per common share. GAAP net income for the second quarter was 145 million or $0.60 per share on a fully diluted basis. Our core earnings for the second quarter was 130 million or $0.54 per share. Economic net-interest income for the second quarter was 173 million. The yield on average interest-earning assets was 7% for the second quarter, while our average cost of funds was 2.6%, resulting in a net-interest rate spread of 4.4%. Total leverage for the second quarter was 3.3 to one, while our recourse leverage ended the quarter at 1.0 to one. For the quarter, our economic net-interest return on equity was 19%, and our GAAP return on average equity was 18%. Expenses for the second quarter, excluding servicing fees and transaction expenses, were 15 million, down approximately 3 million from last quarter.

GAAP book value at the end of the second quarter was $11.45 per common share. GAAP net income for the second quarter was 145 million or $0.60 per share on a fully diluted basis. Our core earnings for the second quarter was 130 million or $0.54 per share.

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To summarize, here are some of the reasons why we believe this: About 90% of our net sales are generated by proprietary products, and around three quarters of our net sales come from products for which we believe we are the sole source provider. We raised an additional $1.5 billion at the beginning of our third quarter of fiscal-year '20. We generated about $275 million of positive cash flow from operations and closed the quarter with almost $5 billion of cash. We bought the Cobham Aero Connectivity business, which is an antenna and radio business, for a purchase price of $965 million. Though we are not giving overall guidance for TransDigm, for the little less than nine months that we will own the Cobham business in fiscal '21, we expect it to contribute roughly $160 million in revenue with EBITDA as defined margins running in the 25% to 35% range. We also sold two small nonproprietary former Esterline businesses that did not fit our model for about $30 million so far in 2021. The total revenues for these businesses in fiscal-year '20 were roughly $35 million, and EBITDA was in the 10% revenue range. Despite these headwinds, I am pleased that we were able to achieve a Q1 EBITDA as defined margin approaching 43%, which was a sequential improvement from our Q4 EBITDA as defined margin. In the commercial market, which typically makes up close to 65% of our revenue, we split our discussion into OEM and aftermarket. Our total commercial OEM market revenue declined approximately 40% in Q1 when compared with Q1 of the prior year period. Total commercial aftermarket revenues declined by approximately 49% in Q1 when compared with Q1 of the prior year period. On a positive note, the total commercial aftermarket revenues increased sequentially by approximately 5% when comparing the current quarter to Q4 fiscal 2020. This is likely the result of destocking slowing at the airlines. IATA's most recent forecast expects the final reported revenue passenger miles for calendar year 2020 to be 66% below 2019 and that calendar year 2021 average traffic levels will be about 50% of pre-COVID crisis levels. Now let me speak about our defense market, which traditionally are at or below 35% of our total revenue. The defense market, which includes both OEM and aftermarket revenues, grew by approximately 1% in Q1 when compared with the prior year period. EBITDA as defined of about $474 million for Q1 was down 30% versus prior Q1. EBITDA as defined margin in the quarter was just under 43%. I am pleased that amid a disrupted commercial aerospace industry and in spite of the mix impact of low commercial aftermarket sales, we were able to expand our EBITDA as defined margin by approximately 40 basis points sequentially. As Nick previously mentioned, we are not in a position to issue formal fiscal 2021 sales, EBITDA as defined and net income guidance at this time. We assume a steady increase in commercial aftermarket revenue going forward and expect full year fiscal 2021 EBITDA margin roughly in the area of 44%, which could be higher or lower based on the rate of commercial aftermarket recovery. For the quarter, organic growth was negative 24% driven by the commercial end market declines that Kevin mentioned. That is, we still anticipate our GAAP cash and adjusted tax rates to all be in the 18% to 22% range. Free cash flow, which we traditionally define at TransDigm as EBITDA as defined less cash interest payments, capex and cash taxes, was roughly $200 million. We then saw an additional $70 million-plus come out of our net working capital driven by accounts receivable collections. We ended the quarter with $4.9 billion of cash, up from $4.7 billion of cash at the end of last quarter. There's one remaining piece of that acquisition, a Finland facility, representing 2% of the purchase price that's going through regulatory approvals now and should close soon. Pro forma for the closing of this acquisition, our Q1 net debt-to-EBITDA ratio was a shade higher than 7.5 times Assuming air travel remains depressed, this ratio will continue ticking up through the end of Q2 of our fiscal 2021 when the last remaining pre-COVID quarter rolls out of the LTM EBITDA computation.

This is likely the result of destocking slowing at the airlines. As Nick previously mentioned, we are not in a position to issue formal fiscal 2021 sales, EBITDA as defined and net income guidance at this time.

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Our earnings per share of $0.21 is the best second-quarter performance we have posted since 2013. Our robust second-quarter sales growth of 54% was across all three brands and was propelled by our meaningful enhancements in product and marketing, which continues to significantly drive full-price selling, reduced markdowns, and increased gross margin. Not only did Soma post a 53% sales growth over last year's second quarter, comparable sales grew a remarkable 38% over the second quarter of 2019. Soma remains on track to delivering an incremental 100 million in sales this year. According to NPD research data, Soma's growth outpaced the market in non-sports bras, panties, and sleepwear for the past 12 months compared to the same period in 2019. In addition, as customers' preferences have shifted to comfort, soma strategically increased its wireless bra assortment, taking more market share than any other brand for the last 12 months compared to the same period in 2019. Exciting things are indeed happening at both Chico's and White House Black Market, as indicated by second-quarter sales growth of 59% and 48%, respectively. As our store revenues continue to rebound, our second-quarter digital sales grew 23% over 2019 levels. In fact, we posted our highest gross margin rate in 13 consecutive quarters. Our on-hand inventories remain strategically lean, down 27% versus last year's second quarter and down 20% compared to the second quarter of 2019. We have successfully opened 47 Soma shop-in-shops inside Chico's stores, which are exceeding expectations, driving new customers to both brands, and further expanding our digital business. More of these shop-in-shops are scheduled going forward with a total of 70 expected by first quarter of next year. We have lease flexibility with nearly 60% of our leases coming up for renewal or kick out available over the next two to three years. We are still on track to close 13% to 16% of our remaining store fleet through the end of fiscal 2023, with 45 to 50 of those closures occurring this fiscal year. During the quarter, we closed nine stores, bringing our year-to-date closings to 18, and we ended the quarter with 1,284 boutiques. We are very pleased with our company's return to profitability, posting diluted earnings per share of $0.21 for the second quarter, compared to a $0.40 loss per share from last year's second quarter and a $0.02 loss per share for the second quarter of fiscal 2019. Second-quarter net sales totaled $462 million compared to $306 million last year. This 54% increase reflects meaningful improvement in product and marketing, which drove full-price selling as well as a recovery in-store sales as our stores were temporarily closed or operating at reduced hours last year, partially offset by 29 net store closures in the last 12 months. Looking at the second quarter compared to 2019, our comparable sales were basically flat, declining just 1.6% with Soma improving 38% and Chico's and White House Black Market declining 14% and 5%, respectively. Total company on-hand inventories compared to 2019 declined 20%, with Soma up 19%; and Chico's and White House Black Market down 32% and 49%, respectively, illustrating that the strategic investments in Soma's growth and our turnaround strategy in Chico's and White House Black Market are working. Second-quarter gross margin was 38.4% compared to 14.6% last year, which included the impact of significant non-cash inventory write-offs. This was our highest gross margin rate in 13 consecutive quarters. SG&A expenses for the second quarter totaled $146 million or 30.9% of sales, an improvement of more than 400 basis points from last year's second quarter and nearly 300 basis points better than the second quarter of 2019. We ended the quarter with over $137 million in cash and marketable securities, an increase of nearly $35 million over the first quarter. Borrowings on our $300 million credit facility remained unchanged from fiscal year end at $149 million. In addition, during the second quarter, we received a $16 million income tax refund related to the $55 million income tax receivable reported in the first quarter, and we expect to receive the balance of the $55 million in the third quarter. In the second quarter, we continued our lease renegotiation initiatives with A&G Real Estate Partners, securing year-to-date commitments of approximately $15 million, and incremental savings from landlords, the majority of which will be realized this fiscal year. This is in addition to the $65 million in abatements and reductions negotiated last year for a total savings to date of $80 million. For the third quarter, we expect consolidated year-over-year sales improvement in the 18% to 22% range, gross margin rate improvement of 13 to 15 percentage points over third quarter last year, SG&A as a percentage of sales to improve 500 to 600 basis points year over year and an income tax rate of 34% to 35%. For the full fiscal year, we expect consolidated year-over-year net sales improvement in the 32% to 35% range, gross margin rate improvement of 20 to 22 percentage points over fiscal 2020, SG&A as a percent of sales to improve 500 to 600 basis points year over year and an income tax rate of 34% to 35%.

Our earnings per share of $0.21 is the best second-quarter performance we have posted since 2013. We are very pleased with our company's return to profitability, posting diluted earnings per share of $0.21 for the second quarter, compared to a $0.40 loss per share from last year's second quarter and a $0.02 loss per share for the second quarter of fiscal 2019. For the third quarter, we expect consolidated year-over-year sales improvement in the 18% to 22% range, gross margin rate improvement of 13 to 15 percentage points over third quarter last year, SG&A as a percentage of sales to improve 500 to 600 basis points year over year and an income tax rate of 34% to 35%. For the full fiscal year, we expect consolidated year-over-year net sales improvement in the 32% to 35% range, gross margin rate improvement of 20 to 22 percentage points over fiscal 2020, SG&A as a percent of sales to improve 500 to 600 basis points year over year and an income tax rate of 34% to 35%.

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For the fourth quarter, we generated record adjusted pre-tax title earnings of $624 million compared with $355 million in the year ago quarter and a record 22.7% adjusted pre-tax title margin compared with 16.3% in the fourth quarter of 2019. F&G continues to execute on its growth strategy, generating retail sales growth of over 40% in the fourth quarter. F&G is gaining momentum in the newly entered bank and broker-dealer channel, generating $500 million of channel sales since our launch on July 1. Last week, we announced a quarterly cash dividend of $0.36 per share, reflecting the fourth quarter dividend increase of 9%. Additionally, in October, we announced a 12-month $500 million share repurchase target. And since that announcement, we have repurchased 3.8 million shares for approximately $140 million. And for 2020 in total, we repurchased 7.5 million shares for approximately $244 million. For the fourth quarter, we generated adjusted pre-tax title earnings of $624 million, a 76% increase over the fourth quarter of 2019. Our adjusted pre-tax title margin was 22.7%, a 640 basis point increase over the prior year quarter. We had a 40% increase in direct orders closed -- 48% increase in direct orders closed, driven by an 86% increase in daily refinance orders closed, an 18% increase in daily purchase orders closed and a 1% increase in total commercial orders closed. Total commercial revenue was $322 million compared with the year ago quarter of $321 million due to the 1% increase in closed orders. For the fourth quarter, total orders opened averaged 11,600 per day, with October at 11,800 and November at 11,900 in December at 11,000. For January, total orders opened were over 13,400 per day and through the first three weeks of February were over 13,500 per day as we continue to see strong demand and purchase activity and continued strength in the refinance market. Daily purchase orders opened were up 14% in the quarter versus the prior year. For January, daily purchase orders opened were up 15% and versus the prior year. And through the first three weeks of February were up 4% versus the prior year. Refinance orders opened increased by 90% on a daily basis versus the fourth quarter of 2019. For January, daily refinance orders opened were up 96% versus the prior year and, through the first three weeks of February, were up 40% versus the prior year. Lastly, total commercial orders opened increased by 3% over the fourth quarter of 2019. For January, total commercial orders opened per day were up 5% over January 2020 and were up 2% through the first three weeks of February versus the prior year. Total retail annuity sales of $1.3 billion in the fourth quarter were up 42% from the prior year, and core FIA sales were $947 million, up 19% from the prior year. Since then, we've generated over $500 million in new annuity sales in the channel to date, including $322 million in the fourth quarter alone. With these solid sales results, we grew average assets under management, or AAUM, to $28 billion, driven by approximately $900 million of net new business flows in the fourth quarter. Total product net investment spread was 255 basis points in the fourth quarter, and FIA net investment spread was 302 basis points. Adjusted net earnings for the fourth quarter were $128 million. Net favorable items in the period were $68 million, primarily as a result of this tax benefit. Adjusted net earnings, excluding notable items, were $60 million, down from $64 million in the third quarter due to $4 million of higher strategic spend due to our faster-than-expected launch into new channels. In contrast to many of our peers, F&G has minimal exposure to traditional life products at only 6% of GAAP reserves after reinsurance. In addition, as of year-end, the portfolio's net unrealized gain position grew to $2 billion, a sharp reversal from the net unrealized loss position experienced early in 2020 due to the pandemic. As expected, we ended the year with an estimated RBC ratio of over 400% for our primary insurance operating subsidiary. We generated approximately $3.8 billion in total revenue in the fourth quarter, with the title segment producing approximately $3 billion, F&G producing $667 million and the corporate segment generating $60 million. Fourth quarter net earnings were $801 million, which includes net recognized gains of $573 million versus net recognized gains of $131 million in the fourth quarter of 2019. Excluding net recognized gains, our total revenue was $3.2 billion as compared with $2.2 billion in the fourth quarter of 2019. Adjusted net earnings from continuing operations were $588 million or $2.01 per diluted share. The title segment contributed $498 million. F&G contributed $128 million, and the corporate and other segment had an adjusted net loss of $38 million. Excluding net recognized gains of $290 million, our title segment generated $2.8 billion in total revenue for the fourth quarter compared with $2.2 billion in the fourth quarter of 2019. Direct premiums increased by 29% versus the fourth quarter of 2019. Agency revenue grew by 33%, and escrow title-related and other fees increased by 21% versus the prior year. Personnel costs increased by 15%, and other operating expenses decreased by 7%. All in, the title business generated a 22.7% adjusted pre-tax title margin, representing a 640 basis point increase versus the fourth quarter of 2019. Interest income in the title and corporate segments of $32 million declined $23 million as compared with the prior year quarter due to the reduction of short-term interest rates on our corporate cash balances and our 1031 exchange business. FNF debt outstanding was $2.7 billion on December 31 for a debt-to-total capital ratio of 24.2%. Our title claims paid of $54 million were $33 million lower than our provision rate of $87 million for the fourth quarter. The carried title reserve for claim losses is currently $62 million or 4.1% above the actuary central estimate. We continued to provide for title claims at 4.5% of total title premiums. Finally, our title and corporate investment portfolio totaled $5.7 billion at December 31. Included in the $5.7 billion are fixed maturity and preferred securities of $2.5 billion with an average duration of three years and an average rating of A2, equity securities of $900 million, short-term and other investments of $500 million and cash of $1.8 billion. We ended the quarter with just under $1 billion in cash and short-term liquid investments at the holding company level.

For the fourth quarter, we generated record adjusted pre-tax title earnings of $624 million compared with $355 million in the year ago quarter and a record 22.7% adjusted pre-tax title margin compared with 16.3% in the fourth quarter of 2019. And since that announcement, we have repurchased 3.8 million shares for approximately $140 million. We generated approximately $3.8 billion in total revenue in the fourth quarter, with the title segment producing approximately $3 billion, F&G producing $667 million and the corporate segment generating $60 million. Adjusted net earnings from continuing operations were $588 million or $2.01 per diluted share.

