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We were generally pleased with the second quarter results with net income of $23.9 million, earnings per share of $0.24, a pre-tax pre-provision ROA of 1.61% and the core efficiency ratio of 57.2%. First, provision expense fell to $6.9 million from $31 million in the first quarter, as three non-performing loans were resolved. The second quarter reserve increased from $2 million to $81 million or 1.28% of total loans, excluding PPP loans as we added another $5.5 million in qualitative reserves to reflect the economy and our COVID overlay. We believe that ratio compares favorably to other incurred banks, although our second quarter reserve of $81 million was calculated using the incurred loss model. Adding our previously disclosed day-one CECL increase would put reserves into the mid $90 million range. Our first quarter loan deferral figure of $1.1 billion or 17.6% of total loans fell all the way $186 million or 2.7% of total loans as of July 24. Most of our deferrals were 90 days and our approach to customers, consumers, and businesses in March and early April shifted from accommodative and customer service oriented to a more credit-oriented approach in May and June. In the second quarter, our credit and banking teams did a name-by-name commercial loan review and spoke with some 1,600 clients in total. Second, the team helped roughly 5,000 local businesses, preserve roughly 80,000 jobs at a median loan size of only $32,000 through the Payroll Protection Program. Excluding $571 million of PPP loans, our portfolio grew 2.7% annualized, driven by record mortgage volumes, strong indirect loan originations and corporate banking growth. As an aside, over $20 million in PPP loan fees were wired to First Commonwealth in June from the SBA and will accrete into income in the second half of the year, as we expect that the majority of our PPP loans will be forgiven. Third, the net interest margin of 3.29% fell as expected. But after adjusting for the dilutive effects of the PPP loans at 1% and an excess of low-yielding cash on our balance sheet, the NIM of our company was closer to 3.41%. Fourth, non-interest income of $21.8 million in the second quarter increased some $2.5 million as the company set quarterly records in both mortgage originations and debit card interchange income. Regarding the former, some $203 million in mortgage originations, increased gain on sale income from $1.7 million to $4.2 million. On the latter, we added 10% more debit cards with our Santander branch acquisition last year. This produced $5.9 million in debit card interchange income, $600,000 more than last quarter. We have over $200 million of excess capital and together with our ALLL, this would allow us to absorb losses equal to roughly 5% of the entire loan portfolio at once, and still remain well capitalized. Jim Reske will elaborate on this as well, but we want to enter 2021 and sustain through the year of $51 million to $52 million quarterly non-interest expense run rate. Yesterday, we announced the consolidation of 20% of our branches across our footprint into adjacent offices that will be completed by year-end. Just one example; in the second quarter, we opened 992 deposit accounts via our mobile online platform, some three times our first quarter figure, which by the way was not bad. Core earnings per share of $0.24 rebounded strongly from last quarter. This brings our trailing four quarter non-core earnings per share average to $0.21, well in excess of our current dividend of $0.11 per share. The net interest margin fell from 3.65% last quarter to 3.29%. The primary driver of NIM compression was, not surprisingly, rate resets on the bank's variable-rate loans following the Fed's 150 basis points of rate cuts. As a result, we had quarter-over-quarter growth in average deposits of $758 million. Non-interest-bearing deposits alone increased by $537 million to 29.4% of total deposits, up from 25.3% last quarter. This strong deposit growth resulted in an average of $212 million of excess cash in the quarter. In fact, excess cash peaked at over $480 million in mid-July or nearly 5% of total assets. We estimate that the impact of PPP loans and the like amount of associated deposits on NIM to be approximately 12 basis points in the second quarter, which would imply a core NIM of 3.41% for the quarter. That represents 24 basis points of NIM compression, which is within the range of previous guidance, albeit at the higher. For example, the average rate on interest-bearing demand in saving deposits, which had over $4 billion, is our largest deposit category, was cut in half in the quarter from 48 basis points to 24 basis points. Looking forward, we still have nearly $800 million of time deposits, at an average rate of 1.51%, which will reprice downward over time and should help offset the impact of negative loan replacement yields, though not completely. Adjusting for the impact on NIM from PPP loans and excess cash, we expect the core NIM to drift down to 325 to 335 by year-end. The quarter-over-quarter increase of $2.5 million in non-interest expense was strongly affected by the unfunded commitment reserve, which was a negative $2.5 million last quarter but a positive $0.9 million this quarter for a $3.4 million negative quarter-over-quarter swing. The other notable event in NAIE [Phonetic] was about $419,000 of COVID-related expense in the second quarter. We expect this and other contemplated expense containment initiatives to enable us to maintain a non-interest expense run rate of between $51 million to $52 million per quarter for the foreseeable future. Last quarter, we reported that deferrals totaled $1.1 billion or 17.6% of total loans as of April 24, the Friday before our first quarter earnings call. Deferrals peaked during the quarter at approximately $1.4 billion. However, as Mike mentioned, as of July 24, last Friday, they remained $186.3 million of loans in deferral status or 2.7% of total loans. We have therefore, increased qualitative reserves held against consumer forbearances by $1.2 million in the second quarter. However, even though we are on incurred, as shown on Page 6 of our supplement, we did a significant reserve build in the first half of this year, resulting in a coverage ratio that we believe compares favorably with incurred banks as well as many CECL adopters, and we continue to build qualitative reserves in the second quarter. Our NPLs decreased approximately $3.1 million, improving from 0.93% of total loans in Q1 to 0.88%, excluding PPP. Reserve coverage of NPLs rose from 133.53% to 145%. NPAs decreased $4.5 million from 0.74 of total assets in Q1 to 0.66. Classified loans as a percentage of total loans excluding PPP decreased from 1.42% to 1.21%. We continue to build reserves under the incurred loss model by approximately $2.4 million. Our allowance of total loans grew to 1.28%. Provision for the quarter was $6.9 million, driven by modest loan growth and overall decrease in NPLs of approximately $3.1 million. The decrease in specific reserves of approximately $2.9 million [Technical Issues] changes in our qualitative reserves. Our standard qualitatives increased by $3.4 million quarter-over-quarter, reflecting the economic conditions. As Jim mentioned, our COVID qualitative overlay increased by $2.1 million to $9.9 million. As of June 30, we only had 27 relationships over $15 million. For example, over the course of the second quarter, we performed a comprehensive loan review, covering approximately 1,600 borrowers and $3.6 billion in commercial loans. We reviewed commercial credits as small as $350,000, so as to better understand COVID-related impacts on our commercial clients and small businesses.

We were generally pleased with the second quarter results with net income of $23.9 million, earnings per share of $0.24, a pre-tax pre-provision ROA of 1.61% and the core efficiency ratio of 57.2%. Core earnings per share of $0.24 rebounded strongly from last quarter. Last quarter, we reported that deferrals totaled $1.1 billion or 17.6% of total loans as of April 24, the Friday before our first quarter earnings call.

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TDS is redeeming $225 million of its 6.875% Senior Notes and $300 million of its 7% Senior Notes and UScellular is redeeming $275 million of its 7.25% Senior Notes for a total of $800 million. In March, TDS issued $420 million in perpetual preferred stock, which will be used primarily for funding fiber deployments and the repayment of debt. TDS purchased $3 million worth and UScellular purchased $2 million worth of shares. We have 5G available to some degree in 18 states today. This exceeds our results from last year where we achieved a distance of five kilometers with average speeds of 100 Megabits per second. We saw connected device gross additions decrease by 3,000 year-over-year. Wrapping up this slide, total smartphone connections increased by 13,000 during the quarter and a 56,000 over the course of the past 12 months. That helps to drive more service revenue given that smartphone ARPU is by $20 higher than feature phone ARPU. Postpaid handset churn depicted by the blue bars was 0.92% down from 0.95% a year ago. Total postpaid churn combining handsets and connected devices was 1.12% in the first quarter of 2021 also, lower than a year ago. Total operating revenues for the first quarter were $1.023 billion, an increase of $60 million or 6% year-over-year. Retail service revenues increased by $40 million to $685 million, the increase is primarily due to a higher average revenue per user, which I will discuss in a moment as well as an increase in average postpaid subscribers. Inbound roaming revenue was $28 million that was a decrease of $9 million year-over-year driven by the decrease in data volume. Other service revenues were $58 million, an increase of $4 million year-over-year, including a 9% increase in tower rental revenues. Finally, equipment sales revenues increased by $51 million year-over-year due to an increase in units sold, an increase in sales of higher-priced units as well as an increase in accessory sales as a result of higher volume. Average revenue per user or connection was $87.65 for the first quarter, up $0.42 or approximately 1% year-over-year. On a per account basis average revenue grew by $2.33 or 2% year-over-year. As I mentioned first quarter tower rental revenues increased by 9% year-over-year. As shown at the bottom of the slide, adjusted operating income was $258 million, an increase of 12% year-over-year. As I commented earlier, total operating revenues were $1.023 billion, a 6% increase year-over-year. Total cash expenses were $765 million, increasing $33 million or 5% year-over-year. Total system operations expense increased 3% year-over-year. Excluding roaming expense, system operations expense increased by 2% due to higher service costs. Roaming expense increased $1 million or 4% year-over-year resulting from an 80% increase in off-net data volume, that was largely offset by a decrease in rates. Cost of equipment sold increased $58 million or 26% year-over-year due to an increase in units sold, an increase in sales of higher-priced smartphones, as well as higher accessory sales volume. Selling, general and administrative expenses decreased $30 million or 9% year-over-year, driven primarily by a decrease in bad debt expense. Bad debt expense decreased $26 million due to lower write-offs driven by fewer non-paying customers as a result of a better credit mix and improved customer payment behavior. Adjusted EBITDA for the quarter was $302 million, an increase of $21 million or 8% year-over-year. Equity in earnings of unconsolidated entities decreased by $3 million or 7%. Next, I want to cover our guidance for the full year 2021. Total service revenues, we have increased our midpoint by $25 million to a range of $3.05 billion to $3.15 billion. We have raised the midpoint of our adjusted operating income and adjusted EBITDA ranges by $25 million by increasing low end of the ranges, with no change to the high end of the ranges resulting in new ranges of $850 million to $950 million, and $1.025 billion to $1.125 billion respectively. For capital expenditures, we are maintaining our guidance range of $775 million to $875 million and we have provided a breakdown by major category. We added 13,000 fiber service addresses to our footprint, and continue to execute on our fiber strategy. Overall, we grew our top line 4%. Whether it is our markets where we have upgraded copper, or building fiber or provided DOCSIS 3.1 capability, we are striving to increase Internet speed to better serve our customers. On a combined basis we are able to offer 1 gigabit speed to 55% of our total service addresses. Total telecom broadband residential connections grew 9% in the quarter as we continue to fortify our network with fiber and expand into new markets. Bolstered by this growth Wireline broadband residential connections grew 10% and Cable increased 8%. Total broadband penetration continued to increase, up 100 basis points to 38%. Overall, higher value product mix and price increases drove a 5% increase in average residential revenue per connection. This quarter, we achieved a major milestone reaching 0.5 million total broadband subscribers. Residential broadband revenues grew 16% in total in the quarter. We are offering up to 1 Gigabit broadband speed in both our fiber and DOCSIS 3.1 market. 1 Gigabit product is an important tool that allows us to defend market and win over customers and new markets. In areas where we offer 1Gig service we are seeing 17% of our new customers taking the superior product. Wireline growth of 7%, driven by our expansion markets nearly offset losses in the Cable market. This rollout of this product currently covers about 60% of our total operation. As a result of this strategy over the last several years 321,000 or 38% of our wireline service addresses are now served by fiber, which is up from 32% a year ago. This is driving revenue growth while also expanding the total wireline footprint 6% to 855,000 service addresses. We have completed 321,000 fiber service addresses through the first quarter and are working to build out the footprint in these announced markets to 620,000 service addresses by 2024. On slide 23, total revenues increased 4% to $249 million, largely driven by the strong growth in residential revenues, which increased 9% in total. Incumbent wireline market also showed impressive growth of 6% due to increases in broadband and video connections as well as increases from within the broadband product mix. This was partially offset by a 2% decrease in residential voice connection. Cable residential revenues grew 9% due to an 8% increase in broadband connections. Commercial revenues which continue to be impacted by C like decline, decreased 6% to $47 million in the quarter. And wholesale revenues decreased 3% to $45 million, primarily due to reductions in special access in the incumbent wireline market. Revenues increased 4% from the prior year as growth from our fiber expansions and increases in cable broadband subscribers exceeded the declines we experienced in our legacy business. Cash expenses increased 5% due to additional employee and advertising expense related to our expansion market. Adjusted EBITDA declined 1% to $81 million on lower interest income compared to last year. Capital expenditures increased 30% from last year to $70 million as we continue to increase our investment in fiber deployment for the success base band for new customer installs. We have presented guidance, which is unchanged from what we shared in February.

Next, I want to cover our guidance for the full year 2021. We have presented guidance, which is unchanged from what we shared in February.

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These discussions will be followed by a Q&A period, and we expect the call to last about 60 minutes. Revenue for the quarter was $1.7 billion. Adjusted EBITDA was $265 million. Adjusted earnings per share was $1.83. Year-to-date cash flow from operations is $712 million, and backlog at quarter end was $7.7 billion. Revenue for these segments grew at 19% and EBITDA for these segments grew at 83% on a year-over-year basis. Our Communications revenue for the quarter was $645 million. More importantly, margins came in strong at 12.3% and were up 390 basis points year-over-year and up sequentially. The CEO of Corning on their call this week said, "The density of fiber necessary to deliver its promise is yet another example, illustrating that up to 100 times more fiber is required to deploy 5G in the city than 4G". He followed that up and reiterated, "That priority #1 is to make sure that we're investing in our core business, and that includes fiber and making sure we have broadband connectivity on 5G". Based on those comments, I think it's important to note that MasTec's wireline business has grown 180% over the last five years, 57% over the last three years and about 13% over the third quarter of last year. In September, Samsung announced a $6.6 billion deal with Verizon to provide network equipment and 5G radios through 2025. The analytics firm IHS Markit estimates that over the next 15 years, the 5G investment in the U.S. will approach $1 trillion. Revenue was $129 million versus $103 million in last year's third quarter. Revenue was $469 million for the third quarter versus $262 million in the prior year, a 79% year-over-year increase. Margins for the segment were strong at 7.3%, and we continue to expect full year margins to improve over 2019 by over 100 basis points. Between verbal awards and projects we are competing on, we expect backlog to hit record levels over the coming quarters and expect revenues in 2001 (sic) [2021] to approximate $2 billion. Revenue was $463 million compared to revenue of $973 million in last year's third quarter. We ended the third quarter with backlog just over $2.4 billion, and we expect Oil and Gas revenues to increase in 2021. As a reminder, over the last three years, only 6% of our revenues have come from oil pipelines with the majority of our business being tied to natural gas. Today, we increased our EBITDA guidance to a range of $800 million to $811 million versus our previous guidance of $800 million. We lowered our revenue guidance to $6.4 billion to $6.6 billion versus our previous guidance of $7 billion. I'd also like to note, our guidance, at the midpoint of the range, assumes an almost $1.2 billion reduction in Oil and Gas revenues, while our total revenue will only be down about half that, meaning that we'll grow our other segments by nearly $600 million in 2020, again, showing the strength of our diversified model. As I think about our future business mix, I think we have a solid path to becoming a $10 billion-plus revenue company, even in a depressed Oil and Gas backdrop. Based on market opportunities, we believe our Communications business should grow to the $3.5 billion to $4 billion in annual revenue; Clean Energy should exceed $3 billion; Transmission, over $1 billion; and Oil and Gas, on a recurring level, to be about $1.5 billion to $2 billion. In summary, our third quarter earnings results were better than expected with adjusted EBITDA beating our guidance expectation by $11 million and adjusted diluted earnings per share exceeding our guidance expectation by $0.16. Third quarter adjusted EBITDA of $265 million represents a record level for MasTec and was achieved despite lower than expected Oil and Gas segment performance, which was impacted by delays in large project start-ups that have now initiated in the fourth quarter. As Jose noted, it is important to note that year-over-year strength in our non-Oil and Gas segments, namely, the Communications, Clean Energy and Infrastructure and Electrical Transmission segments, which on a combined basis, despite COVID-19 impacts, showed third quarter year-over-year revenue growth of 19% and adjusted EBITDA growth of 83%. Third quarter 2020 results also continued our strong cash flow performance, generating $216 million in cash flow from operations and reducing sequential net debt levels by approximately $129 million. On a year-to-date basis, 2020 cash flow from operations of $712 million represented another record performance level for MasTec. And we have reduced net debt levels by almost $300 million since year-end 2019 despite approximately $150 million in share repurchases and other strategic investments. Third quarter 2020 Communications segment revenue of $645 million was down 5% compared to the same period last year and essentially flat sequentially. Third quarter 2020 Communications segment adjusted EBITDA margin rate was 12.3% of revenue, representing a sequential increase of 60 basis points and a 390 basis point improvement when compared to last year's third quarter. Based on our strong adjusted EBITDA margin performance over the past two quarters, we currently expect annual 2020 Communications segment adjusted EBITDA margin rate to improve approximately 230 basis points over last year's rate to approximately 10.3% of revenue. Third quarter 2020 Oil and Gas segment revenue of $463 million decreased 52% compared to the same period last year. As a reminder, given the size of our large projects, a 30-day delay in project activity can impact monthly revenue by up to $200 million. And we now expect annual 2020 Oil and Gas segment revenue to range somewhere between $1.8 billion to $2 billion. Third quarter 2020 Oil and Gas segment backlog was approximately $2.4 billion, and we have continued significant fourth quarter activity -- award activity, including the recent Keystone pipeline announcement by TC Energy. Third quarter 2020 Oil and Gas segment adjusted EBITDA margin rate was 34.7% of revenue. This continues our strong performance trend across numerous smaller pipeline projects as well as the benefit of approximately 10 percentage points for the combination of project closeout and change order recoveries and contractual fees on selected delayed project activity for the recovery of idle owned equipment and other costs. Looking forward as we close out 2020, we anticipate strong Oil and Gas segment adjusted EBITDA margin trends will continue into the fourth quarter with an expectation in the mid-20% range. Third quarter 2020 Electrical Transmission segment revenue increased approximately 25% compared to the same period last year to approximately $129 million, and segment adjusted EBITDA margin rate was 7.1%. Third quarter 2020 backlog remains strong at $545 million, and we continue to expect that market conditions for this segment are supportive for strong 2021 revenue, adjusted EBITDA and adjusted EBITDA margin rate growth. Third quarter 2020 Clean Energy and Infrastructure segment revenue of $469 million increased approximately 79% compared to the same period last year. Third quarter 2020 adjusted EBITDA margin rate was 7.3%, a sequential increase to 20 basis points and a 640 basis point increase compared to the same period last year. During the last two quarters, this segment has generated approximately $900 million in revenue, with adjusted EBITDA margin rate exceeding 7% each quarter. We expect to close out 2020 with annual segment revenue in the $1.5 billion range, which equates to an annual growth rate in the mid-40% range. We also expect that annual 2020 adjusted EBITDA margin rate for this segment will show approximately a 140 basis point improvement over last year. I will now discuss a summary of our top 10 largest customers for the 2020 third quarter period as a percentage of revenue. AT&T revenue, derived from wireless and wireline fiber services, was approximately 12% and install-to-the-home services was approximately 3%. On a combined basis, these three separate service offerings totaled approximately 15% of our total revenue. WhiteWater Midstream was 7%. Permian Highway Pipeline, Iberdrola Group and Comcast Corporation were each 6%. Energy Transfer affiliates, Xcel Energy, Duke Energy Corporation and Verizon Communications were each 5% and NextEra Energy was 4%. Individual construction projects comprised 68% of our revenue, with master service agreements comprising 32%, once again highlighting that we have a significant portion of our revenue derived on a recurring basis. Lastly, it is worth noting as we operate in a COVID-19-induced period of macroeconomic uncertainty that all of our top 10 customers, which represented over 63% of our third quarter revenue, have investment-grade credit profiles. During the third quarter of 2020, we generated $216 million in cash flow from operations and ended the quarter with net debt, defined as total debt less cash, of $1.07 billion which equates to a very comfortable book leverage ratio of 1.4 times. As we have previously reported, during the quarter, we also strengthened our capital structure with a favorable refinancing of our four and 7/8% senior unsecured notes, and we ended the quarter with $238 million in cash on hand as well as record liquidity, defined as cash plus volume availability, of approximately $1.4 billion. During the nine months -- the first nine months of 2020, we generated a record-level $712 million in cash flow from operations, which allowed us to reduce our net debt levels by approximately $300 million while still investing approximately $150 million in strategic share repurchases and investments. During the first nine months of 2020, we repurchased approximately 3.6 million shares or approximately 5% of our outstanding share base, with the vast majority of this activity occurring in the first quarter. We currently have $159 million in open repurchase authorizations, and as of today, have not executed any share repurchases during the fourth quarter. We ended the quarter with DSOs at 85 days, down five days from last quarter. During the third quarter, we incurred net cash capex, defined as cash capex net of equipment disposals, of approximately proximately $39 million, and we incurred an additional $41 million in equipment purchases under finance leases. We currently anticipate incurring approximately $190 million in net cash capex in 2020, with an additional $130 million to $150 million to be incurred under finance leases. Our fourth quarter 2020 revenue expectation is expected to range between $1.7 billion to $1.9 billion with adjusted EBITDA guidance ranging between $252 million to $263 million and adjusted diluted earnings per share guidance between $1.64 to $1.73. We are projecting annual 2020 revenue to range between $6.4 billion to $6.6 billion with adjusted EBITDA expected to range between $800 million to $811 million and adjusted diluted earnings per share to range between $5 and $5.09. Based on our expected strong cash flow, lower nominal interest rates and our recent senior notes offering, we expect annual 2020 interest expense levels to approximate $60 million, with this level only including share repurchase activity executed to date. Our estimate for full year 2020 share count is now 73.7 million shares. It should be noted, for valuation modeling purposes, that our year-end 2020 share count will approximate 73 million shares, inclusive of the full impact of 2020 share repurchases. We expect annual 2020 depreciation expense to approximate 4% of revenue due to the combination of lower expected Oil and Gas 2020 revenue levels and the timing impact of capital additions and acquisition activity. And lastly, we expect our annual 2020 adjusted income tax rate will approximate 24% with the fourth quarter tax rate expected to be slightly higher than the annual rate.

Revenue for the quarter was $1.7 billion. Our fourth quarter 2020 revenue expectation is expected to range between $1.7 billion to $1.9 billion with adjusted EBITDA guidance ranging between $252 million to $263 million and adjusted diluted earnings per share guidance between $1.64 to $1.73.

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And what does that mean, it is on a combined ratio and that will probably get you to approximately an 86.9%. But from our perspective, if one chooses to slip off the rose colored glasses for a moment, we generated 90.4%. And in the process, we achieved a 16.6% return on equity. Operating income increased by more than 100% to $247 million or $1.32 per share, which is compared with $121 million or $0.65 per share. From a production perspective, gross premiums written grew by $525 million or 23.2% to a record of almost $2.8 billion. Net premiums written grew by $446 million or 23.7% to another record of more than $2.3 billion. This session rate was fairly consistent at 16.6% in the current quarter. Breaking down the results further, the Insurance segment grew net premiums written by 23.3% to more than $2 billion, reflecting increases in all lines of business. Professional liability led this growth with 58.7% followed by commercial auto of 28.1%, other liability of 25.3%, short tail lines of 8.6% and workers compensation of 7.7%. The Reinsurance & Monoline Excess segment grew 26.7% to $318 million with an increase in casualty reinsurance of 36% and Monoline Excess of 27.4%, partially offset by a small decline in property reinsurance of 1.4%. The increase in net premiums written on a year-to-date basis was more than 20%, resulting from growth in exposure and compounding rate improvements that will continue to earn through in the coming quarters. This was evident by the increase in net premiums earned of 19% in the current quarter. Included in the quarter were current accident year catastrophe losses of $74 million or 3.5 loss ratio points, compared with $73 million or 4.2 loss ratio points in the prior year. As a result, quarterly underwriting profits increased 80% to $200 million, slightly off the record quarterly underwriting results in the second quarter of this year. The reported loss ratio improved 1.3 loss ratio points to 62.4% from the prior year, primarily driven by rate improvement in business mix. Prior year loss reserves developed favorably by approximately $1.5 million in the current quarter. The expense ratio improved 2 points to 28% in large part due to the growth in net premiums earned, which is outpacing underwriting expenses by approximately 7.5%. Closing out the underwriting performance, our current accident year combined ratio, excluding catastrophes, was 86.9% for the quarter, compared with 89.8% for the prior year quarter. Net investment income increased 26.1% to $180 million, driven by strong results in investment funds. Despite the ongoing growth in invested assets, the fixed maturity portfolio represents 69% of the total invested assets and the associated investment income declined quarter-over-quarter, due to the persistent low interest rate environment. Strong operating cash flows of more than $825 million in the quarter contributed to the increased cash and cash equivalents as of September 30th. This resulted in a slightly shorter duration of 2.3 years in the current quarter, compared with 2.4 years in the second quarter. Pre-tax net investment gains in the quarter of $20 million is primarily comprised of realized gains on investments of $36 million, partially offset by a reduction in unrealized gains on equity securities of $19 million. The effective tax rate was 19.6% in the quarter, which largely benefited from equity based compensation that predominantly vests in August of each year. Overall strong performance resulted in annualized return on beginning of year equity of 16.6% as Rob alluded to. Stockholders equity increased by $70 million to approximately $6.6 billion in the quarter after regular dividends of $23 million and share repurchases of $93 million. The company repurchased approximately 1.3 million shares at an average price of $72.03 per share in the quarter. Book value per share increased 1.5% in the quarter and book value per share before dividends and share repurchases increased 2.5%. As far as the top line goes, obviously the growth is shy of the 24%. When you think about that growth, sort of, this shy of 40% of the growth is coming from rate, about 59% is coming in some form of exposure whether it's new policies or autopremiums or whatever. We have started 47 of the 54 operating units from scratch. Not much to add on the investment portfolio, obviously, the duration as I had referenced and Rich covered is sitting there at 2.3, book yield is about 2.3.

Net premiums written grew by $446 million or 23.7% to another record of more than $2.3 billion.

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On a year-over-year basis, we grew our top-line net sales by 34%, expanded gross margins 590 basis points, and increased operating income by 237%. While we have undoubtedly been active via acquisitions in the last four-plus years, fiscal-year 2021 quarter 2 represents a truly organic year-over-year comparison in total performance. As a result, our consolidated second-quarter gross margin of 18.6% represents an increase of 590 basis points versus last year. Quarter 2 lost net sales due to sourcing constraints was easily eight figures across the portfolio. That revenue opportunity remains inherent in our potential as we transition into quarter 3. In the next three months of 2021, March through May, which is our quarter 3, we'll see strong retail and wholesale comparisons versus a period of intense marketplace disruption a year ago. Second-quarter consolidated revenues were a record $839.9 million, which is an increase of 34% compared to $626.8 million for the fiscal 2020 period driven, as Mike noted, by strong consumer demand for Winnebago Industries' great brands. As a reminder, 100% of Newmar is reported in the result of our Motorhome segment. Gross profit margin increased 590 basis points to 18.6%, while adjusted EBITDA margin increased 570 basis points to 12.9% compared to 7.2% for the fiscal 2020 period. Similar to our fiscal 2021 Q1 performance, this significant margin expansion was driven by favorable pricing, including lower discounts and allowances; productivity initiatives; operating leverage approximating 200 to 250 basis points, and segment mix. Reported earnings per diluted share were a record $2.04 compared to reported earnings per diluted share of $0.51 in the same period last year. Adjusted earnings per diluted share were likewise a record at $2.12 in the second quarter for an increase of 216% compared to the same quarter in fiscal 2020. Adjusted EBITDA was $108 million for the quarter, compared to $45.4 million last year, which is an increase of 138%. Revenues for the Towable segment were $439.3 million for the second quarter, up 55% over the prior year, driven by elevated consumer demand across the Towables portfolio. Winnebago Industries unit share of the North American towable market continues to grow as share on a trailing three-month basis through January 2021 was 12.4% or an increase of 80 basis points over the same period last year. Segment adjusted EBITDA was $62.4 million, up 79.5% over the prior-year period. Adjusted EBITDA margin of 14.2% increased 190 basis points primarily due to favorable pricing and operating leverage. In the second quarter, revenues for the Motorhome segment were $382.6 million, up 17.5% from the prior year, driven by increased unit sales in our Class B and Class C products. Compared to the same period last year, second-quarter Class C unit sales were up 24.5%, while Class B products were up a very robust 81%. Class B market share continues to be strong, as evidenced by our rolling three-month retail unit market share of 45.7% through January of 2021. Segment adjusted EBITDA was $51 million, up 241% from the prior year. Adjusted EBITDA margin increased 870 basis points over the prior year to 13.3%, driven by our ongoing focus on operational efficiency, including the transition to a build to dealer order business model in the Winnebago-branded Motorhome business, as well as several other operating improvements and lean initiatives that our business have pursued over the past several years, in addition to pricing actions to ensure our pricing is commensurate with market dynamics and also operating leverage. As we have stated previously, we continue to expect to achieve a level of sustained profitability that is notably above the 4% to 5% EBITDA yield we've delivered in this segment for the past several years. Continuing the trend from Q1, our leverage ratio, net debt-to-adjusted EBITDA continued to decline and is now 1.0 times, which is toward the lower end of our targeted range of 0.9 to 1.5 times, driven by both strong EBITDA generation and lower net debt due to the increasing cash balance of now $333 million. Total liquidity, including our untapped ABL, is now in excess of $500 million. Cash flow from operations was a healthy $66.9 million for the first half of fiscal 2021. Our effective tax rate increased to 23.4% for the first six months ended February 27, 2021, from 20.1% for the same period last year primarily due to consistent year-over-year credits over higher current-year pre-tax income and favorable R&D discrete items in fiscal 2020. For the full year, we currently expect our tax rate to approximate 23.5% to 24%, including all discrete -- or I'm sorry, excluding all discrete items from year-to-date results, and those that may occur in the remainder of the year. During the second quarter, we paid a dividend of $0.12 per share on January 27, 2021, and our board of directors just approved a quarterly cash dividend of $0.12 per share payable on April 27, 2021. In our fiscal 2021, which is September of 2020 through August of 2021, we believe RV industry retail will grow in the mid- to upper single digits, while industry wholesale shipments in that same period will grow approximately 40% to 45%. Quarter 3, March through May for our company, industry retail should be especially strong given the comparisons versus 2020. But quarter 4 for our organization, June through August, industry retail will see a more challenging comparison environment due to record-breaking bounce-back RV retail last summer. Please note that our fiscal industry wholesale shipment projection considers and aligns with the RV Industry Association calendar year 2021 industry midpoint forecast of approximately 533,000 units, or plus 24%, a forecast which we support. Our most recent field inventory reports early here in quarter 3, continue to show low field inventory levels in Winnebago Industries' RV and marine businesses. Depending on the brand or the product category, field inventory is anywhere between 20% lower than a year ago to 60% lower.

Second-quarter consolidated revenues were a record $839.9 million, which is an increase of 34% compared to $626.8 million for the fiscal 2020 period driven, as Mike noted, by strong consumer demand for Winnebago Industries' great brands. Reported earnings per diluted share were a record $2.04 compared to reported earnings per diluted share of $0.51 in the same period last year. Adjusted earnings per diluted share were likewise a record at $2.12 in the second quarter for an increase of 216% compared to the same quarter in fiscal 2020.