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One way to look at them, a pessimistic way to look at them, is to note that our adjusted earnings per share of $1.32 is down significantly from a year ago. And of course, most of you remember that corp fin 10 years ago in the midst of a market boom had record results. In fact, during 2018 and 2019, when the restructuring market was hovering around all-time lows, we delivered record revenues, up 17% and 28%, respectively. Equally as powerful is to not just look at how similar we are in corp fin to where we were 10 years ago, but to look at how we've changed since then, how we've enhanced our positions. 1 creditor rights business. 4 in London, we're now No. We have power on the continent we didn't have 10 years ago with the addition of Andersch in Germany and the addition of other terrific professionals elsewhere in Europe. In strat comms, for those of you who have been long-term shareholders, you may remember that 10 years ago when the recession hit, that business, in large part, melted down. Similarly, if you look at econ, 10 years ago, we already had a fabulous econ business, but it was primarily a fabulous -- fabulous North American business. Revenues of $607.9 million were up $1.7 million or 0.3%, compared to revenues of $606.1 million in the prior-year quarter. GAAP earnings per share of $1.27 in 2Q '20, compared to earnings per share of $1.69 in 2Q '19. Adjusted earnings per share for the quarter were $1.32, which compared to $1.73 in the prior-year quarter. The difference between our GAAP and adjusted earnings per share in 2Q '20 reflects $2.3 million of non-cash interest expense related to our convertible notes, which decreased GAAP earnings per share by $0.05. Our convertible notes had a potential dilutive impact on earnings per share of approximately 507,000 shares and weighted average shares outstanding for the quarter as our average share price of $121.03 this past quarter was above the $101.38 conversion threshold price at maturity. Second-quarter 2020 net income of $48.2 million, compared to net income of $64.6 million in the prior-year quarter. The year-over-year decrease was largely due to higher compensation, which was primarily related to an 18.2% increase in billable headcount and higher variable compensation, which was partially offset by a decline in SG&A expenses and a lower tax rate. SG&A expenses for 2Q '20 of $126.9 million were 20.9% of revenues. This compares to SG&A of $129.9 million or 21.4% of revenues in the second quarter of 2019. Second-quarter 2020 adjusted EBITDA of $75.8 million or 12.5% of revenues, compared to $97.2 million or 16% of revenues in the prior-year quarter. Our effective tax rate for the second quarter of 23.1%, compared to 24.8% in the prior-year quarter. The 1.7% decline was primarily due to a favorable discrete tax adjustment related to share-based compensation. For the balance of 2020, we expect our effective tax rate to range between 25% and 27%. Billable headcount increased by 715 professionals or 18.2%, compared to the prior-year quarter. Sequentially, billable headcount was up by 65 professionals or 1.4%. Worth noting, during the quarter, 66 professionals focused on performance analytics, permanently transferred from our forensic and litigation consulting segment to our business transformation and transactions practice within our corporate finance & restructuring segment. In corporate finance & restructuring, record revenues of $246 million increased 29.5%, compared to the prior-year quarter. Adjusted segment EBITDA of $76.3 million or 31% of segment revenues, compared to $50.5 million or 26.6% of segment revenues in the prior-year quarter as increased revenues more than offset higher compensation related to the 34.7% increase in billable headcount and higher variable compensation. On a sequential basis, corporate finance & restructuring revenues increased $38.3 million or 18.4% as growth in our restructuring practice was partially offset by a decline in demand for our business transformation and transaction services. Revenues of $106.4 million decreased 27.1%, compared to the prior-year quarter. Adjusted segment EBITDA was a loss of $9 million, which compared to adjusted segment EBITDA of $28.2 million or 19.4% of segment revenues in the prior-year quarter. The year-over-year decrease in adjusted segment EBITDA was due to lower revenues with lower staff utilization and higher compensation related -- primarily related to a 9.4% increase in billable headcount, which was only partially offset by a decline in SG&A expenses. Sequentially, FLC revenues decreased $41.2 million or 27.9% as we experienced lower demand for our investigations, disputes, and data and analytics services. Our economic consulting segment's revenues of $151.5 million decreased 2.6%, compared to the prior-year quarter. Adjusted segment EBITDA of $21.7 million or 14.3% of segment revenues, compared to $23.3 million or 15% of segment revenues in the prior-year quarter. Sequentially, economic consulting's revenues increased $19.4 million or 14.6% due to increased realization and demand for our M&A-related antitrust services. In technology, revenues of $47.1 million decreased 15.4%, compared to the prior-year quarter. Adjusted segment EBITDA of $6.4 million or 13.7% of segment revenues, compared to $12.9 million or 23.1% of segment revenues in the prior-year quarter. The decrease in adjusted segment EBITDA was due to lower revenues and higher compensation, primarily related to a 19.5% increase in billable headcount. On a sequential basis, technology revenues decreased $11.6 million or 19.8% because of decreased demand for global cross-border investigations and M&A-related services. Revenues in the strategic communications segment of $56.9 million decreased 3.8%, compared to the prior-year quarter. Excluding the impact of FX, the decrease in revenues was primarily due to a $1.9 million decline in pass-through revenues, which include billable travel and entertainment expenses, client event costs, and media buys. Adjusted segment EBITDA of $10 million or 17.6% of segment revenues, compared to $10.5 million or 17.7% of segment revenues in the prior-year quarter. The decrease in adjusted segment EBITDA was due to higher compensation, primarily related to a 13.2% increase in billable headcount, which was partially offset by a decline in SG&A expenses. Sequentially, strategic communications revenues decreased $1.5 million or 2.6%, primarily due to a decline in pass-through revenues, which was largely offset by higher demand for services provided to clients managing through urgent communication projects related to restructuring and financial issues. We generated net cash from operating activities of $153 million and free cash flow of $147.3 million in the quarter. Total debt, net of cash, decreased $100.1 million year over year from $147.1 million at June 30, 2019, to $47 million at June 30, 2020. During the quarter, we repurchased 470,853 shares at an average price per share of $108.41 for a total cost of $51 million. In the last 12 months, ended June 30, 2020, we have repurchased 1.27 million shares at an average price per share of $107.78 for a total cost of $137.1 million. On July 28, 2020, our board of directors authorized an additional $200 million for share repurchases. As of July 28, 2020, we have re -- we have purchased 8.2 million shares pursuant to the repurchase program at an average price per share of $54.90 for an aggregate cost of approximately $450.4 million. We have approximately $249.5 million remaining available for share repurchases under the program. Our business generates tremendous free cash flow as evidenced by the $100.1 million reduction in net debt over the last 12 months despite us repurchasing $137.1 million worth of our shares over the same time frame and making a well-timed acquisition of a leading restructuring business in Germany. And today, we announced a $200 million increase to our share repurchase authorization.

One way to look at them, a pessimistic way to look at them, is to note that our adjusted earnings per share of $1.32 is down significantly from a year ago. Revenues of $607.9 million were up $1.7 million or 0.3%, compared to revenues of $606.1 million in the prior-year quarter. GAAP earnings per share of $1.27 in 2Q '20, compared to earnings per share of $1.69 in 2Q '19. Adjusted earnings per share for the quarter were $1.32, which compared to $1.73 in the prior-year quarter. In the last 12 months, ended June 30, 2020, we have repurchased 1.27 million shares at an average price per share of $107.78 for a total cost of $137.1 million.

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We achieved another quarterly sales record and earnings per share was up 32% in fourth quarter, resulting in full year sales and earnings per share that were both near the high end of our guidance ranges. Total sales were $773 million, which is up 25% from last year as we compare it against the toughest patch from the pandemic. In Engine, total sales were up 28% and the increase was again led by our first-fit businesses. Fourth quarter sales in Off-Road were up 58%, including about 15 points of growth from Exhaust and Emissions. Fourth quarter sales were up 36% from prior year and innovative products, which make up nearly half the business, grew twice as fast as the non-proprietary counterparts. In the US, fourth quarter On-Road sales continued to benefit from higher Class 8 truck production and there was also an impact from a strategic choice we made. If we adjust our current and prior-year sales to exclude these products, the like-for-like growth in the US is about 35% and we are left with a more profitable business that allows us to focus on what we do best, technology-led filtration. In Engine aftermarket sales were up almost 26%. In fact, fourth quarter sales of $376 million were the highest ever, beating the record we set last quarter. Despite that pressure, independent channel sales grew in the high 20% range and fourth-quarter sales in the aftermarket OE channel were up in the low 20% range. These razor blade products accounted for more than a quarter of total aftermarket sales and they grew in the mid 20% range during fourth quarter. We launched the brand almost 20 years ago and sales of these products have grown every year since at least 2010. In Aerospace and Defense fourth quarter sales declined 8%. One year ago, Engine sales in China were up almost 25%, while the rest of the region suffered through the pandemic. Fourth quarter Engine sales were up again this year by about 2%. The Industrial segment also had a solid quarter with total sales growing 19.5%. Sales in Industrial Filtration Solutions, or IFS, were up more than 23% in fourth quarter, reflecting strong growth in new equipment and replacement parts. The replacement parts of dust collection are a more optimistic story with fourth quarter sales up nearly 40%. Fourth quarter sales were up almost 20%, reflecting growth in new equipment and replacement parts. Sales of Special Applications grew 27% in fourth quarter with strong contributions from both Disk Drive and Venting Solutions. Fourth quarter sales of venting products grew 50% with almost two-thirds of the increase coming from Asia-Pacific. Fourth quarter sales of Gas Turbine Systems, or GTS, were down 11%. Fourth quarter sales grew 25%, operating income was up 36% and earnings per share of $0.66 was 32% above the prior year. Fourth quarter operating margin was 14.5%, an increase of 110 basis points from the prior year. Most of the increase was from gross margin, which grew 70 basis points to 34.4%. Operating expenses at a rate of sales was favorable at 40 basis points driven primarily by volume leverage. The fourth quarter increase of almost $10 million reflects a couple of factors [Indecipherable] expense, which includes additional incentive compensation and higher benefit costs and a much easier comparison in the prior year. Moving down the P&L, fourth quarter other income was $5 million. We directed about $0.25 billion to shareholders in fiscal '21. We repurchased 1.9% of our outstanding shares for $142 million and we paid dividend of $107 million, including the 5% increase we announced earlier this year. We are on pace for more than 25 years in a row of annual dividend increases, which is a trend we are extremely proud of. I also want to highlight the fiscal '21 adjusted cash conversion of 116%. With that, fiscal '22 sales are expected to grow between 5% and 10% with currency translation being negligible. Engine is also planned to up between 5% and 10% and Industrial is a bit higher at 6% to 11%. In terms of operating margin, we expect a full year rate between 14.1% and 14.7%. This range implies an increase of 10 basis points to 70 basis points from the fiscal '21 adjusted operating margin and we expect the improvement to come from expense leverage. At today's prices, we expect to pay 8% to 10% more for our raw materials this year and that translates to a gross margin impact of nearly three full points in fiscal '22 margin. We continue to expect annualized savings of about $8 million, with about $5 million to $6 million landing in fiscal '22. We are also making incremental investments in our Advance and Accelerate businesses, including another 10% increase in research and development spending. In terms of other key financial metrics, fiscal '22 interest expense is planned to be about $14 million, other income is projected between $7 million and $11 million and the tax rate is expected between 24% and 26%. Capital expenditures are planned up in fiscal '22 with a full-year estimate of $100 million to $120 million. Additionally, we expect to repurchase about 2% of our shares in fiscal '22, keeping with our multi-decade trend and reaffirming our commitment to shareholders. Based on these forecasts, we plan for a new earnings per share record between $2.50 and $2.66 and implying an increase from last year's adjusted earnings per share of 8% to 15%. Compared with fiscal '19, fiscal '21 sales are about flat and gross margin is up 90 basis points. We turned 106 years old this year. I've been with the Company for 25 years and this team continues to find new ways to impress me.

Fourth quarter sales grew 25%, operating income was up 36% and earnings per share of $0.66 was 32% above the prior year. Based on these forecasts, we plan for a new earnings per share record between $2.50 and $2.66 and implying an increase from last year's adjusted earnings per share of 8% to 15%.

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Revenues in the quarter were $3 billion, up from $2.7 billion in last year's third quarter. During this year's third quarter, we reported income from continuing operations of $0.82 per share. Adjusted income from continuing operations, a non-GAAP measure, was $0.85 per share for the third quarter of 2021, compared to $0.53 per share in the third quarter of 2020. Segment profit in the quarter was $279 million, up $90 million from the third quarter of 2020. Manufacturing cash flow before pension contributions totaled $271 million in the quarter and $851 million year-to-date. We delivered 49 jets, up from 25 last year and 35 commercial turboprops, up from 21 in last year's third quarter. Order activity in the quarter remained very strong, resulting in backlog growth of $721 million bringing us to $3.5 billion at the quarter end. Also in the third quarter, the Beechcraft King Air 360 and 260 achieved EASA certification and began to deliver customers throughout the region. Also on the new product front, such as SkyCourier is continuing to progress through certification with over 1,600 hours of flight test activity and the Beechcraft Denali successfully completed its initial ground engine runs powered by GE's new Catalyst engine. The Bell revenues were down 3% in the quarter, largely on lower military revenues. On the commercial side of Bell, we delivered 33 helicopters down from 41 in last year's third quarter. On FARA, Bell is about 60% of the way through its build of the 360 Invictus prototype remains on schedule. Also in the quarter, Bell inducted the first U.S. Air Force CV-22 for its nacelle improvement modifications. We saw another strong quarter of execution with operating margins at 15.1%, up 190 basis points from last year's third quarter. ATAC continued to expand its fleet of certified F1 aircraft with two additional aircraft entering service in the quarter bringing the total fleet to 19 aircrafts at the end of the quarter. At Air Systems, the team booked $25 million in new orders in the quarter, including both fee-for-service activities, as well as new hardware. Revenues at Textron Aviation of $1.2 billion were up $386 million from a year ago, largely due to higher Citation jet volume of $290 million, aftermarket volume of $62 million and commercial turboprop volume of $48 million. Segment profit was $98 million in the third quarter, up $127 million from a year ago, largely due to the higher volume and mix of $96 million and favorable pricing net of inflation of $22 million. Backlog in the segment ended the quarter at $3.5 billion. Revenues were $769 million, down $24 million from last year, largely reflecting lower military revenues. Segment profit of $105 million was down $14 million primarily due to lower military revenues. Backlog in the segment ended the quarter at $4.1 billion. At Textron Systems, revenues were $299 million, down $3 million from last year's third quarter due to lower volume of $39 million at Air Systems, which primarily reflected the impact from the U.S. Army's withdrawal from Afghanistan on its fee-for-service contracts, partially offset by higher volume, primarily at ATAC and Electronic Systems. Segment profit of $45 million was up $5 million to a favorable impact from performance and other. Backlog in the segment ended the quarter at $2.2 billion. Industrial revenues were $730 million, down $102 million from last year, reflecting lower volume and mix of $156 million primarily at Fuel Systems and Functional Components, reflecting order disruptions related to the global OEM supply shortages, partially offset by favorable impact of $44 million from pricing, largely at Specialized Vehicles. Segment profit of $23 million was down $35 million from the third quarter of 2020, primarily due to the lower volume and mix described above, partially offset by higher pricing net of inflation at Specialized Vehicles. Finance segment revenues of $11 million -- were $11 million and profit was $8 million. Corporate expenses were $23 million and interest expense was $28 million. With respect to our 2020 restructuring plan, we recorded pre-tax charges of $10 million on the special charges line. Our manufacturing cash flow before pension contributions was $271 million in the quarter and $851 million year-to-date, as compared to $129 million for the corresponding nine-month period in 2020. In the quarter, we repurchased approximately 4.2 million shares, returning $299 million in cash to shareholders. We're raising our expected full year guidance for adjusted earnings per share to a range of $3.20 to $3.30 per share. This includes revised tax guidance at effective rate of 15.5% for the full year. We're also raising our outlook for manufacturing cash flow before pension contributions to a range of $1 billion to $1.1 billion, up $200 million from our prior outlook, with planned pension contributions of $50 million.

During this year's third quarter, we reported income from continuing operations of $0.82 per share. Adjusted income from continuing operations, a non-GAAP measure, was $0.85 per share for the third quarter of 2021, compared to $0.53 per share in the third quarter of 2020. Order activity in the quarter remained very strong, resulting in backlog growth of $721 million bringing us to $3.5 billion at the quarter end. Backlog in the segment ended the quarter at $3.5 billion. Backlog in the segment ended the quarter at $4.1 billion.

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First, we anticipate taking our occupancy back to approximately 95% from the current level of approximately 90%. Year-to-date, we have signed over $11 million of leases and considering our initial pipeline with $6.5 million this is a pretty good start. And if and when cap rates do compress we'll have well over $1 billion of retail in Fund V alone, clipping mid-teens yields, while we wait and keep in mind, buying out of favor existing cash flow is just one of the many ways we have created value in our fund platform over the years, whether it's buying retailers with significant embedded real estate value, such as our investment in Albertsons and the rest of our RCP activity or opportunistic acquisitions where we saw significant rent bumps and then monetized opportunistically as was the case in Lincoln Road and Miami or a variety of redevelopments and value-add projects where tenant demand warrants it. Finally, keep in mind, at our size, roughly every $100 million of new investments, whether core or fund, adds about 1% to our earnings. I will start off with a discussion of our third quarter results, followed by an update on our continued progress on the $25 million of anticipated internal core NOI growth and then closing with our balance sheet. Our third quarter earnings of $0.27 a share exceeded our expectations, landing us in the upper end of the $0.25 to $0.27 range that we had guided toward on our most recent call. And this was driven by rent commencement on new leases, continuous improvements in our cash collections, along with some accretion from the approximately $140 million of external investments that we completed during the quarter. In terms of near-term FFO expectations, we continue to anticipate $0.25 to $0.27 of quarterly FFO, excluding any potential Albertson sales for the next few quarters. So whether it's next quarter or next year, using Albertson's most recent share price, a sale of our position would result in a gain in excess of $30 million or in excess of $0.30 a share of FFO. As it actually represents a beat in excess of 10% off of our initial midpoint. As you'll recall, within our initial range of $0.98 to $1.14, we had incorporated $0.05 to $0.13 of core and fund transactional activity, which, as we highlighted, was primarily attributable to the sale of Albertson shares in 2021. So after adjusting for the $0.05 to $0.13 of transactional income, we had guided toward $0.93 to $1.01 for a midpoint of $0.97. And given our expectation of near-term FFO of $0.25 to $0.27, this gets us in the [Indecipherable] 15:04 106, 108 in range for 2021, and that's without any Albertson shares, which is more than 10% above the midpoint of our initial range as well as 5% to 7% above the high end of our range. In terms of cash collections, we received over 97% of our core billings during the quarter. And as a reminder, each 1% increase in collections equates to increased earnings of approximately $500,000 per quarter or $2 million, representing over $0.02 of FFO when annualized. Given the high-quality inventory we have available to lease, we are closely watching the sales productivity of our new tenants, particularly those recently leased street locations as this educates us not only on the level of future tenant demand, but more importantly, the potential upside to drive rents beyond the $25 million of core internal NOI growth that we are anticipating. For example, some of our recent openings in Chicago and New York Metro are already seeing early results trending in the $2,000 a foot range. Same-store NOI also came in above our expectations at approximately 7%, and this was driven by improving occupancy and a continued reduction in our credit reserves. It's also worth highlighting that the 7% is a pretty clean number. In fact, this was evident in our leasing spreads this quarter as we saw a cash increase of approximately 11%, along with a GAAP increase of 19%. And this was driven by our street leasing during the quarter, including a cash spread in excess of 20% on one of our key street locations on Melrose Place in Los Angeles. Additionally, as Ken mentioned, we are seeing similar trends on Armitage Avenue in Chicago, with recent trends in excess of 30%, which is also well above our initial underwriting. Now it's also worth mentioning the structural differences between our street and suburban leases and why the point in time lease spreads that are disclosed in our quarterly results are often not really comparable when evaluating deal profitability or more importantly, future growth expectations, given that we tend to reset our street leases to market every five years or so as compared to 10 to 15 years or often much longer on a suburban lease. Coupled with the fact that street rents contractually increase 3% annually as compared to 1% of suburban lease. And just to illustrate the difference, if we were to assume that a street lease grows contractually 3% a year and achieves a fairly modest 5% spread every five years. In order for our 10-year suburban lease that has grown at 1% to achieve an identical CAGR, it would need to achieve a spread of approximately 25%. And as a reminder, we anticipate growth of $25 million by year-end 2024, resulting in over $150 million of core NOI. As a reminder, the three key drivers of our approximately $25 million or 20% increase in our core NOI off of our 2020 NOI include: first, net absorption, which is the profitable lease-up of our core portfolio and is offset by anticipated tenant expirations over this period. And we are anticipating that this generates us $10 million to $15 million of incremental NOI, representing $0.11 to $0.16 of FFO. Second piece is further stabilization of our credit reserves, contributing $5 million to $6 million of incremental NOI or $0.05 to $0.06 of FFO; and lastly, contractual rental growth of $8 million to $10 million. In terms of the most impactful are the $10 million to $15 million of net absorption, I want to provide some insights on how we see it playing out over the next few years. Given the significant volume and profitability of the new leases signed to date and using our anticipated rent commencement dates on these executed leases, this should largely replace the NOI of the previously discussed tenant expirations at 565 Broadway in SoHo and 555 nine Street in San Francisco for the first half of 2022. As previously discussed, the impact of these two expirations, which occurs in October 2021 for 555 nine and January 22 for 565 Broadway is approximately $4 million or roughly $4.6 million of annual NOI when factoring in recoveries. As Ken discussed, we have already profitably leased 565 Broadway several months in advance of the current lease expiration, thus significantly minimizing any downtime with an anticipated rent commencement date in the second half of '22. So when coupled with the remaining portion of our $16 million lease pipeline coming online, this sets us up for solid NOI growth in the $2 million to $3 million range in the second half of 2022, with the balance of that remaining growth coming from positive absorption split fairly evenly between '23 and '24 as the balance of our pipeline kicks in. At a 97% cash collection rate, we are continuing to incur charges in the $1.5 to $2 million range or $6 million to $8 million when annualized. We are continuing to see the 3% contractual growth in our street leases. So when blended across our suburban and urban assets, this averages to about 2% a year, contributing approximately $3 million of incremental annual NOI. As Ken mentioned, given our size, each $100 million of investments, whether it be core fund, should result in FFO accretion of approximately 1%, and our balance sheet is well positioned to capture this accretion with ample liquidity available in our corporate facilities, along with the cost of capital that we believe enables us to accretively transact on a growing external investment pipeline. Including land, our blended cost basis for these two centers is approximately $130 per square foot. In comparison, the cost to construct a new suburban shopping center is approximately $200 to $250 per square foot, and that's excluding land cost. Due to our selectivity at acquisition, we've seen a Fund V collections rate that is now in the high 90s, consistent with our core portfolio and a stable mid-teens leverage return, which we're able to achieve given our use of 2/3 leverage in our fund platform. Even during the pandemic, our cash-on-cash yields only dipped to approximately 13%. Looking ahead, we expect to be back to 15% relatively quickly. Similarly, on an unlevered basis, our 8% yield dipped to approximately 7% during the pandemic and is now on a projected path back to 8%. First, real estate borrowing costs have returned to their pre pandemic levels in the mid-3% range. While private market cap rates for the type of product we're targeting have remained flat at approximately 7.5%. As a result, we believe that signals are pointing to a reversion to the mean in the private markets too over the next few years and when that happens, we will have aggregated a $1 billion portfolio, where every 50 basis points of cap rate compression would add 250 to 300 basis points to our projected IRRs, increasing overall fund profitability and in turn, our GP incentive compensation. To date, we've allocated approximately 75% of our Fund V capital commitments, and we have until August of 2022 to deploy the balance. We continue to see positive momentum at this iconic property with shopper traffic and tenant sales both continuing to increase and the recent opening of BASIS Independent and Elementary School in approximately 60,000 square feet in Phase III. On the leasing front, we're pleased to report that last week, we executed a lease with an international retailer for 70% of the space formerly occupied by Century 21. The new lease replaces nearly all of Century 21's prior rent obligations with 30% of the space still remaining to be leased.