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We earned $1.7 billion after tax or $5.55 per share. These results include a $729 million one-time gain. But even excluding this gain, our results were very strong at $3.73 per share. Total sales were, up 48% from a year ago, and 24% from the second quarter of 2019. The 24% growth I cited is an increase from 15% in the first quarter relative to the same period in 2019. These decisions supported new account growth of 26% over 2019 levels with strong growth among prime consumers as our differentiated brand and integrated networks support our strong value proposition, which centers on transparent and useful rewards, outstanding customer service and no annual fees. As we have highlighted before, the counterpoint of sustained strong credit performance is high payment rates, which in the second quarter were over 500 basis points above 2019 levels. PULSE volume increased 19% year-over-year and was up 33% from 2019 levels. Volume at Diners has also recovered to some extent and was, up 41% from the prior year's lows. We accelerated our share repurchases to $553 million of common stock, a level near the maximum permitted under the Federal Reserve's four quarter rolling net income test. And I'm very pleased that our Board of Directors authorized the new $2.4 billion share repurchase program that expires next March. We also increased our quarterly dividend from $0.44 to $0.50 per share. Revenue, net of interest expense, increased 34% from the prior year. Excluding one-time items, revenue was up 9%. Net interest income was up 5% as we continue to benefit from lower funding costs and reduced interest charge-offs, reflecting strong credit performance. This was partially offset by a 4% decline in average receivables from the prior year levels. Excluding one-time items, non-interest income increased 29%, driven by the higher -- by higher net debt count and interchange revenue, due to strong sales volume. The provision for credit losses decreased $2 billion from the prior year, mainly due to a $321 million reserve release in the current quarter, compared to a $1.3 billion reserve build in the prior year, an improvement in the economic [Technical Issues] and ongoing credit strength were the primary drivers of the release. Net charge-offs decreased 41% or $311 million from the prior year. Operating expenses were, up 13%, primarily reflecting additional investments in marketing, which was up 36% and employee compensation, which was up 10%, a software write-off and a non-recurring impairment at Diners Club also contributed to the increase. Ending loans increased 2% sequentially and were down just 1% from the prior year. This was driven by card loans, which increased 2% from the prior quarter and were down 2% year-over-year. Second, promotional balances were approximately 250 basis points lower than the prior year quarter. Organic student loans increased 4% from the prior year. Personal loans were down 6%, driven by credit tightening last year and high payment rates. Net interest margin was 10.68%, up 87 basis points from the prior year and down 7 basis points sequentially. Compared to the prior quarter, the net interest margin decrease was mainly driven by a nearly 200 basis points reduction in the card revolve rate. Loan yields decreased 17 basis points from the prior quarter, mainly due to the lower revolve rate. Yield on personal loans declined 7 basis points sequentially, due to lower pricing. Student loan yield was up 4 basis points. We cut our online savings rate to 40 basis points in the first quarter and did not make any pricing adjustments during the second quarter. Average consumer deposits were, up 6% year-over-year and declined 1% from the prior quarter. The entire sequential decline was from consumer CDs, which were down 9%, while savings and money market deposits increased 2% from the prior quarter. Consumer deposits are now 66% of total funding, up from 65% in the prior period. Excluding the equity investment gains, total non-interest income was up $123 million or 29% year-over-year. Net discount and interchange revenue increased $102 million or 43% as revenue from strong sales volume was partially offset by higher rewards costs. Loan fee income increased $20 million or 24%, mainly driven by higher cash advance fees with demand increasing as the economy reopens. Total operating expenses were, up $145 million or 13% from the prior year. Employee compensation increased $46 million, primarily due to a higher bonus accrual in the current [Technical Issues] versus 2020 when we reduced the accrual. Marketing expense increased $46 million from the prior year as we accelerated our growth investments. Information processing was up due to a $32 million software write-off, the increase in other expense reflects a $92 million charge and the remainder of the Diners intangible asset. Total net charge-offs were 2.1%, down 132 basis points year-over-year and 36 basis points sequentially. The [Technical Issues] net charge-off rate was 2.45%, 145 basis points lower than the prior year quarter and down 35 basis points sequentially. The net charge-off dollars were down $276 million versus last year's second quarter and $62 million sequentially. The card 30-plus delinquency rate was 1.43%, down 74 basis points from the prior year and 42 basis points lower sequentially. This quarter, we released $321 million from the reserves, due to three key factors: continued improvement in the macroeconomic environment; sustained strong credit performance with improving delinquency trends and lower losses; these were partially offset by a 2% sequential increase in loans. Our current economic assumptions include an unemployment rate of approximately 5.5% by year-end and GDP growth of 7%. Our common equity Tier 1 ratio increased 80 basis points sequentially to 15.7%, a level well above our internal target of 10.5%. On funding, we continue to make progress toward our goal of having deposits [Technical Issues] 70% to 80% of our mix. We expect NIM will remain in a relatively narrow range, compared to the first quarter levels of 75%, with some quarterly variability similar to what we experienced this quarter.

We earned $1.7 billion after tax or $5.55 per share. And I'm very pleased that our Board of Directors authorized the new $2.4 billion share repurchase program that expires next March. We also increased our quarterly dividend from $0.44 to $0.50 per share. Average consumer deposits were, up 6% year-over-year and declined 1% from the prior quarter. The entire sequential decline was from consumer CDs, which were down 9%, while savings and money market deposits increased 2% from the prior quarter.

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Our diverse and innovative portfolio has been driving growth this quarter with companion animal products up 20% operationally and livestock product sales up 9% operationally. Our newest parasiticides, including Simparica Trio, REVOLUTION PLUS and ProHeart 12 led the way again along with vaccines, key dermatology products and our diagnostics portfolio, including reference labs. As a result of the sales growth and target investments, we delivered adjusted net income growth of 20% operationally for the third quarter. As you know, there's been limited innovation in this area over the last 20 years and we're excited by the potential of monoclonal antibodies or mAbs to be the next breakthrough in long-term pain management. In the third quarter, we generated revenue of $1.8 billion, growing 13% on a reported basis and 15% operationally. Adjusted net income of $524 million was an increase of 15% on a reported basis and 20% operationally. Foreign exchange negatively impacted revenue in the quarter by 2%, driven primarily by the strengthening of the U.S. dollar. Operational revenue growth was 15% with contributions of 2% from price and 13% from volume. Volume growth of 13% includes 5% from other in-line products, 4% from new products, 3% from key dermatology products and 1% from acquisitions. Companion animal products led the way in terms of species growth, growing 20% operationally with livestock growing 9% operationally in the quarter. The positive momentum for Simparica Trio continued in the third quarter, and we expect full year incremental revenue of between $125 million to $150 million. We're also extremely pleased with the performance of our broader parasiticide portfolio, which, in the U.S., gained an additional 6% market share in the fleet, tick and heartworm segment for the third quarter versus the same period in the prior year. Global sales of our key dermatology portfolio were $251 million in the quarter, growing 16% operationally and contributing 3% to overall revenue growth. New products contributed 4% growth in the quarter, driven by companion animal parasiticides, Simparica Trio, REVOLUTION PLUS and ProHeart 12. Recent acquisitions contributed 1% of growth this quarter, including our expansion to reference labs and the Platinum Performance nutritionals business. U.S. revenue grew 18% with companion animal products growing 21% and livestock sales increasing by 13%. For companion animal, we continued to be encouraged by vet clinic trends with revenue per clinic up 12% in the quarter and demand for our products remaining robust. Simparica Trio continued to perform well in the U.S. with sales of $44 million despite difficult market conditions for a new product launch. Key dermatology sales were $180 million for the quarter, growing 17%, with significant growth for CYTOPOINT and APOQUEL, resulting from additional patient share and an expanding addressable market. Diagnostic sales increased 28% in the quarter as a result of our reference lab acquisitions and increased point-of-care consumable usage. U.S. livestock grew 13% in the quarter, driven primarily by cattle. Revenue in our International segment grew 11% operationally in the quarter with growth across all species with the exception of poultry, which was flat in the quarter. Companion animal revenue grew 20% operationally and livestock revenue grew 6% operationally. Companion animal diagnostics grew 17% in the quarter led by an increase in point-of-care consumable usage. Swine delivered another strong quarter with 16% operational revenue growth, primarily driven by China, which grew 159%. Our fish portfolio delivered another strong quarter, growing 10% operationally, driven by an increase in market share in vaccines and the acquisition of Fish Vet Group. Adjusted gross margin of 69.6% fell 50 basis points on a reported basis compared to the prior year as a result of negative FX, the manufacturing costs and recent acquisitions. Adjusted operating expenses increased 9% operationally, resulting from increased advertising and promotion expense for Simparica Trio and APOQUEL. The adjusted effective tax rate for the quarter was 20%, a decrease of 50 basis points, driven by the impact of net discrete tax benefits. Adjusted net income for the quarter grew 20% operationally primarily driven by revenue growth, and adjusted diluted earnings per share grew 21% operationally. For revenue, we are raising and narrowing our guidance range with projected revenue now between $6.55 billion and $6.625 billion and operational revenue growth of between 7% and 8% for the full year versus the 3% to 6% in our August guidance. Adjusted net income is now expected to be in the range of $1.79 billion to $1.825 billion representing operational growth of 6% to 8% compared to our prior guidance of 1% to 5%. Adjusted diluted earnings per share is now expected to be in the range of $3.76 to $3.81 and reported diluted earnings per share to be in the range of $3.38 to $3.45.

In the third quarter, we generated revenue of $1.8 billion, growing 13% on a reported basis and 15% operationally. For revenue, we are raising and narrowing our guidance range with projected revenue now between $6.55 billion and $6.625 billion and operational revenue growth of between 7% and 8% for the full year versus the 3% to 6% in our August guidance. Adjusted diluted earnings per share is now expected to be in the range of $3.76 to $3.81 and reported diluted earnings per share to be in the range of $3.38 to $3.45.

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Total revenue was up 13%, 9% organic to the comparable period. Order rates outpaced revenue in the quarter, posting bookings of $2.3 billion, a 27% comparable organic increase. This resulted in the seasonally high backlog of $2.2 billion, an increase of 39%. Importantly, before we get all wound up trying to quantify the impact of channel inventory stocking in inflationary pre-buy, and how it impacts quarterly demand, let's not lose sight of the fact that total marketplace demand is robust, which is reflected in our backlog and which also leads us to revise our revenue growth guidance upward for the full year to 10% to 12%. Q1 was solid with consolidated adjusted segment margin of 19.1%, 320 basis points higher versus the comparable quarter. Strong profitability and continued focus on working capital management resulted in seasonally strong free cash flow, which was up $110 million compared to last year's first quarter or the comparable period. With that, we are raising our guidance for the year to 10% to 12% all in revenue growth and adjusted earnings per share of $6.75 to $6.85 per share, a substantial step up compared to our prior guidance. Engineered Products revenue was up 2% organically as demand conditions improved modestly through a comparable period. And Fueling Solutions was up 3% organically in the quarter on the strength of North American retail fueling as well as our software and systems business in Europe. Order backlogs are up 13%, and we expect our hanging hardware, vehicle wash and compliance driven underground product offerings to contribute positively due to an increase in miles driven and construction seasonality as we make our way through the year. Sales in Imaging & Identification improved 4% organically. Pumps & Process Solutions posted 18% organic growth in the quarter on improved volumes across all businesses except precision components. Adjusted operating margin in the quarter expanded by 890 basis points on strong volume, favorable mix and pricing. Refrigeration & Food Equipment continued its solid momentum from the second half of last year posting 18% organic growth. Despite operational challenges in food retail due to availability issues with installation raw materials, adjusted margin performance improved by 450 basis points, supported by stronger volumes, productivity initiatives and cost actions we took in the middle of 2020, partially offset by input cost inflation. FX benefited topline by 3% or $51 million. Acquisitions more than offset dispositions in the quarter by $15 million. The U.S., our largest market posted 7% organic growth in the quarter on solid order rates and retail fueling, marking and coding, biopharma connectors, food retail and can making among others and was partially offset by delayed shipments in waste hauling. Europe grew by 13% in the quarter on strong shipments in vehicle aftermarket, biopharma, industrial pumps and heat exchangers. All of Asia returned to growth and was up 20% organically driven by China, which was up 60% against the COVID impacted comparable quarter in the prior year. Bookings were up 27% organically reflecting the continued broad-based momentum we are seeing across the portfolio. Overall, our backlog is currently up $626 million or 39% versus this time last year, positioning us well for the remainder of the year. On the top of the chart, adjusted segment EBIT was up nearly $100 million. The adjusted net earnings improved by $60 million, as higher segment EBIT more than offset higher taxes as well as higher corporate expenses, primarily related to compensation accruals and deal expenses. The effective tax rate excluding discrete tax benefits was approximately 21.7% [Phonetic] for the quarter compared to 21.5% [Phonetic] in the prior year. Discrete tax benefits were $6 million in the quarter or approximately $3 million lower than in 2020. Rightsizing and other costs were $4 million in the quarter or $3 million after tax. We are pleased with the cash flow performance in the first quarter with free cash flow of $146 million or $110 million increase over last year. Free cash flow conversion stands at 8% of revenue in the first quarter, which is historically our lowest cash flow quarter due to seasonality of our production. Additionally, we are capitalizing on our leadership position in natural refrigerant systems both in Europe and also in the U.S. where we believe the recent mandate in California will foretell a trend among the other 49 states to mandate the transition to more environmentally friendly solutions. Our revised annual guidance is on page 10, we covered the most pertinent of these items in the slides and we summarized here for your reference. Operational excellence and operating margin expansion has been our priority over the last couple of years and we are on track to deliver more than 100 basis points of average margin expansion over that period.

Importantly, before we get all wound up trying to quantify the impact of channel inventory stocking in inflationary pre-buy, and how it impacts quarterly demand, let's not lose sight of the fact that total marketplace demand is robust, which is reflected in our backlog and which also leads us to revise our revenue growth guidance upward for the full year to 10% to 12%. With that, we are raising our guidance for the year to 10% to 12% all in revenue growth and adjusted earnings per share of $6.75 to $6.85 per share, a substantial step up compared to our prior guidance.

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Turning to our results in the quarter, our net organic revenue growth in the third quarter was 15%. That's against the third quarter of 2020 when, as you will all recall, our organic change was negative 3.7% due to the impact of the pandemic. It's also important to note that our 2-year organic increase was 10.7% relative to the third quarter of 2019, which is a strong result. Organic growth was 14.7% in the U.S. and it ranged between 11% and 20% in international regions. Our IAN segment increased 14.4% organically with all major agencies contributing high single to double-digit percentage increases. At our DXTRA segment, organic growth was 18.6% reflecting double-digit increases across each of our DXTRA agencies and furthering the rebound from the sharp impact of the pandemic last year on our sports and entertainment as well as experiential businesses. Third quarter net income was $239.9 million as reported. Our adjusted EBITDA was $369.5 million and our margin of adjusted EBITDA before restructuring was 16.3%, compared with 16.2% a year ago and 14.7% in the third quarter of 2019. Third quarter diluted earnings per share was $0.60 as reported and was $0.63 as adjusted for the after-tax expense for the amortization of acquired intangibles and other items. We now expect that we can deliver organic growth for the year of approximately 11% which is ahead of the 9% to 10% range we had previously indicated. With growth at that higher level and given our strong results through the 9-months, we would therefore expect to achieve adjusted EBITA margin of approximately 16.8% which is an increase of 80 basis points over the level that we had previously shared with you. Adjusted EBITDA before a small restructuring adjustment was $369.5 million and margin was 16.3%. Diluted earnings per share was $0.60 as reported and $0.63 as adjusted for the after-tax impact of the amortization of acquired intangibles, a small restructuring adjustment and the net gain from the disposition of non-strategic businesses. On October 1st, following the conclusion of the third quarter, we repaid our $500 million 3.75% senior notes from cash-on-hand further deleveraging our balance sheet. Our net revenue in the quarter was $2.26 billion, an increase of $307.1 million from a year ago. Compared to Q3 2020, the impact of the change of exchange rates was positive 1.1% with the U.S. dollar weaker than a year ago in all world regions, with the exception of LatAm. Net divestitures were negative 40 basis points. Our net organic revenue increase was 15% which brings us to 12% organic growth for the nine months. Our IAN segment grew 14.4% organically. At IPG DXTRA, organic growth was 18.6%, which reflects double-digit growth across public relations, experiential, sports and entertainment and branding disciplines. In the U.S., which was 65% of our net revenue in the quarter, organic growth was 14.7%. The organic revenue decreased a year ago was 2.4%. International markets were 35% of our net revenue in the quarter and increased 15.4% organically. You'll recall that the same markets decreased 6% a year ago. The U.K. increased 13.3% organically, led by our offerings in media, data and tech, DXTRA, McCann and R/GA. Continental Europe grew 11.8%. Asia-Pac increased 17.4% organically, led by growth across most national markets notably, Australia, Singapore, India, the Philippines, China and Japan. Our organic growth in LatAm was 20.3% with exceptional results in Brazil, Argentina, Colombia and Chile. Our Other Markets group, which consists of Canada, the Middle East and Africa grew 17.1% organically, led by notably strong performance in Canada. Our fully adjusted EBITDA margin was 16.3% compared with 16.2% a year ago and 14.7% in the third quarter of 2019. As you can see on this slide, our ratio of total salaries and related expense as a percentage of net revenue was 66.8% compared with 65% in last year's third quarter. Our approval for performance-based incentive compensation was 5.8% of net revenue and our expense for temporary labor, which was 5% of net revenue in the quarter. We had strong leverage on our expense for base payroll, benefits and tax, which was 53.9% of third quarter net revenue, which reflects the benefit of our restructuring actions and the fact of the pace of hiring lagged our strong revenue growth, which has been the case in past economic expansions. At quarter-end, total worldwide head count was approximately 54,600, an 8% increase from a year ago. We have added net 4500 people year-to-date to support our growth. Also, on this slide, our office and other direct expense decreased as a percent of net revenue by 250 basis points to 13.3%. The ratio was 5% of net revenue. We also reduced all other office and other direct expense by 120 basis points compared to last year, which reflects lower expense for bad debt and leverage as a result of our growth. Our SG&A expense was 1.4% of net revenue with the increase from a year ago due to higher unallocated performance-based incentive expense and increased employee insurance, which was at a very low level last year. Our expense for the amortization of acquired intangibles in the second column was $21.5 million. The restructuring refinement in the quarter was a benefit of $3.5 million dollars. Below operating expenses in column 4, we had a gain due to the disposition of certain non-strategic businesses, which was $1.7 million in the quarter. At the front portion of the slide, you can see the after-tax impact per diluted share of these adjustments, was $0.03 per share, which bridges our diluted earnings per share as reported at $0.60 to adjusted earnings of $0.63 per diluted share. Cash from operations was $390.2 million compared to $689.3 million a year ago. We generated $79.6 million from working capital compared to $376.8 million last year, which was unusually strong seasonal result. Investing activities is $72 million in the quarter, mainly for capex $61.3 million. Financing activities used $153.3 million mainly for our dividend. Our net increase in cash for the quarter was a $152.5 million. We ended the quarter with $2.5 billion of cash and equivalents. Under current liabilities, the current portion of long-term debt refers to our $500 million, 3.75% senior notes, which have matured since the balance sheet date and we repaid with cash on hand. Our next maturity is $250 million to April 2024 and following that, there is nothing until 2028. We're committed to setting a Science-based target and to reaching net zero carbon across our business by 2040. We've also agreed to source a 100% renewable electricity by 2030 for our entire portfolio. Most recently, a top-10 financial services company engaged Acxiom to build their unified enterprise data layer which again shows the strength and depth of Acxiom's technology expertise. Also notable McCann Worldgroup named a new President and Global Chief Creative Officer who joins us from Nike where he served in senior brand marketing and creative leadership roles for more than 20 years, most recently leading Nike's men's brands globally. And MullenLowe Group was named the number 2 most effective network globally, in both cases punching well above its weight against larger competitors. During the quarter, the agency won the TJ Maxx creative account and just this week Mediahub won 3 Adweek Media Plan of the Year's awards as well as seeing it's U.K. office when global media duties [Phonetic] for Farfetch which is a luxury fashion e-commerce brand. Jack Morton won new client assignments with Amazon and Twitch and along with Octagon Sports and Entertainment was listed among event marketers ranking of the top 100 event agencies of 2021. Earlier on the call, we shared with you our perspective on the full year and our updated expectation that we will deliver approximately 11% organic growth and adjusted EBITDA margin of approximately 16.8% for the full year 2021.

Organic growth was 14.7% in the U.S. and it ranged between 11% and 20% in international regions. Third quarter diluted earnings per share was $0.60 as reported and was $0.63 as adjusted for the after-tax expense for the amortization of acquired intangibles and other items. We now expect that we can deliver organic growth for the year of approximately 11% which is ahead of the 9% to 10% range we had previously indicated. With growth at that higher level and given our strong results through the 9-months, we would therefore expect to achieve adjusted EBITA margin of approximately 16.8% which is an increase of 80 basis points over the level that we had previously shared with you. Diluted earnings per share was $0.60 as reported and $0.63 as adjusted for the after-tax impact of the amortization of acquired intangibles, a small restructuring adjustment and the net gain from the disposition of non-strategic businesses. Our net revenue in the quarter was $2.26 billion, an increase of $307.1 million from a year ago. At the front portion of the slide, you can see the after-tax impact per diluted share of these adjustments, was $0.03 per share, which bridges our diluted earnings per share as reported at $0.60 to adjusted earnings of $0.63 per diluted share. Earlier on the call, we shared with you our perspective on the full year and our updated expectation that we will deliver approximately 11% organic growth and adjusted EBITDA margin of approximately 16.8% for the full year 2021.

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First, as a quick snapshot of our recent growth, in the fourth quarter of 2021, we delivered $106 million of revenue and 38% adjusted EBITDA margins, ending a year of exceptionally strong execution on a high note. In 2021, we measured 4.5 trillion ad impressions, resulting in record revenue of $333 million, an increase of 36% compared with a year ago. We grew faster than the digital advertising industry and significantly outperformed the industry's programmatic, social, and CTV growth trajectories, while generating 33% adjusted EBITDA margins. ABS revenue grew 77% in 2021 and contributed approximately $85 million to our top line. While a significant majority of our top 100 clients are now using ABS in some applications, their usage of the product tends to be in North America where programmatic buying is dominant. In the fourth quarter, for example, we activated ABS with Disney in Latin America, Colgate in EMEA, and Nike in 21 global markets. Beyond our top 100 customers, approximately 40% of our top 500 clients still do not use ABS in any market, representing a solid expansion opportunity among this established customer base. We expect this unique differentiator of DV's programmatic solutions, including ABS and DV custom contextual to further drive our programmatic sales momentum and support DV's overall RFP win rate, which was 80% in 2021. Our go-to-market strategy for authentic attention leverages DV's established customer base of over 1,000 leading brands to drive ubiquitous uptake of these new data sets. Social revenue grew by nearly 50% in 2021 with strong performance across Facebook, YouTube, Twitter, Snapchat, and Pinterest as more than 300 new advertisers activated DV's social media verification solutions last year. Beginning with TikTok, we continue to expand coverage of our viewability solution, which is now available in 67 countries. Our solution has been used by nearly 30 advertisers, resulting in average monetized impression growth of approximately 220% over the last six months. On brand safety and TikTok, DV's advertiser activated brand safety controls continue to expand and have now been rolled out in North America, the U.K., Australia and the Middle East, with 82 advertisers using the solution. On YouTube, we saw that when our pre-campaign activation solutions are applied to campaigns, brand suitability incidents are reduced by up to 50%. On CTV, our impression volumes grew 57% in 2021. And by the fourth quarter, 25% of our tag-based advertiser video impressions were CTV. DV customers are fully protected from this scheme, which continues to scoop more than 5 million devices and over 80 million ad requests per day, undercutting ad investments and underlining performance. To combat this latest viewability challenge, last month, DV launched fully on-screen prebid targeting, enabling connected advertisers to target inventory from sources that are tested and evaluated by DV to ensure ads are only displayed 100% on screen and when the TV screen is turned on. International revenue grew by almost 70% last year with APAC revenue growing by 84% and EMEA by 61%, all outpacing the industry and our competitors. International now contributes 26% of our overall direct revenue. We currently generate revenue in 93 countries and from our expanding base of 20 locations outside the United States, we will leverage our exceptional RFP win rate to take advantage of the expansion opportunity that exists in markets around the world. In 2021, 55% of our headcount growth was driven by international hires as we continue to invest in expanding our global presence. We signed 176 new advertising customers in 2021, including brands such as Target, GEICO, Diageo, BMW, Bumble and Apple services. 61% of our new logo wins were greenfield, while 39% were competitive wins. In addition, on the supply side of the business, we added numerous new platform clients such as Amazon, Taboola, AdTheorent, Smartclip, and Verve, as well as 19 new publishers to the fold. In the last 12 months, DV has launched or expanded the only widely available attention solution, the only comprehensively accredited programmatic suite, the only solution for measuring and filtering fully on-screen CTV impressions, the only certified CTV fraud program for programmatic partners, and we are the only leading verification company to root out and publicize the numerous new fraud attacks that shake the confidence of digital advertisers around the globe. We generated $106 million of revenue, representing year-over-year growth of $27 million or 34%. We grew fourth quarter adjusted EBITDA to $40 million or 46% year over year, representing a 38% adjusted EBITDA margin. And as previously mentioned, we anticipate the integration of OpenSlate solution to generate between $15 million and $18 million in 2022. For the full year 2021, we delivered $333 million in revenue, up 36% year over year and adjusted EBITDA of $110 million, up 50% year over year and representing a 33% adjusted EBITDA margin. In 2021, advertiser programmatic grew 45%, driven by ABS, which grew 77% and represented 50% of advertiser programmatic revenue. Advertiser direct revenue grew 27%, driven by social revenue growth of 47%. Social represented 33% of our advertiser direct revenue, up from 29% in 2020. Finally, supply side revenue grew 38% in 2021, driven by new deals with large platforms such as Yahoo! Japan and Amazon, as well as the 19 new publishers we signed on during the year. Our 2021 net revenue retention rate was 126% and while gross revenue retention was 98%. Our customer tenure was 6.9 years for our top 75 customers. For our top 100 customers, we grew average revenue per customer from $1.8 million in 2020 to $2.2 million in 2021. And finally, we increased the number of customers generating more than $1 million in revenue by 42% in 2021. Our cost of revenue increased by $19 million year-on-year in 2021, primarily due to an increase in costs from revenue sharing arrangements with our Programmatic partners as Programmatic revenue grew as a percentage of total revenue. In 2021, we expanded adjusted EBITDA margins to 33% while continuing to invest in the business. We added over 200 employees during 2021, including approximately 100 from our two acquisitions. In terms of cash flow and balance sheet, we generated $83 million in cash from operating activities in 2021, a nearly fourfold increase from the $21 million generated in 2020. We had approximately $222 million of cash at the end of the year and zero debt on the balance sheet. We expect full year 2022 revenue in the range of $429 million to $437 million, a year-over-year increase of 30% at the midpoint. And we expect full year 2022 adjusted EBITDA in the range of $126 million to $134 million, representing a 30% adjusted EBITDA margin at the midpoint. For the first quarter of 2022, we expect revenue in the range of $89 million to $91 million, which implies a 33% growth at the midpoint. And we expect first quarter adjusted EBITDA in the range of $21 million to $23 million, which represents a 24% adjusted EBITDA margin at the midpoint. Stock-based compensation expense for the first quarter of 2022 is expected in the range of $9 million to $10 million. For the full year, stock-based compensation expense is expected in the range of $44 million to $49 million and shares outstanding for the first quarter are expected in the range of 170 million to 173 million.

We generated $106 million of revenue, representing year-over-year growth of $27 million or 34%. We expect full year 2022 revenue in the range of $429 million to $437 million, a year-over-year increase of 30% at the midpoint. And we expect full year 2022 adjusted EBITDA in the range of $126 million to $134 million, representing a 30% adjusted EBITDA margin at the midpoint. For the first quarter of 2022, we expect revenue in the range of $89 million to $91 million, which implies a 33% growth at the midpoint. And we expect first quarter adjusted EBITDA in the range of $21 million to $23 million, which represents a 24% adjusted EBITDA margin at the midpoint.

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Our team is executing, maintaining a swift pace toward our path to $10 billion in revenue and beyond. In Q1, we grew subscription revenue 30% year over year, exceeding the high end of our guidance. We delivered strong profitability with operating margin over 27%. And we increased free cash flow margin 7 points year over year to 46%. As a result, digital investments are at an all-time high and will total more than $7.8 trillion by 2024, according to IDC. Our team of 14,000 colleagues are exponential thinkers. In just the past 18 months, we have more than doubled the features and functionality of our platform for our customers. We're proud that Quebec, our latest platform release, delivered 1,700 new customer capabilities; breakthrough innovations like predictive AI operations, AI search, and virtual agents that enhance every experience, to name a few. By the end of 2021, Forrester Research predicts that 75% of development shops will use low-code platforms. In just 10 days, NCI leveraged ServiceNow to build a new application for an online portal to collect and track specimens from COVID-19 patients. ITSM was in 12 of our top 20 deals. ITOM had a strong quarter and was in 13 of the top 20 deals. Creator workflows, our platform business, was in 19 of our top 20 deals. Three of our top 10 app engine wins came from APJ, where we are seeing increased awareness of ServiceNow and is continuing to drive demand. In the U.S., the Now Platform is at the heart of the city of Los Angeles' digital transformation, helping to provide reliable access to essential services for its 4 million citizens. Employee workflows were included in eight of our top 20 deals. 1 priority, caring for children. Within two hours of the portal going live, 120,000 people have registered and received an appointment. ServiceNow ended Q1 working with over 100 organizations and governments globally to help vaccinate people at scale. That's why we're so grateful to be named to the Fortune 100 "best places to work" list for the first time. And we're proud to have increased our position on the Fortune's Best Workplaces in Technology list by more than 10 points. We are well on our way to $10 billion and beyond, and we are striving with all we have to be the defining enterprise software company of the 21st century. Q1 subscription revenues were $1.293 billion, representing 30% year-over-year growth inclusive of a 4-point tailwind from FX. Remaining performance obligations or RPO ended the quarter at approximately $8.8 billion, representing 34% year-over-year growth, putting us well on our way toward our $10 billion revenue target. Current RPO was approximately $4.4 billion, representing 33% year-over-year growth and a 100 basis points beat versus our guidance. Notably, we delivered that beat with 100 basis points less of an FX tailwind. Due to the weaker euro, currency contributed 4 points instead of our original outlook for a 5-point tailwind. Q1 subscription billings were $1.365 billion, representing 29% year-over-year growth and a $50 million beat versus the high end of our guidance. Our renewal rates remained strong at 97%, as the Now Platform remains a mission-critical part of our customers' operations. We closed 37 deals greater than $1 million ACV in the quarter, including seven net new customers. Our focus on selling comprehensive solutions instead of point products continue to drive more multi-product deals as 17 of our top 20 deals included three or more products. We now have 1,146 customers paying us over $1 million in ACV, up 23% year over year. And the number of customers paying us $5 million or more in ACV grew over 50% year over year. Operating margin was 27%, up 300 basis points year over year, driven by our strong top-line outperformance and the timing of some spend that will shift into Q2. Our free cash flow margin was 46%, up 700 basis points year over year, driven by strong collections and lower T&E. The industries highly affected by COVID that we outlined early last year, which represent about 20% of our business, remained resilient in Q1. For Q2, we expect subscription revenues between $1.29 billion and $1.295 billion, representing 27% to 28% year-over-year growth, including a 300-basis-point FX tailwind. We expect cRPO growth of 30% year over year, including a 250-basis-point FX tailwind. We expect subscription billings between $1.25 billion and $1.255 billion, representing 23% year-over-year growth. Growth includes a net tailwind from FX and duration of 300 basis points. We expect an operating margin of 21.5%, which includes $15 million of sales and marketing spend that shifted out of Q1 and into Q2; and 202 million diluted weighted outstanding shares for the quarter. We are increasing the midpoint of our previous subscription revenue expectations by $32 million based on the strong trends we saw in Q1. However, a weaker euro resulted in a $59 million headwind to our growth. Taken together, we expect subscription revenues between $5.455 billion and $5.47 billion, representing 27% to 28% year-over-year growth. Similarly, we're increasing the midpoint of our previous subscription billings expectation by $50 million on a constant-currency basis. However, the weaker euro resulted in a $68 million headwind to our growth. Taken together, we expect subscription billings between $6.19 billion and $6.205 billion, representing 24% to 25% year-over-year growth. This includes a net tailwind from FX and duration of 150 basis points. We now expect about 21% of our total subscription billings to be in Q3 and 37% to be in Q4. We continue to expect subscription gross margins of 85% and an operating margin of 23.5%. Finally, we expect free cash flow margin of 30% and 202 million diluted weighted outstanding shares for the year.

Q1 subscription revenues were $1.293 billion, representing 30% year-over-year growth inclusive of a 4-point tailwind from FX.

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Slide 3 includes some notable achievements from 2020, starting with the Paycheck Protection Program, through which we extended approximately 19,000 loans totaling $2.9 billion to customers across the Southeast. We're also off to a very strong start with the newest round of P3 with approximately 5,000 loan applications submitted totaling $700 million in new requests. And we made significant progress throughout the year, executing on our Phase 1 revenue and efficiency efforts. As previously stated, we expect to achieve $100 million in pre-tax run rate benefits by the end of this year. And Kevin will provide more detail later on plans for an additional $75 million in benefits by the end of 2022. Our CET1 ratio increased over 70 basis points, ending the year at 9.7%. In addition, our ACL ratio increased 75 basis points from day one CECL implementation. And our total risk-based capital ended the year at 13.4%, the highest level since 2014. We ended the year strong with diluted earnings per share of $0.96 per share compared to $0.56 last quarter and $0.97 a year ago. Adjusted diluted earnings per share was up $1.08 per share compared to $0.89 last quarter and $0.94 a year ago. Total adjusted revenues of $499 million were up $5 million from last quarter, led by broad-based increases in fee revenue, continued reductions in deposit costs and accelerated P3 loan forgiveness income. Adjusted noninterest expense of $275 million was up $6 million from last quarter, which was impacted by a $5 million increase in Synovus Forward, P3 and COVID-related expenses. Total loans declined $1.3 billion in the fourth quarter, including accelerated P3 loan forgiveness that resulted in balance declines of $516 million. Total lending partnership loans held for investment declined $81 million, while loans held for sale from this category increased $81 million. Excluding reductions in P3 and lending partnership balances, total loans declined $700 million or 2% from the third quarter. Total C&I loans declined $640 million in the fourth quarter, including the $516 million coming from accelerated P3 forgiveness. Line utilization continued to decline in the quarter, down an additional $57 million. C&I line utilization of 40% was 6% lower than it was the same quarter last year and remain near historic lows. Total CRE loans declined $395 million as payoff and paydown activity increased significantly in the fourth quarter as transactions that were delayed during the height of the pandemic were completed. Total consumer loans declined $282 million. As shown on Slide 6, we had total deposit growth of $2 billion. Fourth-quarter increases were led by core transaction deposit growth of $1.8 billion and $1 billion in seasonal public funds. The cost of deposits fell by 11 basis points from the previous quarter to 28 basis points due to a combination of rates paid and deposit remixing. In the fourth quarter, we were able to reduce the cost of time deposits by 28 basis points and the cost of money market deposits by 9 basis points. Slide 7 shows net interest income of $386 million in the fourth quarter, an increase of $9 million from the third quarter that was primarily due to the impact of increased P3 forgiveness. Exclusive of P3 fee accretion, NII in the fourth quarter was $361 million as compared to $365 million the prior quarter. The net interest margin was 3.12%, up 2 basis points from the previous quarter. The additional P3 fee accretion of $13 million to a total of $25 million was a meaningful contributor to that increase. Conversely, considerable deposit inflows, coupled with the timing of our subordinated debt transaction, led to an elevated level of one balance sheet liquidity within the fourth quarter with average excess cash balances increasing $1.4 billion. This dynamic can have a notable impact on the margin with every $1 billion of extra cash on balance sheet diluting the margin by approximately 6 basis points. As of year-end, there were $49 million of Phase 1 P3 processing fees remaining with approximately $20 million associated with loans that had initiated the forgiveness process. Slide 8 shows noninterest revenue, which was $115 million, flat to the prior quarter. After adjusting for security gains, adjusted noninterest revenue was $112 million, down $3 million from the prior quarter. Core banking revenue improved by $3 million to $37 million primarily due to increased activity as we continue the gradual return to pre-COVID levels. Service charges on deposits, SBA gains and card fees each increased about $1 million from the previous quarter. $2 million in revenue growth from fiduciary and asset management, brokerage and insurance helped offset the $1 million decline in capital markets revenue resulting from lower loan activity. Net mortgage revenue of $24 million, down $7 million from the prior quarter, remained elevated. Secondary mortgage production increased 4%, which directly impacted commissions. Total noninterest expenses were $302 million, down $14 million. On an adjusted basis, NIE was $275 million, up $6 million from the prior quarter. Adjustments include $14 million related to the voluntary early retirement program we announced in October, $8 million in loss on early extinguishment of debt and $4 million in branch optimization real estate writedowns. Payback on all of these strategic initiatives are 2.5 years or less. The quarter-over-quarter increase in adjusted NIE includes $5 million related to Synovus Forward, P3 and COVID. Most of the $3 million increase in P3 and COVID-related expenses are upfront consulting and technology fees to streamline the forgiveness process. During the quarter, we realized an additional $2.5 million in savings from Synovus Forward that offset investments in digital and technology. In the fourth quarter, headcount declined by 100, most of which occurred in December as part of the voluntary early retirement plan. Before providing some comments related to key credit metrics on Slide 10, I'd like to provide a brief update on our COVID-related deferral program, which provided for up to 180 days of deferred payments of principal and interest. Loans in this program with a full P&I deferral declined to 34 basis points at the end of the fourth quarter. Performance for borrowers that completed a deferral period has been strong, with approximately 99% paying as agreed. Provision for credit losses of $11 million include net charge-offs of $22 million or 23 basis points. The allowance for credit losses ended the fourth quarter at $654 million. And the ACL ratio increased 1 basis point to 1.81%, excluding P3 loans. Preliminary capital ratios on Slide 11 show continued improvement as CET1 increased 37 basis points to 9.7% this quarter. We ended the year above the higher end of our operating range of 9 to 9.5%, which positions us well as we move into the new year. The total risk-based capital ratio of 13.4% was up 25 basis points. Our 2021 capital plan maintains the current common shareholder dividend of $0.33 per quarter and includes authorization for share repurchases of up to $200 million. Based on the current outlook, we will continue to target a CET1 ratio at the higher end of the 9 to 9.5% range with more opportunity to deploy capital as we gain greater clarity around effectiveness of the vaccine, as well as confidence in the broader economic recovery. The third-party spend program will fully deliver $25 million run rate savings in 2021. We also consolidated 13 branch locations this past year, which will result in approximately $5 million in run rate savings on a go-forward basis. And as we close out 2020, we completed two components of organizational efficiency work stream with a voluntary early retirement program and a back-office staffing optimization, which will produce $13 million in run rate benefit in 2021. Starting with our pricing for value program, we have begun the market-based repricing of our treasury and payment solutions offerings and are pleased with the progress to date with an anticipated run rate benefit of approximately $9 million in the first half of 2021. As a result of our progress and the plans for additional Phase 1 initiatives, we remain committed to deliver the $100 million run rate pre-tax benefits by the end of 2021. We have also increased our objective by an additional $75 million run rate benefit to be achieved by the year-end 2022. For example, treasury and payment solutions' new revenue in 2020 was up 160% over 2019 and 450% over two years ago. We expect an additional 65 to 70% of the P3 loans funded in 2020 to be forgiven by mid-2021, leaving around $500 million on the books for an extended period. Based upon our results to date, as well as our preliminary analysis of eligibility, we believe the number of applicants will range from 5,000 to 7,500, which compares to just over 19,000 last year. We expect the average loan size to be less than the round one average of approximately $150,000, which would result in a higher percentage of fee revenue. Excluding all P3 balance changes, we expect loan growth of approximately 2 to 4% in 2021. A return to a more normalized C&I line utilization would increase funded loan balances by $650 million as compared to year-end balances. Despite a challenging year, the Family Office grew assets under management by 23% and new business revenue booked for the year increased 66%. In aggregate, we expect total adjusted revenues to decline 1 to 4% in 2021. Some opportunities to perform at the higher end of the range include more favorable deposit pricing, further steepening in the yield curve, higher-than-expected economic activity, increased participation in Phase 2 of the P3 program and acceleration of the benefits from enhanced analytics and other revenue-centric Synovus Forward initiatives. Despite our overall actions to reduce expenses, it is not inhibiting our ability to continue to invest in areas of focus with approximately $20 million in strategic investments in technology and digital planned for 2021. In aggregate, we expect adjusted expenses to decline between 2 and 5% for the year. Our CET1 ratio of 9.7% is above our stated operating range of 9 to 9.5%. The CET1 target of 9.5% in the 2021 outlook is at the higher end of our 9 to 9.5% operating range, which we believe is prudent while greater levels of uncertainty exist. Lastly, assuming no significant change in the current tax environment, we expect an effective tax rate of 23 to 25%. For sensitivity purposes, a federal tax rate change from 21 to 28% would result in an increase of our long-term effective tax rate of 6.5%. Kessel has led this company with such a steady hand over the last 10 years and has returned the company to a position of strength.

We ended the year strong with diluted earnings per share of $0.96 per share compared to $0.56 last quarter and $0.97 a year ago. Adjusted diluted earnings per share was up $1.08 per share compared to $0.89 last quarter and $0.94 a year ago. As shown on Slide 6, we had total deposit growth of $2 billion.

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Revenue was $727.5 million, a decrease of 10.7%. Organic revenue excluding $3.9 million of storm restoration services in the quarter declined 11.1%. As we deployed 1 gigabit wireline networks, wireless/wireline converged networks and wireless networks this quarter reflected an increase in demand from two of our top five customers. Gross margins were 14.8% of revenue, reflecting the continued impacts of the complexity of a large customer program. General and administrative expenses were 9.2% and all of these factors produced adjusted EBITDA of $44.1 million or 6.1% of revenue. And adjusted loss per share of $0.04 compared to earnings per share of $0.36 in the year ago quarter. Liquidity was strong at $477.4 million and operating cash flow was $41.5 million. Finally, during the quarter we issued $500 million in 4.5% senior notes due in April 2029, and resized and extended our credit facility through April of 2026. These wireline networks are generally designed to provision 1 gigabit network speeds to individual consumers and businesses, either directly or wirelessly using 5G technologies. We are providing program management planning, engineering and design, aerial and underground and wireless construction and fulfillment services for 1 gigabit deployments. During the quarter, organic revenue decreased 11.1%. Our top five customers combined produced 68.2% of revenue, decreasing 23% organically. All other customers increased 31.9% organically. AT&T was our largest customer at 21.4% of total revenue or $155.6 million. AT&T grew 0.9% organically. Revenue from Comcast was $131.1 million or 18% of revenue. Comcast was Dycom's second largest customer and grew organically 10.7%. Verizon was our third largest customer at 12.6% of revenue or $91.5 million. Lumen was our fourth largest customer at 485.8 million or 11.8% of revenue. And finally, revenue from Windstream was $32.1 million or 4.4% of revenue. In fact, the 31.9% organic growth rate with these customers is the highest growth rate in at least nine years. Of note, fiber construction revenue from electric utilities was $47 million in the quarter or 6.5% of total revenue. This activity increased organically 92.1% year-over-year. In fact, over the last several years, we have meaningfully increased the long-term value of our maintenance and operations business, a trend which we believe will parallel our deployment of 1 gigabit wireline direct and wireless/wireline converged networks, as those deployments dramatically increase the amount of outside plant network that must be extended and maintained. Despite this overall industry trend, we were recently notified by customer representing less than 5% of our revenue that it had decided to in-source a portion of the construction and maintenance services that are currently provided for them by us as well as a number of other suppliers. Backlog at the end of the first quarter was $6.528 billion versus $6.81 billion at the end of the January 2021 quarter, decreasing approximately $282 million. Of this backlog, approximately $2.746 billion is expected to be completed in the next 12 months. headcount increased during the quarter to 14,331. Contract revenues for Q1 were $727.5 million and organic revenue declined 11.1%. Adjusted EBITDA was $44.1 million or 6.1% of revenue. Gross margins were 14.8% in Q1 and decreased 169 basis points from Q1 '21. G&A expense increased 112 basis points, reflecting higher stock-based compensation and administrative and other costs. Non-GAAP adjusted net loss was $0.04 per share in Q1 '22, compared to net income of $0.36 per share in Q1 '21. Over the past four quarters, we have reduced notional net debt by $185.2 million. During Q1, we issued $500 million of 4.5% senior unsecured eight-year notes due April 2029. We repaid $105 million of revolver borrowings and $71.9 million of term loan borrowings, and we resized and extended our senior credit facility through April 2026. Cash and equivalents were $330.6 million at the end of Q1. $58.3 million is expected to be used to repay our convertible notes due September 2021. We ended the quarter with $500 million of senior unsecured notes, $350 million of term loan, no revolver borrowings, and $58.3 million principal amount of convertible notes. As of Q1, our liquidity was strong at $477.4 million, and we continue to maintain a strong balance sheet. Operating cash flows have remained strong and totaled $41.5 million in the quarter. The combined DSOs of accounts receivable and net contract assets were at 128 days, an improvement of eight days sequentially from Q4 '21. Capital expenditures were $28.6 million during Q1 net of disposal proceeds, and gross capex was $31.6 million. Capital expenditures net of disposals for fiscal 2022 are expected to range from $105 to million to $125 million, a reduction of $40 million when the midpoint as compared to the midpoint of the prior outlook. For Q2 2022, the company expects contract revenues to range from in-line to modestly lower as compared to Q2 2021, and expects non-GAAP adjusted EBITDA as a percentage of contract revenues to decrease compared to Q2 2021. We expect the year-over-year gross margin pressure of approximately 200 basis points from the impact of a large customer program and from revenue declines for other large customers that are expected to have lower spending in the first half of this calendar year. We expect approximately $8.7 million of non-GAAP adjusted interest expense for the components listed as well as $0.7 million for the amortization of the debt discount on convertible notes for total interest expense of approximately $9.4 million during Q2. We expect the non-GAAP effective income tax rate of approximately 27% and diluted shares of $31.3 million. Telephone companies are deploying fiber to the home to enable 1 gigabit high speed connections, increasingly rural electric utilities are doing the same.

And adjusted loss per share of $0.04 compared to earnings per share of $0.36 in the year ago quarter. Backlog at the end of the first quarter was $6.528 billion versus $6.81 billion at the end of the January 2021 quarter, decreasing approximately $282 million. Non-GAAP adjusted net loss was $0.04 per share in Q1 '22, compared to net income of $0.36 per share in Q1 '21. For Q2 2022, the company expects contract revenues to range from in-line to modestly lower as compared to Q2 2021, and expects non-GAAP adjusted EBITDA as a percentage of contract revenues to decrease compared to Q2 2021.

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Total revenues for the second quarter of fiscal 2021 of $143.6 million increased $29.8 million or 26% compared to $113.8 million in the same quarter last year. Net earnings for the quarter were $11.9 million or $1.08 per diluted share compared to net earnings of $5.5 million or $0.51 per diluted share in the prior year. Irrigation segment revenues for the second quarter of $118.6 million increased $25.1 million or 27% compared to the same quarter last year. North America irrigation revenues of $80.2 million, increased $13.1 million or 19% compared to last year. This increase was partially offset by lower engineering services revenue of approximately $10.5 million related to a project in the prior year that did not repeat. In the International Irrigation markets, revenues of $38.4 million increased $12 million or 45% compared to the same quarter last year. Total Irrigation segment operating income for the second quarter was $18 million, an increase of $7.9 million or 79% compared to the same quarter last year and operating margin improved to 15.2% of sales compared to 10.8% of sales in the prior year. However, we have experienced margin compression as we work through the backlog of orders received prior to the effective dates of our pricing actions. Infrastructure segment revenues for the second quarter of $25 million, increased $4.7 million or 23% compared to the same quarter last year. Infrastructure segment operating income for the second quarter was $6.3 million, an increase of $400,000 or 8% compared to the same quarter last year. Infrastructure operating margin for the quarter was 25.4% of sales compared to 29% of sales in the prior year. In addition, the prior year included a gain of $1.2 million sale of a building that had been held for sale. During the quarter, we had capital expenditures of $11 million which included $8.5 million to exercise a purchase option for the land and buildings related to our manufacturing operation in Turkey. Our total available liquidity at the end of the second quarter was $180.3 million, with $130.3 million in cash and marketable securities and $50 million available under our revolving credit facility. Our total debt was $116.3 million at the end of the second quarter, almost all of which matures in 2030. Additionally, at the end of the quarter, we were well within the financial covenants of our borrowing facilities, including a gross debt-to-EBITDA leverage ratio of 1.4 compared to a covenant limit of 3.0.

Total revenues for the second quarter of fiscal 2021 of $143.6 million increased $29.8 million or 26% compared to $113.8 million in the same quarter last year. Net earnings for the quarter were $11.9 million or $1.08 per diluted share compared to net earnings of $5.5 million or $0.51 per diluted share in the prior year. However, we have experienced margin compression as we work through the backlog of orders received prior to the effective dates of our pricing actions.

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Total revenue of $1.5 billion was 77% ahead of last year as we lapped the impacts of the COVID shutdown. Revenue was down 6% versus 2019, primarily driven by the actions taken as part of the Rewire to prune unprofitable motorcycles as well as exit unprofitable markets. Total operating income of $280 million was significantly ahead of 2020 and 9% ahead of 2019 with growth across both of our reported segments. The Motorcycles and Related Products segment delivered $186 million of operating income, which is $307 million better than 2020 and 3% better than 2019. Even though the quarter had 12,000 fewer units than 2019, we benefited from improved motorcycle unit mix, significantly lower sales incentives as we focused on building desirability, and a reduced cost structure behind our Rewire actions. The Financial Services segment delivered $95 million of operating income, $90 million better than 2020 and 25% ahead of 2019. Second quarter GAAP earnings per share of $1.33 was $1.93 ahead of Q2 2020. When adjusting to exclude the impact of EU tariffs and restructuring charges, our adjusted earnings per share was $1.41, up $1.79 over prior year. Turning to year-to-date results. Total revenue of $3 billion was 37% ahead of 2020 and 2% behind year-to-date 2019. Total operating income of $627 million was $635 million ahead of 2020 and 48% ahead of 2019. GAAP year-to-date earnings per share was $3.01, up $3.16 from a year ago, while adjusted year-to-date earnings per share was $3.11, up $2.98 from last year. Global retail sales of new motorcycles were up 24% in the quarter behind strong demand for core Touring and large Cruiser products in the U.S. as well as a successful launch of our Pan America motorcycle into the Adventure Touring space. North America Q2 retail sales were up 43% versus 2020 and up about 5% over Q2 2019. Looking at revenue, total motorcycle segment revenue was up 99% in Q2 and up 45% on a year-to-date basis. Focusing on current quarter activity, 81 points of growth came from higher year-over-year volume and motorcycle units and parts and accessories as we lap last year's pandemic impact and work to meet the strong current year demand for our motorcycles, which includes the new Pan America; 13 points of growth from mix driven by a larger percentage of Touring bikes in the quarter along with favorable regional mix behind strong U.S. shipments; 5 points of growth from foreign exchange; and finally, one point of growth from pricing and incentives as we eliminated a majority of corporate discounts and incentives as part of the Hardwire strategy. Absolute Q2 gross margin of 30.6% was up 14.5 points versus prior year driven by stronger volumes and favorable unit mix. Q2 operating margin finished at 14% and was up significantly versus prior year due to the drivers already noted. To help offset, we implemented an average 2% pricing surcharge on select models in the U.S. effective July 1st for the remainder of model year '21. Financial Services segment, operating income in Q2 was $95 million, up $90 million compared to last year. The total provision for credit losses decreased $75 million year-over-year, primarily due to the reserve rate changes of $63 million as we lapped last year's increase, which was largely driven by the economic impacts of the pandemic. In addition, actual credit losses were $12 million lower. Looking at HDFS's base business, new retail originations in Q2 were up 29% versus last year behind higher new motorcycle sales and strong used motorcycle origination volume. At the end of Q2, HDFS had approximately $820 million in cash and cash equivalents on hand and approximately $1.3 billion in availability under its committed credit and conduit facilities for a total available liquidity of $2.1 billion. Cash and cash equivalents remained elevated but were down, approximately, $900 million from Q1 as we continued to pull cash back down to normalized levels. HDFS's retail 30-day plus delinquency rate was 2.21%, up 46 basis points compared to the second quarter of last year, which is the high point in issuance of pandemic-related extensions. The retail credit loss ratio remained historically low at 0.84%, a 103 basis point improvement over last year. We delivered year-to-date operating cash flow of $644 million, up $34 million over prior year. As we look to the balance of the year, we are maintaining our guidance on the Motorcycle segment revenue growth of 30% to 35%. For the Motorcycle segment operating income margin, during the second quarter the European Union made a decision to implement a six-month stay on raising the incremental tariffs from 31% to 56%, while negotiations occur between the U.S. and the EU. We had stated our official guidance to be 7% to 9%, which assumed complete mitigation of the incremental tariffs. With the full impact of the incremental tariffs, our guidance was 5% to 7%. Based on what we know today, our estimated tariff impact for this year is, approximately, $80 million versus the initial estimate of $135 million. This improvement would result in our estimated GAAP operating income margin moving from 5% to 7% to our revised guidance of 6% to 8%. If we are successful in materially mitigating the incremental EU tariffs for the remainder of 2021 and get back to the planned tariff rate of 6%, our operating margin range would remain 7% to 9%. We are increasing the Financial Services segment operating income growth guidance to 75% to 85%, which is an increase from the previously communicated range of 50% to 60%. Lastly, capital expenditures remain flat to our original guidance of $190 million to $220 million. Assuming the $80 million tariff impact, we expect the back half operating margin percent to be negative mid-single digits. This back half guidance incorporates the impact in the shift in model year launch timing, logistics and raw material inflation rates in line with what we've seen throughout Q2, the approximately 2% pricing surcharge, and a step up in operating expense as we invest into the Hardwire and prepare for the launch of model year '22. We continue to be guided by H-D1 as a high-performing winning organization based on our 10 defined leadership principles, built on the powerful vision and mission of Harley-Davidson. The global reveal event generated over 127 million PR impressions with overwhelmingly positive sentiment, with many publications heralding the return of the iconic Sportster. With the MSRP at launch in the US for $21,999, pre any applicable tax credit, we believe LiveWire ONE will redefine the segment through innovative engineering and digital capabilities and bring a whole new generation of riders and non-riders into our company's fold. By launching online at LiveWire.com and at 12 LiveWire brand dealers in California, New York, and Texas, we placed geographic focus on EV customers and relevant charging infrastructure. Last week, we launched our first product collaboration of the year with Jason Momoa and the Harley-Davidson Museum as a limited production American-made collection of 16 vintage inspired men's apparel and accessory styled sold exclusively on Harley-Davidson.com and in our museum store. Following the new 21 motorcycles introduction, we successfully launched Pan America, our first Adventure Touring bike. With 118 years of uninterrupted heritage, craftsmanship, and unrivaled iconic design, we are truly unique.

Total revenue of $1.5 billion was 77% ahead of last year as we lapped the impacts of the COVID shutdown. Second quarter GAAP earnings per share of $1.33 was $1.93 ahead of Q2 2020. When adjusting to exclude the impact of EU tariffs and restructuring charges, our adjusted earnings per share was $1.41, up $1.79 over prior year. Turning to year-to-date results. As we look to the balance of the year, we are maintaining our guidance on the Motorcycle segment revenue growth of 30% to 35%. We are increasing the Financial Services segment operating income growth guidance to 75% to 85%, which is an increase from the previously communicated range of 50% to 60%. Lastly, capital expenditures remain flat to our original guidance of $190 million to $220 million.

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Growth momentum was sustained, and we delivered a fifth consecutive quarter of margin expansion, achieving the highest pre-tax operating margin since 2015 and cash flow from operations in excess of $1 billion. Second, internationally, we recorded growth in all three areas, with revenue up 11% year-on-year, consistent with our ambition of double-digit revenue growth compared to the second half of 2020. And while we are in the early innings, we are excited about the prospect of transitioning the majority of our software customer base, of over 1,700 companies, to our digital platform during the next few years. The market fundamentals have improved steadily throughout 2021, especially over the last few weeks, with oil and gas prices attaining recent highs, inventories at their lowest levels in recent history, a rebound in demand and encouraging trends in the pandemic containment efforts. Year-to-date revenue growth in Latin America is at 30%, with broad activity growth across multiple countries, including Argentina, Brazil, Ecuador and Guyana. Directionally, we anticipate another quarter of growth, with an ambition for growth across all divisions. Growth will be led by Production Systems and Digital & Integration, benefiting from a year-end sales uplift, tempered by typical seasonality in Reservoir Performance and Well Construction. With this fourth quarter outlook, we expect to reach our double-digit international growth ambition for the second half of 2021, when compared to the second half of 2020. Consequently, on a full year basis, we remain confident in attaining the high end of our guidance of 250 bps to 300 bps EBITDA margin expansion, an excellent foundation for expansion in the year ahead. In North America, we anticipate capital spending growth to increase around 20%, impacting both the onshore and offshore markets. In North America, we have enhanced our market positioning and are now biased to accretive growth onshore and will benefit from strong growth offshore in the Gulf of Mexico. Consequently, we expect margins to expand further in 2022, supporting material earnings growth potential and are increasingly confident in achieving our mid-cycle adjusted EBITDA margin ambition of 25% or higher and sustaining a double-digit free cash flow margin throughout the cycle. Third quarter earnings per share, excluding charges and credits, was $0.36. This represents an increase of $0.06 compared to the second quarter of this year and an increase of $0.20 when compared to the same period of last year. In addition, we recorded in the third quarter a $0.03 gain relating to a start-up company we had previously invested in. Overall, our third quarter revenue of $5.8 billion dollars increased 4% sequentially. Pretax operating margins improved 120 basis points to 15.5% and have now increased five quarters in a row. Companywide adjusted EBITDA margin of 22.2% in the quarter increased 90 basis points sequentially. Third quarter Digital & Integration revenue of $812 million was essentially flat sequentially as lower sales of digital solutions were offset by higher APS revenue. Pretax operating margins increased 154 basis points to 35%, largely as a result of improved commodity pricing in our Canada APS project. Reservoir Performance revenue of $1.2 billion increased 7% sequentially. Margins expanded 202 basis points to 16%, largely due to higher offshore and exploration activity, as well as accelerated new technology adoption. Well Construction revenue of $2.3 billion increased 8% sequentially due to higher land and offshore drilling, both internationally and in North America. Margins increased 230 basis points to 15.2% due to the higher drilling activity and a favorable geographical mix. Finally, Production Systems revenue of $1.7 billion was essentially flat sequentially while margins decreased 27 basis points to 9.9%. Cash flow from operations was once again strong as we generated $1.1 billion of cash flow from operations and free cash flow of $671 million during the quarter. This represented a significant sequential increase when adjusting for last quarter's exceptional tax refund of $477 million. We paid $42 million of severance during the quarter. As a result of this strong cash flow performance, net debt decreased sequentially by $588 million to $12.5 billion. During the quarter, we made capital investments of $399 million. For the full year 2021, we are now expecting to spend approximately $1.6 billion on capital investments. In total, during the first nine months of the year, we have generated over $2.7 billion of cash flow from operations and $1.7 billion of free cash flow. This is evidenced by the fact that gross debt has decreased by almost $1.5 billion since the beginning of the year. Net debt has reduced by $1.4 billion during this same period.

The market fundamentals have improved steadily throughout 2021, especially over the last few weeks, with oil and gas prices attaining recent highs, inventories at their lowest levels in recent history, a rebound in demand and encouraging trends in the pandemic containment efforts. Year-to-date revenue growth in Latin America is at 30%, with broad activity growth across multiple countries, including Argentina, Brazil, Ecuador and Guyana. Directionally, we anticipate another quarter of growth, with an ambition for growth across all divisions. Growth will be led by Production Systems and Digital & Integration, benefiting from a year-end sales uplift, tempered by typical seasonality in Reservoir Performance and Well Construction. With this fourth quarter outlook, we expect to reach our double-digit international growth ambition for the second half of 2021, when compared to the second half of 2020. In North America, we have enhanced our market positioning and are now biased to accretive growth onshore and will benefit from strong growth offshore in the Gulf of Mexico. Third quarter earnings per share, excluding charges and credits, was $0.36. Overall, our third quarter revenue of $5.8 billion dollars increased 4% sequentially. Pretax operating margins improved 120 basis points to 15.5% and have now increased five quarters in a row. For the full year 2021, we are now expecting to spend approximately $1.6 billion on capital investments.