Our third quarter earnings of $0.27 a share exceeded our expectations, landing us in the upper end of the $0.25 to $0.27 range that we had guided toward on our most recent call. In terms of near-term FFO expectations, we continue to anticipate $0.25 to $0.27 of quarterly FFO, excluding any potential Albertson sales for the next few quarters. And given our expectation of near-term FFO of $0.25 to $0.27, this gets us in the [Indecipherable] 15:04 106, 108 in range for 2021, and that's without any Albertson shares, which is more than 10% above the midpoint of our initial range as well as 5% to 7% above the high end of our range.

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At the time of our earnings call back in May, we were in the early stages of the pandemic and 63% of our tenants were open, and April collections were 64%. As I report today, I am pleased to say that 94% of our businesses are open, and we collected 81% of our rents during the second quarter and have collected 86% for July so far. Our business model, which has been crafted from the lessons we learned during the 2008 recession and prior economic downturn, performs exceptionally well in good times and minimizes financial risk in these toughest of times. And third, our experienced management team that extends beyond this 12 years they worked together producing results for our investors, and consistently demonstrating an ability to capture and capitalize on opportunities that others may miss. Keep in mind that we have a large tenant base and tenant can impact our revenue stream more than 3% if they go viral. From the beginning of the pandemic, Whitestone associates worked tirelessly, continuing to manage in these properties with an expansive base of approximately 1,400 tenants. We also know that we have continued to gain their confidence by delivering meaningful value and producing stable, predictable cash flow, value appreciation through asset management and leasing that increased 2% to 3% annually. Entering the pandemic, our overall occupancy stood at 89.7%. Despite having a significant amount of our tenant businesses closed or severely impacted for all or part of the quarter, we only had a handful of tenants closed for good, such that the portfolio occupancy rate held up well, ending the quarter at 89.2%. Also, our annualized space rent per square foot held relatively flat at $19.58. While our square foot leasing activity was down 37% from the second quarter of 2019, we were pleased with positive leasing spreads of 13.5% and 3.4% on renewals and new leases signed in the quarter. As Jim mentioned, for the quarter, we collected 81% of our rents. We have also entered into rent deferral agreements for 5% of our second quarter rents. Today, 94% of our businesses are open. To date, we have collected 86% of our July rents which compares favorably to Q2 and to the April collections of 64% we reported at this time last quarter. Funds from operations for the quarter was $9.6 million, or $0.22 per share, compared to $11.1 million, or $0.27 per share, in the same quarter of the prior year. The decrease is primarily due to the impact of the pandemic, which resulted in a charge of $2.8 million, or $0.07 per share, related to the collectibility of revenue, which includes $500,000, or $0.01 per share, for noncash straight-line rent receivables. For the quarter, we recorded a bad debt reserve of $2.3 million, which excludes reserves for straight-line rents and unbilled amounts. Our cash collections for the quarter were 81%. So with the remaining 19% of unselected rents, which includes 5% of agreed rent deferrals, we reserved 41%. Additionally, we have converted approximately 70 tenants, representing 3% of our GLA and 3.2% of our revenue, to cash basis accounting. Those tenants paid 41% of their own rent in Q2. We have provided some additional details on our collections that can be found on page 25 of the supplemental. Today, we have approximately $45 million in cash, representing an $8 million or 22% increase since March 31. We have one $9 million mortgage loan maturing in 2020, which we expect to refinance in the third quarter, and no debt maturities in 2021. Currently, we have $110.5 million of capacity and $1.2 million of borrowing availability under our credit facility.

The decrease is primarily due to the impact of the pandemic, which resulted in a charge of $2.8 million, or $0.07 per share, related to the collectibility of revenue, which includes $500,000, or $0.01 per share, for noncash straight-line rent receivables.

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Last night, we reported third quarter adjusted earnings per share of $0.89, up from $0.77 in the prior year quarter. Adjusted segment operating profit was $849 million, up 11% year-over-year and our trailing four quarter adjusted ROIC was 8.3%. In our optimized pillar, Ag Services & Oilseeds team continue this work to enhance returns, delivering another $100 million in invested capital reductions in the third quarter. Since 2017, Ag Services & Oilseeds has improved its capital position by exiting from no longer strategic assets including 71 grain origination locations, six oilseeds facilities, 14 Golden Peanut and Tree Nuts locations, and seven oceangoing vessels. Our Supply Chain Center of Excellence is delivering as well using our enhanced processes and tools, as well as integrated planning between commercial, supply chain and operations we recently piloted changes at the nutrition facility that are on track to unlock a 20 plus percent increase in production capacity at that location. By the end of the third quarter, our team identified and executed on readiness initiatives that unlocked almost $1.2 billion in run rate benefits. And now, I'm pleased to announce that we are on track to achieve $1.3 billion by the end of the year. Such as our Strive 35 goals to improve our performance on greenhouse gases, energy, water and waste. And of course, readiness is one of the key elements, powering the growth algorithm we laid out at the beginning of the year, because of its success, along with tremendous progress in our harvest and improved initiatives, we now expect to meet or exceed the high end of our $500 million to $600 million goal for targeted improvements in 2020. Revenue is up 5.7% on a currency-adjusted basis for the first nine months of the year. As Juan mentioned, adjusted earnings per share for the quarter was $0.89, up from the $0.77 in the prior year quarter. Excluding specified items, adjusted segment operating profit was $849 million, up 11%. And our trailing four-quarter average adjusted ROIC was 8.3%, 255 basis points higher than our 2020 annual lack. Our trailing four-quarter adjusted EBITDA was about $3.7 billion. Our cash flows are strong, as we generate about $2.3 billion of cash from operations before working capital for the first nine months of the year. The effective tax rate for the third quarter was a benefit of approximately 13% compared to an expense of 19% in the prior year. Absent the effect of earnings per share adjusting items, our effective tax rate was approximately 11%. These actions were not about cash flow or liquidity as we had cash and available credit capacity at the end of the quarter of almost $10 billion. Return of capital for the first nine months was $724 million, including around $115 million in opportunistic share repurchases, the vast majority of which were executed earlier this year. We finished the quarter with a net debt to total capital ratio of about 27%, down from the 30% a year ago. Capital spending for the first nine months was about $560 million. We expect capital spending for the year to be around $800 million that we previously indicated and well below our depreciation and amortization rate of about $1 billion. Other business results were lower than the prior year quarter, driven by lower ADM investor services earnings and captive insurance underwriting losses, including a $17 million settlement impact for the high water claim with Ag Services and Oilseeds. In the corporate lines, unallocated corporate costs of $196 million were higher year-over-year, due primarily to variable performance-related incentive compensation accruals, which were low in the prior year. Corporate results this quarter also included $396 million related to the early debt retirement charges that I referred to earlier, which is an earnings per share adjustment item. Looking forward, we expect unallocated corporate expenses to be in line with our initial $800 million guidance for calendar year and Q4 net interest expense to be slightly lower than Q3. We also expect a loss of about $50 million in other business in Q4 due to anticipated intercompany insurance claim settlements. Ag Services also benefit from a $54 million settlement related to the 2019 US high water insurance claims, which is partially offset by an expense in captive insurance. Both Ag Services and Crushing saw expanding margins during the quarter resulting in around $155 million in total negative timing effects, which led to lower results. With results significantly higher than the third quarter of this year, though lower than Q4 of 2019, which included a $270 million benefit for two years of the retroactive biodiesel tax credit. The global population is growing, and consumer behavior is shifting in ways we couldn't have predicted only 10 or 15 years ago. Global sales of specialty ingredients across both human and animal nutrition are as much as $85 billion and growing at a rate of 5% to 7% per year. For example, global market for functional beverages could be as large as $190 billion in 2024. The global dietary supplement market could be worth more than $77 billion in that same time frame. Global retail sales of alternative proteins are already a $25 billion market today, with a projected growth rate of 14% per year. Global retail sales of pet food are projected to grow at 4% per year, reaching $120 billion by 2024. In that time, we built or expanded more than 16 facilities from our pea protein complex in the US through our network of free mix plants in China. From our more than 50 global customer innovation centers to daily virtual innovation and tasting sessions. All in all, we have invested just over $6 billion to build our global leadership position in nutrition. Since 2014, we've increased our annual revenue by $3 billion. And by the end of this year, we'll have grown operating profits by more than $300 million over those six years, more than double. In Animal Nutrition, only 1.5 years after we completed our Neovia acquisition, we can look back on a successful integration in which we exceeded our synergy goals and built a global business that offers a full portfolio of on-trend items from pet treats to enzymes to ingredients for aquaculture to meet evolving customer needs. These are the reasons we expect to continue to lead the industry outpacing the market and operating profit growth, and we remain confident in reaching $1 billion in OP in the medium-term future.

Last night, we reported third quarter adjusted earnings per share of $0.89, up from $0.77 in the prior year quarter. As Juan mentioned, adjusted earnings per share for the quarter was $0.89, up from the $0.77 in the prior year quarter.

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We saw broad-based strength across the portfolio, which helped us deliver over 30% core revenue growth, more than 70% adjusted earnings-per-share growth and outstanding free cash flow generation. Our sales were $7.2 billion and we delivered core revenue growth of 31.5% with strong contributions from all three of our reporting segment. Geographically, high growth markets grew nearly 35% and developed markets were up more than 25%. Revenue in each of our three largest markets, North America, Western Europe and China was up 30% or more in the quarter. Our gross profit margin increased by 710 basis points to 60.9% primarily due to higher sales volumes, the favorable impact of higher margin product mix and the impact of prior year purchase accounting adjustments related to the Cytiva acquisition that did not repeat in 2021. Our operating profit margin increased to 27.8% including 775 basis points of core operating margin expansion, primarily as a result of higher gross margin and continued lower operating expense as travel and other related costs remains below pre-pandemic levels. Adjusted diluted net earnings per common share of $2.46 were up 71% compared to 2020. We generated $1.8 billion of free cash flow in the quarter, up over 40% year-over-year. We anticipate Aldevron will be accretive to Danaher on multiple levels as we expect the business to generate $500 million of revenue in 2022, with more than 20% annual revenue growth and a strong margin profile. One of our core values at Danaher is innovation defines our future and we have made a significant commitment toward our research and development effort increasing our research and development spend by more than 30% year-over-year to bring more impactful solutions to our customers. At SCIEX we launched ZenoTOF 7600, a high resolution accurate mass spectrometry system that enables scientists to identify, characterize and quantify molecules at previously undetectable level, helping to advance the development of new biotherapeutics and precision diagnostics. At Beckman Coulter Diagnostics, we recently introduced the DxA 5000 Fit a compact automation solution designed for small and mid-sized laboratories that reduces up to 80% of the manual steps typically required for sample preparation. We expect our total capital expenditures across Danaher to be approximately $1.5 billion in 2021 as we continue to invest in supportive of our customers' needs today and well into the future. Life Science's reported revenue increased 41.5% with core revenue up 35%. This growth was broad based with most of our major businesses in the platform, delivering 30% or better core growth. We continue to see strong demand for our bioprocessing solutions with combined core revenue growth of more than 40% at Cytiva and Pall Biotech. COVID related vaccine and therapeutic revenues were consistent with the first quarter and exceeded $1 billion over the first 6 months of the year. We've established a new company with a new brand name added more than 1500 associates and made substantial progress in the transition to Danaher, all while maintaining world-class support of our customers, significantly ramping production capacity and growing revenues by more than 50%. Moving to Diagnostics, reported revenue was up 40.5% and core revenue grew 37% led by more than 50% core growth at Cepheid. Beckman Diagnostics and Leica Biosystems each grew more than 30% as patient volumes and clinical diagnostic activity approached pre-pandemic levels around the world. In respiratory testing, we believe we continued to gain market share as expanded manufacturing capacity enabled the team to produce and ship approximately 14 million cartridges in the quarter. As expected COVID-only test accounted for approximately 80% of these shipments while our 4 in 1 combination test for COVID-19 Flu-A, Flu-B and RSV represented approximately 20%. This broad-based performance across Cepheid was driven by the team's thoughtful installed base expansion over the last 15 months and as evidence of the significant value, Cepheid provides to clinician with the unique combination of fast, accurate lab-quality results and the best-in-class, easy to use workflow at the point of care. Moving to our Environmental and Applied Solutions segment, reported revenue grew 15.5% and core revenue was up 13%. Revenue growth accelerated across both platforms with water quality up high single-digits and product identification up approximately 20% in the quarter. In product identification Videojet was up mid-teen and our packaging and color management businesses were up more than 25% in the quarter. Today, there are over 1,500 monoclonal antibody-based therapies in development globally, which is more than 50% increase from just 5 years ago. We also see over 1,000 gene therapy candidates in development today, a 10-fold increase over the last several years as these technologies mature and therapies gain regulatory approval. We expect to recognize $2 billion in COVID related vaccine and therapeutic revenue in 2021 and anticipate entering 2022 with approximately $1.5 billion in COVID-related backlog. Now, as I mentioned earlier we shipped approximately 14 million respiratory tests during the second quarter, up from 10 million shipped in the first quarter and we now expect to ship approximately 50 million tests in 2021. Additionally, we expect to generate operating profit fall through of approximately 40% in the third quarter and for the remainder of 2021. For the full year 2021, we now expect to deliver approximately 20% core revenue growth. We anticipate that COVID related revenue tailwinds will be an approximately 10% contribution to the core revenue growth rate and in our base business we now expect that core revenue will be up 10% for the full year, an increase from our prior expectation of high single-digit.

Our sales were $7.2 billion and we delivered core revenue growth of 31.5% with strong contributions from all three of our reporting segment. Adjusted diluted net earnings per common share of $2.46 were up 71% compared to 2020. We anticipate Aldevron will be accretive to Danaher on multiple levels as we expect the business to generate $500 million of revenue in 2022, with more than 20% annual revenue growth and a strong margin profile. As expected COVID-only test accounted for approximately 80% of these shipments while our 4 in 1 combination test for COVID-19 Flu-A, Flu-B and RSV represented approximately 20%. Revenue growth accelerated across both platforms with water quality up high single-digits and product identification up approximately 20% in the quarter. For the full year 2021, we now expect to deliver approximately 20% core revenue growth.