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During the third quarter, we generated $15 million of cash from operations and reduced our total debt balance by $34 million as we continue to harvest working capital and repatriate excess cash from our foreign subsidiaries. Benefiting from the strong cash generation over the past two quarters, we reduced our total outstanding debt by $65 million since the start of the year. Touching on the specifics of the segment results, Fluids Systems posted third quarter 2020 revenues of $68 million, reflecting a 9% sequential decline. In contrast to a 35% reduction in U.S. rig count, revenues from U.S. land has steadily improved as we progressed through the quarter, increasing 8% sequentially to $30 million. As we touched on last quarter, our market share in U.S. land has meaningfully expanded in recent months and I'm pleased to highlight that our share has remained above [Phonetic] 20% mark, throughout the third quarter, achieving a record level for Newpark. In the Gulf of Mexico, the quarter is impacted by the repeated weather-related disruptions which led to revenues declining by nearly 50% to $7 million. This led to a 12% sequential reduction in our international Fluids revenues. With a partial quarter of production, we generated nearly $3 million of revenue from the cleaning products in the third quarter. In the Mats segment, despite the continuing impact of COVID across the United States and the United Kingdom, revenues improved 5% sequentially in the third quarter to $29 million. In the Fluids Systems segment, as Paul touched on, revenues from U.S. land increased 8% sequentially to $30 million in third quarter despite the 35% reduction in average rig count, reflecting our expanding market share as well as a rebound in customer spending per rig. Our Gulf of Mexico business had an extremely challenging quarter due to the repeated hurricane shutdowns leading to nearly 50% reduction in revenues to $7 million in the third quarter. Industrial cleaning product revenues contributed nearly $3 million in the third quarter, more than tripling the prior quarter. In Canada, revenues declined 36% to $2 million in the third quarter with the sequential comparison negatively impacted by the timing of customer projects. Total international revenues declined 12% sequentially to $25 million with operations in the Middle East contributing the majority of the decline. With the COVID-driven impacts, total revenues from the Middle East pulled back 27% to $9 million in the third quarter. On a year-over-year basis, our Fluids Systems revenues declined 56% compared to Q3 of 2019. North American land revenues declined by $64 million or 66%, modestly favorable to the 71% decline in rig count while Gulf of Mexico revenues declined $2 million or 25% year-over-year as our expanding market share was more than offset by the impact of the 2020 hurricane season. International revenues also declined $21 million or 45% year-over-year with declines seen across substantially all markets. Despite realizing a meaningful impact from our cost actions, the third quarter operating loss was impacted by the $7 million sequential decline in revenues, cost inefficiencies driven by the unplanned activity interruptions in the Gulf of Mexico and EMEA region, the start-up of cleaning products packaging as well as ongoing efforts to drawdown excess inventories. Turning to the Mats business, total segment revenues increased 5% sequentially to $29 million in the third quarter, driven by improvement in rental and services as well as product sales. As Paul mentioned, rental and service revenues increased 3% sequentially as the late third quarter surge in demand from the utility sector along the Gulf Coast, was largely offset by a $2 million reduction from E&P markets. Product sales improved 14% to $6 million for the quarter. From an end market perspective, $20 million of our third quarter revenues is derived from the energy infrastructure and industrial markets, representing roughly 70% of our total segment revenue. Compared to the third quarter of last year, Mats segment revenues declined $22 million or 43%, largely reflecting a $12 million decline in E&P, rental and service and $9 million decline in direct sales. Our UK operation has been a particular bright spot year-over-year, delivering more than 20% growth in revenues over 2019. Mats segment operating income declined $1 million sequentially to essentially breakeven, generating EBITDA of $5 million in the third quarter. Total corporate office expenses were $6.6 million in the third quarter, relatively in line with the second quarter. On a year-over-year basis, corporate office expenses declined $3 million, primarily driven by a $1.5 million reduction in personnel costs, as well as lower M&A and strategic planning costs. SG&A costs were $21 million in the third quarter, down slightly from the second quarter. On a year-over-year basis, SG&A costs declined $7 million, largely reflecting lower personnel expense, strategic planning costs, and legal and professional spending. As a result of the reduced debt balance, interest expense declined 17% to $2.4 million in the third quarter, roughly half of which reflects non-cash amortization of facility fees and discounts. As of the end of the third quarter, the weighted average cash borrowing rate on our outstanding debt was approximately 3%. The third quarter benefit from income taxes was $4.8 million, which reflects a 17% effective rate for the third quarter and 15% rate for the first nine months of 2020. This compares to a net loss of $0.29 per share in the second quarter, which included $0.09 of charges and a net loss of $0.02 per share in the third quarter of last year. For the third quarter, cash provided by operating activities was $15 million which included a $29 million net reduction in working capital. Our cash balance declined $20 million in the third quarter, reflecting our ongoing efforts to repatriate excess cash from our foreign subsidiaries, which combined with our free cash flow generation was used to pay down our U.S. asset-based loan facility by $34 million in the quarter. With the benefit of the debt repayments, our total debt balance declined to $102 million, while our cash balance ended the third quarter at $24 million, resulting in a total debt-to-capital ratio of 17% and a net debt-to-capital ratio of 14%. Our primary debt components include the remaining $67 million of convertible notes due December of next year and $30 million outstanding on our U.S. asset-based bank facility, which runs through 2024. Substantially, all of our $24 million of cash on hand resides in our international subsidiaries. In U.S. land, we're seeing continuing improvement in customer activity with October revenues coming in roughly 5% ahead of the Q3 run rate. In the Mats segment, with the benefit of the hurricane-driven demand in the U.S. utility sector to start the fourth quarter, ongoing strength from our UK business along with the pickup in customer bidding and planning activity, we expect Q4 rental and service revenues to improve by roughly 10% from Q3. With regards to cash flows, we have made solid progress in monetizing working capital over the past two quarters and see additional opportunities ahead with over $200 million of net working capital remaining on our books. As illustrated by our actions over the past two quarters, we are taking prudent steps to maintain positive cash flow with a particular focus on the remaining $67 million convertible note maturity at the end of next year. It's also worth noting that with our 30-day average share price recently falling below the NYSE's $1 listing requirement, we expect to receive notification from the NYSE regarding this non-compliance. Since the beginning of the year, we've generated $36 million in free cash flow and reduced our outstanding debt by $65 million, a reduction of nearly 40%. In our Mats business [Technical Issues] 70% of our revenues from energy infrastructure and other industrial markets, which we believe provide significant growth opportunities as the energy transition gains traction. Over the last 12 months, we've secured several new contracts in the EMEA region that should add incremental revenue once the COVID headwinds ultimately subside. And fourth, we've taken aggressive actions to rightsize our Fluids business, particularly in the U.S. and as we touched on last quarter's call, we have now reduced our Fluids Systems EBITDA breakeven point to roughly $350 million of annualized revenue. For examples of this, you need to look no further than our flagship products, including our fully [Indecipherable] DURA-BASE matting system which has been in the market for over 20 years and competes primarily with old-growth timber mats or our evolution water-based drilling fluid system launched in 2010, which provides customers with a number of environmental benefits over traditional diesel fuel-based products.

During the third quarter, we generated $15 million of cash from operations and reduced our total debt balance by $34 million as we continue to harvest working capital and repatriate excess cash from our foreign subsidiaries. Our cash balance declined $20 million in the third quarter, reflecting our ongoing efforts to repatriate excess cash from our foreign subsidiaries, which combined with our free cash flow generation was used to pay down our U.S. asset-based loan facility by $34 million in the quarter.

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As for second quarter results, we reported adjusted earnings per share of $0.18 and adjusted EBITDA of $28 million. Mount Holly contributed favorably to the quarterly results following the team's excellent execution in closing the transaction, standing up a new integrated system and restarting production and shipping, all within 48 hours after closing. Second quarter adjusted earnings from continuing operations was $8 million or $0.18 per share, a decrease of $0.04 versus the same period last year driven by pandemic-related softness in our Airlaid Materials segment reflected in our guidance last quarter. slide four shows a bridge of adjusted earnings per share of $0.22 from the second quarter of last year to this year's second quarter of $0.18. Composite Fibers results lowered earnings by $0.01 driven by higher inflation in raw materials and energy. Airlaid Materials results lowered earnings by $0.06 primarily due to softness in the hygiene category and lower production as customers continued to destock from pandemic-driven elevated inventory levels. Corporate costs were $0.03 favorable from ongoing cost control initiatives. Total revenues for the quarter were 7.1% higher on a constant currency basis driven by higher selling prices of $2 million and the near doubling of our wallcover volume from the trough of the pandemic in 2020. Excluding metallized, shipments in the quarter were approximately 26% higher driven by strong growth in wallcover, technical specialties and composite laminates. The strong demand overall required increased levels of production, driving a $3 million benefit to earnings. Higher wood pulp and energy prices negatively impacted results by $6 million, creating a significant headwind for this segment. And currency and related hedging activity unfavorably impacted results by $600,000. Looking ahead to the third quarter of 2021, we expect shipments in Composite Fibers to be 2% to 3% higher sequentially, favorably impacting results by approximately $400,000. Revenues were up 5% versus the prior year quarter on a constant currency basis, supported by the addition of Mount Holly and a strong rebound in tabletop demand as in-person dining began to recover globally. Selling prices increased from contractual cost pass-through arrangements with customers, but were more than offset by higher raw material and energy prices, reducing earnings by a net $800,000. Operations lowered results by $1.9 million mainly due to lower production in the quarter to manage inventory levels and better align with customer demand. And foreign exchange was unfavorable by $300,000 versus the second quarter of last year. For the third quarter of 2021, we expect shipments in Airlaid Materials to be approximately 15% to 20% higher. The increased production is expected to favorably impact operating profit by approximately $1 million to $2 million sequentially in addition to the increased volume. For the second quarter, corporate costs were favorable by $1.9 million when compared to the same period last year driven by continued spend control. We expect corporate costs for full year 2021 to be approximately $23 million, which is an improvement from our previous guidance of $25 million to $26 million. Interest and other income and expense are now projected to be approximately $11 million for the full year, lower than our previous guidance of $12 million. Our tax rate for the quarter was 33%. And full year 2021 is estimated to be between 38% and 40%, lower than our previous guidance of 42% to 44%. Second quarter year-to-date adjusted free cash flow was lower by approximately $6 million mainly driven by higher working capital usage after adjusting for special items. We expect capital expenditures for the year to be between $30 million and $35 million, with the reduction being driven largely by our better-than-anticipated execution on Mount Holly integration costs. Depreciation and amortization expense is projected to be approximately $60 million. Our leverage ratio increased to three times at June 30, 2021, mainly driven by the Mount Holly acquisition we completed in May 2021, which increased our net debt by approximately $175 million. Even after this acquisition, we continue to maintain liquidity of approximately $200 million. As noted, we signed a definitive agreement to purchase Jacob Holm for $308 million. In the 12 months ending June 30, the Jacob Holm business generated revenue of approximately $400 million and EBITDA of approximately $45 million. Of these earnings, we believe $10 million to $15 million could be attributed to COVID-driven demand that is expected to normalize. Through product line optimization, operational improvements, strategic sourcing savings and cost reductions, we anticipate annual synergies of approximately $20 million within 24 months after closing. The estimated cost to achieve these synergies is $20 million. While we have obtained 100% committed financing for this transaction, we intend to finance the purchase with the issuance of a new $550 million senior unsecured bond. It will also increase Glatfelter's global scale with pro forma annual sales of approximately $1.5 billion.

Corporate costs were $0.03 favorable from ongoing cost control initiatives.

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Before we begin I would like to note that statements in this conference call that are not strictly historical or forward looking statements within the meaning of the private securities litigation Reform Act of 1995 and should be considered as subject Too many uncertainties that exists in Rogers operations and environment. In addition ongoing trade tensions are generating headwinds and in some cases limiting near-term demand visibility from a market perspective industrial and conventional automotive demand which had begun to slow in late Q2 weakened further in the third quarter. Rogers achieved q3 net sales of 220 $2 million and adjusted earnings of $1 51 per share. For example portable electronics demand was reasonably favorable in q3 and we achieve sequential revenue growth of approximately 5%. Based upon customer and industry analyst inputs we expect the recent pause in the 5G rollout to continue through the end of the year and believe that China 5G deployments will rebound in the first half of 2020. At a recent forum China Mobile increased their target for 5G coverage to 340 cities by the end of next year underscoring their expansion plans. This followed recent news from Chinese telecoms that advanced subscriptions for 5G service which is not yet available have already reached approximately 9 million. Third-party experts expect 2020 5G deployments to be in the range of 600000 base stations which at that scale would provide an opportunity for substantial growth in our 5G wireless infrastructure business next year. A recent IHS market report projects that through 2025 sales of EVs and HEVs will increase at a compounded annual growth rate of approximately 30%. This is the first step in VW's plan to sell up to 3 million EVs and HEVs annually by 2025. By 2022 Daimler is scheduled to bring 10 all-electric vehicles to market and plans to eventually electrify the entire Mercedes Benz portfolio. ACS third quarter net sales were $79 million a decrease of 15% from the prior quarter and an increase of 10% versus the prior year. ADAS demand remained strong in Q3 and year-to-date sales have grown 8% compared to 2018. Aerospace and defense sales increased 17% versus Q2 and year-to-date results are up over 20% versus the prior year. Turning to Slide 7 in Q3 EMS net sales were $95 million a slight increase compared to Q2. Year-to-date sales of applications for EV/HEV battery pads and battery pack sealing systems have increased 29% versus the prior year highlighting the excellent growth opportunity in this area. Turning to Slide 8 PES third quarter net sales were $43 million a decrease of 17% from Q2. Third quarter revenues as previously noted were $221.8 million below our Q3 guidance range of $225 million to $235 million. Q3 revenues decreased 9% on a sequential basis and 2% compared to the third quarter 2018. We achieved a gross margin of 35.6% for the third quarter 30 basis points higher than Q2 and within our guidance range of 35% to 36% due primarily to a favorable product mix and reduced spending in all of our business segments to react to the softer market demand in Q3 and expected to continue through Q4. Adjusted operating income for Q3 2019 was $36.2 million or 16.3% of revenues compared to $41.7 million or 17.2% of revenues for Q2. Adjusted operating expenses decreased by $1.4 million in the third quarter compared to the second quarter. GAAP earnings per share of $1.25 per fully diluted share and adjusted earnings per share of $1.51 per fully diluted share for Q3 2019 were above the upper end of our guidance range for Q3 but below Q2 levels. The company generated $33.4 million of free cash flow in the third quarter and $76.8 million year-to-date. The company has paid down $98 million of debt year-to-date and ended the third quarter in a net cash position of $10.3 million. Turning to Slide 12 our Q3 2019 revenues of $221.8 million decreased $21.1 million or 9% compared to the second quarter of 2019. The sequential decrease was experienced in our ACS business segment down 15%; and our PES segment down 17%. Currency exchange rate negatively impacted 2019 third quarter revenues by $1.6 million compared to Q2. As a result our wireless infrastructure revenues declined 35% sequentially. 4G revenues which were basically flat year-to-date through June compared to the same period in 2018 are now 10% lower year-to-date through September compared to 2018 and are expected to remain soft through Q4. Revenues from aerospace and defense programs were strong in Q3 growing 19% sequentially and are up 17% year-to-date compared to 2018. ADAS revenues were down 7% sequentially from a strong second quarter but are up 8% year-to-date compared to 2018 in the face of a weak auto market. The third quarter is typically the strongest quarter for portable electronics revenues which grew 5% sequentially and 10% compared to Q3 2018 due to our customers' commercialization of new handset and tablet designs. General industrial application revenues which comprise close to 40% of the business segment's revenues were down slightly compared to the second quarter and down 5% compared to the third quarter 2018. Revenues for these applications decreased sequentially by 20% and 13% respectively and decreased 27% and 26% respectively compared to Q3 2018. As a result revenues per EV/HEV applications declined 35% sequentially. However revenues were up 16% year-to-date. Turning to Slide 13 our gross margin for Q3 2019 was $78.9 million or 35.6% of revenues 30 basis points higher than our second quarter gross margin of 35.3%. Tariffs continued to be a headwind to gross margin in the third quarter impacting gross margin by approximately $2.3 million or 106 basis points an increase of 26 basis points compared to Q2. Relative to our third quarter gross margin the path to the higher gross margin is through improved operational execution in PES and EMS contributing 200 to 250 basis points mitigating the impact of tariffs contributing 50 to 100 basis points and increased volume in all our businesses particularly 5G revenues contributing 100 to 200 basis points. Slide 14 details the changes to adjusted net income for Q3 2019 of $28.2 million compared to adjusted net income for Q2 of $30.7 million. Adjusted operating expenses for Q3 of $42.7 million or 19.2% of revenues or $1.4 million lower than Q2 adjusted operating expenses of $44.1 million or 18.2% of revenues. Our effective tax rate for Q3 2019 was 18.6% compared to our Q2 effective tax rate of 22.9%. The company expects the 2019 effective tax rate to be 20% to 22% with the fourth quarter effective tax rate of 22% to 24%. Turning to Slide 15 we ended the third quarter 2019 with a cash position of $140.7 million a decrease of $32.4 million from June 30 and a decrease of $27 million from December 31. In Q3 the company spent $14.8 million on capital expenditures. We have spent $38.8 million year-to-date and we guide capital spending for the year in the range of $50 million to $55 million. The company paid down $65 million of debt in the quarter and has paid down $98 million of debt in 2019. As of September 30 we are in a net cash position of $10.3 million. The company generated $48.2 million from operating activities in Q3 including a decrease in working capital of $9.9 million. Through September the company generated $115.7 million from operating activities net of an increase in working capital of $4 million primarily from the increase in inventory with long lead times. Therefore revenues for Q4 are estimated to be in the range of $200 million to $210 million. As a result we are guiding gross margin in the range of 33% to 34% for Q4. The company will however take a $52 million to $56 million non-cash charge to income for other accumulated losses for the plan that were recorded as part of our equity. As a result we guided GAAP Q4 loss in the range of $1.43 to $1.28 per share. On an adjusted basis we guide the fully diluted earnings in the range of $1.00 to $1.15 per share for the fourth quarter.

In addition ongoing trade tensions are generating headwinds and in some cases limiting near-term demand visibility from a market perspective industrial and conventional automotive demand which had begun to slow in late Q2 weakened further in the third quarter. Based upon customer and industry analyst inputs we expect the recent pause in the 5G rollout to continue through the end of the year and believe that China 5G deployments will rebound in the first half of 2020. Third quarter revenues as previously noted were $221.8 million below our Q3 guidance range of $225 million to $235 million. GAAP earnings per share of $1.25 per fully diluted share and adjusted earnings per share of $1.51 per fully diluted share for Q3 2019 were above the upper end of our guidance range for Q3 but below Q2 levels. Therefore revenues for Q4 are estimated to be in the range of $200 million to $210 million. As a result we guided GAAP Q4 loss in the range of $1.43 to $1.28 per share. On an adjusted basis we guide the fully diluted earnings in the range of $1.00 to $1.15 per share for the fourth quarter.

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For the third quarter of 2021, we delivered adjusted EBITDA of $73.9 million, representing record third quarter performance. Our gross leverage stands at approximately 2.5 times on a trailing 12-month adjusted EBITDA basis. Based on our year-to-date performance and the expectation of continued strength in steel and coal markets for the remainder of the year, we are well positioned to modestly exceed our full-year 2021 adjusted EBITDA guidance of $255 million to $265 million. Turning to Slide four, our third quarter net income attributable to SXC was $0.27 per share, up $0.30 versus the prior year period. Adjusted EBITDA came in at $73.9 million for the quarter, up $26.1 million from the prior year quarter. Overall, coke operations were up $17.7 million over prior year period. Third quarter adjusted EBITDA per ton was $62 on 1,056,000 sales tons. We expect full-year Domestic Coke adjusted EBITDA to come in modestly higher than the guidance range of $234 million to $238 million. The Logistics business generated $11.6 million of adjusted EBITDA during the third quarter of 2021, as compared to $4.3 million in the prior year period. The segment as a whole handled 4.9 million tons of throughput volumes during the quarter, as compared to 3.3 million tons during the prior year period. As you can see from the chart, we ended the third quarter with a cash balance of $54.6 million. In the third quarter, cash flow from the operating activities generated close to $79 million. We spent $18.4 million on capex during the quarter and paid dividends of $5 million at the rate of $0.06 per share. We lowered our debt by $51.7 million with the majority of the reduction coming in the form of paydown of our revolving credit facility. Our total debt balance stood at approximately $615 million at the end of third quarter and we expect to continue to pay down the revolver over the balance of the year. In total, we ended the quarter with a strong liquidity position of $291 million. Finally, based on reliable performance of our operating segments and success of export and foundry products, we are well positioned to modestly exceed our adjusted EBITDA guidance of $255 million to $265 million for 2021.

Based on our year-to-date performance and the expectation of continued strength in steel and coal markets for the remainder of the year, we are well positioned to modestly exceed our full-year 2021 adjusted EBITDA guidance of $255 million to $265 million. Turning to Slide four, our third quarter net income attributable to SXC was $0.27 per share, up $0.30 versus the prior year period. Finally, based on reliable performance of our operating segments and success of export and foundry products, we are well positioned to modestly exceed our adjusted EBITDA guidance of $255 million to $265 million for 2021.

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Third quarter operating earnings per share of $0.26 reflects strong fundamental performance as we continue to have success across many business units, despite a challenging operating environment and provision expense totaling $27 million. This quarter's performance reflects growth in average loans and deposits of 2% and 4% respectively, as well as continued strength in our fee-based businesses with strong contributions from capital markets activity and record mortgage banking income of $19 million. On a linked-quarter basis, tangible book value per share increased $0.18 to $7.81, as we continue our commitment to paying an attractive dividend by declaring our quarterly common dividend of $0.12 last week. And after adjusting for the indirect loan sale CET1 improves almost 20 basis points to the strongest level in the Company's history. Return on tangible common equity was again peer leading at 14% and the efficiency ratio equaled 55%. Earlier in the third quarter, our organization was recognized as a 2020 Standout Commercial Bank by Greenwich Associates, with FNB being one of only 10 banks in the country to be recognized for its response to the COVID-19 pandemic. Looking at the recent FDIC data compared to 2019, FNB has successfully gained share and fortified top market share position in Pittsburgh, Baltimore, Cleveland, Charlotte, Raleigh and the Piedmont Triad, with our largest market, Pittsburgh, surpassing the $8 billion mark in total deposits. Additionally, as of June 30 2020, FNB ranked in the top 10 in retail deposit market share across seven major MSAs, and when looking at our footprint in total, FNB has a top 10 market share in more than 80% of the 53 markets categorized by the FDIC. Compared to June 2019, FNB continued to gain market share as total deposits increased nearly $5 billion or over 20% overall. If you look back over the last six months, we've added thousands of new households and more than $4 billion in total deposits. Diving deeper by examining the regional market share trends, FNB has five MSAs with greater than a $1 billion in deposits and 16 MSAs with greater than $500 million in deposits. The surge in core deposits have strengthened our overall funding mix as the loan-to-deposit ratio further improved to 89.1%. Additionally, with our PPP efforts, we've added more than 5,000 prospects for non-customer PPP lending to pursue as long-term relationships. During the third quarter, delinquency came in at a good level of 1.07%, an increase of 15 bps over the prior quarter that was predominantly COVID related tied to mortgage forbearances, while the commercial portfolio remained relatively level with the prior quarter. When excluding PPP loan volume, delinquency would have ended the quarter at 1.18%. The level of NPLs and OREO totaled 76 basis points, a 4 basis point increase linked-quarter, while the non-GAAP level excluding PPP loans stands at 85 bps. Of our total non-performing loans at September 30th, 50% continue to pay on a current basis. Net charge-offs came in at $19.3 million for the quarter, or 29 basis points annualized with the increase largely due to write downs taken against a few COVID impacted credits that were already showing weakness entering the pandemic. On a year-to-date basis, our GAAP net charge-offs stood at 18 basis points through the end of the third quarter. Provision expense totaled $27 million, which includes additional build for COVID related credit migration, driven by the hotel and restaurant portfolios, bringing our total ending reserve to 1.45%. When excluding PPP loan volume, the non-GAAP ACL stands at 1.61%, a 7 basis point linked-quarter increase. Our NPL coverage remains favorable at 210% at quarter-end, which reflects the reserve build for the COVID driven credit migration during the quarter. When including the acquired unamortized loan discounts, our reserve position excluding PPP loan volume is 1.87%. Under the final 2020 severely adverse DFAST scenario, the current reserve position, inclusive of unamortized loan discounts, would cover 77% of stressed losses, which does not include losses already incurred year-to-date. As it relates to our borrowers requesting payment deferral 3.4% of our total loan portfolio, excluding PPP balances were under a COVID related deferment plan at quarter-end with remaining first requests representing 1.4% of the portfolio, and 2% being second deferrals. As of October 16th, total deferrals have further declined by approximately $100 million to stand at 2.9%. Our exposure to highly sensitive industries remains low at 3.5% of the total portfolio, which includes all borrowers operating in the travel and leisure, food services, and energy space with deferrals granted to these borrowers totaling 29%, driven primarily by the hotel portfolio as we continue to work through these hardest hit sectors. Our portfolio review covered over 80% of our existing credit exposure in COVID sensitive portfolios, including travel and leisure, food services and retail related C&I and IRE. As noted on Slide 4, third quarter operating earnings per share totaled $0.26, consistent with the prior quarter. The level of PPNR remains solid and we continue to proactively manage our overall reserve position with provision expense totaling $27 million. We signed an agreement to sell $508 million of lower FICO indirect auto loans, closing Q4 with the proceeds being used to pay down a similar amount of high cost federal home loan bank borrowings, of which $415 million with a rate of 2.59% was prepaid this quarter for breakage fee of $13.5 million. We also sold Visa Class B shares at a $13.8 million gain to fully mitigate the capital impact for the FHLB breakage costs. Resulting transactions should add roughly 17 basis points to CET1, improve credit risk and be neutral to run rate earnings. We continue to strengthen risk-based capital levels with our CET1 ratio increasing to 9.6% at the end of the quarter. As I just noted, the pro forma CET1 ratio would increase by another 17 basis points after considering the impact of the upcoming loan sale. Looking at our TCE ratio, we ended September comfortably above 7%, increasing to 7.2%, which translates into 7.7% when excluding PPP loans. Limiting [Phonetic] spot balances, total loans were relatively flat compared to the prior quarter, excluding the transfer of $508 million of indirect auto loans to held for sale. We remain focused on driving organic growth as the $2.5 billion in PPP loans enter the forgiveness process and those balances wind down in the future. Compared to the second quarter, average deposits increased 4%, primarily due to 6% growth in interest bearing deposits and 7% growth in non-interest-bearing deposits. It was partially offset by 6% planned decrease in time deposits. Non-interest income reached a record $80 million, increasing 3% linked-quarter, primarily due to significant growth in mortgage banking as well as strong contributions from wealth, insurance, and capital markets. Mortgage banking income increased $2.3 million as sold production increased 9% from the prior quarter with sizable contributions from the Mid-Atlantic and Pittsburgh regions and a meaningful improvement in gain on sale margins. Wealth management and insurance revenues each increased 10%. Capital markets revenue, while down from a record level last quarter, was again at a very good level at $8.2 million with these products continuing to remain an attractive option for borrowers, given the environment. Termination of $415 million of higher rate Federal Home Loan Bank borrowings resulted in a loss on debt extinguishment and related hedge termination costs of $13.3 million reported in other non-interest income. Offsetting these charges was the $13.8 million gain on the sale of the bank's holdings of Visa Class B shares also reported in other non-interest income. Turning to Slide 9, non-interest expense totaled $180.2 million, an increase of $4.3 million or 2.4%, which included $2.7 million of COVID-19 expenses in the third quarter compared to $2 million in the second quarter. Excluding these COVID-19 related expenses, non-interest expense increased $3.6 million or 1.9%, primarily related to higher salaries and employee benefit expense; higher production related commissions; lower loan origination salary deferrals, given the significant PPP loan originations in the prior quarter; and an extra operating day in the third quarter. FDIC insurance decreased $1.3 million due primarily to a lower FDIC assessment rate from improved liquidity metrics. The efficiency ratio equaled 55.3% compared to 53.7% which is reflective of the higher production related expenses, noted previously. Looking at revenue, net interest income totaled $227 million, stable compared to the second quarter as loan and deposit growth mostly offset lower asset yield on variable rate loans tied to the short end of the curve. The net interest margin decreased 9 basis points to 2.79% as the total yield on earning assets declined 20 basis points to 3.34%, reflecting lower yields on fixed-rate loans originated at lower rates given the interest rate environment and the impact of a 19 basis point decline in one month LIBOR. The benefit of our efforts to optimize funding cost was evident in a 17 basis point reduction in the cost of interest bearing deposits which helped to reduce our total cost of funds to 56 basis points, down from 67 basis points. Looking at fee income overall, we expect total non-interest income to be in the mid to high $70 million range. We expect expenses to be stable to up slightly from the third quarter excluding COVID-19 expenses of $2.7 million. We expect the effective tax rate to be around 17% for the full year of 2020. Similar to 2019 and 2020, we will, again, seek to have meaningful cost saving initiatives, building on consecutive years of taking $20 million out of our overall cost structure to support strategic investments and manage the impact of the low interest rate environment. It's taking considerable effort to bring our efficiency ratio down from over 60% in the past to the low-to-mid 50% levels we have been operating at currently. In addition to the scale gain from prior acquisitions, we have consolidated close to 95 branches in the past five years, which is about 25% of our current branch network. In the current environment, customer activity trends continue to shift toward digital channels with mobile enrollment up 40% compared to 2019 averages. In fact, we have seen both monthly average mobile and online users increase by 50,000 each compared with the 2019 average levels. Regarding website traffic, monthly visitors are up nearly 70%. Looking at our physical delivery channel, we continue to execute our established Ready program to optimize our branch network, which included more than 60 consolidation since May of 2018 making FNB one of the more active banks for branch consolidation. For example, our Charleston branches are performing exceptionally well with nearly $50 million of deposit growth compared to 2019 and these branches are currently ranked among the upper quartile for performance compared to FNB's entire retail network. This consumer growth works in tandem with our successful corporate banking efforts, as the Charleston region has grown nicely with our South Carolina commercial loan balances approaching $200 million at the end of September.

Third quarter operating earnings per share of $0.26 reflects strong fundamental performance as we continue to have success across many business units, despite a challenging operating environment and provision expense totaling $27 million. As noted on Slide 4, third quarter operating earnings per share totaled $0.26, consistent with the prior quarter.

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In our Title segment, we achieved record first quarter results, generating adjusted pre-tax title earnings of $512 million compared to $279 million in the year-ago quarter and a 19.9% adjusted pre-tax title margin compared with 14.4% in the first quarter of 2020. The plan also includes an expected return of capital of $150 million annually from F&G to FNF or roughly 6% of our original investment beginning in 2022. Yesterday, we announced a quarterly cash dividend of $0.36 per share and at the end of 2020, we announced a share buyback program of $500 million. During the first quarter, we repurchased 2.8 million shares for $112 million at an average price of $39.95 per share. And since announcing the buyback plan, we have purchased 6.9 million shares for $264 million at an average price of $38.28 per share. For the first quarter, we generated adjusted pre-tax title earnings of $512 million, an 84% increase over the first quarter of 2020. Our adjusted pre-tax title margin was 19.9%, a 550 basis point increase over the prior year quarter with a 58% increase in direct orders closed, driven by a 103% increase in daily refinance orders closed; a 21% increase in daily purchase orders closed; and a 12% increase in total commercial orders closed. Total commercial revenue was $257 million compared with the year-ago quarter of $245 million due to the 12% increase in closed orders, while total commercial fee per file was down slightly compared to the year-ago quarter. For the first quarter, total orders opened averaged 12,600 per day with January at 13,500; February at 13,300; and March at 11,400. For April, total orders opened were over 10,700 per day as we continue to see strong demand in purchase activity, while we have begun to see some decline in the refinance market compared to last year's robust levels. Daily purchase orders opened were up 18% in the quarter versus the prior year. For April, daily purchase orders opened were up 90% versus the prior year. Refinance orders opened increased by 15% on a daily basis versus the first quarter of 2020. For April, daily refinance orders opened were down 23% versus the prior year. Lastly, total commercial orders opened per day increased by 12% over the first quarter of 2020. For April, total commercial orders opened per day were up 72% over April of 2020. Our fixed indexed annuity or FIA sales in the first quarter were $1 billion, up 11% from the sequential quarter. Total annuity sales of $1.6 billion in the first quarter were up 16% from the sequential quarter. The first quarter, total annuity results include $410 million from our newest channel and we expect to comfortably exceed our $1 billion goal for 2021. With these strong sales results, we grew average assets under management or AAUM to $29 billion, driven by approximately $1.1 billion of net new business flows in the first quarter. Total product net investment spread was 255 basis points in the quarter and FIA net investment spread was 298 basis points. Adjusted net earnings for the first quarter were $78 million. Net favorable items in the period were $12 million, primarily as a result of favorable mortality and investment income on CLO redemptions held at a discount to par. Adjusted net earnings, excluding notable items, were $66 million, up from $60 million in the fourth quarter, which included $4 million of higher strategic spend for faster than expected launch into new channels. As of quarter end, the portfolio's net unrealized gain position remains strong at $1.1 billion and there were no credit-related impairments in the quarter. We generated $3.1 billion in total revenue in the first quarter with the Title segment producing $2.5 billion; F&G producing $539million; and the Corporate segment generating $42 million. First quarter net earnings were $605 million, which includes net recognized gains of $43 million versus net recognized losses of $320 million in the first quarter of 2020. Excluding net recognized gains and losses, our total revenue was $3.1 billion as compared with $1.9 billion in the first quarter of 2020. Adjusted net earnings from continuing operations were $455 million or $1.56 per diluted share. The Title segment contributed $395 million; F&G contributed $78 million; and the Corporate and Other segment had an adjusted net loss of $18 million. Excluding net recognized losses of $59 million, our Title segment generated $2.6 billion in total revenue for the first quarter compared with $1.9 billion in the first quarter of 2020. Direct premiums increased by 37% versus the first quarter of 2020. Agency revenue grew by 45% and escrow title-related and other fees increased by 22% versus the prior year. Personnel costs increased by 18% and other operating expenses increased by 7%. All in, the Title business generated a 19.9% adjusted pre-tax title margin, representing a 550 basis point increase versus the first quarter of 2020. Interest income in the Title and Corporate segments of $29 million declined to $24 million as compared with the prior year quarter due to reduction of short-term interest rates on our corporate cash balances and our 1031 Exchange business. FNF debt outstanding was $2.7 billion on March 31 for a debt-to-total capital ratio of 24.6%. Our title claims paid of $46 million were $35 million lower than our provision of $81 million for the quarter. The carried reserve for title claim losses is currently $87 million or 5.7% above the actuary central estimate. We continue to provide for title claims at 4.5% of total title premiums. Finally, our Title and Corporate investment portfolio totaled $5.9 billion at March 31. Included in the $5.9 billion are fixed maturity and preferred securities of $2.3 billion with an average duration of 2.9 years and an average rating of A2; equity securities of $1.3 billion; short-term and other investments of $300 million; and cash of $2 billion. We ended the quarter with just over $1.1 billion in cash and short-term liquid investments at the holding company level.

Excluding net recognized gains and losses, our total revenue was $3.1 billion as compared with $1.9 billion in the first quarter of 2020. Adjusted net earnings from continuing operations were $455 million or $1.56 per diluted share. All in, the Title business generated a 19.9% adjusted pre-tax title margin, representing a 550 basis point increase versus the first quarter of 2020.

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We achieved organic daily sales growth of 11.9% for the total company on a constant currency basis. When compared to Q3 2019, the quarter was up 17.3% on a daily organic basis, driven primarily by core non-pandemic product sales, which is a positive indicator of our underlying run rate performance. Our High-Touch Solutions in North America segment grew 11.6% on a daily constant currency basis. In the U.S., we drove approximately 100 basis points of share outgrowth versus the prior year and 475 basis points on a two year average. We remain confident in our ability to grow 300 to 400 basis points faster than the market on an ongoing basis. Our Endless Assortment segment finished the quarter with 14.9% daily sales growth on a constant currency basis. First, Zoro lapped a very strong third quarter in 2020. In the third quarter 2021, Zoro managed to drive 11.9% revenue growth. And when we compare that to Q3 2019, we are up 30.6%, which is really strong. In local days and local currency, sales were up about 17.5% compared to Q3 2020. And as we look at results versus Q3 2019, MonotaRO sales are up over 37%. We still expect the segment to close the year with growth at about 20% above prior year. High-Touch Solutions North America was up 140 basis points over Q3 of the prior year, and Endless Assortment was up 115 basis points. Lastly, we returned $327 million to shareholders through dividends and share repurchases in the third quarter, and we maintained strong return on invested capital of 31.4%. First, our SG&A was $812 million, right where we thought it would be. Our operating earnings were $438 million, up 17.4%. And our resulting earnings per share is $5.65 for the quarter, which is growth of 25%. We continue to see a robust recovery with daily sales up 12% compared to the third quarter of 2020 and up 14.5% compared to the third quarter of 2019. Both large and midsized customers saw significant growth at 10% and 19%, respectively. Canadian daily sales were up 11.7% or 5.7% in local days and local currency compared to the third quarter of 2020. For the High-Touch Solutions segment, GP margin finished the quarter at 39.4%, up 140 basis points versus the prior year third quarter. In addition, consistent with the second quarter, our U.S. pandemic product mix was about 22%, an improvement versus 28% in the third quarter of 2020. However, of particular note, our core non-pandemic sales growth was at or above 20% every month in the third quarter. When comparing core non-pandemic sales to Q3 2019, sales were up 12%, which is quite strong. In total, our U.S. High-Touch Solutions business is up 12% for the third quarter 2021 and up 16% as compared to 2019. In the quarter, we estimate that the U.S. market grew between 10.5% and 11.5%, resulting in our estimated outgrowth of approximately 100 basis points versus Q3 2020. To normalize for volatility, we are continuing to show the two year average share gain, which was about 475 basis points over the market for the third quarter of 2021, a really exceptional result. We remain focused on our key initiatives, which give us confidence in our ability to achieve our U.S. share gain goal of growing 300 to 400 basis points faster than the market. We're encouraged by these results and are confident in our ability to achieve our expected 40.1% GP rate in Q4 based on continued pandemic mix improvements, our expected price realization in the fourth quarter and our ability to navigate supply chain challenges. Daily sales increased 12.7% or 14.9% on a constant currency basis, driven by continued strength in our new customer acquisition at both Zoro and MonotaRO as well as growth of larger enterprise customers at MonotaRO. GP expanded 115 basis points year-over-year driven primarily by Zoro U.S. Operating margin for the segment finished up 80 basis points over the prior year third quarter due primarily to improved gross profit margin. In local currency and using Japan's local selling days, which occasionally differ from U.S. selling days, MonotaRO daily sales grew 17.5% compared to the third quarter of 2020. GP margin finished the quarter at 25.8%, 30 basis points below the prior year third quarter, as we continue to grow with enterprise customers. As a result, operating margin decreased 65 basis points to 12%. Switching to Zoro U.S. Daily sales grew 11.9% as compared to the strongest sales quarter of 2020. Zoro GP grew 375 basis points to 33.9% and achieved 325 basis points of operating margin expansion. For the fourth quarter for revenues, we expect total company daily sales to be between 11.5% and 12.5%. We anticipate company gross margin will fall between 37.2% and 37.4%. And for SG&A, we expect a similar level of spending in the fourth quarter as we saw in the third quarter, between $810 million and $815 million with increased variable compensation, wages and healthcare expenses.

First, Zoro lapped a very strong third quarter in 2020. And our resulting earnings per share is $5.65 for the quarter, which is growth of 25%. Canadian daily sales were up 11.7% or 5.7% in local days and local currency compared to the third quarter of 2020.

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We continue to see that development play out as evidenced by the 45% same-store sales growth and earnings per share increasing more than sevenfold in the March quarter. The record sales and earnings growth we delivered were driven by robust 45% same-store sales growth, which is on top of 1% same-store sales growth a year ago. Our consolidated margins hit a March quarter record of 30% driven by increasing unit margins and the expansion of our higher-margin businesses, which I'll touch on shortly. From a six-month perspective, same-store sales growth was up 33% on top of 12% a year ago. Profitability-wise, the gross margin strength we produced last quarter continued into the March quarter, increasing 450 basis points to 30%. In the quarter, the margin expansion and generally good expense control led to operating leverage of 21% and the record earnings and earnings per share of $1.69. For the quarter, revenue grew 70% to over $523 million due largely to same-store sales growth of 45%. This exceptional growth was driven by strong comparable new unit growth of 40% and a mix to larger boats. Our gross profit dollars increased over $78 million while our gross margin rose 450 basis points to 30%. Our operating leverage in the quarter was 21%, which drove very strong earnings growth, setting another quarterly record with pre-tax earnings of about $52 million. Our record March quarter saw both net income and earnings per share rise more than seven-fold, generating $1.69 in earnings per share versus $0.23 a year ago. For the first six months of the year, our revenue exceeds $934 million. Gross margins are 30%. Our operating leverage is around 20%. Our earnings per share is at $2.73 and our EBITDA is over $92 million, an impressive start to the year. We continue to build cash with about $143 million at quarter end versus $64 million a year ago. Our inventory at quarter end was $303 million. Customer deposits, while not the best predictor of near-term sales because they can be lumpy due to the size of deposits and whether a trade is involved or not, rose over 200% due to the demand we are seeing and a contribution from Skipper's. Our current ratio stands at 2.14, and our total liabilities to tangible net worth ratio is 1.05. Our tangible net worth was $381 million. Accordingly, we are raising our earnings per share guidance to the range of $5.50 to $5.65 for 2021 from $4 to $4.20 that we guided to after the December quarter. Our guidance uses a share count of about 23 million shares versus a little over 22 million last year, and an effective tax rate of 25% versus 23.5% last year.

The record sales and earnings growth we delivered were driven by robust 45% same-store sales growth, which is on top of 1% same-store sales growth a year ago. In the quarter, the margin expansion and generally good expense control led to operating leverage of 21% and the record earnings and earnings per share of $1.69. For the quarter, revenue grew 70% to over $523 million due largely to same-store sales growth of 45%. Our record March quarter saw both net income and earnings per share rise more than seven-fold, generating $1.69 in earnings per share versus $0.23 a year ago. Accordingly, we are raising our earnings per share guidance to the range of $5.50 to $5.65 for 2021 from $4 to $4.20 that we guided to after the December quarter.

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Earlier today we announced 2020 fourth quarter earnings of $0.37 per share. Across the company, we have tightly managed costs, which has helped maintain overall Marine Transportation margins near 10%, and distribution and service margins near breakeven. During the quarter, refinery utilization averaged 77%, compared to a previous five-year fourth quarter average of 90%, and it ended the quarter at 80%. Chemical plant utilization modestly improved 1% sequentially, but remained below 2019 levels. Active frac crews, which bottomed around 50 in the second quarter, improved every month during the fourth quarter, and finished the year in excess of 150. In the fourth quarter, Marine Transportation revenues were $299.4 million, with an operating income of $29.2 million and an operating margin of 9.7%. Compared to the 2020 third quarter, marine revenues declined $21.2 million or 7%, and operating income declined $3.2 million. During the quarter, the inland business contributed approximately 75% of segment revenue. Average barge utilization declined modestly into the high 60% range as a result of the second wave of COVID-19, continued weak refinery utilization in an extended hurricane season. Long-term inland marine transportation contracts are those contracts with a term of one year or longer, contributed approximately 70% of revenue, with 62% from time charters and 38% from contracts of affreightment. Spot market rates declined approximately 10% sequentially, and 25% year-on-year. During the quarter, coastal barge utilization was in the mid-70% range, unchanged sequentially but down from the mid-80% range in the 2019 fourth quarter. During the fourth quarter, the percentage of coastal revenues under term contracts was approximately 85%, of which approximately 85% were time charters. Moving to Distribution and Services; revenues for the 2020 fourth quarter were $190.3 million, with an operating loss of $2.9 million. Compared to the third quarter, revenues improved $14.4 million or 8%. During the fourth quarter, the commercial and industrial businesses represented approximately 78% of segment revenue. During the fourth quarter, the oil and gas related businesses represented approximately 22% of segment revenue, and had a negative operating margin in the mid-teens. Turning to the balance sheet; as of December 31, we had $80.3 million of cash, total debt was $1.47 billion, and our debt to cap ratio was 32.2%. During the quarter, we had strong cash flow from operations, of $85.1 million, and we repaid $109.8 million of debt. We also used cash flow and cash on hand to fund capital expenditures of $18.8 million. For the full-year, we generated $296.7 million of free cash flow, defined as cash flow from operations minus capital expenditures. This amount was slightly below the low end of our previously disclosed guidance range of $300 million. This guidance range contemplated a significant income tax refund related to the CARES Act of over $100 million, which was not received as expected prior to the end of the year. At the end of the year, we had total available liquidity of $684 million. For the full-year, we expect capital expenditures of approximately $125 million to $145 million, which represents nearly a 10% reduction compared to 2020, and is primarily composed of maintenance requirements for our marine fleet. As a result, we expect to generate free cash flow of $230 million to $330 million, which includes the tax refund previously discussed. In 2021, we expect our income tax rate will be around 25%. In Marine Transportation, refinery utilization has steadily improved into the low 80% range. And our barge utilization has bounced off of the bottom into the low to mid 70%. In the near-term, we expect tough market conditions to persist into the second quarter particularly in Marine Transportation where industry barge utilization is very low and we are experiencing very competitive pricing dynamics. All of this should help improve the market and is expected to contribute to a meaningful improvement in barge utilization likely into the high 80 to low 90% range by the end of the year. Similar to inland, we expect coastal market conditions will improve as the year progresses, resulting in higher barge utilization and reduced operating losses in the second half of 2021. Elsewhere, demand for new installations, parts and services and power generation is expected to grow as demand for electrification and 24/7 power intensifies. Industry analysts have predicted the average active frac crew count could climb back to near 200, which is a notable improvement from 2020 levels. Overall, in Distribution and Services; we expect 2021 revenues and operating income will materially improve as compared to 2020 with commercial and industrial representing approximately 70% and oil and gas representing 30% of segment revenues for the full-year. Inland operating margins were near 20% and prices were materially increasing in both inland and coastal. When you consider our inland fleet expansion over the last three years, which is approximately 40% higher on barrel capacity basis, as well as our recent efforts to improve the efficiency of our inland and coastal fleets, we believe there is a significant earnings potential in Marine Transportation. Finally, from a liquidity perspective, we generated strong free cash flow of nearly $300 million in a very difficult year, and we made significant progress in paying down debt. We expect 2021 will be a strong cash flow year, with expectations of $230 million to $330 million of free cash flow for the full-year.

Earlier today we announced 2020 fourth quarter earnings of $0.37 per share. In the near-term, we expect tough market conditions to persist into the second quarter particularly in Marine Transportation where industry barge utilization is very low and we are experiencing very competitive pricing dynamics. Similar to inland, we expect coastal market conditions will improve as the year progresses, resulting in higher barge utilization and reduced operating losses in the second half of 2021.

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Last night, we reported second quarter core earnings of $1.02, our highest second quarter result ever. As previously announced, this led us to raise our full-year core earnings per share guidance to a range of $3.50 to $3.70 with an expected return on equity above 10%. In recent years, we invested in upgrading our section 125 benefits administration program, which enable school districts to offer voluntary worksite plans, benefits including our individual supplemental products are provided or introduced through the school district, but paid for by individual educators. With this addition, Horace Mann will now have complementary distribution capabilities in each of the ways the country's $6.5 million public K-12 educators receive insurance solutions, dramatically increasing our addressable market. In terms of scope, Horace Mann has at least one educator household located in 75% of the roughly 12,000 K-12 school districts in our market footprint. When we bought NTA, we added approximately 120,000 educator households. With the acquisition of Madison National, we gain a solid base in this growth segment as they serve 1200 districts that provide employer paid and sponsored products to about 350,000 educators. There's some overlap between Horace Mann's presence and those of NTA and Madison National, but each of the transactions has clearly added to our market share and with the Madison National transaction, our total addressable market expands to include a portion of the $160 billion that school districts spend annually on employer paid benefits, a market sector that has grown more than 30% over the past five years. As we look at ways in which Maddison National aligns with our business strategy from a product perspective, Madison National bring 60 years of experience designing and underwriting a portfolio of group products. We have already signed a long-term distribution agreement with National Insurance Services, an employee benefit brokerage subsidiary of Assured Partners that has been a key distribution partner for Madison National for nearly 40 years. Our product development team has been leveraging and NTA's 50 plus years of success in supplemental market to accelerate filings for group products customized for educators such as cancer and hospitalization. In 2022, we expect Madison national to add 50 basis points of ROE with upside potential in future years. We believe most schools will avoid a return to a hybrid or remote environment, notably, nearly 90% of educators are vaccinated against COVID-19, a far higher rate than the general population. Second quarter core earnings per share was $1.02, up 52% over last year and our third consecutive record quarter. Six-month core earnings per share was $2.12, more than halfway to the increased full year earnings per share guidance of $3.50 to $3.70. When we raised earnings per share guidance, we also raised our expectation for 2021 core return on equity to greater than 10% for the year. Core return on equity for the second quarter was 11.7% and it was 12.1% for the 12 months up from 9% for the prior 12 months. In 2020, Madison National had net premiums of approximately $108 million and statutory income of approximately $14 million. Madison National's premium have grown in the mid-single digits over the past five years with the trailing five-year loss ratio below 50%. The transaction also will deliver about 50 points of ROE improvement in the first 12 months after closing. In Property Casualty, core earnings for the quarter were up about $8 million or 70.8% due to the strong contribution from net investment income, which was driven by the returns in the alternatives portfolio. Due to a higher underlying loss ratio, underwriting income was down by about $6 million despite significantly lower catastrophe losses and an improved expense ratio that reflected our continued focus on expense optimization. Premiums for the quarter were $156 million with new business volume remaining below historical levels as we work through the impact of the pandemic on sales. In line with our July 1 announcement, cat losses for the quarter were $17.5 million, contributing 11.3 points to the combined ratio, significantly below last year and below what we anticipated when the year started. The 17 events designated as cat in the second quarter were generally less severe and not as widespread as the 20 declared cat events in last year's second quarter. Our revised full-year 2021 guidance reflects our assumption that second half cat losses will be between $20 million and $25 million, which is unchanged from what we guided to at the beginning of the year and is in line with the 10-year average for second half cat losses. Even as miles driven ramps back up, through the first six months of 2021, our underwriting discipline is key to why we are reporting an underlying auto loss ratio below the 70.6% we reported for full year 2019, however, because of the inflationary component of the increase in loss costs over 2020. Finally, we released $4.2 million dollars in prior period reserves during the second quarter with approximately $3 million from 2019 in prior auto liability. With our six-month combined ratio at 92.7%, we are still on track to achieve a full-year combined ratio in line with our longer-term target of 95% to 96%. Our updated guidance for 2021 core earnings of $66 million to $70 million reflects the strong contribution of net investment income in the first half. Turning to Supplemental, the segment contributed $31.6 million in premiums and $12 million dollars to core earnings. Supplemental sales were $1.2 million in the second quarter, up from both this year's first quarter and the year ago period. Premium persistency remains above 90%, a testament to the value educators place on these coverages with about 282,000 policies in force. Our revised outlook for Supplemental's 2021 core earnings of $41 to $43 million reflects a higher contribution from net investment income. We now expect a full year 2021 pre-tax profit margin better than our longer-term target of mid 20%. Core earnings more than doubled from last year to $5 million as mortality costs returned to within actuarial expectations, total benefits and expenses returned to targeted levels and net investment income rose 26.9% Nevertheless, because of the higher mortality costs in the first quarter, we've modestly lowered our outlook for full year 2021 Life segment core earnings to the range of $14 million to $16 million. For the Retirement segment, second quarter core earnings ex-DAC unlocking were up 88.3% reflecting the strong net interest margin. DAC unlocking was favorable by about $200,000 compared with $3.7 million in last year's second quarter. The net interest spread improved 79 basis points over last year's second quarter to 265 bps in part due to strong returns on the alternatives portfolio. Annuity contract deposits were ahead of last year's second quarter by 15.6% with the June beating out March, the previous record as the highest month for deposit for several years. Based on the strong results through the first half, we increased our full-year 2021 outlook for Retirement core earnings ex-DAC unlocking to the range of $43 to $45 million. Turning to investments, total net investment income on the managed portfolio was up almost 50% to $84.1 million with total net investment income up 35.8%. We expect to reach our targeted 15% allocation to alternative investments within the next two years and expect this diversified portfolio to generate high single-digit annual returns on average over time. The fixed income portfolio had a yield of 4.3% in the second quarter compared with 4.39% a year ago. The core new money rate was 3.35% in the second quarter and based on current market conditions, we continue to anticipate a core new money rate of about 3% for the year. Our updated guidance reflects the higher assumption for total net investment income of $385 million to $405 million including approximately $100 million of accreted investment income on the deposit asset on reinsurance. This expectation for investment income is captured in the segment by segment outlook I've summarized and in our core earnings per share guidance range of $3.50 to $3.70. Further, after the transaction, Horace Mann should generate more than $50 million in excess capital annually, assuming normalized property and casualty results. Beyond growth initiatives, our capital generation provides scope for repurchase, as well as maintaining our track record of annual increases in our cash dividend, which is currently generating yield slightly above 3%.

Last night, we reported second quarter core earnings of $1.02, our highest second quarter result ever. As previously announced, this led us to raise our full-year core earnings per share guidance to a range of $3.50 to $3.70 with an expected return on equity above 10%.

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When we first shared our thesis in June of 2018, we committed to 50% growth in adjusted diluted earnings per share over three years. ADEPS nearly doubled over the period to $3.90 in fiscal year 2021. Average annual revenue growth was above the midpoint of the 6% to 9% range we originally provided. Adjusted EBITDA margin was above 10% in each of the three years and we deployed $1.3 billion in capital. And throughout, we continued to invest in our people, especially when we set aside $100 million in response to the pandemic to support our employees and help the most vulnerable in our communities. And as the market began to stabilize post-transition, our team did a great job in capturing opportunities, driving a record book-to-bill in the fourth quarter and year-end backlog of $24 billion. Last quarter marked the end of a three-year period with ADEPS growth of 96%, an increase that was primarily driven by strong organic revenue growth and sustained margin expansion. At the top line, revenue increased 5.3% for the full-year to $7.9 billion. Revenue, excluding billable expenses, grew 7.1% to $5.5 billion. As a reminder, in January, we adjusted our revenue guidance to a range of 4.8% to 6%, due to three factors: first, programmatic shifts in the presidential transition period; second, a snap back to more typical PTO usage; and third, lower expectations for billable expenses as a percentage of revenue, which landed in the low-end of our 29% to 31% range. Revenue growth for the full-year was led by our defense and civil businesses, which grew 9% and 8%, respectively. Revenue from our intelligence business declined 3% for the full-year. Lastly, revenue in global commercial, which accounted for approximately 3% of our total revenue in fiscal year 2021, declined 22% year-over-year. Book to bill of 1.38 times was a fourth quarter record, resulting in a full-year book to bill of 1.42 times. Total backlog grew 16%, yielding our largest-ever fiscal year-end backlog of $24 billion. Funded backlog grew 3% to $3.5 billion. Unfunded backlog grew 35% to $6.1 billion and priced options grew 13% to $14.4 billion. Pivoting to headcount, as of March 31, we had 27,727 employees, up by 554 year-over-year, or 2%. Excluding the impacts of our contract divestiture in the third quarter, headcount would have been up 2.4%. Adjusted EBITDA for fiscal year 2021 was $840 million, up 11.4% from the previous year. As a result, our adjusted EBITDA margin for the full-year was 10.7%. Net income increased 26% year-over-year to $109 million. Adjusted net income was $542 million, up 21% from the previous year. Diluted earnings per share increased 28% to $4.37 from $3.41 the year prior. And adjusted diluted earnings per share increased 23% to $3.90 from $3.18 the year prior. As a result, we recognized approximately $77 million in remeasurement tax benefit this quarter, which we excluded from adjusted net income and adjusted diluted earnings per share. We generated $719 million in operating cash during fiscal year 2021, representing 30% growth over the previous year. That put us above the top end of our forecasted range and we ended the year with $991 million of cash on hand. Capital expenditures for the year totaled $87 million, in line with our expectations as we continue to invest in infrastructure and technology to support virtual work. We returned approximately $181 million to shareholders through quarterly dividends, which included a 19% year-over-year dividend increase in the fourth quarter. We also repurchased 4.1 million shares for $318 million during the fiscal year, with 2.3 million shares repurchased for $185 million in the fourth quarter. In combination with our third quarter investment in Tracepoint, we deployed a total of $571 million in capital in fiscal year 2021. Today, we are also announcing that our Board has approved a regular dividend of $0.37 per share payable on June 30 to stockholders of record on June 15. However, we do forecast approximately 50 basis points of revenue growth headwinds in each of our second and third quarters, recovered through a roughly 100 basis point tailwind in the fourth quarter. We expect total revenue to grow between 7% and 10%, which is inclusive of a partial year contribution from our announced Liberty acquisition, assuming a first quarter 2022 close. We expected adjusted EBITDA margin to remain in the mid-10% range. We expect adjusted diluted earnings per share to be between $4.10 and $4.30. This range reflects strong organic growth, incremental D&A expense related to our new financial system, a higher effective tax rate and $0.20 to $0.24 of anticipated accretion from our acquisition of Liberty IT. We expect operating cash flow to be between $800 million and $850 million, largely driven by our operational performance, lower cash tax payments and contributions from Liberty IT. And finally, we expect capex to be between $80 million and $100 million as we continue to invest in infrastructure and technology.

We expect adjusted diluted earnings per share to be between $4.10 and $4.30.

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On a consolidated basis, operating earnings for the year-to-date period increased 19% and EBITDA rose 10% compared to 2019 results. In addition, we generated over $188 million of cash flow from operations, which is a 93% increase from 2019. They're very near to achieving 1 million exposure hours with no lost time safety incidents. For the quarter, production volumes were 53% ahead of third quarter 2019 results, while the cost to produce these tons declined 24%. On a year-to-date basis, production tons have increased 28% from 2019 levels and production costs are down 11%. Keep in mind that we typically move more than 12 million tons of bulk materials using multiple transportation modalities each year. These efforts were largely responsible for the 8% year-over-year increase achieved for consumer and industrial average selling prices this quarter. Given the mild weather during last winter, it came as no surprise that the bid season was competitive, as we noted in our second quarter call, with total bid tenders down roughly 15%. We've essentially completed all bidding activity and have achieved 4% growth in our contracted bid volumes with a price decline of 11% compared to prior bid season results. Consequently, these bid season results along with slightly elevated customer inventories had us trailing our full year salt volume guidance by about 250,000 tons for 2020. After draining those ponds, we then spent 10 months harvesting, which is essentially scooping up the material from dry pond beds and transporting the material to the production plant. Currently, under this new equipment setup, we're delivering 28% more tons per load for SOP and about 14% more for salt. Just to level set a bit, we entered the year with a strong expectation for around 20% EBITDA growth using the midpoint of our guidance provided in February. We now estimate a combined negative impact of this original forecast of about $45 million from several factors, which were largely outside of our control. Salt segment sales volumes are down just 9% on a year-to-date basis, which is more than explained by the weak winter weather we experienced during the first quarter of 2020. As a reminder, first quarter 2020 snow events were 24% below the 10-year average and 30% below 2019 levels. On a year-to-date basis, Plant Nutrition North America sales volumes are up 20% versus the 2019 period, which you may recall with very challenging due to the excessive rainfall in our served markets. Our Plant Nutrition South America segment generated a 5% year-over-year increase in sales volume on a year-to-date basis as strong and early demand for plant nutrients in the first half of the year offset third quarter sluggishness. Despite the challenges we faced, we delivered double-digit consolidated earnings growth as well as strong free cash flow of $126 million through the first nine months of 2020. Third quarter revenue declined 11% compared to the prior year on a 13% drop in sales volume, slightly offset by a 1% increase in average selling prices. Average salt selling prices in the third quarter of 2020 increased 1% compared to third quarter 2019 results. A shift in sales mix toward lower price chemical sales pushed highway deicing pricing down 8%, while consumer and industrial average selling prices increased 8%, largely due to strategic price increases implemented as a result of our enterprisewide optimization effort. On a net price basis, we actually achieved a 5% improvement in average selling price versus third quarter 2019 results, with highway deicing average net price flat to prior year results and consumer and industrial net price up 8%. Improved production and logistics costs in the 2020 third quarter more than offset lower revenue and resulted in year-over-year increases of 21% for operating earnings and 17% for adjusted EBITDA. These efforts contributed to the expansion of the Salt segment EBITDA margins of 30% compared to 23% in the third quarter of 2019. We reported a 21% year-over-year decline in revenue on a 22% decline in sales volumes and a 2% higher average selling prices. This segment delivered a 5% year-over-year increase in third quarter 2020 revenue in local currency, driven by increases in average selling prices for both agriculture products and chemical solutions products. In local currency, third quarter 2020 operating earnings and EBITDA declined 9% and 7% respectively, which was mostly attributable to lower volumes in our B2B business compared to the prior year quarter and continued aggressive investment in our direct-to-grower sales force. In an average winter scenario, we're expecting highway deicing average selling prices to decline about 8% compared to prior year and the Salt segment overall is expected to see a price decline of around 5%. In local currency, however, we expect to deliver 20% to 25% EBITDA growth compared to prior year. Excluding the inventory adjustment, we are now expecting to deliver $330 million to $345 million of adjusted EBITDA for the full year 2020. We are very pleased to report that we still expect strong free cash flow generation of around $125 million for the full year despite the headwinds Kevin and I have discussed today. Our net debt to adjusted EBITDA ratio is expected to end the year below 4 times as we continue to make progress improving our balance sheet and maintaining a very strong liquidity position.

Excluding the inventory adjustment, we are now expecting to deliver $330 million to $345 million of adjusted EBITDA for the full year 2020.

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Yesterday, we reported first quarter sales increased 10% to $1.15 billion. Organic sales grew 11% from a combination of raw material related price increases, higher volume and currency benefit. Volume grew 4%, with continued strong demand in residential end markets, growth in automotive and modest recovery in hydraulic cylinders, partially offset by sales declines in Aerospace. Divestitures net of acquisitions reduced sales 1%. EBIT was a first quarter record of $128 million. EBIT increased $49 million in the versus first quarter of 2020, primarily due to volume growth, lower fixed cost and the non-recurrence of 2020's $8 million impairment charge related to a note receivable and a $4 million charge to write off stock associated with a prior year divestiture. EBIT margin increased 360 basis points to 11.1% and increased 240 basis points versus adjusted first quarter 2020 EBIT margins of 8.7%. First quarter EBITDA margin was 15.1% compared to 2020's first quarter adjusted EBITDA margin of 13.2%. Earnings per share were a first quarter record of $0.64. First quarter 2020 earnings per share was $0.33, including a $0.07 per share reduction from the non-recurring items mentioned. Excluding these charges, first quarter earnings per share increased $0.24 or 60% versus first quarter 2020 adjusted earnings per share of $0.40. We also reported yesterday that our Board of Directors increased our second quarter dividend to $0.42 per share, a $0.02 per share or 5% increase versus the first quarter of 2020. This marks our 50th year of consecutive annual dividend increases and places us among 31 other companies with at least 50 years of consecutive annual dividend increases known as Dividend Kings. At Friday's closing price of $49.67, the current yield is 3.2%, which is one of the higher yields among the S&P 500 Dividend Aristocrats. Sales in our Bedding Products segment were up 9% versus the first quarter of 2020. Sales benefited from raw material related selling price increases of 9% from inflation in steel, chemicals and non-woven fabrics, and positive currency impact of 1%. Volume grew 2% from the strength in ECS, European Spring and US Spring. Prior year divestitures reduced sales by 3%. In the first quarter, we added over half of our planned 25% capacity expansion through a combination of labor and additional production equipment. Supply improve through April and we expect to return to January allocation levels of roughly 75% by the end of May. Sales in our Specialized Products segment increased 10% in the first quarter, with 6% from currency benefit, 3% from volume growth and 1% from acquisitions. In our Automotive business, volume for the quarter was up 14%. Sales in our Furniture, Flooring at Textile Products segment were up 12% in the first quarter, driven by 8% volume growth, raw material related price increases of 3% and a currency benefit of 1%. The fixed cost actions we took last year reduced our first quarter cost by approximately $20 million. Over the past 15 years, LIFO has netted to only $9 million of expense to the Company. While this average is less than $1 million annually, year-to-year changes have been significant at times. As a result of this accounting change, we expect to make tax payments of approximately $21 million based on current tax rate. The cash outlay will occur over the three-year period of 2021 through 2023, with approximately $11 million of that to be paid in 2021. Consistent with that pattern, cash from operations was a negative $11 million in the first quarter, a decrease of $21 million versus $10 million in the same quarter of 2020. We ended the quarter with adjusted working capital as a percentage of annualized sales at 12%. We ended the quarter with net debt-to-trailing 12-month EBITDA of 2.46 times and $1.4 billion of total liquidity. In addition, we brought back $24 million of offshore cash during the quarter. 2021 sales are now expected to be $4.8 billion to $5 billion, or up 12% to 17% over 2020 resulting from mid-to-single -- mid-to-high single-digit volume growth, raw material related price increases, and currency benefit. The increase versus prior guidance of $4.6 billion to $4.9 billion reflect the combination of higher raw material related price increases and modestly higher volume growth. 2021 earnings per share are now expected to be in the range of $2.55 to $2.75, primarily reflecting higher volume and higher metal margin. This guidance also assumes fixed cost savings as a result of actions taken in 2020 to be approximately $70 million. Based upon this guidance framework, our 2021 full year EBIT margin should be in the range of 11% to 11.5%. Earnings per share guidance assumes a full year effective tax rate of 23%, depreciation and amortization to approximate $195 million, net interest expense of approximately $75 million and fully diluted shares of 137 million. Additionally, we expect our full year operating cash flow to approximate $500 million, capital expenditures to approximate $150 million, dividends of approximately $220 million and debt repayment of at least $51 million.