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PSE&G reported non-GAAP operating earnings for the fourth quarter of $0.65 per share. Non-GAAP operating earnings for the full year rose by 4.6% to $3.43 per share, and mark the 16th year in a row that PSE&G delivered results within our original earnings guidance. PSE&G GAAP results were $0.85 per share for the fourth quarter of 2020 compared with $0.86 per share for the fourth quarter of 2019. In addition for the full year PSE&G reported 2020 net income of $3.76 per share compared with $3.33 per share in 2019. Details on the results for the quarter and the full year can be found on slides 12 and 14. In the past six months, we've announced the exploration of strategic alternatives for PSEG Power's 7,200 plus megawatts of non Nuclear Generating assets, and received initial indications of interest for both the fossil and solar source assets. PSE&G successfully initiated its landmark clean energy future program, securing approval to spend nearly $2 billion in energy efficiency, smart meter installations and electric vehicle charging infrastructure, all of which will enhance New Jersey's environmental profile for years to come. Regarding whether normalized sales for the year, while total electric sales volume declined by 2%. Gas sales rose by 1%. In both the electric and gas businesses higher residential usage of approximately 5% largely offset declines in commercial and industrial sales resulting in stable margins overall. Working with COVID-19 health and safety protocols since last March, PSE&G was able to execute on its plan $2.7 billion capital spending program in 2020. The energy cloud investment program is estimated to be approximately $707 million over the next four years, and will result in the replacement of over 2 million electric meters with smart meters. The electric vehicle program will direct $166 million into EV charging infrastructure over the next six years. With these recent settlements, the BPU has constructively addressed the vast majority of the clean energy future filings and has approved nearly $2 billion of investment to help realize New Jersey's energy goals. The Energy Efficiency Program will also be established clean energy job training for over 3,200 direct jobs, while enabling the avoidance of 8 million metric tons of carbon emissions through the year 2015. We expect the balance of the clean energy future filing, which includes our request to spend under $200 million on energy storage, and a few remaining EV programs will be addressed following future stakeholder proceeding. In the fourth quarter of last year, we launched the formal sales processes of the 1,467 megawatt solar source, and over 6,750 megawatt thoughtful portfolios. PSE&G nuclear Zero Mission certificate application and the extension of the current ZEC is currently under consideration at the BPU. It is clear that New Jersey recognizes the need for nuclear power in order to achieve its short and long-term clean energy goals, as laid out in states on an energy master plan and DEP'S 80 by 60 report. Over the next few weeks, you will hear as mentioned that our confidential filings show that these units are actually in need of more than $10 per megawatt hour, partly due to the fact that PGM forward market prices are lower versus 2018, which was the year that first ZEC application. With the final decision on the ZEC application expected on April 27, we are hopeful that the BPU will act to extend the $10 per megawatt hour attribute payment to preserve nuclear units and their 3,400 megawatts of zero carbon base load generation through May of 2025. We are introducing non-GAAP operating earnings guidance of $3.35 to $3.55 per share with the utility expected to contribute between one $1,410 million and $1,470 million. PSEG Power between $280 million and $370 million and parent others expected to post a loss of $15 million. This year we expect PSE&G to contribute just over 80% of consolidated non-GAAP operating earnings at the midpoint of guidance. Going forward, we expect that the utility earnings will represent 80% to 90% of PSE&G non-GAAP results, with the remaining balance expected to be comprised of long-term agreements for zero carbon offshore wind generation, and as ZEC supported New Jersey nuclear units. For PSEG Power, over 70% of its 2021 gross margin has been secured by the way of energy hedges, capacity revenues established prior auctions, zero emission certificates, and ancillary service payments. Our PSE&G five-year capital spending forecast has been updated to $14 billion to $16 billion for 2021 through 2025 and includes approximately $2 billion of clean energy future investments, as well as the expected extension of the gas system modernization program and Energy Efficiency Program at their average annual run rates for the last two years of the period that being 2024 and 2025. Consistent with test years approximately 90% or $13 billion to $15 billion this capital program will be directed to grow regulated operations at PSE&G. This ongoing investment in essential energy infrastructure and clean energy programs is expected to produce 6.5% to 8% compound annual growth and rate base over the five-year period starting from $22 billion at year-end 2020. As a sidebar, any spend for offshore wind will be incremental to these totals and is not included in the $14 billion to $16 billion capital plan. And by the Dow Jones Sustainability Index was named PSE&G to the North American index for 13 years in a row. The Board of Directors recent decision to increase the company's common dividend to the indicative annual level of $2.04 per share is the 17th increase in the last 18 years, and reflects our ongoing commitment to returning capital to our shareholders to enhance our total return profile as we also pursue growth. We are confident that pursuing this strategy will enhance our ability to provide our customers with essential energy services, which has been our core mission for the last 118 years. As Ralph said, PSE&G reported non-GAAP operating earnings for the fourth quarter of 2020 of $0.65 per share. And we provided you with information on slides 12 and 14 regarding the contribution of non-GAAP operating earnings by business for the fourth quarter, and for the full year of 2020. Slide 13 and 15 contained waterfall charts that take you through the net changes quarter-over-quarter and year-over-year, and non-GAAP operating earnings by major business. PSE&G's net income for the fourth quarter of 2020 increased by $0.04 to $0.58 per share, compared with net income of $0.54 per share for the fourth quarter of 2019 as shown on slide 17. For the full year PSE&G's net income increased by $0.16 per share, or 6.5% compared to 2019 results. This improvement reflects an 8% increase in rate base at year end 2020 to just over $22 billion, which as we note on slide 22 does not include approximately $1.8 billion of construction work in progress or see what that's mostly a transmission. The continued growth in utility earnings resulting from investments in transmission added $0.2 per share versus the fourth quarter of 2019. Gas margin was $0.02 favorable, reflecting GS&NT roll in and higher weather normalized volume. Mild temperatures during the quarter had a negative $0.03 per share impact, mostly reflecting recovery limitations under the earnings test of the gas weather normalization clause. Higher distribution depreciation expense of a $0.01 per share offset lower pension expense of a $0.01 per share in the quarter. Taxes and other were $0.03 per share favorable, partly reversing the negative $0.07 per share impact that the timing of taxes had on third quarter of 2020. Recall in the third quarter flow through taxes and other items lower net income by $0.07 per share compared to the third quarter of 2019. And we indicated at that time that about half of the $0.07 would reverse in the fourth quarter. Early winter weather in the fourth quarter as measured by the heating degree days was 9% milder than normal and 14% milder than in the fourth quarter of 2019. The full year PSE&G weather-normalized residential electric sales increased by 5.6% due to the COVID-19 work from home impact, but a larger decline in commercial sales resulted in total electric sales declining by 2%. Total weather-normalized gas sales were up 1.2% for 2020 by a 4.9% increase in residential use partially offset by a smaller decline in the commercial and industrial segment. PSE&G invested $700 million in the fourth quarter as part of its 2020 Capital Investment Program of approximately $2.7 billion directed to infrastructure upgrades of transmission and distribution facilities to maintain reliability, increase resiliency, make lifecycle replacements and clean energy investments. PSE&G updated five-year capital spending plan includes investing $2.7 billion in 2021. And as detailed on slide 21, approximately $960 million is allocated to transmission; $700 million to electric distribution, which includes approximately $200 million for Energy Strong Two, $875 million to gas distribution, which includes over $400 million for GSMP2 and $200 million for new clean energy future EV programs and the beginning of the AMI rollout. The clean energy future EV investment will ramp up to approximately $125 million in 2021 before reaching a full annual run rate of about $350 million in 2023. As Ralph mentioned the BPU approved two CF settlements in January, totaling approximately $875 million covering energy cloud and electric vehicle investments. Of these amounts, the vast majority about 90% received contemporaneous or near contemporaneous regulatory treatment either through the first formula rate, or clause recovery mechanisms or recovered and rates as replacement spend or new business. PSE&G net income for 2021 is forecasted at $1,410 million to $1,470 million which reflects an assumed reduction of our transmission formula rate, as well as incremental investment in EV infrastructure and energy efficiency. So moving to power, PSEG Power reported non-GAAP operating earnings of $0.10 per share in the fourth quarter unchanged from the non-GAAP results in the fourth quarter of 2019. Results for the quarter brought Power's full year non-GAAP operating earnings to $430 million or $0.84 per share. Compared with 2019 non-GAAP results of $09 million or $0.81per share. Non-GAAP adjusted EBITDA total to $182 million for the quarter and $990 million for the full year of 2020. And this compares to non-GAAP adjusted EBITDA of $198 million, and $1,035 million for the fourth quarter and full year 2019 respectively. PSEG Power's fourth quarter non-GAAP operating earnings were aided by the scheduled increase in PSEG Power's average capacity prices in PJM, covering the second half of 2020 and higher gas operations, which resulted in improved non-GAAP operating earnings comparisons of $0.04 and $0.01 per share respectively, compared to the fourth quarter of 2019. However, lower generation output and recontracting at lower market prices reduced non-GAAP operating earnings by a total of $0.08 per share versus the year ago quarter. The decline in O&M expenses in the quarter improve results by a $0.01 per share and reflects the absence of the Hope Creek refueling outage that occurred in the fourth quarter of 2019. The extension of the Peach Bottom Nuclear operating licenses contributed to lower depreciation expense of a $0.01 per share and lower taxes improve non-GAAP operating earnings by a $0.01 over the year ago quarter. Gross margin for the quarter was $32 a megawatt hour, a $1 per megawatt hour improvement over the fourth quarter of 2019, mainly reflecting the scheduled increase in capacity prices that began June 1, 2020 and remain in place through May of 2021. For the full year 2020 gross margin was flat at $32 per megawatt hour compared to full year 2019. Total output from Power's generating facilities declined 9% in the fourth quarter of 2020, compared to the fourth quarter of 2019. However, full year 2020 output of 53 terawatt hours came in above our 50 to 52 terawatt hour forecast. The nuclear fleet operated at an average capacity factor of 78.9% in the quarter, and 90.3% for the full year, producing nearly 31 terawatt hours of zero carbon base load power. The combined cycle fleet operated an average capacity factor of 46.2% in the quarter, and 48.3% for the full year, generating approximately 22 terawatt hours in 2020. The three new combined cycle generating units, Keys, Sewaren and Bridgeport Harbor five posted an average capacity factor of over 75% for the full year 2020. And this coming June PSEG Power will complete the planned early retirement of the 383 megawatt coal fired Bridgeport Harbor three generating station, eliminating the last coal unit in power's fleet. For 2021, Power has hedged approximately 90% to 95% of its expected output of 48 to 50 terawatt hours, at an average price of $32 per megawatt hour, which represents an approximately $2 per megawatt hour decline from 2012. This change further reduces revenues by approximately $3 per megawatt hour starting on February 1 of 2021. We're forecasting 2021 non-GAAP operating earnings and non-GAAP adjusted EBITDA PSEG Power to be $280 million to $370 million and $850 million to $950 million, respectively. Now, let me briefly address operating results from enterprise and other which reported a net loss that increased by $0.03 per share, compared to the fourth quarter of 2019. For 2021, PSEG Enterprise and other are forecasted to have a net loss of $15 million as parent financing and other costs exceed earnings from PSEG volume. PSEG ended 2020 with approximately $3.8 billion of available liquidity, including cash on hand of $543 million, and debt representing 52% of our consolidated capital. In December PSEG issued $96 million of 8.63% senior notes due April 2031, in exchange for like amount of 8.63% senior notes due April 2031, originally issued at Power, which were cancelled following the completion of the exchange. PSEG also retired a $700 million term loan at maturity. Power's debt as a percentage of capital declined to 27% on December 31 from 28%, at September 30. To summarize non-GAAP results for the quarter was $0.65 per share; full year non-GAAP operating earnings were $3.43 per share. And as we move into 2021, our guidance for the year is $3.35 to $3.55 per share, with regulated operations expected to contribute over 80% of consolidated results, arranged for 2021 reflects incremental investment in our T&D infrastructure, and a ramp up of a new clean energy future programs, as well as an assumed reduction return on equity of our transmission formula rate during the year at PSE&G. PSE&G also raised its common dividend by $0.08 per share for the indicative annual level of $2.04, a 4% increase over 2020. The 2021 indicative rate continues to represent a conservative 59% payout of consolidated earnings at the midpoint of 2021 guidance and utility earnings alone are expected to cover 140% of the dividend at the midpoint of 2021 guidance. We still expect our strong cash flow will enable us to fully fund PSE&G's five year $14 million to $16 billion capital investment program, as well as our plan to offer when investment during the 2021 to 2025 period without the need to issue new equity.

PSE&G GAAP results were $0.85 per share for the fourth quarter of 2020 compared with $0.86 per share for the fourth quarter of 2019. PSE&G nuclear Zero Mission certificate application and the extension of the current ZEC is currently under consideration at the BPU. We are introducing non-GAAP operating earnings guidance of $3.35 to $3.55 per share with the utility expected to contribute between one $1,410 million and $1,470 million. Our PSE&G five-year capital spending forecast has been updated to $14 billion to $16 billion for 2021 through 2025 and includes approximately $2 billion of clean energy future investments, as well as the expected extension of the gas system modernization program and Energy Efficiency Program at their average annual run rates for the last two years of the period that being 2024 and 2025. As a sidebar, any spend for offshore wind will be incremental to these totals and is not included in the $14 billion to $16 billion capital plan. And as we move into 2021, our guidance for the year is $3.35 to $3.55 per share, with regulated operations expected to contribute over 80% of consolidated results, arranged for 2021 reflects incremental investment in our T&D infrastructure, and a ramp up of a new clean energy future programs, as well as an assumed reduction return on equity of our transmission formula rate during the year at PSE&G. We still expect our strong cash flow will enable us to fully fund PSE&G's five year $14 million to $16 billion capital investment program, as well as our plan to offer when investment during the 2021 to 2025 period without the need to issue new equity.

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With this backdrop, we reported 15.6% higher revenues on sales growth in our access equipment, defense and fire & emergency segments. This led to fourth quarter adjusted earnings per share of $1.05, slightly above the estimated range included in our October eight business update. I'm also pleased to announce that our Board approved a 12% increase in our quarterly dividend from $0.33 to $0.37, which represents the eighth consecutive year of double-digit percentage increases. We grew revenues by just under 13% for the year and adjusted earnings per share by 16.4%. This led to a full year record for free cash flow of more than $1.1 billion. Despite these challenges, we delivered strong revenue growth of 37% in the fourth quarter, leading to 22% revenue growth for the full year. Orders came in at $1.9 billion in the fourth quarter, representing a quarterly record for the segment, leading to a record backlog of $2.8 billion at September 30. We're entering the North American telehandler market for agriculture in a more significant way with a new 9,000-pound capacity model. Our defense team delivered a solid fourth quarter, leading to a full year revenue of $2.53 billion, an increase of almost 10% and an operating margin of nearly 8% in this very challenging supply chain environment. This is a 10-year contract that calls for between 50,000 and 165,000 vehicles, with a mix of both zero-emission battery electric vehicles and fuel-efficient ICE vehicles and allows the USPS to electrify its fleet. The fire & emergency segment delivered another strong quarter with an operating income margin of 14% despite the challenging supply chain environment and extreme cost inflation. Even more impressive is the fact that our team at F&E delivered an all-time record for operating income margin for the full year at 14.2%. In fact, the team posted its best full year adjusted operating income margin in the past 15 years. These orders led to an all-time high backlog of just under $570 million, providing good visibility into 2022. We previously expected a consolidated year-over-year price/cost headwind of $35 million in the quarter. The actual price/cost impact increased to approximately $60 million. Consolidated sales for the fourth quarter were $2.06 billion or $279 million higher than the prior year, representing a 16% increase. The consolidated sales increase was driven by a 37% increase at access equipment, a 5% increase at defense and a 10% increase at fire & emergency, partially offset by a 6% decrease at commercial. Access equipment sales increased by $230 million over the prior year quarter due to improved market demand led by North America. As the impact of the pandemic has waned, the sales increase was lower than our prior expectations by approximately $130 million, largely due to the previously mentioned supply chain disruptions. Consolidated adjusted operating income for the fourth quarter was $104.2 million or 5.1% of sales compared to $124.1 million or 7% of sales in the prior year quarter. Adjusted earnings per share for the quarter was $1.05 compared to adjusted earnings per share of $1.30 in the prior year. During the quarter, we repurchased approximately 821,000 shares of common stock for a total cost of $95 million. While our backlog supported a 10% to 15% sales increase in the stub period versus the first quarter of 2021, we expect parts availability will likely constrain our ability to deliver higher sales. We expect that unfavorable price/cost dynamics will be a $75 million to $85 million headwind versus the first quarter of 2021. We have taken multiple pricing actions in our non-defense businesses over the past several months, and in many cases, prices are now greater than 10% above early 2021 levels.

With this backdrop, we reported 15.6% higher revenues on sales growth in our access equipment, defense and fire & emergency segments. Adjusted earnings per share for the quarter was $1.05 compared to adjusted earnings per share of $1.30 in the prior year.

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With strength across all channels, we delivered comparable store sales growth of 24.7%, and margin expansion of 478 basis points versus the prior year. On a two-year stack, our comp sales growth was 15.4%. Adjusted diluted earnings per share of $3.34 represented an all-time quarterly high for AAP, and improved more than 230% compared to Q1 2020. Free cash flow of $259 million was up significantly versus the prior year, and we returned over $203 million to our shareholders through a combination of share repurchases and our quarterly cash dividend. Geographically, all eight regions posted over 20% growth. As the country began to reopen later in the quarter, Professional came on strong, resulting in Pro growth of over 20% in Q1, with continued momentum into Q2. Today, we're extremely excited to announce that we're adding 29 new independent locations to the Pacific Northwest to the Carquest family, the single largest convergence in our history. Baxter Auto Parts announced that they will bring over 80 years of automotive aftermarket experience and strong customer relationships to the Carquest banner. We now have over 13,000 North American members, and we'll continue to leverage TechNet to differentiate our Pro offering and build loyalty. According to syndicated data, an estimated 4 million new DIY buyers were added. Spend per buyer for 2020 grew close to 9%, led by online spend per buyer. In Q1, this helped drive growth in our VIP members by approximately 14% and our Elite members by 30%. We continue to strengthen our online experience on desktop, mobile and with our app, which recently crossed nearly 1.3 million downloads. This enables DIYers to find the right part from our industry-leading assortment, order it online, and either pick it up in one of our stores within 30 minutes or have it delivered in three hours or less. We're targeting between 100 to 115 new stores in 2021. In total, our category management initiatives are currently on track to deliver up to 200 basis points of margin expansion through 2023. In terms of cross-banner replenishment, or CBR, we've converted over 70% of stores to date and expect to complete the remaining stores we originally planned by the end of Q3. More importantly, CBR will complete the integration of the Advance and Carquest supply chains and enables us to service our approximately 4,800 corporate Advance stores and 1,300 independent Carquest stores from a single supply chain. We've now increased sales per store for three straight years, and we're on track to get to our target of $1.8 million average sales per store by 2023. We delivered a 9% reduction in our total recordable injury rate compared to the previous year, and reduced our lost-time injury rate 2%. This will result in savings of approximately $30 million in SG&A, which will be realized over the next 12 months. In Q1, our net sales increased 23.4% to $3.3 billion. Adjusted gross profit margin expanded 91 basis points to 44.8% as a result of improvement throughout gross margin, including supply chain, net pricing, channel mix and material cost optimization. Our Q1 adjusted SG&A expense was $1.2 billion. On a rate basis, this represented 35.8% of net sales, which improved 387 basis points compared to one year ago. Related to the increased COVID-19 cases we saw late in 2020 and early 2021, we incurred approximately $16 million in COVID-19 cost during the quarter, which is flat to the prior year. Our adjusted operating income increased from $113 million last year to $299 million. On a rate basis, our adjusted OI margin expanded by 478 basis points to 9%. Finally, our adjusted diluted earnings per share was $3.34, up from $1.00 a year ago. Our free cash flow for the quarter was $259 million, an increase of $330 million compared to last year. Our AP ratio improved by nearly 1,000 basis points to 84%, the highest we've achieved since the GPI acquisition. In the quarter, we spent $71 million in capital expenditures versus $83 million in the prior year quarter. During Q1, we returned more than $200 million to our shareholders through the repurchase of 1.1 million shares and our quarterly cash dividend. We expect to be within our 2021 share repurchase guidance of $300 million to $500 million. For these reasons, we're raising our comp sales guidance to up 4% to 6%. As a result of our top-line strength and current cost assumptions, we're updating our adjusted OI margin range to be between 9% and 9.2%. Our guide for comp sales is now up 3 full points, and our adjusted OI margin rate is now up 30 basis points compared to our initial guidance provided in February.

With strength across all channels, we delivered comparable store sales growth of 24.7%, and margin expansion of 478 basis points versus the prior year. Adjusted diluted earnings per share of $3.34 represented an all-time quarterly high for AAP, and improved more than 230% compared to Q1 2020. In Q1, our net sales increased 23.4% to $3.3 billion. Finally, our adjusted diluted earnings per share was $3.34, up from $1.00 a year ago.

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Recurring revenues rose 10%; adjusted earnings per share rose 13% and our sales teams delivered a 10th consecutive year of record sales. In fiscal '21, we increased our level of investment on our internal platforms, completed the largest acquisition in our history, and returned nearly $250 million in capital to shareholders. Yesterday, our Board approved an 11% increase in our annual dividend per share. Our guidance calls for 12% to 15% recurring revenue growth, further margin expansion, 11% to 15% adjusted earnings per share growth, and another year of record sales. ICS recurring revenue rose 11% in fiscal '21 to $2.1 billion, driven by both new sales and internal growth. Equity stock record growth, which is our measure of the number of positions held by shareholders grew 26% in fiscal '21 including 33% in the seasonally strongest fourth quarter. Looking at industry sectors; tech and consumer cyclical stocks are leading the growth with 42% and 37% growth respectively. We're also seeing double-digit growth across virtually other sector including 33% growth in healthcare needs and 20% plus in basic materials and industrials. After the initial COVID surge last spring, we invested in new distribution capacity to build incremental flexibility across our network, enabling us to seamlessly ensure that holders of more than 500 million positions got the communications they needed to participate in corporate governance. We conducted almost 2,400 virtual shareholder meetings in fiscal '21, up from 1,500 a year ago. We become the clear choice for America's leading companies with more than 75% of S&P 100 companies using Broadridge to host their annual meetings in 2021. Capital Markets revenue grew 8% to $701 million, driven by new client additions and the acquisition of Itiviti, which has given us a new capability to drive innovation across the trade lifecycle. We have more than 70 buy and sell side users in the platform and we're adding more every week. And the average initiated trade is north of $3.5 million, indicating demand for increased liquidity in fixed income markets. We also recently launched our Digital Ledger Repo platform and are averaging $35 billion worth of transactions daily, a number which will grow as more clients, including UBS, come onto the platform. The biggest driver behind our 6% growth in Wealth & Investment Management revenues was revenue from new sales. As we line around UBS' goals around sequencing, we're already rolled out Select Components and we expect to rollout the additional platform components over the next 18 to 24 months. Lastly, I was pleased to see strong growth in our Investment Management technology revenues, which grew by 12%; strong revenue from sales of existing solutions; continued platform development; and new product additions. Our strong backlog gives us visibility into new revenue over the next 12 to 24 months and we see continued position growth as new investors enter the market and current investors continue to diversify their portfolios. The net result of strong fiscal year '21 results, continued execution against our growth strategy and an outlook for continued growth in '22 means that Broadridge is well positioned to deliver at the higher end of our three-year growth objectives including, 7% to 9% recurring revenue growth and 8% to 12% adjusted earnings per share growth. Little in the past 12 months has been easy, but they have found the way to adapt to the new virtual environment. Fiscal '21 recurring revenues increased 10% to $3.3 billion, driven by strong growth in both ICS and GTO. That strong growth enabled us to make the near, medium and long-term investments in our technology platforms and our digital products while driving 60 basis points of AOI margin expansion for the year. Higher revenues and higher margins drove 13% adjusted earnings per share growth to $5.66. In the fourth quarter, revenues rose 15% year-over-year to $1.1 billion, driven by growth in ICS and the acquisition of Itiviti. Adjusted operating income rose 4% as we continued our ongoing investments and adjusted earnings per share grew 2% to $2.19. The momentum in our business driven by the trends in increased investor participation in digital solutions continued into the fourth quarter and helped Broadridge post another year of 10% recurring revenue growth. Our recurring revenue growth was powered by 8% organic growth, which came in well above our 5% to 7% three-year growth objectives. The combination of organic growth coupled with 2 points of growth from our acquisition of FundsLibrary and Fi360 in fiscal year '20, and then Itiviti in May, pushed our fiscal year '21 recurring revenue growth above our 7% to 9% objective as well. ICS revenues grew by 17% to $719 million in the fourth quarter. The biggest driver of that growth was in our regulatory business, which grew 27% to $381 million. Fourth quarter stock record growth was 33% and mutual fund record growth was 11%, both key drivers of growth in regulatory. For the full year, regulatory revenues rose 20%. Issuer revenue also contributed to growth, rising 20% in the fourth quarter to $106 million and 21% growth for the full year. Fund solutions lapped the drag from lower interest income and recurring revenue grew 7% in the fourth quarter. Full year revenues rose 5% driven by the fiscal year '20 acquisitions mentioned earlier and revenue from net new business. Customer communication revenues was down 1% in the quarter as declines in the low margin print revenue offset digital growth. For the full year, customer communications revenue growth was slightly positive, but more importantly, higher margin digital revenues within customer communications grew by 15%. Turning to GTO on Slide 11; GTO recurring revenues rose 10% to $346 million in the quarter driven by 18% growth in our Capital Markets business and 1% growth in Wealth & Investment Management. Across both Capital Markets and Wealth, solid revenue growth from new business was offset by $7 million of lower license revenue, which declined as expected, and modestly lower trading volume. Our acquisition of Itiviti closed in mid-May and contributed $29 million to revenue growth in the Capital Markets franchise. For the full year, GTO revenues rose 7% to $1.3 billion, driven by 4 points of organic growth and 3 points from acquisitions. Equity stock record growth rose to a record 26% in fiscal '21, well above the 6% to 8% trend in the past decade. Fourth quarter proxy volumes which accounted for 55% of full year distributions benefited from 33% stock record growth. Turning to trading volumes in the bottom of the slide, fourth quarter volumes slipped 1% driven by a combination of tough year-over-year comps and lower overall market volatility. Trading volumes rose 12% for the full year. Shifting to a view of growth drivers of recurring revenue on Slide 13, organic growth rose to 11% in the fourth quarter, driven by a combination of new sales and the seasonal impact of higher proxy volumes. New sales contributed 6 points to growth with balanced contribution from both ICS and GTO. Internal growth of 7 points was primarily driven by proxy volumes as is typically the case in our fourth quarter. Acquisitions contributed 3 points, almost all of that came from Itiviti with only a modest contribution from our mid-June acquisition of AdvisorStream. Client losses subtracted 2 points of growth in both the fourth quarter and for the full year, marking another year of 98% client revenue retention rates. Total revenues rose a healthy 12% in the fourth quarter. Recurring revenue was the primary contributor to that growth and Broadridge received a further boost from an uptick in event driven revenues as well as 2 points of growth from higher distribution revenue. While higher distribution revenues contributed to our overall growth, their share of the full-year total revenues declined to 31%, down from 32% in fiscal year '20 and 38% five years ago. Looking down the slide, event driven revenues rose $5 million year-over-year in the fourth quarter to $73 million, driven by higher proxy contest activity. For the full year, event driven revenues rebounded from a cyclical low to a healthy $237 million. And while there might be some quarterly cyclicality, we expect full year fiscal '22 event driven revenues to be approximately $220 million, in line with the fiscal year '15 through fiscal year '21 long-term average. Turning to Slide 15, for the full year, adjusted operating income margin expanded 60 basis points to 18.1%, slightly ahead of our latest guidance and multi-year objectives. AOI margin declined 180 basis points to 22.8% in the fourth quarter on the back of our planned fiscal year '21 investment spend. I was especially pleased to see strong growth in our smaller sales, those under $2 million in annualized values which rose 11%. Our sales performance pushed our overall backlog, a measure of past sales that have not yet been recognized into revenue, to $400 million, up from $355 million last year and steady at 12% of recurring revenue. In fiscal year '21, we generated $557 million of free cash flow, up $58 million from fiscal year '20. The biggest use of our cash was the $2.6 billion acquisition of Itiviti, which was completed in the fourth quarter. We invested almost $300 million in continued platform build-outs, as we add to our capabilities across Wealth Management and Capital Markets, and another $100 million in capex and software development. Total capital returned to shareholders was $248 million. The 11% increase in our annual dividend approved by our Board was in line with our long-term 45% pay-out ratio policy and will increase capital returns in fiscal year '22. As a result of the Itiviti acquisition, our total debt rose to $3.9 billion, up from $1.8 billion at the end of fiscal year '20. Our leverage ratio at year end was 3.5 times. We remain focused on an investment grade credit rating and target a 2.5 times leverage ratio by the end of fiscal '23. We expect to grow recurring revenues by 12% to 15% in fiscal year '22. That includes organic revenue growth of 5% to 7% with growth balanced across both ICS and GTO. As Tim noted, we expect to complete the rollout of the full Wealth Management platform suite over the next 18 to 24 months and will begin to recognize revenues at that time. We expect the contribution from acquisitions to add an additional 7 points to 8 points, with most of that coming from Itiviti. Our more recent acquisitions of AdvisorStream, J&J and Alpha Omega should contribute less than $10 million combined to fiscal '22 recurring revenues. Event driven revenues should, as I indicated earlier, be more in line with our fiscal '15 to '21 seven-year average level of approximately $220 million. For modeling purposes, between recurring revenue, distribution and event-driven revenues, total revenue growth should be in the range of 9% to 13%. We are expecting our adjusted operating income margin of approximately 19%, up from 18.1% in fiscal year '21, driven by a combination of incremental scale, digital, and efficiency gains as well as the addition of the higher margin Itiviti business. Finally, we expect adjusted earnings per share growth to be in the range of 11% to 15%. Included in our earnings per share outlook is an expectation that our tax rate will essentially be flat at approximately 21% and that we'll see a modest increase in our overall share count. Our outlook calls for closed sales in the range of $240 million to $280 million. The difference between the fixed internal rate and the actual rate are recorded in our FX revenue line, which was negative $132 million in fiscal year '21.

Our guidance calls for 12% to 15% recurring revenue growth, further margin expansion, 11% to 15% adjusted earnings per share growth, and another year of record sales. Adjusted operating income rose 4% as we continued our ongoing investments and adjusted earnings per share grew 2% to $2.19. We expect to grow recurring revenues by 12% to 15% in fiscal year '22. Finally, we expect adjusted earnings per share growth to be in the range of 11% to 15%.

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For fiscal '21, our net sales were approximately $943 million, down about 2% from the prior year. Full year gross margin came in at 58%, essentially flat to last year on an adjusted basis. Adjusted earnings per share grew nearly 10%, achieving the high end of our long-term expectations as we continued to benefit from our operating model, leading financial profile and ongoing debt reduction. Adjusted free cash flow of $213 million also grew versus the prior year and continues to fuel our disciplined capital deployment efforts. Each brand won significant market share during fiscal '21, outpacing category growth by five, 15 and seven percentage points respectively. A final highlight to make that helped drive fiscal '21 results was e-commerce, which now represents about 11% of revenue. Q4 revenue of $237.8 million declined 5.4% and 6.6% on an organic basis versus the prior year, which excludes the effects of foreign currency. By segment, North America revenues were down approximately 4%. International OTC declined approximately 24% in Q4 after excluding the effects of foreign currency. EPS for the third quarter was $0.79 per share, down $0.03 versus the prior year as lower interest expense from debt pay down and lower share count only partially offset the decline in revenues versus year ago. For the full year fiscal '21, revenues declined 2.4% versus the prior year in constant currency. Total company gross margin of 58% was approximately flat to last year's adjusted gross margin of 58.3%. This was in line with our expectations and we continue to anticipate a gross margin of about 58% for fiscal '22. Advertising and marketing came in at 14.9% for the fiscal year. Following an unusual Q1 related to COVID-19, A&M returned to normalized levels of spend of approximately 14% to 16%. for the upcoming year, we'd anticipate an approximate 15% rate with a higher rate of A&M spend in Q1. G&A expenses were just over 9% of sales in fiscal '21 versus the prior year, owed largely to disciplined cost management. For the upcoming year, we anticipate G&A expenses to approximate just over 9% of sales. Lastly, record adjusted earnings per share of $3.24 grew a strong 9.5% over the prior year. In Q4, we generated $54.2 million in free cash flow, which resulted in a full year record free cash flow of $213.4 million. We continue to maintain industry leading free cash flow with fiscal '21 free cash flow conversion coming in at 130%. As of March 31, we finished the year with approximately $1.5 billion in net debt and a leverage ratio of 4.2 times. During the year, we reduced debt by $250 million and opportunistically repurchased $12 million in shares during the year, enabled by our strong generation and cash position entering the year. As a result, we were able to issue $600 million of new senior notes during the quarter, which replaced prior notes that were due in 2024. The transaction both extended a key debt maturity to 2031 and resulted in annual interest savings of over $15 million. As a result, interest expense for fiscal '22 is expected to be approximately $60 million. For the full year fiscal '22, we anticipate revenues of approximately $957 million to $962 million, including organic revenue growth of 1.5% to 2%. This revenue outlook assumes our portfolio continues to generate approximately 2.5% long-term organic revenue growth, partially offset by certain categories like cough cold, which we expect to remain flat to fiscal '21. We anticipate earnings per share of $3.58 or more for fiscal '22. We anticipate free cash flow of $225 million or more.

Q4 revenue of $237.8 million declined 5.4% and 6.6% on an organic basis versus the prior year, which excludes the effects of foreign currency. EPS for the third quarter was $0.79 per share, down $0.03 versus the prior year as lower interest expense from debt pay down and lower share count only partially offset the decline in revenues versus year ago. For the full year fiscal '22, we anticipate revenues of approximately $957 million to $962 million, including organic revenue growth of 1.5% to 2%.