Yesterday, we reported first quarter sales increased 10% to $1.15 billion. Earnings per share were a first quarter record of $0.64. We also reported yesterday that our Board of Directors increased our second quarter dividend to $0.42 per share, a $0.02 per share or 5% increase versus the first quarter of 2020. 2021 sales are now expected to be $4.8 billion to $5 billion, or up 12% to 17% over 2020 resulting from mid-to-single -- mid-to-high single-digit volume growth, raw material related price increases, and currency benefit.

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We generated record cash flow of $534 million during the year, well in excess of our goal of generating cash flow greater than net income. 2020 results were driven by steady growth with market share gains in our U.S. residential HVAC equipment business, which grew 10% for the year and 17% during the fourth quarter. there are over 110 million installed HVAC systems in the United States, many of which are operating under old efficiency standards that resulted for the user in higher energy use and cost to them. User growth on Watsco's e-commerce platform, a good indicator of overall tech adoption, was up 20% during 2020. Weekly users of our mobile apps increased 27% in 2020, with over 120,000 downloads. The number of e-commerce transactions grew 20% this year to 1.2 million online orders. Our annualized e-commerce sales run rate is 33% versus 31% at the end of last year. In certain markets, it's over 50%. The technology has only been available since this summer, and already over 22,000 orders were fulfilled by more than 3,000 unique users. Contract has provided digital proposals to over 109,000 hospitals using the tool during last year and generated nearly $350 million in gross merchandise value for our customers, an 89% increase over last year. And CreditForComfort processed 40% more digital financing applications in 2020 versus 2019, resulting in more than 180% increase in third-party funded loans.

2020 results were driven by steady growth with market share gains in our U.S. residential HVAC equipment business, which grew 10% for the year and 17% during the fourth quarter.

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Despite these challenges in 2021 inclusive of Telephonics, we generated revenue of $2.5 billion, record segment adjusted EBITDA of $317 million and record adjusted earnings of $1.86 per share. Revenue increased by 8% year-over-year and adjusted EBITDA increased 11%. Our Clopay business saw a record revenue and EBITDA, which increased by 12% and 18%, respectively. Excluding the contribution of the SEC -- SEG business, which we divested in the first quarter of 2021, Telephonics revenue in 2021 decreased by 15% year-over-year and EBITDA decreased by 15%. Our record performance this year reduced our leverage to 2.8 times net debt to EBITDA, which is well below our stated target of 3.5 times and does not include the benefit from the Telephonics strategic process. We increased our dividend to $0.09 per share, which marks the 41st consecutive quarterly dividend paid to shareholders. Our dividend has grown at a 17% compound annual growth rate since our dividend program was started. Our Board has also undertaken a commitment to further diversify with an objective that, by 2025, 40% of our independent directors will be women or persons of color. Revenue increased by 3% to $570 million. Segment adjusted EBITDA increased 6% to $67 million, with related margin increasing 30 basis points to 11.7%. Gross profit on a GAAP basis for the quarter was $156 million, increasing 1% compared to the prior-year quarter. Excluding restructuring-related charges, gross profit was $159 million, increasing 3% compared to the prior-year quarter, with gross margin decreasing 10 basis points to 27.9%. Fourth quarter GAAP selling, general and administrative expenses were $123 million compared to $117 million in the prior-year quarter. Excluding restructuring-related charges, selling, general and administrative expenses were $120 million or 21% of revenue compared to $116 million or 21% in the prior-year quarter, with the increased dollars primarily driven by distribution, transportation and incentive costs. Fourth quarter GAAP net income, which includes Telephonics, was $16 million or $0.30 per share compared to the prior-year period of $20 million or $0.41 per share. Excluding items that affect comparability from both periods, current quarter adjusted net income was $21 million or $0.40 per share compared to the prior year of $22 million or $0.44 per share. Keep in mind, the impact of the August 2020 equity offering on adjusted earnings per share was approximately $0.04. Fourth quarter GAAP income from continuing operations was $13 million or $0.23 per share compared to the prior-year period of $21 million or $0.43 per share. Excluding items that affect comparability from both periods, current quarter adjusted net income was $18 million or $0.33 per share compared to the prior year of $17 million or $0.35 per share. The impact of the August 2020 equity offering on adjusted earnings per share was approximately $0.03. Corporate and unallocated expenses, excluding depreciation, were $13 million in the quarter compared to $12 million in the prior-year quarter, primarily due to incentive costs. Our 2021 full-year effective tax rate, excluding items that affect comparability, was 31.7% compared to 33.7% in the prior year. Capital spending was $12 million in the fourth quarter compared to $11 million in the prior-year quarter. Depreciation and amortization totaled $13.3 million compared to $12.8 million in the prior-year quarter. Regarding our balance sheet and liquidity, as of September 30, 2021, we had net debt of $797 million, with leverage of 2.8 times calculated based on our debt covenants. This is a 0.6 of a turn reduction from our prior-year fourth quarter. Our cash and equivalents were $249 million and debt outstanding was $1.05 billion. Borrowing availability under the revolving credit facility was $371 million, subject to certain loan covenants. On a continuing operating basis, excluding the contribution of Telephonics, we expect revenue of $2.5 billion and segment adjusted EBITDA of $300 million for fiscal '22. Excluding both unallocated costs of $49 million and one-time charges of approximately $15 million related to the AMES initiative. Total capital expenditures for fiscal '22 are expected to be $65 million, which includes $25 million supporting the AMES initiative. Depreciation and amortization is expected to be $56 million, of which $9 million is amortization. We expect net interest expense of approximately $63 million for fiscal '22. Our expected normalized tax rate will be approximately 32%. Our revenue, adjusted EBITDA and adjusted earnings per share have increased at a compound annual growth rate of 11%, 23% and 35%, respectively. Over this period, we generated $224 million in free cash flow, while cutting our leverage in half to 2.8 times.

Fourth quarter GAAP net income, which includes Telephonics, was $16 million or $0.30 per share compared to the prior-year period of $20 million or $0.41 per share. Excluding items that affect comparability from both periods, current quarter adjusted net income was $21 million or $0.40 per share compared to the prior year of $22 million or $0.44 per share. Fourth quarter GAAP income from continuing operations was $13 million or $0.23 per share compared to the prior-year period of $21 million or $0.43 per share. Excluding items that affect comparability from both periods, current quarter adjusted net income was $18 million or $0.33 per share compared to the prior year of $17 million or $0.35 per share.

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Focusing on the third quarter, our performance remains strong, earning $3 per share compared to $3.07 per share in third quarter of 2020. Residential cooling degree days in the third quarter decreased 27.5% compared to the same time a year ago, and were 10.6% lower than historical 10-year averages. We are updating weather normalized sales guidance to 3% to 4%, up from 1% to 2%, based on continued robust customer growth and strong residential usage. We expect earnings per share to be within the range of $5.25 to $5.35 per share. This is our first fully litigated rate case in over 15 years. First, the Commission adopted a total base rate decrease of $119 million inclusive of fuel. The Commission did reverse its initial vote to move the SCR issue to a separate proceeding and instead provided partial recovery of the SCRs with the disallowance of $216 million. In addition, the Commission voted to lower the ROE from the recommended opinion orders already low ROE of 9.16% to 8.7%. With this part of the decision, the Commission has adopted an ROE that's meaningfully below the national average of 9.4% for electric utilities and the company disagrees with the Commission's rationale. We've seen a 6% weather normalized increase in demand for residential electricity from 2018 to 2020. During that same period we've lowered the average residential customer bill by more than 7%. Arizona remains among the fastest growing states in the country, where other states were experiencing little or negative customer growth, we're projecting 1.5% to 2.5% retail customer growth in 2021 and 3% to 4% weather normalized sales growth. We expect 43,000 housing permits this year in Maricopa County alone, levels that have not been reached since before the great recession. As you may remember, Taiwan Semiconductor broke ground on their $12 billion investment earlier this year, cementing Phoenix is one of the top semiconductor hubs in the country. More recently, KORE Power announced their intention to build a 1 million square foot lithium-ion battery manufacturing facility. This will reduce annual carbon emissions from the plant by an estimated 20% to 25% compared to current conditions. In addition, we remain committed to end the use of coal at our remaining Cholla units by 2025 and to completely exit coal by 2031. Since our Clean Energy commitments announcement we've procured nearly 1,400 megawatts of additional Clean Energy and storage. We're providing a 2022 earnings guidance range of $3.80 to $4 per share given the full effects of the rate case. No surprise, the most significant driver is the recent rate case decision, with a negative $0.90 impact. This reflects an additional $13 million downward adjustment beyond the $90 million net income impact estimated for the recommended opinion on order last quarter. We are focused on cost management and expect O&M savings to provide some positive impact to get us to our 2022 guidance range of $3.80 to $4 per share. I want to be transparent and reemphasize that this as projected 5% to 7% earnings growth, builds on our 2022 guidance. We realize the 2021 base year is a lower growth rate at about 1% to 2%. Steady population growth is expected to drive average annual customer growth in the range of 1.5% to 2.5% through 2024. In addition, we expect average annual sales growth to be in the range of 3.5% to 4.5% through 2024 on a weather-normalized basis. We have updated our capital plan to $4.7 billion from 2022 to 2024. Third, as you can see from 2019 to 2024, we project that our rate base growth will remain steady at an average annual growth rate of 5% to 6%. Yesterday, our Board of Directors announced an increase in our quarterly shareholder dividend from $0.83 to $0.85 per share. We have consistently grown our dividend for 10 years straight and we are committed to dividend growth going forward. Our longer term objective is to grow the dividend, commensurate with earnings growth and target a long-term dividend payout ratio of 65% to 75%. Additionally, we maintain robust and durable sources of liquidity with our $1.2 billion of credit facilities recently extended to 2026 and a well-funded and largely derisked pension. Even with the recent downgrade by Fitch and the credit reviews announced by Moody's and S&P, our balance sheet targets include three key components, maintaining credit rating strength, maintaining an APS equity layer greater than 50% and an FFO to debt range of 16% to 18%. In return, we have the highest dividend yield among peers, which stands today above 5%. While certainly a factor of the current valuation, even at a stock price 20% higher than current levels, we offer a dividend yield more competitive than peers. In addition, we announced long-term earnings per share growth guidance of 5% to 7% from 2022 for the next five years. With the attractive dividend yield and solid earnings per share CAGR, we anticipate a competitive 10% to 12% total shareholder return going forward.

We expect earnings per share to be within the range of $5.25 to $5.35 per share.

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Remarkably, we delivered an 8% sales increase versus last year and 17% versus 2019. Total third quarter sales grew 8% from the year-ago period or 5% in constant currency. Adjusted operating income was comparable to the third quarter of last year, including a 3% favorable impact from currency. On the bottom line, our third quarter adjusted earnings per share was $0.80 compared to $0.76 in the year-ago period, driven by higher sales and a lower tax rate, partially offset by cost pressures. Sales and adjusted operating income are up 13% and 9% year-over-year respectively, both of which include a 3% favorable impact from currency and we've grown adjusted earnings per share of 8%. Year-to-date versus 2019, we've driven sales, adjusted operating income and adjusted earnings-per-share growth of nearly 20% across all three metrics. Starting on Slide 7, Consumer segment sales grew 1%, including a 2% favorable impact from currency and incremental sales from our Cholula acquisition compared to the highly elevated demand levels of the year-ago period. Our Americas constant currency sales declined 1% in the first quarter, with incremental sales from our Cholula acquisition contributing 3% growth. Our total McCormick U.S. branded portfolio consumption as indicated in our IRI consumption data and combined with unmeasured channels declined 10% following a 31% consumption increase in the third quarter of 2020, which results in a 19% increase on a two-year basis. Focusing further on our U.S. branded portfolio, our 19% consumption growth versus the third quarter of 2019 was led by double-digit growth in spices and seasonings, hot sauces, both Cholula and Frank's RedHot, and barbecue sauce, as well as our Asian frozen product. And turning up the heat, Frank's RedHot has grown consumption 75% and had gained a significant share versus the two year-ago period. This was a dream opportunity for the over 5,000 applicants to showcase their Taco expertise and enthusiasm for our product and their video application. To date, we have garnered over 1 billion earned impressions related to our search, and these will continue to grow upon the announcement of our new Director of Taco Relations next week, on October 4th, in celebration of National Taco Day. In the Americas, we drove new passionate users to our brands and digital properties with the launch of Sunshine All Purpose Seasoning, a new product developed in partnership with social media influencer Tabitha Brown, inspired by her joyful personality and health and wellness focused recipes, the salt-free and gluten-free Caribbean inspired blend sold out in just 39 minutes, generating record sales from e-commerce driven innovation and over 700 million earned impressions. For instance, increasing Cholula velocity over 30% or changing the tile [Phonetic] placement at a large retailer, to reinventing the spice and seasoning of shopping experience. In the U.S., we are anticipating a cumulative implementation of our spice aisle [Phonetic] program, so it began in 2020 at 10,000 stores by year-end versus 2019 to remove year over year noise, sales in the beginning of August show retailers that have adopted the spice aisle changes are growing the category faster than those who have not, and McCormick branded spices and seasoning portfolio is growing solid mid-single digits faster in implemented stores versus stores which have not the adopted the changes. Turning to Slide 9, our Flavor Solutions segment grew 21% or 17% in constant currency, reflecting both strong base business growth and contributions from our FONA and Cholula acquisition. Year-to-date versus 2019, we delivered 13% constant currency growth, including FONA and Cholula and 6% constant currency organic growth. Just a few days ago, we were named as a global compact lead company by the United Nations for our ongoing commitment to the UN Global Compact and its 10 principles for responsible business. We are honored by this recognition for our commitment to sustainability and to be one of only 37 companies in the world and the only U.S.-based food producer to be included on this prestigious list. In addition, Latina Style, Inc. recently named us as one of the top 50 best companies for Latinos to work in the U.S. We grew constant currency sales 5% during the third quarter compared to last year with incremental sales from our Cholula and FONA acquisitions contributing 4% across both segments. Versus the third quarter of 2019, we grew sales 15% in constant currency with both segments growing double-digits. Versus 2020, our third quarter Consumer segment sales declined 1% in constant currency, which includes a 3% increase from the Cholula acquisition. Compared to the third quarter of 2019, Consumer segment sales grew 14% in constant currency. On Slide 14, Consumer segment sales in the Americas declined 1% in constant currency, lapping the elevated lockdown demand in the year-ago period, as well as the logistics challenges Lawrence mentioned earlier. Incremental sales from the Cholula acquisition contributed 3% growth. Compared to the third quarter of 2019, sales increased 17% in constant currency, led by significant growth in the McCormick, Lawry's, Grill Mates, Old Bay, Frank's RedHot, Cholula, Zatarain's, Gourmet Garden, Simply Asia, Stubb's and [Indecipherable] branded products, that's a lot of brands, partially offset by a decline in private label. In EMEA, constant currency consumer sales declined 11% from a year-ago, also due to lapping the high demand across the region last year. On a two-year basis, sales increased 10% in constant currency, driven by strong growth in our Kamis, Schwartz, and Frank's RedHot branded products. Consumer sales in the Asia Pacific region increased 11% in constant currency due to the recovery of branded foodservice sales with a partial offset from the decline in consumer demand as compared to the elevated levels in the year-ago period. Sales increased 4% compared to the third quarter of 2019, including a sales decline in India, resulting from a slower COVID-19 recovery. Turning to our Flavor Solutions segment and Slide 17, we grew third quarter constant currency sales 17%, including an 8% increase from our FONA and Cholula acquisitions. Compared to the third quarter of 2019, Flavor Solutions segment sales grew 16% in constant currency. In the Americas, Flavor Solutions constant currency sales grew 19% year-over-year with FONA and Cholula contributing 12%. On a two-year basis, sales increased 15% in constant currency versus 2019, with higher sales from acquisitions and packaged food and beverage companies, partially offset by the exit of some lower margin business. In EMEA, constant currency sales grew 19% compared to last year due to increased sales to QSRs and branded foodservice customers, as well as continued growth momentum with packaged food and beverage companies. Constant currency sales increased 23% versus the third quarter of 2019, driven by strong sales growth with packaged food and beverage companies and QSR customers. In the Asia Pacific region, Flavor Solutions sales rose 1% in constant currency versus last year and increased 8% in constant currency versus the third quarter of 2019, was driven by QSR growth and partially impacted by the timing of our customers limited time offers and promotional activities. As seen on Slide 21, adjusted operating income, which excludes transaction and integration costs related to the Cholula and FONA acquisitions as well as special charges, was comparable to the third quarter of last year, including a 3% favorable impact from currency. Adjusted operating income in the Consumer segment declined 10% to $180 million or in constant currency 12%, driven by the cost pressures from inflation and logistics challenges, partially offset by CCI-led cost savings. In the Flavor Solutions segment, adjusted operating income rose 32% to $84 million or 27% in constant currency. During the quarter, we invested in brand marketing ahead of last year and notably we have increased our investments 11% on a year-to-date basis. As seen on Slide 22, adjusted gross profit margin declined 260 basis points, driven primarily by the cost pressures we are experiencing and the lag in pricing. Our selling, general and administrative expense as a percentage of sales declined 110 basis points, driven by leverage from sales growth. These impacts netted to an adjusted operating margin declined 150 basis points. Our third quarter adjusted effective tax rate was 14.1% compared to 19.3% in the year-ago period. Adjusted income from unconsolidated operations declined 5% versus the third quarter of 2020. At the bottom line, as shown on Slide 25, third quarter 2021 adjusted earnings per share was $0.80 compared to $0.76 for the year-ago period. As compared to the third quarter of 2019, our 10% increase in adjusted earnings per share was primarily driven by sales growth. Through the third quarter of 2021, our cash flow from operations was $373 million, which is lower than the same period last year. Through the third quarter, we returned $272 million of this cash to our shareholders through dividends and used $190 million for capital expenditures. Now turning to our 2021 financial outlook on Slides 27 and 28. We continue to expect an estimated 3 percentage point favorable impact of currency rates on sales. And for the adjusted operating income and adjusted earnings per share, a 2 percentage point favorable impact with currency rates. At the topline, due to our strong year-to-date results and robust operating momentum, we now expect to grow constant currency sales 9% to 10%, which is the high end of our previous projection of 8% to 10%, and includes a 40% incremental impact from the Cholula and FONA acquisitions. We had initially projected an incremental acquisition impact in the range of 3.5% to 4%. We're now projecting our 2021 adjusted gross profit margin to be 150 basis points to 170 basis points lower than 2020 due to the increase in cost pressures I mentioned earlier. Our estimate for COVID-19 costs remains unchanged at $60 million in 2021 versus $50 million in 2020, and is weighted to the first half of the year. Our adjusted operating income growth rate reflects expected strong underlying performance from our base business and acquisitions projected to be 8% to 10% constant currency growth, which includes the higher inflation ahead of pricing and logistics challenges and partially offset by a 1% reduction from increased COVID-19 costs compared to 2020 and a 3% reduction from the estimated incremental ERP investment. This results in a total projected adjusted operating income growth rate of 4% to 6% in constant currency. This projection includes the mid-single digit inflationary pressure as well as our CCI-led cost savings target of approximately $110 million. Considering the year-to-date impact from discrete items, we now project our 2021 adjusted effective income tax rate to be approximately 21% as compared to our previous projection of 23%. This outlook versus our 2020 adjusted effective tax rate is expected to be a headwind to our 2021 adjusted earnings-per-share growth of approximately 1%. We are lowering our 2021 adjusted earnings per share expectations to 5% to 7% growth, which includes a favorable impact from currency. Our guidance range for adjusted earnings per share in 2021 is now $2.97 to $3.02. This compares to $2.83 of adjusted earnings per share in 2020 and represents 8% to 10% growth in constant currency from our strong base business and acquisition performance, partially offset by the impacts related to COVID-19 costs, our incremental ERP investment and the tax headwind.

Remarkably, we delivered an 8% sales increase versus last year and 17% versus 2019. Total third quarter sales grew 8% from the year-ago period or 5% in constant currency. On the bottom line, our third quarter adjusted earnings per share was $0.80 compared to $0.76 in the year-ago period, driven by higher sales and a lower tax rate, partially offset by cost pressures. Sales and adjusted operating income are up 13% and 9% year-over-year respectively, both of which include a 3% favorable impact from currency and we've grown adjusted earnings per share of 8%. Starting on Slide 7, Consumer segment sales grew 1%, including a 2% favorable impact from currency and incremental sales from our Cholula acquisition compared to the highly elevated demand levels of the year-ago period. Year-to-date versus 2019, we delivered 13% constant currency growth, including FONA and Cholula and 6% constant currency organic growth. Turning to our Flavor Solutions segment and Slide 17, we grew third quarter constant currency sales 17%, including an 8% increase from our FONA and Cholula acquisitions. In the Asia Pacific region, Flavor Solutions sales rose 1% in constant currency versus last year and increased 8% in constant currency versus the third quarter of 2019, was driven by QSR growth and partially impacted by the timing of our customers limited time offers and promotional activities. At the bottom line, as shown on Slide 25, third quarter 2021 adjusted earnings per share was $0.80 compared to $0.76 for the year-ago period. At the topline, due to our strong year-to-date results and robust operating momentum, we now expect to grow constant currency sales 9% to 10%, which is the high end of our previous projection of 8% to 10%, and includes a 40% incremental impact from the Cholula and FONA acquisitions. Our adjusted operating income growth rate reflects expected strong underlying performance from our base business and acquisitions projected to be 8% to 10% constant currency growth, which includes the higher inflation ahead of pricing and logistics challenges and partially offset by a 1% reduction from increased COVID-19 costs compared to 2020 and a 3% reduction from the estimated incremental ERP investment. Our guidance range for adjusted earnings per share in 2021 is now $2.97 to $3.02. This compares to $2.83 of adjusted earnings per share in 2020 and represents 8% to 10% growth in constant currency from our strong base business and acquisition performance, partially offset by the impacts related to COVID-19 costs, our incremental ERP investment and the tax headwind.

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We continue to wisely deploy capital by repurchasing 2.6 million shares of the company's common stock for $255 million. We successfully reintroduced ourselves to the debt capital markets through the issuance of a $500 million 10-year bond with a coupon of 2.15%. Net sales for the three months ended November 30, 2020, of $792 million decreased 5% compared with the prior-year period, due primarily to an estimated 4% decrease in the change in product prices and mix of products sold, as well as an estimated 1% decrease in sales volume. Looking sequentially from the fourth quarter using the same calculations, price mix decreased 1%. I'm encouraged with the net sales of $599 million through our independent sales network in which we saw a modest decrease of 3% due to the negative impact of the pandemic. Sales in this channel of $76 million were down 9.5% in the quarter. Our retail sales channel continues to be a bright spot with net sales up 3% to $55 million, driven largely by higher demand primarily for residential products. Net sales in this channel of $24 million were down 28% as compared to the prior year. I would like to highlight that our current quarter's gross profit margin of 42% was consistent with our fourth quarter gross profit margin even on lower sales. Gross profit margin was $332 million, down approximately $23 million from the year-ago period. Our SD&A expenses decreased approximately $19 million compared to the year-ago period. Reported operating profit was $86 million, compared with $84 million in the year-ago period, while adjusted operating profit for the first quarter of 2021 was $104 million, compared with adjusted operating profit of $119 million in the year-ago period. Reported operating profit margin was 10.8%, an increase of 80 basis points compared to the prior year. Adjusted operating profit margin was 13.2%, a decrease of 110 basis points compared with the margin reported in the prior year. The effective tax rate for the first quarter of fiscal 2021 was 24.7% compared with 22.9% in the prior-year quarter. We currently estimate that our blended effective income tax rate before discrete items will approximate 23% for fiscal 2021. Our diluted earnings per share for the first quarter of fiscal 2021 was $1.57, an increase of $0.13 per share or 9%. Our adjusted diluted earnings per share this quarter of $2.03 was $0.10 lower than the prior year. We generated $124 million of net cash provided by operating activities for the quarter ended November 30, 2020. We invested $11 million or 1.4% of net sales in capital expenditures during the quarter. We currently expect to invest approximately 1.5% of net sales in capital expenditures in fiscal 2021. Additionally, during the first quarter of fiscal 2021, we repurchased 2.6 million shares for approximately $255 million or an average price of $100 per share. We have approximately 5.1 million shares remaining under our current share repurchase board authorization. At November 30, 2020, we had a cash and cash equivalents balance of $507 million. As Karen mentioned, net sales of $791 million were 5% below the prior year. I'm particularly pleased with the performance in our retail sales channel, which was up 3% over last year's first quarter and in our independent sales network, which was down 3% as compared to the prior year. We also manage productivity and cost relative to price to maintain our gross margin at 42%. This release is called ABT, Autonomous Bridging Technology and is designed to increase the overall range of the nLight AIR system in networked environments by 300%, taking connectivity more reliable. In the first quarter, we repurchased 2.6 million shares of stock for $255 million. Since we restarted our program during the fourth quarter, we have repurchased almost 8% of the company's stock. We issued a $500 million 10-year bond at 2.15%.

Net sales for the three months ended November 30, 2020, of $792 million decreased 5% compared with the prior-year period, due primarily to an estimated 4% decrease in the change in product prices and mix of products sold, as well as an estimated 1% decrease in sales volume. Our diluted earnings per share for the first quarter of fiscal 2021 was $1.57, an increase of $0.13 per share or 9%. Our adjusted diluted earnings per share this quarter of $2.03 was $0.10 lower than the prior year.

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Various remarks that we may make about the company's future expectations, plans, and prospects constitute premium statements for purposes of the safe harbor provisions under the Private Security Securities Litigation Reform Act of 1995. Starting with the quarter, our revenue was $10.7 billion. Adjusted operating income was $3.16 billion and our adjusted operating margin was 29.5%. Adjusted earnings per share was $6.54 per share. Turning to our results for the full year, we grew revenue by 22% to $39.21 billion in 2021. Adjusted operating income increased 27% to $12.14 billion. We expanded our adjusted operating margin by 130 basis points to 31%, and we delivered a 28% increase in adjusted earnings per share to $25.13 per share. Let me now give you color on the results for the quarter and the year, starting with pharma and biotech, with the outstanding performance delivered growth over 20% in the fourth quarter and over 25% for the full year. Finally, in diagnostics and healthcare, Q4 revenue was 30% lower than the prior-year quarter, and revenue grew in the high single digits for the full year. In the quarter, we generated $2.45 billion in COVID 19 response-related revenue. Throughout 2021, we continue to operate with speed at scale to meet our customers' needs related to COVID-19 and generated total response revenue of over $9 billion, of which $2 billion were from vaccines and therapies. Available in sizes up to 5,000 liters, this latest advancement in our DynaDrive single-use bioreactor technology brings the benefits of single-use technologies to unprecedented volumes and performance and ensures consistent scalability from pilot-scale studies through commercial production. And in genetic sciences, our new Applied Biosystems' QuantStudio 7 Pro Dx real-time PCR system, launched in Q4, enables clinical testing laboratories to accelerate molecular diagnostics. In 2021, we invested $2.5 billion in capital to meet short and long-term customer demand. In 2021, we were very active, investing $24 billion in M&A and completing 10 transactions to further strengthen our customer value proposition. We're well-positioned to deliver year three cost synergies of $75 million and $50 million in operating income from revenue synergies, and we're on track to deliver $40 million in cost synergies in 2022. In 2021, we also returned $2.4 billion of capital to our shareholders through stock buybacks and dividends. Highlights this year include our commitment to achieve carbon neutrality by 2050. This builds on our earlier goal to reduce greenhouse gas emissions by 30% across our operations by 2030. Our foundation for science, which more than 100,000 students globally to our STEM education programs. We're raising our 2022 full-year revenue guidance by $1.5 billion to $42 billion, which would result in 7% revenue growth over 2021. And we're increasing our 2022 adjusted earnings per share guidance by $1.07 to $22.43 per share. Our proven growth strategy positions us to deliver long-term core organic revenue growth of 7% to 9%. For the full year 2021, we delivered 17% organic growth that included 14% organic base business growth and $9.2 billion in COVID 19 response revenue. We delivered 28% growth in adjusted earnings per share in 2021 and over $7 billion of free cash flow. We delivered $2.1 billion more revenue than included in our prior guide. This included $1.5 billion higher COVID 19 response revenue, $375 million of revenue from the PPD acquisition, and $200 million higher based business revenue. Then in terms of the base business, in Q4, we delivered 8% base business organic growth, which was 3% points higher than assumed in the prior guide. We delivered $6.54 of adjusted earnings per share in the quarter and $25.13 for the full year. This is $1.76 ahead of our prior guide to a broad base beat to round out an outstanding year. And as I mentioned, we delivered $6.54 of adjusted earnings per share in the quarter. And for the full-year adjusted earnings per share was $25.13, up 28% compared to last year. GAAP earnings per share in the quarter was $4.17. And for the full year, 2021 GAAP earnings per share was $19.46, up 22% versus the prior year. On the top line, our Q4 reported revenue grew 1% year over year. The components of our Q4 revenue increase included a 4% organic revenue decrease, a 6% contribution from acquisitions, and a headwind of 1% from foreign exchange. And as I mentioned, the base business organic revenue growth in the quarter was 8%. For the full year, 2021 reported revenue increased 22%. This includes 17% organic growth, a 3% contribution from acquisitions, and a 2% tailwind from foreign exchange. The full-year base business organic growth was 14%. And in 2021, we delivered $9.23 billion of COVID-19 response revenue, which includes $2 billion of vaccines and therapy support revenue. Europe grew over 25%. Asia-Pacific grew over 20%, including just under 20% growth in China and the rest of the world grew mid-teens. Tend to our operational performance, Q4 adjusted operating income decreased 10% and the adjusted operating margin was 29.5%, 380 basis points lower than Q4 last year. For the full year, adjusted operating income increased 27% and adjusted operating margin was 31%, which is 130 basis points higher than 2020. Total company adjusted gross margin in the quarter came in at 50.5%, 340 basis points lower than Q4 last year. And for the full year, the adjusted gross margin was 51.6%, up 40 basis points versus the prior year. Adjusted SG&A in Q4, with 17.3% of revenue for the full year adjusted SG&A was 17.1% of revenue. An improvement of 80 basis points compared to 2020. Total R&D expense was approximately $390 million in Q4 and for the full-year R&D expenses $1.4 billion, representing growth of 19% over the prior year, reflecting our ongoing investments in high impact innovation to fuel future growth. Looking at results below the line for the quarter and net interest expense was $150 million, $16 million higher than Q4 last year, largely due to the PPD financing activities. Net interest expense for the full year was $493 million, an increase of $5 million from 2020. Adjusted other income and expense was a net income in the quarter of $7 million, $8 million higher than Q4 2020, mainly due to changes in non-operating FX. For the full-year adjusted other income and expense was a net income of $38 million, which was $8 million lower than the prior year. Our adjusted tax rate in the quarter was 13.8%. This is 220 basis points lower than Q4 last year, mainly due to the different levels of pre-tax profitability year over year. For the full year, the adjusted tax rate was 14.6%, or 30 basis points higher than 2020. Average diluted shares were 398 million in Q4, approximately two million lower year over year, driven by share repurchases, net of option dilution and for the full year, the average Dillard's shares were 397 million. Cash flow from operating activities in 2021 was $9.5 billion, up 15% over the prior year, and free cash flow for the year was $7 billion after investing %2.5 billion of net capital expenditure. During the year, we returned approximately $2.4 billion of capital to shareholders through stock buybacks and dividends, and we ended Q4 with $4.5 billion in cash. Our total debt at the end of Q4 was $34.9 billion, up $13.2 billion sequentially from Q3, largely as a result of the financing activities related to the PPD acquisition. Our leverage ratio at the end of the quarter with 2.7 times gross debt to adjusted EBITDA and 2.3 times on a net debt basis, and concluding my comments that total company performance adjusted ROIC was 19.8%, up 180 basis points from Q4 last year as we continue to generate exceptional returns. Q4 reported revenue in the segment decreased 5% and organic revenue was 8% lower than the prior-year quarter. For the full year, reported revenue in the segment increased 28% and organic revenue increased 23%. Q4 adjusted operating income in Life Science Solutions decreased 14%. And adjusted operating margin was 48.2%, down 490 basis points year-over-year. And for the full year, adjusted operating income increased 28%, and adjusted operating margin was 50%, a decrease of 20 basis points versus 2020. In the analytical instrument segment, reported revenue increased 5% in Q4 and organic growth by 6%. For the full-year reported revenue in the segment increased 18% and organic revenue increased 17%. Q4 adjusted operating income in the segment increased 15%, and adjusted operating margin was 22.1%, up 190 basis points year over year. For the full year, adjusted operating income increased 48%, and adjusted operating margin was 19.7%, an increase of 390 basis points versus 2020. In Q4, reported revenue and organic revenue were both 26% lower than the year-ago quarter. For the full year, reported revenue in this segment increased 6% and organic revenue increased 5%. Q4 adjusted operating income decreased 43% in the quarter and adjusted operating margin was 20.5%, down 590 basis points from the prior year. For the full year, adjusted operating income decreased 6% and adjusted operating margin was 22.6%, a decrease of 300 basis points versus 2020. In Q4, reported revenue in this segment increased 16% and organic revenue growth was 5%. And we recognized $375 million of revenue for PPG to clinical research business. For the full year, reported revenue in this segment increased 21% and organic revenue increased 15%. Q4 adjusted operating income in the segment increased 42% and adjusted operating margin was 11.5%, which is 210 basis points higher than the prior year. For the full year, adjusted operating income increased 45%, and adjusted operating margin was 12.4%, an increase of 200 basis points versus 2020. We're raising our full-year '22 revenue guidance by $1.5 billion to $42 billion. And we're raising our adjusted earnings per share guidance by $1.07 to $22.43. This very strong raise reflects the excellent strength of the business, and we continue to expect 8% core organic revenue growth in 2022. Let me now provide you with additional details on the updated guidance, starting with revenue whether four elements drive the $1.5 billion raise. $1 billion increase in the COVID 19 testing assumption, a $900 million increase for the core business, a $500 million decrease due to the change in FX rates, and a $100 million increase to reflect the PeproTech acquisition, which closed just before the year-end. Guidance now assumes $1.75 billion in testing revenue in 2022. In terms of the core revenue raise, $600 million relates to PPD and reflects the excellent strength of that business and to a lesser extent, the recent gap changes around deferred revenue measurement for acquisitions. We now expect PPD, a new clinical research business, to deliver $6.5 billion in revenue for the full year of 2022. This represents 8% organic growth on a full-year basis on top of the 30% growth it delivered in 2021. And the remaining $300 million of the core revenue raise is to reflect the strong finish to 2021 by the rest of the core business. As I mentioned earlier, we continue to expect that it will grow 8% organically in 2022. And we now expect the adjusted operating margin to be 25.4% in 2022 as 20 basis points higher than what we assumed in our prior guidance. In terms of adjusted EPS, a stronger business outlook is enabling us to raise 2022 adjusted earnings per share guidance from $21.36 to $22.43, further building on an already very strong outlook for the year. As I mentioned PPD is expected to deliver $6.5 billion of revenue and $1 billion of adjusted operating income in 2022. This acquisition is now expected to contribute $1.90 to adjusted earnings per share in the year. PeproTech is expected to deliver revenue of just over $100 million in 2022 and $0.5 of adjusted EPS. FX is now expected to be a year-over-year headwind of $500 million in revenue of 1.3% and $0.31 from adjusted EPS. We continue to assume an adjusted income tax rate of 13% in 2022. We now expect the full-year net interest cost to be approximately $490 million and other income to be $10 million. We continue to assume net capital expenditures of approximately 2.5 to $2.7 billion and free cash flow of approximately $7 billion. Our guidance still assumes $2.5 billion of capital deployment, which is $2 billion a share, buybacks that we already completed in January, and $475 million of capital return to shareholders through dividends. We now estimate that the full-year average diluted share count will be between 395 million and 396 million shares. The de-risk assumption for COVID 19 testing used in this guidance assumes that this revenue is very front end loaded in the first half of the year, and then it's an assumed pandemic run-rate level of $100 million of revenue per quarter in the second half of the year.

Starting with the quarter, our revenue was $10.7 billion. Adjusted earnings per share was $6.54 per share. We delivered $6.54 of adjusted earnings per share in the quarter and $25.13 for the full year. And as I mentioned, we delivered $6.54 of adjusted earnings per share in the quarter. GAAP earnings per share in the quarter was $4.17.

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Through our commitment to capital discipline and our differentiated execution, we are successfully delivering outsized financial outcomes for our shareholders, highlighted by more than $1.3 billion of free cash flow year to date. For our $1 billion full year 2021 capital budget, at forward curve commodity pricing, we now expect to generate well over $2 billion of free cash flow this year, at a reinvestment rate below 35% and a free cash flow breakeven below $35 per barrel WTI. We are successfully delivering on all of our financial and operational objectives and achieving bottom line results that we will put head-to-head against any other energy company and against any other sector in the S&P 500. Under our unique return of capital framework, our shareholders get the first call on cash flow, a minimum of 40% of our total cash flow from operations in the current price environment. Consistent with our commitment to shareholder returns and our objective to pay a competitive and sustainable base dividend, we have raised our base dividend by 20% this quarter. This is the third quarter in a row that we have increased our base dividend, representing a cumulative 100% increase since the end of 2020, a sign of the increased confidence we have in our business. We are also targeting approximately $500 million of share repurchases during the fourth quarter with $200 million already executed. At a free cash flow yield north of 20%, we believe our equity offers tremendous value. Looking ahead to fourth quarter, including our base dividend and planned share repurchases, we expect to return approximately 50% of our total cash flow from operations to equity holders, fully consistent with our return of capital framework that prioritizes the shareholder first. Our financial flexibility and the power of our portfolio in the current commodity price environment provided the confidence for our board to also increase our total share repurchase authorization to $2.5 billion, to ensure we can continue executing on our return of capital plans as we progress through 2022. First and foremost, our consistent execution is translating to outsized financial outcomes, highlighted by over $2 billion of expected free cash flow, with a material sequential increase expected in the fourth quarter, a full year 2021, reinvestment rate below 35% and full year corporate free cash flow breakeven $35 per barrel WTI. Our gas capture during third quarter also exceeded 99%, as we continue to reduce our GHG emissions intensity. There is no change to our $1 billion full year 2021 capital budget. There is also no change to the midpoint of our full year total company oil or total company oil equivalent production guidance. We're also raising our full year 2021 EG equity method income guidance for the second consecutive quarter to a new range of $235 million to $255 million due to stronger commodity prices. This is a 30% increase from the guidance we provided last quarter and a 120% increase relative to our initial guidance at the beginning of the year. Looking ahead to fourth quarter, we expect to finish the year strong with our total company oil production increasing to between 176,000 and 180,000 barrels of oil per day in comparison to 168,000 barrels of oil per day during the third quarter. We also expect our fourth quarter total company oil equivalent production to be similar to the third quarter at 345,000 barrels of oil equivalent per day, with a sequential increase in the U.S. offsetting a sequential decrease in Equatorial Guinea associated with the previously referenced outage. Early in the third quarter, we retired $900 million in debt, bringing total 2021 gross debt reduction to $1.4 billion and achieving our targeted $4 billion gross debt level. Our base dividend is actually up 100% over that time period, now at $0.06 a share per quarter and the $50 million of annual interest savings were realized due to lower gross debt will help fund a significant portion of this base dividend increase. Our equity return framework calls for delivering a minimum of 40% of cash from operations to shareholders when WTI is at or above $60 a barrel. It is also competitive with any sector in the S&P 500. At recent strip pricing, this could take our operating cash flow to approximately $1.1 billion or about a 25% sequential increase versus the third quarter. Add to that an expected increase in dividend distributions from EG and lower capex relative to the third quarter peak and fourth quarter free cash flow could almost double to north of $850 million. So in Q4, we expect to have lots of flexibility to exceed our 40% of operating cash flow, a minimum threshold for equity returns. In fact, through our base dividend and approximately $500 million of share repurchases, we expect to return approximately 50% of our operating cash flow to investors during the fourth quarter while further improving our cash balance and net debt position. There are many opportunities in the market right now that provide a sustainable free cash flow yield north of 20%. Stepping back, the full year 2021 financial delivery is exceptional, $140 million in base dividends, $1.4 billion in debt reduction and $500 million of share repurchases representing a total return to investors combined debt and equity of over $2 billion or over 60% of our expected full year operating cash flow at strip commodity prices. We recently completed our 2021 REx drilling program, which was focused on the continued delineation of our contiguous 50,000 net acre position in our Texas Delaware oil plant. As a reminder, this is a new play concept for both the Woodford and Meramec that was secured through grassroots leasing at a very low cost of entry and with 100% working interest. More specifically, one of the Woodford wells achieved an IP30 of almost 2,100 barrels of oil per day at an oil cut of 66%. To date, we are seeing no evidence of interference between the Woodford and Meramec, consistent with our expectations due to over 700 feet of vertical separation between the two zones. Oil cuts greater than 60%, low oil ratios below one and shallow declines. Our 2021 capital rate of sub-35% and capital intensity as measured by capex per barrel of production are both the lowest in our independent E&P peer group, a strong validation of our leading capital and operating efficiency. We are also one of the few E&Ps expecting to deliver a 2021 reinvestment rate at or below the S&P 500 average. We're also delivering top quartile free cash flow yield this year among our peer group and well above the S&P 500 average. And we are doing all of this with an investment-grade balance sheet at sub-onetime net debt to EBITDA, a 2021 leverage profile also well below both our peer group and the S&P 500 average. Yet perhaps more importantly, we are well positioned to deliver competitive free cash flow and financial performance versus the broader market at much lower prices than we see today, all the way down to the $40 per barrel WTI range. This is the power of our sustainable cost structure reductions, our capital and operating efficiency improvements and our commitment to capital discipline, all contributing to a sub-$35 per barrel breakeven. Recall that we introduced a unique five-year maintenance scenario earlier this year that featured $1 billion to $1.1 billion of annual spending, $1 billion of annual free cash flow at $50 WTI and a 50% reinvestment rate. Given we are no longer living in a $50 per barrel environment and that prices are currently north of $80 per barrel, it is both prudent and reasonable to consider some level of limited inflation up to about 10% that would yield modest pressure on the maintenance scenario capital range. Yet importantly, this modest level of inflation pales in comparison to the uplift to our financial performance in the current environment, with a 2022 maintenance scenario free cash flow potentially on the order of $3 billion at recent strip pricing or nominally three times the $50 benchmark outcome. And under such a maintenance scenario, we are positioned to lead the peers once again with a 2022 free cash flow yield above 20%, far in excess of the S&P 500 free cash flow yield of approximately 4%. Our minimum 40% of cash flow target translates to about $1.6 billion of equity holder returns next year. At the expected 4Q run rate of 50% of CFO, 2022 equity holder returns would increase to approximately $2 billion, while still improving our cash balance and net debt position. Even at a more conservative $60 per barrel oil price environment, our minimum 40% of cash flow targets still translates to about $1.1 billion of equity holder returns in 2022. The confidence in this outsized delivery is further supported by recent board action to increase our share repurchase authorization to $2.5 billion to ensure we have sufficient runway to continue delivering on our return of capital commitment next year.

For our $1 billion full year 2021 capital budget, at forward curve commodity pricing, we now expect to generate well over $2 billion of free cash flow this year, at a reinvestment rate below 35% and a free cash flow breakeven below $35 per barrel WTI. There is no change to our $1 billion full year 2021 capital budget. There is also no change to the midpoint of our full year total company oil or total company oil equivalent production guidance. We're also raising our full year 2021 EG equity method income guidance for the second consecutive quarter to a new range of $235 million to $255 million due to stronger commodity prices. We also expect our fourth quarter total company oil equivalent production to be similar to the third quarter at 345,000 barrels of oil equivalent per day, with a sequential increase in the U.S. offsetting a sequential decrease in Equatorial Guinea associated with the previously referenced outage. Recall that we introduced a unique five-year maintenance scenario earlier this year that featured $1 billion to $1.1 billion of annual spending, $1 billion of annual free cash flow at $50 WTI and a 50% reinvestment rate.

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PSEG reported non-GAAP operating earnings of $0.70 per share for the second quarter of 2021 versus $0.79 per share in last year's second quarter. GAAP results for the second quarter were $0.35 per share net loss related to transition charges at PSEG Power, and that compares with $0.89 per share of net income for the second quarter of 2020. Also in the quarter, PSEG Power recorded a pre-tax impairment of $519 million at its New England Asset Group, partly offset by a pre-tax gain of $62 million from the sale of the Solar Source portfolio. Our results for the second quarter bring non-GAAP operating earnings for the first half of 2021 to $1.98 per share. This 9% increase over non-GAAP results of $1.82 per share for the first half of 2020 reflects the growing contribution from our regulated operations and continued derisking at PSEG Power. Slides 13 and 15 summarize the results for the quarter and the first half of the year. PSE&G has agreed to voluntarily reduce its annual transmission revenue requirement, which includes a reduction in its base return on equity to 9.9% from 11.18%. If approved by the FERC, a typical electric residential customer will save 3% on their monthly bills. Electric sales overall adjusted for weather were up nearly 4% over the second quarter of 2020, led by an 11% increase in commercial sales, which was partly offset by a 5% decline in residential sales as people gradually returned to work outside the home. The warmer-than-normal summer has also increased PSE&G's average daily peak load for the quarter to 5,480 megawatts compared to last year's second-quarter average of 5,100 megawatts and the 5,330 megawatts experienced in the pre-COVID second quarter of 2019. And so far this summer, PSE&G's load has peaked at 10,064 megawatts on June 30, exceeding the 10,000-megawatt mark for the first time since July 19 of the year 2013, eight years ago. Turning to clean energy developments in New Jersey, the BPU in June awarded a second round of Offshore Wind projects totaling 2,658 megawatts and is now halfway toward the state's goal of procuring 7,500 megawatts of Offshore Wind generation by 2035. The award was split between the 1,510 megawatt Atlantic Shores project and Orsted's 1,148 megawatt Ocean Wind 2. The OREC price is set in the second round range from about $86 to $84 for the Atlantic Shores and Ocean Wind projects, respectively. Incentive levels for the administratively determined segment range from $90 per megawatt-hour for net-metered residential projects to $70 to $100 per megawatt-hour for the commercial and community solar segments and up to $120 per megawatt-hour for certain public entity projects. You will recall that the prior program consisting of solar renewable energy credits or as we frequently refer to them as SRECs, average well above $200 per megawatt-hour over the past decade. And combined with net metering subsidies and federal tax credits provided later incentives topping $300 per megawatt-hour. In the second quarter alone, we closed on our 25% equity stake in the 1,100-megawatt Ocean Wind project in New Jersey, that's the Ocean Wind one project, obviously. We retired our last coal unit at Bridgeport Harbor in Connecticut, making our generating fleet coal-free, and moved up our net-zero vision by 20 years to 2030. This solicitation is intended to procure transmission solutions to this important New Jersey 7,500-megawatt Offshore Wind target by 2035. New Jersey's recent endorsement of the environmental benefits provided by our New Jersey nuclear plants through the second zero-emission certificates, I'll refer to that as ZEC for the rest of this conversation, extends the $10 per megawatt-hour carbon-free attribute recognition through May of 2025. Also in June, PSEG was named to JUST Capital's Top 100 companies supporting healthy families and communities. We are raising by $0.05 per share at the bottom end of PSEG's non-GAAP operating earnings guidance for full-year 2021 to a range of $3.40 to $3.55 per share, based on favorable results of PSE&G and Power through the first six months of the year. We're on track to achieve the Utilities 2021 planned capital spending of $2.7 billion on schedule and on budget. This spend is part of PSEG's consolidated five-year, $14 billion to $16 billion capital plan, which we still intend to execute without the need to issue new equity, while also continuing to offer the opportunity for consistent and sustainable growth in our dividend. Before closing, I do want to recognize the contributions of Dave Daly, who will be retiring on January 4, 2022, after 35 years of dedicated service to the company. Many of you know Kim is the power behind the transmission buildout over the past 10 years, and I hope all of you will have the opportunity to meet here in the near future. As Ralph said, PSEG reported non-GAAP operating earnings for the second quarter of 2021 at $0.70 per share versus $0.79 per share in last year's second quarter. We've provided you with an information on Slides 13 and 15 regarding the contribution to non-GAAP operating earnings by business for the quarter and the year-to-date periods, and Slides 14 and 16 contain corresponding waterfall charts that take you through the net changes in non-GAAP operating earnings by major business. PSE&G reported net income of $309 million or $0.61 per share for the second quarter of 2021 compared with net income of $283 million or $0.56 per share for the second quarter of 2020. Growth in transmission added $0.01 per share to second-quarter net income, reflecting continued infrastructure investment as well as the timing of transmission O&M in the quarter and true-ups from prior year filings. Electric margin added $0.02 per share to net income compared to the year-earlier quarter, driven by commercial and industrial demand, reflecting higher margins in April and May compared to the COVID-19 restrictions that affected prior year results; and the implementation of the Conservation Incentive Program or CIP mechanism in June. Gas margin added $0.01 per share, driven by the Gas System Modernization Program rate rollings. Gas-related bad debt expense and O&M expense were both $0.01 per share favorable compared to the year-earlier quarter, driven by the timing of COVID-related deferrals since the issuance of the BPU's order in the third quarter of last year. An increase in distribution-related depreciation due to higher rate base lowered net income by $0.01 per share. Nonoperating pension expense was $0.02 per share favorable compared to the second quarter of 2020, reflecting the continued recognition of strong asset returns experienced last year. Tax expense was $0.02 unfavorable compared to the second quarter of 2020, driven by the timing of adjustments to reflect PSE&G's estimated annual effective tax rate. The agreement would reset the base ROE for PSE&G's formula rate to 9.9% from 11.18%, which lowers the annual transmission revenue requirement by about $100 million per year on a pre-tax basis. Other key elements of the settlement lower annual depreciation expense by approximately $42 million, which has a corresponding reduction in revenue that results in no net impact on earnings and an improved cost recovery methodology for our administrative and general costs and investments in materials and supplies. The agreement also includes an increase of PSE&G's equity ratio from 54% to 55% of total capitalization. The financial impact of the settlement agreement is expected to lower PSE&G's net income by approximately $50 million to $60 million or $0.10 to $0.12 per share on an annual basis in the first 12 months once implemented. Weather for the second quarter was significantly warmer than the second quarter of 2020, with the temperature-humidity index that was 34% higher than normal and a significantly higher than normal number of hours at 90 degrees or greater. The New Jersey economy continued to recover in the second quarter, increased by total weather-normalized electric sales by approximately 4% compared to the second quarter of 2020, which was at the height of the COVID-19 economic restrictions. On a trailing 12-month basis, weather-normalized electric and gas sales were each higher by approximately 1%, with residential electric and gas usage up by 4% and 2%, respectively. PSE&G invested approximately $700 million in the second quarter and $1.3 billion year-to-date through June. This capital was part of 2021's $2.7 billion Electric and Gas Infrastructure Program to upgrade transmission and distribution facilities and enhance reliability and increase resiliency. We continue to forecast over 90% of PSEG's planned capital investment will be directed to the utility over the 2021 to 2025 time frame. PSE&G's forecast of net income in 2021 has been updated to $1.42 billion to $1.47 billion from $1.41 billion to $1.47 billion. PSEG Power reported non-GAAP operating earnings for the second quarter of $0.10 per share and non-GAAP adjusted EBITDA of $159 million. This compares to non-GAAP operating earnings of $0.24 per share and non-GAAP adjusted EBITDA of $258 million for the second quarter of 2020. PSEG Power's second-quarter non-GAAP operating earnings were affected by several items that combined lowered results by $0.14 per share below the quarter from a year ago. Recontracting and market impacts reduced results by $0.09 per share, reflecting seasonal shape of hedging activity and higher cost to serve load versus the year-ago quarter. Generating volume and zero-emission certificates were each down by $0.01 per share, affected by lower nuclear output related to the spring refueling outage at the 100% owned Hope Creek Nuclear Plant. PJM capacity revenue added $0.02 per share to the year-ago quarterly comparison. For the year ended June 30 -- for the year-to-date ended June 30, capacity is $0.05 per share favorable compared to the first half of 2020, reflecting the scheduled higher price of approximately $167 per megawatt day for the majority of the first half of 2021 versus the $116 per megawatt day for the same period in 2020. Higher O&M expense reduced results by $0.04 per share compared to last year's second quarter, primarily reflecting the planned Hope Creek refueling outage and higher fossil operating expenses. Lower depreciation expense, reflecting the sale of the solar source portfolio and the early retirement of the Bridgeport Harbor coal-fired generating station, combined with lower interest expense, to add $0.02 per share versus the year-ago quarter. Taxes and other items were $0.03 per share unfavorable, reflecting the absence of a multi-year tax audit settlement included in the second quarter 2020 results. Gross margin in the second quarter of 2020 was $28 per megawatt-hour compared with $33 per megawatt-hour for last year's second quarter. The decline quarter-over-quarter reflects the seasonal price impact of recontracting, that is anticipated to result in a negative $2 per megawatt-hour price decline in the hedge portfolio for the full year. We expect recontracting results in the third quarter of 2021 to be similarly negative, as we mentioned last quarter, will more than offset the $0.03 per share benefit seen in the first quarter of this year. Total generation output declined by 1% to 12.6 terawatt-hours in the second quarter as the refueling outage at Hope Creek and subsequent forced out its lower nuclear output versus the second quarter of 2020. The nuclear fleet operated at an average capacity factor of 86% for the quarter, producing 7.2 terawatt-hours, down by 7% versus last year, which represented 57% of total generation. Power's combined-cycle fleet produced 5.3 terawatt-hours of output, up 8% in response to higher market demand helped by warm weather. Power is forecasting generation output of 25 to 27 terawatt-hours for the remaining two quarters of 2021 and has hedged 95% to 100% of its production at an average price of $30 per megawatt-hour. As a result, Power recorded a pre-tax charge of $519 million for this asset group. In June of 2021, PSEG completed the sale of PSEG's Solar Source, which resulted in a pre-tax gain of approximately $62 million and income tax expense of approximately $63 million, primarily due to the recapture of investment tax credits on units that operated for less than five years. For the remainder of the year, depreciation expense will also decline by approximately $0.03 per share as a result of the Solar Source sale. Forecast of PSEG Power's non-GAAP operating earnings for 2021 has been updated to $295 million to $370 million, from $280 million to $370 million, while our estimated non-GAAP adjusted EBITDA remains unchanged at $850 million to $950 million. For the second quarter of 2021, PSEG Enterprise and Other reported a net loss of $3 million or $0.01 per share for the second quarter of 2021, which was flat compared to a net loss of $2 million or $0.01 per share for the second quarter of 2020. For 2021, the forecast for PSEG Enterprise and Other remains unchanged at a net loss of $15 million. At June 30, we had approximately $4 billion of available liquidity, including cash on hand of about $107 million, and debt represented 52% of our consolidated capital. During the first half of 2021, PSEG entered into 2,364-day variable rate term loan agreements totaling $1.25 billion. During the second quarter, PSEG Power retired $950 million of senior notes maturing in June and September 2021 and ended June with debt as a percentage of capital of 20%. We still expect to fund PSEG's $14 billion to $16 billion capital investment program over the 2021 to 2025 period without the need to issue new equity, while also continuing to offer consistent and sustainable growth in our dividend payment. As Ralph mentioned, we've raised the bottom end of our forecast of non-GAAP operating earnings for the full year to $3.40 to $3.55 per share, up by $0.05 per share based on the solid results we have seen in the first half of the year that give us confidence that we can deliver results at the upper end of our original guidance.

PSEG reported non-GAAP operating earnings of $0.70 per share for the second quarter of 2021 versus $0.79 per share in last year's second quarter. GAAP results for the second quarter were $0.35 per share net loss related to transition charges at PSEG Power, and that compares with $0.89 per share of net income for the second quarter of 2020. We are raising by $0.05 per share at the bottom end of PSEG's non-GAAP operating earnings guidance for full-year 2021 to a range of $3.40 to $3.55 per share, based on favorable results of PSE&G and Power through the first six months of the year. As Ralph mentioned, we've raised the bottom end of our forecast of non-GAAP operating earnings for the full year to $3.40 to $3.55 per share, up by $0.05 per share based on the solid results we have seen in the first half of the year that give us confidence that we can deliver results at the upper end of our original guidance.

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This development support our long-term goals and further our efforts to expand our generation capabilities toward our goal to achieve a run rate of $500 million in annual EBITDA toward the end of 2022. Even with these challenges and the ongoing slowness in our product segment, we reported continued growth of more than 15.4% in the electricity segment, leading to revenue that was essentially flat year-over-year. This enabled us to deliver over $100 million in adjusted EBITDA for the quarter. The new long-term resource adequacy agreement with PG&E for our Pomona-2 project is another example as other product segment wins in Nicaragua and Indonesia, which boosted our product segment backlog. With a portfolio of over 1.1 GW of generation, a rebounding product segment and a growing energy storage offering. Total revenues for the third quarter were $158.8 billion, essentially flat year-over-year, reflecting the contribution of the Terra-Gen acquisition, offset by lower year-over-year product sales. Third quarter 2021 consolidated gross profit was $63.1 million, resulting in a gross margin of 39.8%, up from the gross margin of 34% in the third quarter of 2020. Gross margin including $15.5 million of BI income compared to $2.6 million in the third quarter last year. We delivered net income attributed to the companys stockholders of $14.9 million or $0.26 per diluted share in the quarter compared to $15.7 million or $0.31 per share in the same quarter last year, representing a decrease of 5% and 16.1%, respectively, mainly as a result of a lower operating income, driven mainly by a $9 million increase in the G&A expenses. Adjusted net income attributed to the company stockholder was $17.8 million or $0.32 per diluted share in the quarter compared to $0.31 per share in the same quarter last year. Net income attributed to the company stockholder was adjusted to exclude the transaction cost of $3.7 million pre-tax and $2.9 million after-tax related to the Terra-Gen Geothermal acquisition. Our effective tax rate for the third quarter was 9.2%, which is lower than the 38.8% effective tax rate from the third quarter of 2020, mainly due to the movement in the valuation allowances for each quarter. We still expect the annual effective tax rate to stand approximately between 30% to 34% for the full year 2021. Adjusted EBITDA decreased 5.1% to $101.6 million in the third quarter compared to $107.1 million in the third quarter last year. Id note that compared to second quarter 2021, adjusted EBITDA increased 20.2%. The lower year-over-year adjusted EBITDA was due to a combination of approximately $4.6 million, lower business interruption income and approximately $4.7 million of higher G&A costs, mainly related to the special committee legal costs. Breaking the revenues down, electricity segment revenues increased 15.4% to $142.7 million, supported by contribution from new added capacity to our McGinness Hills Complex, Punas resumed operation and the contribution of the recently acquired plants in Nevada. In the product segment, revenue declined 64.5% to $101 billion to $10.5 billion, representing 6.6% of total revenues in the third quarter. Energy Storage segment revenues remained flat year-over-year at $5.7 million in the third quarter. This quarter, we had an increase in the revenue from our storage operating facility of 26%. That was offset by approximately 67% reduction in demand response revenue as we expect to diminish over the next few quarters. Gross margin for the electricity segment for the quarter increased year-over-year to 42.8%. This was the result of $15.8 million in business interruption insurance, of which $15.5 million was included in the cost of revenues for the electricity segment, partially offset by higher costs related to the repair and the recovery of Olkaria, Brawley and Bouillante power plants. Excluding the impact of the business interruption in Q3 2021 and Q3 2020, gross profit increased 2.8% compared to the same time last year. In the product segment, gross margin was 12.8% in the quarter compared to 18.9% in the same quarter last year. The Energy Storage segment reported gross margin of 12.2% compared to gross margin of 25.6% in the third quarter last year. Electricity segment generated 96% of Ormats total adjusted EBITDA in the third quarter. The product segment generated 2% of the and the Storage segment reported adjusted EBITDA of $2 million, which represents 2% of the total adjusted EBITDA. On slide nine, our net debt as of September 30 was $1.5 billion. Cash, cash equivalents, marketable security at fair value and restricted cash and cash equivalents as of September 30, 2021, was approximately $402 million compared to $537 million as of December 31, 2020. Marketable securities were at fair value of $46 million. Our total debt as of September 30th was $1.9 billion, net of deferred financing costs, and its payment schedule is presented on slide 32 in the appendix. The average cost of debt for the company reduced to 4.4% compared to 4.9% last quarter. During the third quarter, we raised $275 million of new corporate debt to support the Terra-Gen asset acquisition and capex needs. On November 3, 2021, the Company Board of Directors declared approved and authorized payment of quarterly dividends of $0.12 per share pursuant to the companys dividend policy. During Q3 of 2021, our power generation in our power plants increased by approximately 13.8% compared to last year. We benefited from the incremental contribution of the recently expanded McGinness Hills and the generation from Puna that is operating now at a stable level of 26 megawatts. In addition, we had the contribution of the Dixie Valley and Beowawe plants acquired from Terra-Gen, with a total net annual generating capacity of approximately 67.5 megawatts. We stabilized Puna generation to approximately 26 megawatts as we continue reservoir study and improvement of existing wells to maximize the long-term performance of the power plant. Our revenue in the Olkaria complex was down year-over-year as a result of a reduction in the performance of the resource, which has resulted in an approximate reduction of 25 megawatts. This reduction in capacity and associated repair costs reduced our quarterly gross margin by approximately $3.6 million compared to last year. In the task force report, they indicate that Ken-Gen geothermal average tariff, including steam cost, is $8.05 per kilowatt hour, which is not significantly lower than our rate. As a reminder, this acquisition added a total net generating capacity of approximately 67.5 megawatts to our portfolio, along with the greenfield development asset adjacent to Dixie Valley and an underutilized transmission line, capable of handling between 300 to 400 megawatts on a 230 KV electricity connecting Dixie Valley in Nevada to California. With this acquisition, we now own 10 operating plants in Nevada, generating a total of 443 megawatts, which is roughly equivalent to approximately 7% of Nevadas overall generated energy. We signed a few new contracts during the quarter, including a new contract with Salak energy geothermal to supply products to a new 14 megawatt Salak geothermal power plant in Indonesia. As of November 3, 2021, our product segment backlog increased for the third quarter in a row to approximately $67 million compared to $56 million in early August this year, giving us a good start for this segment in 2022. And as Assi, indicated, they were up 26%. Moving to slide 21 and 22. The buildup supports our robust growth plan, which is expected to increase our total portfolio by almost 50% by the end of 2023. Although we have delays within 2021 to 2023, we are still aiming to add an additional 240 to 260 megawatts by year-end 2023, in addition to the 83 megawatts we added since the beginning of 2021. In our rapidly energy storage portfolio, we plan to enhance our growth and to increase our portfolio by 200 megawatts to 300 megawatts by year-end 2022. Achieving this growth target is expected to help us reach an annual run rate of more than $500 million in adjusted EBITDA toward the end of 2022, that we expect to continue to grow as we move forward with our plans in 2023 and beyond. slide 23 displays 14 projects underway that comprise the majority of our 2023 growth goals. Moving to slide 24 and 25. The storage facilities listed in this slide are expected to generate in todays pricing, approximately $15 million annually, with EBITDA margins of 50% to 60% approximately. As you can see on slide 25, our energy storage pipeline stands at 2.1 gigawatt and currently include 30 named potential projects, mainly in California, Texas and New Jersey. To fund this growth, we have over $780 million of cash and available lines of credit. Our total expected capital for the remainder of 2021 includes approximately $177 million for capital expenditures, as detailed in slide 33 in the appendixes. We expect total revenues between 652 and $675 million, with electricity segment revenues between 585 and $595 million. We expect product segment revenues between 40 and $50 million. Guidance for energy storage revenues are expected to be between 27 and $30 million. We expect adjusted EBITDA to be between 400 and $410 million. We expect annual adjusted EBITDA attributable to minority interest to be approximately $31 million. Adjusted EBITDA guidance for 2021 includes the $15.8 million insurance proceeds received in the third quarter.