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I doubt very many people, 10 years ago or even a few years ago, would have thought that in a period where restructuring as an industry is down substantially, and our restructuring business is well off the peak that we saw last year that we would produce a halfway decent quarter but along a quarter like this. Compared to 10 years ago -- forget the quarter. First quarter of 2021 revenues of $686.3 million were up $81.7 million or 13.5%. GAAP earnings per share of $1.84, compared to $1.49 in the prior year quarter. GAAP earnings per share included $2.3 million of noncash interest expense related to our convertible notes, which decreased earnings per share by $0.05. Adjusted earnings per share of $1.89, which excludes the noncash interest expense, compared to $1.53 in the prior year quarter. Net income of $64.5 million, compared to $56.7 million in the prior year quarter. SG&A of $126.5 million was 18.4% of revenues and compares to SG&A of $127 million or 21% of revenues in the first quarter of 2020. Double-digit revenue growth and flat SG&A expenses more than offset higher billable headcount-related costs, resulting in first-quarter 2021 adjusted EBITDA of $99.5 million, an increase of 19.5%, compared to $83.2 million in the prior year quarter. Our first-quarter 2021 effective tax rate of 23.9%, compared to our tax rate of 22.5% in the first quarter of 2020. For the balance of 2021, we continue to expect our effective tax rate to be between 23% and 26%. Weighted average shares outstanding or WASO for Q1 of 35.1 million shares declined 3.1 million shares, compared to 38.2 million shares in the first-quarter 2020. For the quarter, our convertible notes had a potential dilutive impact on earnings per share of approximately 450,000 shares in WASO, as our share price on average of $118.44 this past quarter was above the $101.38 conversion threshold. Billable headcount at the end of the quarter increased by 562 professionals or 12.3%. This increase is largely due to 34.9% billable headcount growth in corporate finance and restructuring, which includes both organic hiring as well as the addition of 151 billable professionals from the acquisition of Delta Partners in the third quarter of 2020. Sequentially, billable headcount increased by 75 professionals or 1.5%. In corporate finance and restructuring, revenues of $226.2 million increased $18.5 million or 8.9% compared to the prior year quarter. Acquisition-related revenues contributed $16 million in the quarter. Adjusted segment EBITDA of $37.4 million or 16.6% of segment revenues, compared to $48.9 million or 23.6% of segment revenues in the prior year quarter. The year-over-year decrease in adjusted segment EBITDA was due to flat revenues with a 34.9% increase in billable headcount and related compensation expenses and a 10 percentage point decline in utilization. Turning to forensic and litigation consulting, revenues of $150.8 million increased 2.2% compared to the prior year quarter. The increase in revenues was primarily due to higher demand for health solutions and investigation services, which was partially offset by a $4.1 million decline in pass-through revenues and lower realized pricing for our data and analytics services. Adjusted segment EBITDA of $29.4 million or 19.5% of segment revenues, compared to $21.2 million or 14.4% of segment revenues in the prior year quarter. Sequentially, FLC revenues increased $23.6 million or 18.6%, and adjusted segment EBITDA improved $21.8 million, reflecting increased demand across all of our core offerings, including previously backlogged work and a 9 percentage point increase in utilization. Revenues of $169.3 million were up 28.1%, compared to the prior year quarter. Adjusted segment EBITDA of $26.6 million or 15.7% of segment revenues, compared to $12.7 million or 9.6% of segment revenues in the prior year quarter. The increase in adjusted segment EBITDA was due to higher revenues, which was partially offset by higher compensation related to an increase in variable compensation and a 9.9% increase in billable headcount. Revenues increased 35.3% to $79.5 million compared to the prior year quarter. Adjusted segment EBITDA of $21.6 million or 27.2% of segment revenues, compared to $14.5 million or 24.7% of segment revenues in the prior year quarter. Sequentially, Technology revenues increased $20.8 million or 35.5%, and adjusted segment EBITDA improved $11.4 million, primarily due to a large second request engagement. Strategic communications revenues increased 3.7% to $60.5 million compared to the prior year quarter. During the quarter, we experienced increased demand for our public affairs services, which was offset by a $2 million decline in pass-through revenues. Adjusted segment EBITDA of $10.4 million or 17.2% of segment revenues, compared to $8.8 million or 15% of segment revenues in the prior year quarter. Net cash used in operating activities of $166.6 million, compared to $123.6 million in the prior year quarter. During the quarter, we spent $46.1 million to repurchase 421,725 shares at an average price per share of $109.37. As of the end of the quarter, approximately $167.1 million remained available for stock repurchases under our current stock repurchase authorization. Total debt net of cash of $252.8 million at March 31, 2021, compared to $143.2 million at March 31, 2020, and $21.3 million at December 31, 2020. The sequential increase was primarily due to $170 million of net borrowings under our bank revolving credit facility to fund cash used in operating activities primarily for annual bonus payments. Revenues of between $2.575 billion and $2.7 billion. EPS of between $5.60 and $6.30. And adjusted earnings per share of between $5.80 and $6.50. That represented over 20% of of total quarterly segment revenues. Moody's now expects the trailing 12-month Speculative Grade Global Default Rate to fall to 3.2% by the end of the year, down from 6.8% forecast they provided in December. And Fitch, which measures defaults by dollar volume now expects a high-yield default rate for the U.S. of 2% by year end. Fourth, our nonbillable travel and entertainment expenses are typically around 1.5% of revenue.

First quarter of 2021 revenues of $686.3 million were up $81.7 million or 13.5%. GAAP earnings per share of $1.84, compared to $1.49 in the prior year quarter. Adjusted earnings per share of $1.89, which excludes the noncash interest expense, compared to $1.53 in the prior year quarter.

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First Quarter revenues of $224 million generated diluted earnings per share of $1.79 up 20% over q1 2020 on total transaction volume of $9 billion. Well, the scenery can now change and we will use our market leadership position to win more clients continue investing in technology and benefit from the fantastic branding that this accomplishment establishes our vision to be the premier commercial real estate finance company in the United States was established in 2010 when Walker and Dunlop Lync $2.7 billion on commercial properties, or 7%. of the $37 billion that Wells Fargo lent that year as the largest lender in the country, and over the last decade due to hiring great people investing in technology and building our brand. We moved up to the number four spot in the league tables after lending $24.7 billion on commercial real estate in 2020. We are a company of only 1000 people with a very real opportunity to grow to three to 5000 people by investing in technology and entering new markets. The fact that we ended 2020 with 1000 employees, and over $1 billion in revenues allowed us to maintain our metric of over $1 million of revenue per employee. As this slide shows, revenue per employee of over $1 million places Walker and Dunlop in line with VSA and just behind the global tech giants, Facebook, Google and Apple. Just last week, we closed on a $37 million financing. This part of the 27% of our total transaction volume in q1 coming from new clients to Walker and Dunlop. That is up from 23% for all of 2020. new loans to our servicing portfolio increased to 79% in q1 of 2020, up from 66% for all of 2020 so rather than simply refinancing the loans in Walker and daube sizable $110 billion servicing portfolio. Almost 80% of the loans we refinanced in q1 were new loans to Walker and Dunlop, generating finance financing fees, and adding mortgage servicing rights to our loan portfolio. According to pre Quinn, commercial real estate focused funds began 2021 with a record $324 billion of dry powder. With banks life insurance companies and debt funds coming back into the market and $105 billion of capital for Fannie and Freddie left to lend in 2021. And as you can see on this slide, over $320 billion of multifamily loans mature over the next five years. And that momentum contributed to both strong financial results and good progress toward the achievement of our drive to 25 long term strategic objectives in the quarter. For the first quarter, we generated diluted earnings per share of $1.79 of 20% year over year on 224 million of total revenues. earnings in the quarter included the positive benefit of reducing our allowance for credit risk by $11.3 million, which added 25 cents to ups. One personnel expense as a percentage of total revenues was 43%, which is elevated compared to a typical first quarter due to recent investments in people as we continue to scale our business and support our future growth. During the quarter, we grew our team of bankers and brokers to 214 from 205 at the start of the year, further increase in both our geographic reach with hires in Ohio, California, Texas and Maryland, and our investment sales product capabilities with the acquisition of student housing focused four point even with the increase in compensation expense, operating margin was 33%, inclusive of the reserve release, and 28% without within our typical range of 28 to 30%. Return On Equity was 19% in the quarter, consistent with last year and within our expected range of 18 to 20%. Total transaction volume of $9 billion was down 20% from the first quarter of 2020. as anticipated, given that we originated the largest portfolio in our company's history, a $2.1 billion Fannie Mae transaction last q1. Notably, we saw strong debt brokerage volumes of $4.3 billion in a quarter of a percent from last year has very strong values indicative of an active market for commercial real estate financing is attracting significant amounts of capital as we continue to progress toward a post COVID environment. 72% of our debt brokerage volumes were multifamily compared to 94% in the year ago quarter, reflecting the pickup in London on other asset classes. A mix of our $7.6 billion of debt financing volume in q1 21 was skewed more heavily toward debt brokerage originations as compared to the first quarter of last year. Our hot volumes at 622 million, we're up 75% from q1 20, continuing the strong performance off of 2020s record year. In addition, our interim lending program was very active in the quarter with $178 million of multifamily bridge loans originated through our JV with Blackstone, and on our own balance sheet. Our market share with Fannie and Freddie remained above 11%. And we expect that our overall volumes will pick up over the next three quarters, as the GSE has managed their deal flow to ensure that they use all of their remaining $105 billion of lending capacity for the year. Invest in sales volume of 1.4 billion was down 19% from last year's first quarter. q1 adjusted EBIT da $61 million is down slightly from q1 of last year, but it's the highest quarter of the EBIT da since the start of a pandemic. As we are seeing the benefit of the strong mortgage servicing rights that we booked during 2020 translate into cash servicing fees, which were up 19% in the quarter. As you can see on this slide, the servicing portfolio ended the quarter at $110 billion with a weighted average servicing fee of 24.3 basis points of one fold basis point from the first quarter of last year, which is huge given the overall size of the book, and the fact that we have added over $15 billion of net new loans to the portfolio in the last 12 months. With 85% of the portfolio's future servicing fees being prepayment protected, the portfolio will continue to fuel meaningful stable cash servicing fees, approaching $275 million on an annual basis. As I mentioned earlier, this resulted in an $11.3 million recapture of provision for credit losses in q1 of 2021. Compared to an expansive $23.6 million in the first quarter of 2020 when the pandemic was declared one year later, we have very few loans in forbearance. The debt service coverage ratio of the $50 billion of loans we have risk on, remained above two times at the end of 2020, consistent with the end of 2019, while unemployment rates are still relatively elevated at 6%, this is a significant improvement from the higher 14.7% that we saw in April of 2020. We feel that the current level of the allowance at $64.6 million is sufficient to cover any future losses that could arise in the portfolio over its expected remaining life. We ended the quarter with over $277 million of cash on our balance sheet, and another $62 million funding loans held for sale, bringing our total cash available to $339 million. We are currently exploring a number of strategic acquisition opportunities that are in line with our drive to 25 objectives, investing in revenue generating technology and initiatives and continuing to bring on banking and brokerage talent, all of which is supported by our strong cash position today. Yesterday we announced the acquisition of 75% of Zelman and Associates, the leading housing focused research firm in the country. We expect the Zellman platform to contribute between 15 and 20 cents in earnings per share in its first year. Yesterday, our board of directors approved the quarterly dividend at 50 cents per share payable to shareholders of record as of May 20. During q1, we made significant progress toward our strategic objective of our five year growth plan to drive to 25. The overarching goal of the drive to 25 is to grow revenues from $1 billion in 2020 to $2 billion in 2025. A year ago, a prize produced 55 appraisals in q1 this year, we did 5x that volume and we intend to continue growing that number by multiples. But as part of our drive to 25 objectives, we set a goal to formalize and expand our investment banking services. And as these two industries collide in the single family homes for rent market, Zelman and WD will be perfectly positioned to provide expert coverage of these markets, gentleman's research and analytical capabilities, coupled with Walker and dunlops vast data from our 100 and $10 billion servicing portfolio, and technology investments provide the bankers and brokers at Walker and Dunlop with the very best insight into micro and macro markets across the country to enable their sales efforts. As we make significant strides toward the strategic and financial components of the drive to 25. I've watched this wonderful company grow from one office and just over 40 employees into the national powerhouse it is today and I must say I've never been prouder, nor more excited about all we are currently doing.

First Quarter revenues of $224 million generated diluted earnings per share of $1.79 up 20% over q1 2020 on total transaction volume of $9 billion. For the first quarter, we generated diluted earnings per share of $1.79 of 20% year over year on 224 million of total revenues.

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AAM's fourth quarter 2021 sales were $1.24 billion, and for the full year 2021, AAM's sales were approximately $5.2 billion. In 2021, we experienced volume recovery from the impact of the 2020 global pandemic, but semiconductor supply chip shortages impacted AAM by over $600 million. From a profitability perspective, AAM's adjusted EBITDA in the fourth quarter of 2021 was $164.6 million, or 13.3% of sales. For the full year 2021, AAM's adjusted EBITDA was $833.3 million, or 16.2% of sales. AAM's adjusted earnings per share in the fourth quarter 2021 was a loss of $0.09 per share. For the full year 2021, AAM's adjusted earnings per share was $0.93 per share, compared to $0.14 per share in 2020. AAM's adjusted free cash for the fourth quarter of 2021 was $43.6 million. And for the full year of 2021, AAM's adjusted free cash flow was $423 million. We reduced our gross debt by approximately $350 million and a turn of leverage. Let me talk about some key highlights for 2021 and the start of 2022, which you can see on Slides 4 and 5 of our slide deck. And earlier today, we announced that AAM has secured multiple next-generation full-sized truck axle programs with global OEM customers with lifetime sales valued at greater than $10 billion. AAM expects our gross new business backlog covering three-year period of 2022 through 2024 to be approximately $700 million. We expect the launch case of this backlog to be $175 million in 2022, $325 million in 2023, and $200 million in 2024. You can also see the backlog breakdown on Slide 6, with about 55% of this new business backlog related to global light trucks, including crossover vehicles, and most importantly, 35% stems from electrification. This is more than double the 15% last year that we had. Currently, AAM is quoted on approximately $1.5 billion of revenue, but two-thirds of the quotes coming from electrification-based programs. And AAM is targeting sales in the range of $5.6 billion to $5.9 billion, adjusted EBITDA of approximately $800 million to $875 million, adjusted free cash flow approximately $300 million to $375 million. And that assumes our capital spending in the range of 3.5% to 4% of sales. And from a launch standpoint, we have 25 launches here in 2022, which should drive growth over the next several years. And from an end market perspective, we forecast production at approximately 14.8 million to 15.2 million units for our primary North American market. This represents about a 14% to 17% increase over last year's performance. On the surface, you will note our sales were down nearly $200 million on a year over year basis. AAM's product sales were down more than $300 million on a year over year basis due to semiconductor shortages and overall market dynamics. Partially offsetting the drop in product sales is a $100 million increase in an index-related metal market costs that we passed through to our customers at no margin. In the fourth quarter of 2021, AAM sales were $1.24 billion, compared to $1.44 billion in the fourth quarter of 2020. We estimate that AAM was unfavorably impacted by the industrywide semiconductor shortage by approximately $137 million in the fourth quarter of 2021. Other volume and mix in pricing was negative by $200 million. Metal markets and foreign currency accounted for an increase of approximately $94 million to our total sales in the quarter. For the full year of 2021, AAM sales were $5.16 billion as compared to the $4.71 billion for the full year of 2020. The primary drivers of the increase was a return of COVID-related volumes, an increase of over $300 million in index-related metal pass-throughs and foreign currency, partially offset by volumes lost due to semiconductor chip shortages that exceeded $600 million for 2021. Gross profit was $140 million, or 11.3% of sales in the fourth quarter of 2021, compared to $237 million, or 16.4% of sales in the fourth quarter of 2020. Adjusted EBIDTA was $165 million in the fourth quarter of 2021 or 13.3% of sales. This compares to $262 million in the fourth quarter of 2020, or 18.2% of sales. During the quarter, semiconductor sales disruptions and other volumes and mix had a negative impact of $39 million and $59 dollars, respectively. The retained portion impacting this quarter plus FX was approximately $30 million. For the full year of 2021, AAM's adjusted EBITDA was $833 million and adjusted EBITDA margin of 16.2% of sales. SG&A expense, including R&D in the fourth quarter of 2021, was $78 million, or 16.3% of sales. This compares to $83 million in the fourth quarter of 2020, or 5.8% of sales. AAM's R&D spending in the fourth quarter of 2021 was approximately $20 million, compared to $31 million in the fourth quarter of 2020. And we would expect R&D to increase in 2022 by approximately $45 million to support these new multiple new opportunities. Net interest expense was $42 million in the quarter of 2021, compared to $50 million in the fourth quarter of 2020. In the fourth quarter of 2021, we recorded an income tax benefit of $2.3 million, compared to an expense of $13.9 million in the fourth quarter of 2020. As we head into 2022, we expect our adjusted effective tax rate to be approximately 15% to 20%. And lastly, during the fourth quarter, AAM completed the transfer of nearly $100 million of pension obligations to an insurance company. As a result of this transaction, AAM recorded a non-cash pre-tax pension settlement charge of $42 million. Taking all these aforementioned items into account, including the pension settlement charge, our GAAP net loss was $46 million or $0.41 per share in the fourth quarter of 2021, compared to an income of $36 million or $0.30 per share in the fourth quarter of 2020. Adjusted lost per share for the fourth quarter of 2021 was $0.09, compared to $0.51 earnings per share in the fourth quarter of 2020. For the full year of 2021, AAM earned adjusted earnings per share of $0.93 versus $0.14 in 2020. Net cash provided by operating activities for the fourth quarter of 2021 was $102 million. Capital expenditures, net of proceeds from the sale of property plant equipment in the fourth quarter, was $65 million. And cash payments for restructuring and acquisition-related activity for the fourth quarter of 2021 were $9.8 million. Reflecting the impact of these activities, AAM generated adjusted free cash flow of $44 million in the fourth quarter of 2021. For the full year of 2021, AAM generated adjusted free cash flow of $423 million, compared to $311 million in the full year of 2020. From a debt lover's perspective, we ended the year with net debt of $2.6 billion and LTM adjusted EBITDA of $833 million, calculating a net leverage ratio 3.1 times on December 31st. In 2021, we prepaid over $350 million of gross debt. AAM ended 2021 with total available liquidity of approximately $1.5 billion, consisting of available cash and borrowing capacity on AAM's global credit facilities. As for sales, we are targeting the range of $5.6 billion to $5.9 billion for 2022. This sales target is based upon North American production estimates of 14.8 million to 15.2 million units, new business backlog launches of $175 million and attrition of approximately $100 million. From an EBITDA perspective, we're expecting adjusted EBITDA in the range of $800 million to $875 million. First, yes, we expect to convert our year-over-year product sales increases and expected contribution margins of approximately 25% to 30%, as shown on our year-over-year walk. By way of perspective, this net amount reflected on our walk represents only slightly more than 1% of our annual purchase component buy. You can see continued year-over-year performance on our walk of nearly $35 million. From an adjusted free cash flow perspective, we are targeting approximately $300 million to $375 million in 2022. However, our capex to sales ratio is still very low by our historical measures as we are targeting capex as a percent of sales of approximately 3.5% to 4%. And lastly, we estimate our restructuring payments to be in the range of $20 million to $30 million for 2022. Our new three-in-one electric drive platform and components are driving global interest, and as such, our backlog of electrification is now at 35%.

AAM's fourth quarter 2021 sales were $1.24 billion, and for the full year 2021, AAM's sales were approximately $5.2 billion. AAM's adjusted earnings per share in the fourth quarter 2021 was a loss of $0.09 per share. AAM expects our gross new business backlog covering three-year period of 2022 through 2024 to be approximately $700 million. We expect the launch case of this backlog to be $175 million in 2022, $325 million in 2023, and $200 million in 2024. And AAM is targeting sales in the range of $5.6 billion to $5.9 billion, adjusted EBITDA of approximately $800 million to $875 million, adjusted free cash flow approximately $300 million to $375 million. And from an end market perspective, we forecast production at approximately 14.8 million to 15.2 million units for our primary North American market. In the fourth quarter of 2021, AAM sales were $1.24 billion, compared to $1.44 billion in the fourth quarter of 2020. Taking all these aforementioned items into account, including the pension settlement charge, our GAAP net loss was $46 million or $0.41 per share in the fourth quarter of 2021, compared to an income of $36 million or $0.30 per share in the fourth quarter of 2020. Adjusted lost per share for the fourth quarter of 2021 was $0.09, compared to $0.51 earnings per share in the fourth quarter of 2020. As for sales, we are targeting the range of $5.6 billion to $5.9 billion for 2022. This sales target is based upon North American production estimates of 14.8 million to 15.2 million units, new business backlog launches of $175 million and attrition of approximately $100 million. From an EBITDA perspective, we're expecting adjusted EBITDA in the range of $800 million to $875 million.

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However, China led the path to recovery, first by stabilizing and then moving to growth by the end of the quarter. As a result of the pandemic, our second quarter sales decreased 42% to $729.5 million, which consisted of a 37.8% decrease in our international businesses and a 47.3% decrease in our domestic businesses. The primary drivers in the quarter were Asia, led by China with a 11.5% growth and our company-owned e-commerce business with sales growth of more than 400%. While our international wholesale business decreased 29.9%, China offered a model of recovery, stabilization and then growth in the quarter. At this time, more than 90% of the third-party SKECHERS stores around the world have reopened. Our domestic wholesale business decreased 57.2% reflecting the majority of retail store closures during much of the quarter. With nearly all company-owned SKECHERS stores closed for most of the quarter, our direct-to-consumer business decreased 47.1%, which includes a 428.2% increase in our e-commerce business. Comparable same-store sales in our direct-to-consumer business decreased 45.6%, including a decrease of 35.9% in the United States and 66.9% internationally. As of today, more than 90% of our global company-owned stores have reopened under heightened safety protocols. Further 102 new third-party SKECHERS stores opened across 28 countries, bringing our total store count to 3,615 worldwide at quarter-end. The progress we have made through the second quarter from a product and sales perspective couldn't have been achieved without our faster, flexible and focused business approach. Sales in the quarter totaled $729.5 million, a decrease of $529.1 million or 42% from the prior year quarter. On a constant currency basis, sales decreased $516.2 million or 41%. Domestic wholesale sales declined 57.2% or $174.6 million as operations at many of our wholesale customers were closed, particularly in the first half of the second quarter. International wholesale sales decreased 29.9% in the quarter. Our wholly owned subsidiaries were down 43.7% and our distributor business decreased 58.1%. However, our joint ventures were down only 6.4% as China sales grew 11.5% for the quarter led by e-commerce, which was especially strong over the 6-18 selling period. Direct-to-consumer sales decreased 47.1%, the result of a 35.4% decrease domestically and a 66.6% decrease internationally, reflecting the impact of temporary store closures globally, partially offset by a 428.2% increase in our e-commerce business. Gross profit was $368.6 million, down $241.2 million compared to the prior year on lower sales volumes while gross margin increased by approximately 210 basis points to 50.5%. Total operating expenses decreased by $73 million or 14.5% to $432.1 million in the quarter, reflecting the swift actions we took during the quarter to reduce all non-essential discretionary spending. Selling expenses decreased by $53.3 million or 46.9% to $60.2 million, primarily due to lower advertising expenses globally, partially offset by an increase in digital advertising spend. General and administrative expenses decreased by $19.7 million or 5% to $371.9 million reflecting reductions in discretionary spending and compensation related costs and despite the inclusion of an incremental $10.2 million in bad debt expense due to the expected impact of the pandemic on wholesale customers across the globe. Loss from operations was $61 million versus the prior year earnings from operations of $111.1 million. Net loss was $68.1 million or $0.44 per diluted share on 154.1 million diluted shares outstanding compared to net income of $75.2 million or $0.49 per diluted share on 153.9 million diluted shares outstanding in the prior year. Our effective income tax rate for the quarter decreased to 7.2% from 18.4% in the prior year and resulted in a net tax benefit of $4.3 million. At June 30th, 2020, we had over $1.56 billion in cash, cash equivalents and investments, which was an increase of $524.5 million or 50.9% from December 31st, 2019 reflecting the drawdown of our senior unsecured credit facility last quarter. Importantly, this represents an increase in net cash balances over last quarter of $189.3 million, reflecting our prudent inventory, working capital and operating expense management and including $75.9 million of capital expenditures. Trade accounts receivable at quarter-end were $478 million, a decrease of 25.9% or $167.3 million from December 31st, 2019 and a decrease of 25.5% or $163.4 million from June 30th, 2019. Total inventory was $1.03 billion, a decrease of 3.9% or $42.1 million from December 31st, 2019, but an increase of 20.1% or $172.1 million from June 30th, 2019. Total debt, including both current and long-term portions, was $763.3 million compared to $121.2 million at December 31st, 2019. Capital expenditures for the second quarter were $75.9 million, of which $20.5 million related to our new China corporate office space, $13.8 million related to several new store openings worldwide, $12.4 million was associated with our new distribution center in China and $10.9 million related to the expansion of our domestic distribution center. We now expect total capital expenditures over the remainder of the year to be between $100 million and $150 million. We expect incremental capital expenditures related to that expansion to total between $90 million and $110 million this quarter -- this year, sorry, of which approximately $10 million has already been recorded. We will not be providing revenue or earnings guidance at this time as the current environment remains too dynamic from which to plan results with a reasonable degree of certainty. We experienced exceptionally strong demand for our brand in Europe, North America and South America with our e-commerce platforms growing more than 400%. Similarly, we saw demand in Asia primarily within [Phonetic] China with a 11.5% growth, including e-commerce growth of 43%.

However, China led the path to recovery, first by stabilizing and then moving to growth by the end of the quarter. The primary drivers in the quarter were Asia, led by China with a 11.5% growth and our company-owned e-commerce business with sales growth of more than 400%. At this time, more than 90% of the third-party SKECHERS stores around the world have reopened. With nearly all company-owned SKECHERS stores closed for most of the quarter, our direct-to-consumer business decreased 47.1%, which includes a 428.2% increase in our e-commerce business. As of today, more than 90% of our global company-owned stores have reopened under heightened safety protocols. The progress we have made through the second quarter from a product and sales perspective couldn't have been achieved without our faster, flexible and focused business approach. Sales in the quarter totaled $729.5 million, a decrease of $529.1 million or 42% from the prior year quarter. However, our joint ventures were down only 6.4% as China sales grew 11.5% for the quarter led by e-commerce, which was especially strong over the 6-18 selling period. Direct-to-consumer sales decreased 47.1%, the result of a 35.4% decrease domestically and a 66.6% decrease internationally, reflecting the impact of temporary store closures globally, partially offset by a 428.2% increase in our e-commerce business. Net loss was $68.1 million or $0.44 per diluted share on 154.1 million diluted shares outstanding compared to net income of $75.2 million or $0.49 per diluted share on 153.9 million diluted shares outstanding in the prior year. We expect incremental capital expenditures related to that expansion to total between $90 million and $110 million this quarter -- this year, sorry, of which approximately $10 million has already been recorded. We will not be providing revenue or earnings guidance at this time as the current environment remains too dynamic from which to plan results with a reasonable degree of certainty. Similarly, we saw demand in Asia primarily within [Phonetic] China with a 11.5% growth, including e-commerce growth of 43%.

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We're executing on AIG 200 to instill operational excellence in everything we do. I will also provide an update on the considerable progress we're making on the operational separation of life and retirement from AIG and our strong execution of AIG 200. Adjusted after-tax income in the third quarter was $0.97 per diluted share compared to $0.81 in the prior-year quarter. This result was driven by significant improvement in profitability in general insurance, very good results in life and retirement, continued expense discipline and savings from AIG 200 and executing on our capital management strategy. And we were especially pleased with our adjusted accident year combined ratio, which improved 280 basis points year over year to 90.5%. One data point that I believe demonstrates the incredible progress we have made is our accident year combined ratio for the first nine months of 2021, which was 97.7%. This represents a 770-basis-point improvement year over year, with 600 of that improvement coming from the loss ratio and 170 from the expense ratio. This business delivered a return on adjusted segment common equity of 12.2% for the third quarter and 14.3% for the first nine months of the year. And we recently achieved an important milestone in the separation process by closing the sale of a 9.9% equity stake in life and retirement to Blackstone for $2.2 billion in cash. We ended the third quarter with $5.3 billion in parent liquidity after redeeming $1.5 billion in debt outstanding and completing $1.1 billion in share repurchases. Year-to-date, we have reduced financial debt outstanding by $3.4 billion and have returned $2.5 billion to shareholders through share repurchases and dividends. We expect to redeem or repurchase an additional $1 billion of debt in the fourth quarter and to repurchase a minimum of $900 million of common stock through year-end to complete the $2 billion of stock repurchase we announced on our last call. Adjusting for foreign exchange, net premiums written increased 10% year over year to $6.6 billion. This growth was driven by global commercial, which increased 15%, with personal insurance flat for the quarter. Growth in commercial was balanced between North America and International, with North America increasing 18% and International increasing 12%. Growth in North America commercial was driven by excess casualty, which increased over 50%; Lexington Wholesale, which continued to show leadership in the E&S market and grew Property and Casualty by over 30%; financial lines, which increased over 20%; and Crop Risk Services, which grew more than 50% driven by increased commodity prices. In international commercial, financial lines grew 25%, Talbot had over 15% growth and Liability had over 10% growth. In addition, gross new business in global commercial grew 40% year over year to over $1 billion. In North America, new business growth was more than 50% and in International, it was more than 25%. We also had very strong retention in our in-force portfolio, with North America improving retention by 200 basis points and International improving retention by 700 basis points. Strong momentum continued with overall global commercial rate increases of 12%. North America commercial's overall 11% rate increases were balanced across the portfolio and led by excess casualty, which increased over 15%. Financial lines, which also increased over 15% and Canada, where rates increased by 17%, representing the 10th consecutive quarter of double-digit rate increases. International commercial rate increases were 13% driven by EMEA, excluding specialty, which increased by 22%. U.K., excluding specialty, which increased 21%. Financial lines, which increased 24% and Energy, which was up 14%, its 11th consecutive quarter of double-digit rate increases. As I noted earlier, general insurance's accident year combined ratio ex CAT was 90.5%. These results were driven by our improved portfolio mix, achieving rate in excess of loss cost trends, continued expense discipline and benefits from AIG 200. Global commercial achieved an impressive accident year combined ratio ex CATs of 88.9%, an improvement of 290 basis points year over year and the second consecutive quarter with a sub-90% combined ratio result. The accident year combined ratio ex CAT for North America commercial and international commercial were 90.5% and 86.8%, respectively, an improvement of 370 basis points and 210 basis points. In global personal insurance, the accident year combined ratio ex CATs was 94.2%, an improvement of 220 basis points year over year driven by improvement in the expense ratio. Given the significant progress we have made to improve our combined ratios and our view that the momentum we have will continue for the foreseeable future, we now expect to achieve a sub-90% accident year combined ratio ex CAT for full year 2022. After three years of significant underwriting margin improvement, we believe that the sub-90% accident year combined ratio ex CAT is something that not only will be achieved for full year 2022, but that there will continue to be runway for further improvement in future years. As I said earlier, the third quarter was very active, with current industry estimates ranging between $45 billion and $55 billion globally. We reported approximately $625 million of net global CAT losses with approximately $530 million in commercial. The largest impacts were from Hurricane Ida and flooding in Europe, where we saw net CAT losses of approximately $400 million and $190 million, respectively. We have each and every loss deductibles of $75 million for North America wind, $50 million for North America earthquake and $25 million for all other North America perils and $20 million for international. Our worldwide retention has approximately $175 million remaining before attaching in the aggregate, which would essentially be for Japan CAT. Since 2012 and excluding COVID, there have been 10 CATs with losses exceeding $10 billion. And nine of those 10 occurred in 2017 through the third quarter of this year. Average CAT losses over the last five years have been $114 billion, up 30% from the 10-year average and up 40% from the 15-year average. And through 2021, catastrophe losses exceed $100 billion and we're already at $90 billion through the third quarter. First, while CAT models tended to trend acceptable over the last 20 years, that has not been the case over the last five years. Second, over the last five years, on average, models have been 20% to 30% below the expected value at the lower return periods. Adjusted pre-tax income in the third quarter was approximately $875 million. Individual retirement, excluding retail mutual funds, which we sold in the third quarter, maintained its upward trajectory with 27% growth in sales year over year. Our largest retail product, Index Annuity, was up 50% compared to the prior-year quarter. Group retirement collectively grew deposits 3% with new group acquisitions ahead of prior year but below a robust second quarter. Kevin and his team continued to actively manage the impacts from a low interest rate and tighter credit spreads environment and their earlier provided range for expected annual spread compression has not changed as base investment spreads for the third quarter were within the annual 8 to 6 points guidance. Having said that, we currently expect to retain a greater than 50% interest immediately following the IPO and to continue to consolidate life and retirement's financial statements until such time as we fall below the 50% ownership threshold. With respect to AIG 200, we continue to advance this program and remain on track to deliver $1 billion in run rate savings across the company by the end of 2022 against a cost to achieve of $1.3 billion. $660 million of run rate savings are already executed or contracted, with approximately $400 million recognized to date in our income statement. As with the underwriting turnaround, which created a culture of underwriting excellence, AIG 200 is creating a culture of operational excellence that is becoming the way we work across AIG. Shane joined AIG in 2019 and his strong leadership helped accelerate aspects of AIG 200 and instill discipline and rigor around our finance transformation, strategic planning, budgeting and forecasting processes. He has a strong financial and accounting background having worked at GE for over 20 years in many senior finance roles, including as Head of FP&A and chief financial officer of GE's international operations. Shane has already begun working with Mark on a transition plan and we've shifted his AIG 200 and shared services responsibility to other senior leaders. Elias has been with AIG for over 15 years and was most recently our Deputy CFO and Principal Accounting Officer for AIG as well as the CFO for general insurance. I am extremely pleased with the strong adjusted earnings this quarter of $0.97 per share and our profitable general insurance calendar quarter combined ratio, which includes CATs, of 99.7%. life and retirement also produced strong APTI of $877 million, along with a healthy adjusted ROE of 12.2%. The quarter's strong operating earnings and consistent investment performance helped increase adjusted book value per share by 3% sequentially and nearly 9% compared to one year ago. The strength of our balance sheet and strong liquidity position were highlights in the period as we made continued progress on our leverage goals with a GAAP debt leverage reduction of 90 basis points sequentially and 350 basis points from one year ago today to 26.1%, generated through retained earnings and liability management actions. Due to our achieved profitable growth to date, together with demonstrable volatility reduction and smart cycle management, makes us even more confident in achieving our stated goal of a sub-90% accident year combined ratio ex CAT for full year 2022 rather than just exiting 2022. In fact, for a more extensive view, within North America over the three year period, 2019 through 2021, product lines that achieved cumulative rate increases near or above 100% are found within excess casualty, both admitted and non-admitted. Last quarter, we provided commentary about U.S. portfolio loss cost trends of 4% to 5% and in some aspects were viewed as being near term. And in fact, our U.S. loss cost trends range from approximately three and a half percent to 10%, depending on the line of business. Approximately $42 billion of reserves were reviewed this quarter, bringing the year-to-date total to approximately 90% of carried pre-ADC reserves. On a pre-ADC basis, the prior-year development was $153 million favorable. On a post-ADC basis, it was $3 million favorable. And when reflecting the $47 million ADC amortization on the deferred gain, it was $50 million favorable in total. The first of these two impacts is the direct reduction from North America personal insurance reserves of $326 million, resulting from the subrogation recoveries. As a result, we also had to reverse a previously recorded 2018 accident year reinsurance recovery in North America commercial Insurance of $206 million since the attachment point was no longer penetrated once the subrogation recoveries were received. These two impacts from the subrogation recovery resulted in a net $120 million of favorable development. So excluding their impact restates the total general insurance PYD as being $70 million unfavorable in total rather than the $50 million of favorable development discussed earlier. This $70 million of global unfavorable stems from $85 million unfavorable in global CAT losses together with $50 million favorable in global non-CAT or attritional losses. The $85 million unfavorable in CAT is driven by marginal adjustments involving multiple prior-year events from 2019 and 2020. The $15 million non-CAT favorable stems from the net of $255 million unfavorable from global commercial and $270 million of favorable development, predominantly from short-tail personal lines businesses within accident year 2020, mostly in our International book. Consistent with our overall reserving philosophy, we were cautious toward reacting to this $270 million favorable indication until we allow the accident year to season. North America commercial had unfavorable development of $112 million, which was driven by financial lines' strengthening of approximately $400 million with favorable development and other lines led by workers' compensation with approximately $200 million, emanating mostly from accident years 2015 and prior and approximately $100 million across various other units. North America financial lines were negatively impacted by primary public D&O, largely in the more complex national accounts arena and within private not-for-profit D&O unit, in addition to some excess coverage mostly in the public D&O space, with 90% emanating from accident years 2016 to 2018. International commercial had unfavorable development of $143 million, which was comprised of financial lines' strengthening in D&O and professional indemnity of approximately $300 million led by the U.K. and Europe, but the accident year impacts are more spread out. Favorable development was led by our specialty businesses at roughly $110 million with an additional favorable of approximately $50 million stemming from various lines and regions. In 2017, AIG provided D&O coverage to 67 insurers involved in SCAs, which represents 42% of all U.S. federal security class actions in that year. Whereas in 2020, that shrunk to just 18% and through nine months of 2021 is only 15 insurers or 14%. This is significant because roughly 60% to 70% of public D&O loss dollars historically emanate from SCAs. The policy retention rate here between 2018 and 2021, which is a key strategic target, is just 15%. And yet it should also be noted that the corresponding cumulative rate increase over the same period is nearly 130%. The year-to-date ROE has been a strong 14.3% compared to 12.8% in the first nine months of last year. APTI during the third quarter saw higher net investment income and higher fee income, offset by the unfavorable impact from the annual actuarial assumption update, which is $166 million pre-tax, negatively affected the ROE by approximately 250 basis points on an annual basis and earnings per share by $0.15 per share. But our exposure sensitivity of $65 million to $75 million per 100,000 population deaths proved accurate based on the reported third quarter COVID-related deaths in the United States. Within Individual retirement, excluding the Retail Mutual Fund business, net flows were a positive $250 million this quarter compared to net outflows of $110 million in the prior-year quarter largely due to the recovery from the broad industrywide sales disruption resulting from COVID-19, which we view as a material rebound indicator. The adjusted pre-tax loss before consolidations and eliminations was $370 million, $2 million higher than the prior quarter of 2020, driven by higher corporate GOE primarily from increases in performance-based employee compensation, partially offset by higher investment income and lower corporate interest expense resulting from year-to-date debt redemption activity. Overall net investment income on an APTI basis was $3.3 billion, an increase of $78 million compared to the prior-year quarter, reflecting mostly higher private equity gains. general insurance's NII declined approximately 6% year over year due to continued yield compression and underperformance in the hedge fund position. As respect share count, our average total diluted shares outstanding in the quarter were 864 million and we repurchased approximately 20 million shares. The end-of-period outstanding shares for book value per share purposes was approximately 836 million and anticipated to be approximately 820 million at year-end 2021 depending upon share price performance, given Peter's comments on additional share repurchases. Lastly, our primary operating subsidiaries remain profitable and well capitalized, with general insurance's U.S. pool fleet risk-based capital ratio for the third quarter estimated to be between 450% and 460%. And the life and retirement U.S. fleet is estimated to be between 440% and 450%, both above our target ranges.

Adjusted after-tax income in the third quarter was $0.97 per diluted share compared to $0.81 in the prior-year quarter. We ended the third quarter with $5.3 billion in parent liquidity after redeeming $1.5 billion in debt outstanding and completing $1.1 billion in share repurchases. Adjusting for foreign exchange, net premiums written increased 10% year over year to $6.6 billion. In addition, gross new business in global commercial grew 40% year over year to over $1 billion. Kevin and his team continued to actively manage the impacts from a low interest rate and tighter credit spreads environment and their earlier provided range for expected annual spread compression has not changed as base investment spreads for the third quarter were within the annual 8 to 6 points guidance. I am extremely pleased with the strong adjusted earnings this quarter of $0.97 per share and our profitable general insurance calendar quarter combined ratio, which includes CATs, of 99.7%. As respect share count, our average total diluted shares outstanding in the quarter were 864 million and we repurchased approximately 20 million shares.

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In the first quarter, net long-term inflows were $24.5 billion. Net -- this follows net long-term inflows of nearly $18 billion in the second half of last year, and this represents nearly a 9% annualized long-term organic growth rate, led by net flows into ETFs, continued strength in fixed income and net inflows into the balanced funds. Retail flows significantly improved in the quarter and were $21.2 billion out of $24.5 billion of the net long-term flows. Our ETFs, excluding the Qs, generated net long-term inflows of $16.8 billion. This is also a record for the firm, which contributed significantly to the $10 billion of net long-term inflows generated in the Americas. Invesco's U.S. ETFs, excluding the Qs, captured 6.7% of the U.S. industry net ETF inflows. This is more than two times our 3% market share. Within private markets, we launched two CLOs, which raised $800 million. MassMutual has committed over $1 billion to various strategies, including providing a credit facility to one of our private market funds. We had net long-term inflows of $6.5 billion within active fixed income. And within active global equities, our nearly $50 billion developing markets fund, key capability acquired in the Oppenheimer transaction, saw $1.3 billion of inflows. Net long-term inflows into Asia Pac were $16.7 billion in the first quarter, following $17 billion of net inflows in the second half of 2020. The China JV launched nine new funds with $6.2 billion of net long-term inflows. In addition, our solutions-enabled institutional pipeline has grown meaningfully and accounts for over 60% of our pipeline at the end of the quarter. But I would note, we generated positive operating leverage, producing an operating margin of 40.2% for the quarter. The Board also approved a 10% increase in the quarterly dividend to $0.17 per share. Our investment performance improved in the first quarter, with 70% and 76% of actively managed funds in the top half of peers on a five year and a 10-year basis, respectively. Additionally, we've expanded the population of AUM included in performance disclosures by about $150 billion for each period presented through the addition of benchmark-relative performance data for institutional AUM, where pure rankings do not exist. We ended the quarter with just over $1.4 trillion in AUM. Of the $54 billion in AUM growth, approximately $25 billion is a function of increased market values. Our diversified platform generated net long-term inflows in the first quarter of $24.5 billion, representing 8.8% annualized organic growth. Active AUM net long-term inflows were $7.5 billion or 3.4% annualized organic growth rate. In passive AUM, net long-term inflows were $17 billion or a 31.3% annualized organic growth rate. The retail channel generated net long-term inflows of $21.2 billion in the quarter, an improvement from roughly flat performance in the fourth quarter, driven by the positive ETF flows. Institutional channel generated net long-term inflows of $3.3 billion in the quarter. Our ETFs, excluding the QQQ suite, generated net long-term inflows of $16.8 billion, including meaningful net inflows into our higher-fee ETFs. Net ETF inflows in the U.S. were focused on equities in the first quarter, including a high level of interest in our SandP 500 Equal Weight ETF, which had $4 billion in net inflows in the quarter. In addition to the SandP 500 Equal Weight ETF, we had five other ETFs that reported net inflows of over $1 billion each. These six ETFs represented $10 billion in net inflows for the quarter. It's also worth noting that our Invesco NASDAQ Next Gen 100 ETF, the QQQJ, surpassed the $1 billion AUM mark in the quarter following its inception in October of 2020. You'll note that the Americas had net long-term inflows of $10 billion in the quarter, an improvement of $7.8 billion from the fourth quarter. Asia Pacific delivered one of its strongest quarters ever with net long-term inflows of $16.7 billion. $9.4 billion of these net inflows were from Greater China, including $8.5 billion in our China JV. The balance of the flows in Asia Pacific were comprised of $3 billion from Japan, $1.9 billion from Singapore and the remaining $2.3 billion was generated from several other countries in the region. Net long-term inflows for EMEA excluding the U.K. were $3.7 billion driven by retail flows, including particularly strong net inflows of $1.2 billion into our Global Consumer Trends Fund, the growth equities capability, which saw demand from across the EMEA region. ETF net inflows in EMEA were $1.6 billion in the quarter, including interest in a wide variety of U.S.- and EMEA-based ETFs. Notably, we saw net inflows of $0.5 billion into our blockchain ETF and $400 million into one of our newly launched ESG ETFs in the quarter, the Invesco MSCI USA ESG Universal-Screened ETF. And finally, the U.K. experienced net long-term outflows of $5.9 billion in the quarter driven by net outflows in multi-asset, institutional quantitative equities and U.K. equities. Equity net long-term inflows of $9.8 billion reflect some of the capabilities I've mentioned, including the Developing Markets Fund, the Global Consumer Trends Fund and ETFs, including our SandP 500 Equal Weight ETF. We continue to see strength in fixed income across all channels and markets in the first quarter with net long-term inflows of $7.6 billion. This following net inflows of $8.2 billion in fixed income in the fourth quarter. It's worth noting that the net inflows in the balanced asset class of $7.3 billion arose largely from China. In alternatives, net long-term inflows improved by $4.1 billion due to a combination of inflows in senior loan, commodities and newly launched CLOs during the quarter. Our institutional pipeline grew to $45.5 billion at March 31 from $30.5 billion at year-end. While there's always some uncertainty with large client funding, we're currently estimating that between 50% and 65% of the pipeline will fund in the second quarter, including the large indexing mandate. Overall, the pipeline is diversified across asset classes and geographies, and our solutions capability enables 61% of the global institutional pipeline and created wins and customized mandates. You'll notice that our net revenues increased $23 million or 1.8% from the fourth quarter as higher average AUM in the first quarter was partially offset by $71 million decrease in performance fees from the prior quarter. The net revenue yield excluding performance fees was 35.7 basis points, a decrease of 0.3 basis point from the fourth quarter yield level. This decrease was driven by lower day count in the first quarter that negatively impacted the yield by 0.8 basis point and higher discretionary money market fee waivers that negatively impacted the yield by 0.3 basis point. Total adjusted operating expenses increased 0.7% in the first quarter. The $5 million increase in operating expenses was driven by higher variable compensation as a result of higher revenue as well as the seasonal increase in payroll taxes and certain benefits, offset by the reduction in compensation related to performance fees recognized last quarter and savings that we realized in the quarter resulting from our strategic evaluation. Through this evaluation, we will invest in key areas of growth, including ETFs, fixed income, China, solutions, alternatives and global equities while creating permanent net improvements of $200 million in our normalized operating expense base. In the first quarter, we realized $16 million in cost savings. $15 million of the savings was related to compensation expense. The remaining $1 million in savings was related to facilities, which is shown in the property office and technology category. The $16 million in cost savings were $65 million annualized, combined with the $30 million in annualized savings realized in 2020, brings us to $95 million or 48% of our $200 million net savings expectation. As it relates to timing, we still expect approximately $150 million or 75% of the run rate savings to be achieved by the end of this year, with the remainder realized by the end of 2022. Of the $150 million in net savings by the end of this year, we anticipate we will realize roughly 65% of the savings through compensation expense. The remaining 35% would be spread across occupancy, tax spend and GandA. The breakdown for the remaining $50 million in net cost saves in 2022 will be similar. With $95 million of the expected $150 million in net savings by the end of this year already in the quarterly run rate, the degree of net savings per quarter will moderate going forward. In the first quarter, we incurred $30 million of restructuring costs. In total, we recognized nearly $150 million of our estimated $250 million to $275 million in restructuring costs that were associated with this program. We expect the remaining transaction cost for the realization of this program to be in the range of $100 million to $125 million over the next two years, with roughly 1/2 of this amount occurring in the remainder of 2021. We entered the second quarter with $1.4 trillion in AUM driven by net inflows and market tailwinds from the first quarter. Adjusted operating income improved $18 million to $503 million for the quarter driven by the factors we just reviewed. Adjusted operating margin improved 70 basis points to 40.2% as compared to the fourth quarter. Most importantly, our degree of positive operating leverage reflected in our non-GAAP results was 2 times for the quarter, underscoring our focus on driving scale and profitability across our diversified platform. Nonoperating income included $25.9 million in net gains for the quarter compared to $31.9 million in net gains last quarter as higher equity and earnings primarily from increased CLO marks were more than offset by lower market gains on our seed portfolio as compared to the prior quarter. The effective tax rate for the first quarter was 24% compared to 21.7% in the fourth quarter. We estimate our non-GAAP effective tax rate to be between 23% and 24% for the second quarter. Our balance sheet cash position was $1.158 billion at March 31, and approximately $760 million of this cash is held for regulatory requirements. We also paid $117 million on a forward share repurchase liability in January. Despite the increased cash needs in the quarter, the revolver balance was 0 at the end of March, consistent with our commitment to improve our leverage profile. Additionally, the remaining forward share repurchase liability of $177 million was settled in early April. We also renegotiated our $1.5 billion credit facility, extending the maturity date to April of 2026 with favorable terms. We believe we're making solid progress in our efforts to build financial flexibility and as such, our Board approved a 10% increase in our quarterly common dividend to $0.17 per share. The share buybacks dating back to last year on slide 11, which reflects $45 million in the first quarter of this year, are related to vesting of employee share awards.

In the first quarter, net long-term inflows were $24.5 billion. Net -- this follows net long-term inflows of nearly $18 billion in the second half of last year, and this represents nearly a 9% annualized long-term organic growth rate, led by net flows into ETFs, continued strength in fixed income and net inflows into the balanced funds. The Board also approved a 10% increase in the quarterly dividend to $0.17 per share. It's also worth noting that our Invesco NASDAQ Next Gen 100 ETF, the QQQJ, surpassed the $1 billion AUM mark in the quarter following its inception in October of 2020. We believe we're making solid progress in our efforts to build financial flexibility and as such, our Board approved a 10% increase in our quarterly common dividend to $0.17 per share.

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IDACORP's 2019 fourth-quarter earnings per diluted share were $0.93, an increase of $0.41 per share over last year's fourth quarter. IDACORP's earnings per diluted share for the full-year 2019 were $4.61, an increase of $0.12 per share over 2018. IDACORP's cumulative average growth rate in diluted earnings per share is 7.9% since 2007. Today, we also initiated our full-year 2020 IDACORP earnings guidance estimate to be in the range of $4.45 to $4.65 per diluted share with our expectation that Idaho Power will not need to utilize any of the tax credits in 2020 that are available to support earnings in Idaho under its settlement stipulation with the Idaho Public Utilities Commission. Last week, we announced that after 24 years with the company that I would retire effective June 1 of this year. She's an electrical engineer by training and she's got over 32 years of experience at Idaho Power. Not only does she have a long tenure at the company, she also has a long history with Idaho Power as her grandfather was a lineman with the company for 30 years prior to Lisa joining the company. She has contributed significantly to the operational and financial success of Idaho Power since becoming an officer in 2005. Most Idaho Power customers experienced -- most Idaho customers experienced an overall price decrease for the second consecutive year in 2019 with business customers' rates going down by at least 5%. Idaho Power kept customers' lights on 99.975% of the time in 2019, and overall system reliability was among the best in company history, finishing very close to 2018's record results. For the third year in a row, Idaho remains the fastest-growing state in the nation, and Idaho Power's customer base grew 2.5% in 2019, including a 2.7% growth rate for our residential customer segment. Idaho Power now has more than 570,000 customers, and we view the reliable, affordable, clean energy that our company provides as a key driver for continuing to attract new customers. Moody's current forecast of GDP in Idaho Power's service area predicts growth of 4.4% in 2020 and another 4.4% in 2021. Meanwhile, employment increased 3.2%, and the unemployment rate was 2.8% at the end of 2019, compared with 3.5% nationally. Idaho Power's most recent integrated resource plan calls for continued work toward a unit-by-unit early exit from the Jim Bridger plant located in Wyoming by 2030. In 2019, the company ended its participation in Unit 1 of the North Valmy plant in Nevada, which was a significant milestone in our path away from coal. We also have an agreement to exit Unit 2 by 2025. As recently as 2013, coal was our largest energy source at 47% of our total energy mix. Today, that number is around 16%. Our path away from coal, which is driven by the economics of the plant, aligns with our Clean Today, Cleaner Tomorrow plan to provide 100% clean energy by 2045. The IRP we amended and filed at the end of last month also plans for us to include 120 megawatts of solar from the Jackpot Solar power purchase agreement. We do not expect Idaho Power to file a general rate case in Idaho or Oregon in the next 12 months. Strong net customer growth of 2.5% added $18.8 million to operating income in 2019. A decline in usage per customer, mostly related to lower irrigation sales, decreased operating income by $21.4 million. Greater precipitation and more moderate spring and summer temperatures led to 11% less use per customer for those in the agricultural irrigation class this year. Further down the table, net retail revenues per megawatt hour decreased operating income by $2.8 million. Idaho Power's open access transmission tariff rates declined by 10% in October of 2018 and again by 13% in October 2019, lowering transmission wheeling-related revenues by $5.3 million. Next on the table, other operating and maintenance expenses decreased $8.7 million as our team's continued focus on cost management resulted in lower expenses across several areas. Contributing to this decrease was lower bad debt expense of $1.1 million due to a strong economy and the nonrecurrence of a 2018 O&M expense of $4 million for a noncash amortization of regulatory deferrals related to tax reform. Idaho Power's 2019 return on year-end equity in Idaho landed between the 9.5% tax credit support level and the 10% customer sharing line under the Idaho regulatory settlement stipulation. Last year, we recorded a $5 million provision against revenues for sharing, which did not recur. Idaho Power has the full $45 million of approved credits available to support earnings in future years. As a reminder, the tax credit support line will be at 9.4% for 2020. These items collectively resulted in a year-over-year increase to Idaho Power's operating income of $2.3 million. Nonoperating income and expenses netted to a $9.9 million improvement to pre-tax earnings due to several items. A $4.2 million charge in 2018 related to Idaho Power's post-retirement plan did not recur. Next, our allowance for equity funds used during construction increased $2.7 million as the average construction work in progress balance was higher throughout 2019. Finally, stronger asset returns this year led to $2.1 million of higher investment income from the Rabbi Trust associated with Idaho Power's nonqualified defined benefit pension plans. On the next line, you will see income taxes were higher by $10.1 million. Remember that 2018 included $5.7 million of benefits from remeasurement of deferred taxes at Idaho Power due to income tax reform, as well as $1.3 million of tax-deductible bond redemption costs incurred last year. Finally, at IDACORP Financial Services, distributions from the sale of low-income housing properties led to approximately $3 million higher net income at that subsidiary. Overall, Idaho Power's and IDACORP's net income were $2.1 million and $6.1 million higher than last year, respectively. Regarding dividends, you'll note that in addition to the latest dividend increase of 6.3% announced by the board of directors last September, the board also increased IDACORP's target dividend payout ratio to 60% to 70% of sustainable earnings. We expect to recommend an annual dividend increase of 5% or more to the board of directors in the coming year. Cash flows from operations were $125 million lower than 2018. We are initiating IDACORP's 2020 earnings guidance in the range of $4.45 to $4.65 per diluted share, which is up roughly 4% over prior-year guidance range and assumes no use of additional tax credits under normal weather conditions. Our record 12 years of earnings growth is something that sets us apart from our peers. We expect O&M expenses to be in the range of $350 million to $360 million, which would keep O&M relatively flat for the ninth straight year. We expect capital expenditures will lift somewhat to the range of $300 million to $310 million. You'll note that our updated five-year forecast of capital expenditures is also higher than our previous plan, now forecasted to range from $1.6 billion to $1.7 billion over that time. Finally, our current reservoir storage and stream flow forecast suggests that hydropower generation should be in the range of 6.5 million to 8.5 million megawatt hours. The latest projections from the National Oceanic and Atmospheric Administration suggests an equal chance of above or below normal precipitation levels and a 40% to 50% chance of above normal temperatures from March to May.

IDACORP's 2019 fourth-quarter earnings per diluted share were $0.93, an increase of $0.41 per share over last year's fourth quarter. Today, we also initiated our full-year 2020 IDACORP earnings guidance estimate to be in the range of $4.45 to $4.65 per diluted share with our expectation that Idaho Power will not need to utilize any of the tax credits in 2020 that are available to support earnings in Idaho under its settlement stipulation with the Idaho Public Utilities Commission. We are initiating IDACORP's 2020 earnings guidance in the range of $4.45 to $4.65 per diluted share, which is up roughly 4% over prior-year guidance range and assumes no use of additional tax credits under normal weather conditions.

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