We delivered net income attributed to the companys stockholders of $14.9 million or $0.26 per diluted share in the quarter compared to $15.7 million or $0.31 per share in the same quarter last year, representing a decrease of 5% and 16.1%, respectively, mainly as a result of a lower operating income, driven mainly by a $9 million increase in the G&A expenses.

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Overall, we achieved a total of $233 million of debt reduction or 8% of our total debt since year-end 2020 from these transactions. Our current strip prices are maintaining the goal of reducing debt by an additional $200 million in 2021 for a total 15% debt reduction this year. Our oil production beat guidance by 7% this quarter while our Eagle Ford Shale assets, in particular, were 4% above guidance despite experiencing impacts from the winter storm in Texas. On Slide 4, getting to the details of the quarter, Murphy produced an average of 155,000 barrels equivalent per day with approximately 63% liquids production. Significantly, our oil production was 88,000 barrels per day, which beat our guidance of 82,000 barrels per day. As shown in our 2021 quarterly well cadence, accrued capex with first quarter weighted and totaled $230 million net to Murphy. This amount excludes King's Quay spending but includes our $20 million acquisition of an additional 3.5 working interest in the non-operated Lucius field. Commodity prices rebounded significantly in the first quarter with oil realizations averaging $58 per barrel, slightly above the WTI benchmark, which we haven't seen since before the pandemic. Our natural gas realization prices averaged $2.55 per thousand cubic feet. For the quarter, we recorded a net loss of $287 million or $1.87 net loss per diluted share. After adjusting for several one-off after tax items, such as a $128 million non-cash impairment charge on Terra Nova and a $121 million non-cash mark-to-market loss on crude oil derivatives, we reported adjusted net income of $10 million or $0.06 adjusted net income per diluted share. Cash from operations for the quarter totaled $238 million, including the noncontrolling interest. After accounting for property additions of $258 million and proceeds from asset sales of $268 million, we achieved a positive adjusted cash flow of $248 million for the quarter. As Roger mentioned, our 2021 capex plan is heavily weighted toward the first quarter with $230 million in total accrued capex or 33% of the annual total. Approximately 44% of total Eagle Ford Shale capex for the year was spent in the first quarter, while nearly 40% and 35% of the annual planned capex were spent in the Gulf of Mexico and offshore Canada, respectively -- onshore Canada, I'm sorry, respectively. Overall, we're maintaining our capex plan of $675 million to $725 million for 2021. However, we are tightening our production guidance range to 157,000 to 165,000 barrels of oil equivalent per day for the full year. For the second quarter of 2021, we're forecasting a production range of 160,000 to 168,000 barrels of oil equivalent per day. Importantly, our oil production is forecast at 95,000 barrels of oil per day for the second quarter. In addition to cash from operations, nearly covering our regular capex, we received funds of $268 million from monetizing the King's Quay floating production system. We use these funds to pay off the $200 million outstanding on our revolving credit facility as well as $18 million in King's Quay capex that was incurred during the quarter. We also issued $550 million of new senior notes, raising proceeds of $542 million. This was used to pay off $576 million of 2022 notes. Once you take into account the $34 million of early redemption cost related to the payoff of those notes and account for dividends and other amounts, we ended up with an $80 million cash deficit, which was covered from cash on hand. At the end of the first quarter, we had $231 million of cash and equivalents available and had repaid a net $233 million or 8% of total debt, as Roger mentioned. At current commodity prices, we have a goal to repurchase an additional $200 million of senior notes later this year for a total debt reduction of approximately 15% for the full-year 2021. Additionally, 16 non-operated Eagle Ford Shale wells came online at the end of the quarter, ahead of schedule. Overall, we remain on track to bring online three remaining operated wells and 29 gross non-operated wells in the Eagle Ford Shale and 10 operated Tupper Montney wells in the next two quarters. Our drilling and completion teams have worked hard to reduce the company's environmental impact by using clean-burning natural gas instead of diesel in drilling and completion activities, not only where emissions reduced, but Murphy saved $1.3 million in cost for the quarter, while bringing online 20 wells across North America onshore. We utilized approximately 800,000 barrels of recycled water across our completions programs, which Tupper Montney completions consume nearly 75% recycled water, saving $3 million in disposal costs. On Slide 10, our Eagle Ford Shale production of 30,000 barrels equivalent per day exceeded the midpoint of our guidance for the quarter despite more than 2,000 barrel equivalent per day of impact from February winter storm. Our first-quarter online wells, IP30 rate averaged 1,400 barrels of oil equivalent per day with the IP of the two best wells, reaching 2,000 barrels equivalents per day. In 2018, our average well cost has dropped from approximately $6.3 million per well to now $4.5 million per well in first quarter of '21, with stand-alone completion costs down 40% during that period. Our Tier 2 wells have outperformed our Tier 1 type curve and achieved an average IP rate of 1,400 barrels equivalent per day, and our recent Tier 1 Austin Chalk wells continue to perform in line with the type curve. Murphy produced 234 million cubic feet per day in the first quarter in Tupper and brought online four wells as planned. Drilling and completion costs continue to improve for this asset as well with an approximate 28% reduction since 2017. Average total well costs are now approximately $4.1 million in the first quarter of '21 as compared to $5.5 million in 2019. The top hole sections have been drilled at all three wells as part of Khaleesi/Mormont, Samurai and the Samurai-3 well is currently drilling as the first well in the drilling campaign. Our 10% non-operated working interest provides access to 12 blocks with potential for an attractive play-opening trend and is adjacent to a large position currently held by Murphy and our partners. Today, we're highlighting our view of the resource potential at 500 million to 1 billion barrels. Murphy, along with the operator, ExxonMobil and partners plan to spud the Cutthroat well in the second half of '21, which is approximately net cost to Murphy of $15 million. By maintaining average capex spend of $600 million annually, we forecast a production CAGR of approximately 6% through '24, with oil weighting averaging 50% and offshore production averaging 75,000 barrels equivalent per day. An average WTI price of $60 per barrel enables Murphy to reduce its total debt level to $1.4 billion by 2024 while maintaining a quarterly dividend to shareholders. Further, we remain focused on executing our exploration program with a portfolio of more than 1 billion barrels of oil equivalent on a net risk resource basis. After we have our debt levels, we have the option to reduce debt further toward $1 billion. With current strip prices above $60 per barrel and strong production volumes, we're on target for an additional $200 million of debt repurchases later this year, resulting in a 15% reduction for all of '21. By maintaining conservative capital spending, we project the total debt to be $1.4 billion by 2024, with potential for further reductions beyond that level.

On Slide 4, getting to the details of the quarter, Murphy produced an average of 155,000 barrels equivalent per day with approximately 63% liquids production. For the quarter, we recorded a net loss of $287 million or $1.87 net loss per diluted share. After adjusting for several one-off after tax items, such as a $128 million non-cash impairment charge on Terra Nova and a $121 million non-cash mark-to-market loss on crude oil derivatives, we reported adjusted net income of $10 million or $0.06 adjusted net income per diluted share. Overall, we're maintaining our capex plan of $675 million to $725 million for 2021. Once you take into account the $34 million of early redemption cost related to the payoff of those notes and account for dividends and other amounts, we ended up with an $80 million cash deficit, which was covered from cash on hand.

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Building upon our momentum to start the year, our team delivered another record-setting quarter, as dramatic improvement in both revenue and volume up 34% and 25% respectively outpaced an 11% growth in expense and while the year-over-year improvement is aided by easier comps from last year's economic shut down, our performance in the quarter also improved sequentially in a number of ways as shown on slide 4. Our results includes second quarter records for net income and earnings per share and all-time records for operating income and operating ratio, which was 58.3% this quarter. Our operating discipline enabled us to handle a 25% year-over-year volume increase with 8% fewer people in our workforce and a 1% decrease in active locomotives. So far, we have reduced the cost-per-yard in local crude 7% versus last year and expect additional progress as the year continues. We continue to empower our workforce to the delivery of mobility solutions and have distributed 8,000 smartphones to our T&E employees to facilitate improved reporting and to streamline the process of keeping trains moving. That started a virtuous cycle of improved reliability with 175% improvement in the days between unscheduled events to a shop versus pre-PSR levels, meaning that when units do go into the shop our craftsman can spend more time on preventive maintenance instead of triaging issues. As a result, second quarter revenue in our non-energy markets exceeded pre-pandemic levels by 4%. Our market position enabled a quick recovery and consumer and industrial markets almost fully offsetting the 50% decline in our energy revenue, despite the sharp decrease in this historically profitable segment, we reduced operating ratio, levering the strength of our unique franchise to target segments of the $800 billion truck and logistics markets with a sharp focus on productivity. Total revenue for the quarter was $2.8 billion, up 34% year-over-year on 25% volume improvement. Rising fuel prices and price gains drove a 7% improvement in revenue per unit, led by our intermodal franchise, which delivered record-breaking revenue per unit and revenue per unit less fuel. Beginning with our merchandise segment, both volume and revenue improved 25% versus the second quarter of 2020 driven primarily by recovery from COVID-19 related shutdowns in the prior period. While automotive continued to face headwinds associated with the semiconductor chip shortage, shipments in the second quarter were up 122% year-over-year against easy comps associated with near complete shutdown of vehicle production in the second quarter of last year. Our steel franchise also delivered strong growth this quarter, up 67% as record level steel prices and elevated demand fuel production activity. Combined gains in automotive and steel volume represented roughly 63% of total merchandise growth for the quarter. Domestic shipments were up 17% year-over-year in the second quarter and up 4% from the same period in 2019. International shipments were also strong in the second quarter improving 26% year-over-year on sustained high import demand but were down 3% from the same period in 2019. Approximately 50% of the revenue per unit gain was driven by higher container storage time on terminal due to supply chain recovery challenges. Coal shipments improved 55% year-over-year with strength in both the export and utility markets. We expect the current economic momentum to continue through the end of the year and are raising our guidance for full-year revenue growth to approximately 12% year-over-year. The overall economy continues to surprise to the upside with forecast for 2021 GDP growth now at around 7% and approximately 5% for 2022. Industrial production is forecasted to increase 6% in 2021 and north of 3% in 2022. The operating ratio of 58.3% represents a 1240 basis point improvement. We had $67 million of property gains in the quarter, of which there was one major transaction that closed at the end of the quarter and resulted in a $55 million gain. We view this single transaction is incremental to our normal yearly operating property gain guidance of $30 million to $40 million and it alone represents 100 basis points of the operating ratio improvement this quarter. Earnings per share at $3.28 was $1.75 higher than prior year, aside from the $0.17 goodness from the property gain there was a state tax law change that resulted in a favorable adjustment to our deferred taxes of $0.09. Moving to Slide 16, Alan walked you through the drivers of the 34% increase in revenues, including the 25% growth in volumes. At the same time, we contained growth in operating expenses to 11% as we harvested additional benefits from workforce and asset productivity. The volume growth coupled with the productivity drove strong incremental margins again this quarter resulting in an operating ratio that was a record low 58.3% improving 1240 basis points year-over-year and 320 basis points sequentially versus Q1, including the 200 basis point tailwind from the major property gained. Our operating income at $1.167 billion in the quarter is another record, up $557 million or 91% year-over-year and we generated free cash flow of $1.47 billion through 6 months also a record, and that represents an increase of $447 million or 44% versus the same 6 months last year. Moving now to a drill down of operating expense performance on Slide 17, you will see that operating expenses increased $157 million or 11% and fuel was the biggest driver of the increase with price driving expenses up $83 million. Usage increased due to higher volumes, which was partially offset by another quarter of fuel efficiency gains, a 4% improvement in the quarter. Comp and Ben is up 6% with savings from headcount being down 8% year-over-year, offsetting increases in pay rates and over time. Higher incentive compensation in the quarter was $39 million reflecting the improved outlook for the year and lower accrual rates of last year. The big item in the materials and other column is the favorable compare on gains from property sales, in Q2 and that was $67 million in the quarter versus only $2 million last year. Turning to Slide 18, you will see that other income net of $35 million is $14 million or 29% unfavorable year-over-year due primarily to lower net returns on our company owned life insurance investments. Our effective tax rate in the quarter was only 21%, lower than we typically model and that was primarily from the benefit associated with the state tax law change. Net income increased by 109%, while earnings per share grew 114% supported by the nearly 3.4 million shares we repurchased in the quarter. Wrapping up now with our free cash flow on Slide 19, and as I mentioned free cash flow was a record for the 6 months of 2021 at $1.47 billion buoyed by very strong operating cash generation and relatively modest property additions of $627 million thus far in the year and that translates to a free cash flow conversion of 99% through 6 months although, we still expect property additions to ramp up in the balance of the year and hit our $1.6 billion guidance number. Earlier this quarter, we became the first North American Class 1 railroad to issue a green bond, launching 500 million in green bonds to fund sustainable investments to reduce our carbon emissions and partner with customers to do the same. Our commitment to reduce emissions intensity by 42% in the next 15 years. As Alan mentioned, we are even more confident about growth for the balance of this year and we now expect revenue to be up approximately 12% year-over-year. We are also succeeding in driving productivity into our operations and as a result we got onto our 60% run rate here in the second quarter. We expect to maintain this OR level for the balance of the year, which translates to at least 400 basis points of OR improvement for the full year versus our adjusted 2020 result, and we'll build upon this momentum for more improvements in 2022 and long-term sustained value for our shareholders and customers.

Our results includes second quarter records for net income and earnings per share and all-time records for operating income and operating ratio, which was 58.3% this quarter. Total revenue for the quarter was $2.8 billion, up 34% year-over-year on 25% volume improvement. The operating ratio of 58.3% represents a 1240 basis point improvement. Earnings per share at $3.28 was $1.75 higher than prior year, aside from the $0.17 goodness from the property gain there was a state tax law change that resulted in a favorable adjustment to our deferred taxes of $0.09. The volume growth coupled with the productivity drove strong incremental margins again this quarter resulting in an operating ratio that was a record low 58.3% improving 1240 basis points year-over-year and 320 basis points sequentially versus Q1, including the 200 basis point tailwind from the major property gained.

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Sales grew 24% year-over-year, driven by 17% non-residential sales growth and 36% residential sales growth, as we continue to execute at both ADS and Infiltrator in a favorable demand environment. It was very encouraging to see the demand in our non-residential end market increase 17% this quarter. In addition, allied product sales in the non-residential market increased 23%, giving us confidence in the underlying market strength. We also continue to experience strength in our residential market with 36% growth in the quarter, driven by favorable dynamics in new home construction, repair/remodel and on-site septic, accelerated by the material conversion strategies at both businesses. The retail market, which is roughly 25% of our residential sales, continues to experience strong growth as well with the continued strength in remodeling and home improvement. Sales in the agriculture market increased 33% this quarter, driven by the programs we put in place around organizational changes, new product introductions, and improving execution as well as favorable weather and market dynamics. International sales also increased 18%, primarily driven by double-digit growth in our Canadian business, which represents about 70% of the international revenue. Finally, Infiltrator continues to exceed expectations with 37% sales growth in the third quarter. Adjusted EBITDA margin increased 540 basis points overall in our first full quarter of comparable results from the Infiltrator acquisition. We are certainly fortunate that as part of the construction industry supply chain, we could manufacture and ship our products over the last 12 months without significant interruption. The very strong 24% revenue growth we reported this quarter was driven by both volume and pricing as well as strong growth across both our ADS legacy and Infiltrator businesses as well as in each of our end markets and product applications. The 52% growth in consolidated adjusted EBITDA was driven not only by this strong topline growth, but by favorable material costs, operational efficiency initiatives as well as our synergy programs. Our year-to-date free cash flow increased by $141 million to $391 million as compared to $250 million in the prior year. Our working capital decreased to 16% of sales, down from 19% of sales last year. In addition, we ended the quarter in a very favorable liquidity position, with $224 million of cash and $339 million available under our revolving credit facility, bringing our total liquidity to $563 million. It is also worth noting that our trailing 12-month leverage ratio is now 1.1 times. Based on our performance to date, order activity, backlog and current market trends, we currently expect net sales to be in the range of $1.915 billion to $1.950 billion, representing growth of 14% to 17% over last year. Adjusted EBITDA to be in the range of $550 million to $565 million, representing growth of 52% to 56% over last year. And we expect to convert our adjusted EBITDA to free cash flow at a rate of greater than 60% for the full year.

Based on our performance to date, order activity, backlog and current market trends, we currently expect net sales to be in the range of $1.915 billion to $1.950 billion, representing growth of 14% to 17% over last year. Adjusted EBITDA to be in the range of $550 million to $565 million, representing growth of 52% to 56% over last year.

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10 years ago we were a pure-play vacation ownership company, with three brands, 64 resorts and approximately 420,000 owners. Today we're about vacation experiences, with seven brands, 120 resorts and 700,000 loyal owners in our vacation ownership business and we also have 3,200 resorts and 1.3 million members in our exchange business and more than 150 other resorts and lodging properties in our third-party management business. I've been with Marriott Vacations for 25 years. For example, we ran nearly 95% occupancy in Hawaii for the quarter, so when the government asked travelers to stay away for a few months, we did see occupancy soften a few points late in the quarter. Our urban locations continued to improve nicely during the quarter, with San Diego running over 85% occupancy and Boston running nearly 95%. With the strong domestic occupancy, we delivered $380 million in contract sales which was within 3% of 2019 levels. First-time buyers represented more than 30% of contract sales improving sequentially from the second quarter. And with the products we sell resonating with customers now more than ever VPG excluding, Welk was almost $4500, nearing 30% higher than the third quarter of 2019 with both first-time buyer and owner VPG up double digit. In total these agreements will bring nearly 50,000 new members through the interval system beginning on January 1. We sold more tour packages in the third quarter than we did in the second, ending September with more than 214,000 tours in our package pipeline. Owner and preview reservations for the first half of next year are up 10% compared to the same time in 2019. In a recent survey 71% of our owners stated that they are likely to travel within the next three months with 90% likely to travel in the next 12 months. I've had the pleasure of working closely with Tony since I joined Marriott Vacations nearly 13 years ago and I couldn't be happier for him. As a result, we grew contract sales by 5% sequentially in the third quarter to $380 million which was almost back to 2019 levels. Adjusted development profit increased 19% sequentially to $98 million. Adjusted development profit margin expanded sequentially by 335 basis points to 30%, the highest margin in our 10 years since becoming a public company, highlighting the benefits of more efficient marketing and sales spending, lower inventory costs and synergy savings. This did impact our transient keys rented during the third quarter, but with average revenue per key, increasing 9% sequentially, rental revenues increased 11% and profit grew 73%. Resort management revenue increased 2% compared to the second quarter and margin was approximately 56% and financing profit increased 16% from the prior year due to the inclusion of Welk. With our contract sales growing 5% sequentially in the third quarter, and financing propensity improving to 60%, our notes receivable balance increased sequentially. Turning to the acquisition of Welk, while we're not providing detailed results for the Welk business given its relative size, our vacation ownership results did include $30 million of contract sales and $18 million of adjusted EBITDA better than we anticipated. As a result, total adjusted EBITDA in our vacation ownership segment increased 18% sequentially to $215 million. The quarter benefited from strong growth in development and rental profit and the impact of our business transformation initiatives, enabling us to deliver margins that were nearly 360 basis points higher than two years ago. Turning to the exchange and third-party management segment, active members at Interval declined slightly on a sequential basis, and average revenue per member declined 7% due to lower exchange volumes, which I mentioned last quarter. As a result, adjusted EBITDA at our exchange and third-party management segment declined $2 million sequentially. However, margins expanded by 70 basis points on cost-saving initiatives. I'm also very excited about all the new resort affiliations Steve talked about, which will bring nearly 50,000 new interval members to the system by early next year. Finally, corporate G&A expense declined 20% sequentially in the third quarter, primarily related to lower bonus expense. As a result, total company adjusted EBITDA increased 25% in the quarter on a sequential basis to $205 million and margin improved to over 27%, more than 300 basis points above the third quarter of 2019, demonstrating the strength of our leisure-focused business model and the benefits of our synergy and transformation initiatives. So with the recovery in the business, we felt that now was the right time to reduce our corporate debt by the $500 million, we borrowed last May at the onset of the pandemic and begin to return cash to shareholders again. In September, we've paid off the remaining $250 million of our 6.5% notes due 2026. We followed that in October by repaying $250 million of the 6% and 8% notes we issued last May. With our current corporate debt at $2.5 billion and the strong recovery in the business, we are on track to get back to debt to adjusted EBITDA of three times or less. And more importantly by taking advantage of the favorable rate environment and healthy capital markets, we expect our cash interest expense next year to be around $20 million lower than our 2019 cash interest expense. We ended the quarter with $448 million of cash, gross notes receivable eligible for securitization of $278 million and almost $600 million of available capacity under our revolver. Pro forma for the debt repayment in October, we had $4.1 billion of debt outstanding including $1.6 billion of non-recourse debt related to our securitized notes receivable as well as total liquidity of more than $1 billion. Finally our Board of Directors reinstated our quarterly dividend and authorized the $250 million share repurchase program effective September 10, enabling us to repurchase $4.5 million of our own shares in the last couple of weeks in September. As a result, we expect contract sales to grow to between $385 million and $405 million in the fourth quarter just above the fourth quarter 2019 at the midpoint. For those trying to compare our fourth quarter results to the fourth quarter of 2019, remember that reportability that year positively impacted our adjusted EBITDA by $22 million. And this year, we only expect the benefit to be in the $10 million to $12 million range. Finally, while we're not providing free cash flow guidance today, with more than $640 million of excess inventory, I would expect our adjusted EBITDA to adjusted free cash flow conversion to be well above our normal 55% range for a number of years enabling us to return to our historic capital allocation strategy.

As a result, we expect contract sales to grow to between $385 million and $405 million in the fourth quarter just above the fourth quarter 2019 at the midpoint.

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Let me begin with four important facts: first, our earnings per share was up 20%, which I'm sure you appreciate, is no small feat in this pandemic environment; second, we shipped an all-time record 2.2 million tons of cement during the quarter; third, we shipped the second quarter record 720 million square feet of Wallboard; and fourth, and most importantly, we achieved these results safely. Cement volumes were up 23% for the quarter and up 28% for the fiscal year, reflecting the overall strength across all of our organic markets. Now let me turn to Wallboard. Our Wallboard shipments were up 6% this quarter and were up 6% for the fiscal year, a consistent trend. Latest industry data showed industry shipments, up 1% for the quarter. Finally, let me comment on the status of the planned separation of these two businesses, Cement and Wallboard. Because of this uncertainty, we have not determined the timing for the split. Second quarter revenue was a record $448 million, an increase of 12% from prior year. This increase primarily reflects contribution from the Kosmos Cement Business, we acquired in March, and organic revenue improved 2%, reflecting increased Cement and Wallboard sales volume. Second quarter earnings per share from continuing operations were $2.16, an improvement of 20%. Revenue in this sector increased 15%, driven primarily by the addition of the recently acquired Kosmos Cement business. Organic cement sales volume and prices improved 1% and 4%, respectively. Operating earnings also increased 15%, again, reflecting the addition of the Kosmos Cement Business. As we discussed last quarter, because of COVID-19, we delayed certain planned cement plant maintenance outages until our second quarter, which resulted in approximately $5 million of higher maintenance costs this quarter compared with the prior year period. Second quarter revenue in our Wallboard and Paper business was up 1%, as improved sales volume was partially offset by lower Wallboard prices. Quarterly operating earnings in this sector declined 1% to $48 million, again reflecting lower Wallboard sales prices, partially offset by increased volume. During the first six months of the year, operating cash flow increased 94%, reflecting earnings growth, disciplined working capital management and the receipt of the majority of our IRS refund. Capital spending declined to $41 million, and we continue to expect capital spending in the range of $60 million to $70 million for fiscal 2021. At September 30, 2020, our net debt-to-cap ratio was 48% and our net debt-to-EBITDA leverage ratio was two times. Total liquidity at the end of the quarter was over $700 million, and we have no near-term debt maturities.

Now let me turn to Wallboard. Finally, let me comment on the status of the planned separation of these two businesses, Cement and Wallboard. Because of this uncertainty, we have not determined the timing for the split. Second quarter revenue was a record $448 million, an increase of 12% from prior year. Second quarter earnings per share from continuing operations were $2.16, an improvement of 20%.

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Net income in the second quarter was $228.2 million or $4.12 per share, which includes a $125.2 million of after-tax gains on our investment portfolio. The rebound in the markets in the second quarter, helped to partially offset first quarter after-tax losses of $198.5 million on our investment portfolio. Year-to-date, net income was $89 million or $1.61 per share, which includes $73.4 million of after-tax losses on our investment portfolio. Our second quarter operating earnings were $1.86 per share compared to $0.74 per share in the second quarter of 2019. The improvement in operating earnings was primarily due to a reduction in the combined ratio from 98.3% in the second quarter of 2019 to 88.2% in the second quarter of 2020. Catastrophe losses in the quarter was $12 million compared to $9 million in the second quarter of 2019. The Company recorded $12 million in unfavorable reserve development in the quarter compared to $9 million in the second quarter of 2019. The lower frequency in the quarter was partially offset by an increase in severity and the give back of $100.3 million of premiums to personal auto customers as a result of less driving from the COVID-19 pandemic. Although our commercial auto line of business also saw a decline in frequency in the quarter, increases in severity, unfavorable reserve development of $7 million and the give back of $5.5 million of premiums to commercial auto customers negatively impacted our commercial auto results in the quarter. In addition, $3 million of unfavorable reserve development negatively impacted our homeowners results this quarter. To improve our homeowners results, a 6.99% rate increase in our California homeowners line went into effect in April. In addition, a 6.99% rate increase was recently approved by the California Department of Insurance. California homeowners premiums earned represent about 87% of companywide direct homeowners premiums earned and 15% of direct companywide premiums earned. Our commercial multi-payer results in the quarter were negatively impacted by a large $5 million fire loss net of reinsurance. We also introduced Phase 1 of our new commercial multi payroll product and system in California in the second quarter. The total reinsurance limit purchased increased from $600 million in the prior period to $717 million for the July 2020 through June 2021 period. Our retention remains the same at $40 million. Total annual premiums on a new reinsurance program are approximately $50 million. For the prior reinsurance treaty, total premiums were $38 million. The expense ratio was 27.2% in the second quarter of 2020 compared to 24.4% in the second quarter of 2019. The higher expense ratio in the quarter was primarily due to the reduction of premiums earned of $106 million due to premium refunds and credits to eligible policyholders for reduced driving and business activities as a result of the COVID-19 pandemic. Excluding the premium refunds and credits, the expense ratio would have been 24.1%. Premiums written declined 12.5% in the quarter primarily due to the $106 million in premium refunds and credits. Excluding the $106 million in premium refunds and credits, premiums written declined by 1.2%. In addition, we plan on returning $22 million of July 2020 monthly premiums to eligible policyholders in August. Accordingly, we expect third quarter premiums written and earned to be reduced by approximately $22 million.

Net income in the second quarter was $228.2 million or $4.12 per share, which includes a $125.2 million of after-tax gains on our investment portfolio. Our second quarter operating earnings were $1.86 per share compared to $0.74 per share in the second quarter of 2019.

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Organic growth companywide was 1% on top of 6% in last year's Q4, with earnings of $2.31 per share driven by a good December strong execution and a lower-than-anticipated tax rate. While focusing on customers, we also saw good benefits from our actions to drive productivity, improve yields and control costs, which helped offset the margin impact of supply chain disruptions, inflation and COVID-19. In addition, our selling price actions continued to gain traction with a year-on-year increase of 2.6% in Q4 versus 1.4% in Q3. Sales were $8.6 billion, up 0.3% year-on-year or an increase of 1.3% on an organic local currency basis against our toughest quarterly comparison last year. Operating income was $1.6 billion with operating margins of 18.8% and earnings per share of $2.31. All in, these impacts lowered operating margins by 2.4 percentage points and earnings per share by $0.33 year on year. On a year-on-year perspective, Q4 selling prices increased 260 basis points as compared to 140 basis points in Q3 and 10 basis points in Q2. In dollar terms, higher year-on-year selling prices offset raw material and logistics cost inflation in Q4, which resulted in an increase in earnings of $0.03, however, remained a headwind of 20 basis points to operating margins. Next, foreign currency, net of hedging impacts, was a headwind of 10 basis points to margins and $0.04 per share year on year. First, a reduction in other expenses resulted in a $0.10 earnings benefit. This included a $0.06 benefit from non-operating pension, which was similar to prior quarters. We also have been proactively managing our debt portfolio, including the early redemption of $1.5 billion, which helped drive a $0.04 benefit year on year from lower net interest expense. Second, a lower tax rate versus last year provided a $0.12 benefit to earnings per share. And for the full year, our tax rate was 17.8%. And finally, average diluted shares outstanding decreased 1% versus Q4 last year, increasing per-share earnings by $0.02. Fourth-quarter adjusted free cash flow was $1.5 billion or down 30% year on year, with conversion of 110%. For the full year, adjusted free cash flow was $6 billion with adjusted free cash flow conversion of 101%. Fourth-quarter capital expenditures were $556 million, up $134 million year on year and $213 million sequentially as we continue to invest in growth, productivity and sustainability. Looking at the full year, capital expenditures totaled $1.6 billion. During the quarter, we returned $1.8 billion to shareholders through the combination of cash dividends of $848 million and share repurchases of $938 million. For the full year, we returned $5.6 billion to shareholders in the form of dividends and share repurchases. We ended the year with $4.8 billion in cash and marketable securities on hand and reduced net debt by $1.2 billion or 8% versus year-end 2020. As a result, we exited the year with net debt-to-EBITDA of 1.4 times. I will start with our Safety and Industrial business, which posted an organic sales decline of 1.3% year on year in the fourth quarter. This result included a disposable respirator sales decline of approximately $110 million year on year, which negatively impacted Safety and Industrial's Q4 organic growth by nearly 4 percentage points. Our personal safety business declined mid-teens organically versus last year's 40% pandemic-driven comparison. Safety and industrial's fourth-quarter operating income was $543 million, down 22% versus last year. Operating margin was 17.7%, down 440 basis points versus Q4 last year. Our auto OEM business was down mid-teens organically year on year, compared to the 13% decline in global car and light truck builds. As we mentioned last quarter, we experienced an increase in channel inventory levels with the tier suppliers in Q3 as auto OEM production volumes decelerated from 18.5 million builds in Q2 to 16.3 million in Q3. During the fourth quarter, OEM production volumes increased to 20.2 million builds or up over 20% sequentially. This sequential increase in build activity drove a reduction of channel inventory levels with the tier suppliers during the quarter, which negatively impacted Q4 organic growth for our automotive business by approximately 10 percentage points. For the full year, our auto OEM business was up low double digits, as compared to global car and light truck builds growth of 2%. Fourth-quarter operating income was $406 million, down 15% year on year. Operating margins were 17.6%, down 270 basis points year on year. Turning to our healthcare business, which posted a fourth-quarter organic sales increase of 1.6%. Fourth-quarter elective medical procedure volumes were approximately 90% of pre-COVID levels, which is similar to Q3 and last year's Q4. Health care's fourth-quarter operating income was $536 million, down 2% year on year. Operating margins were 23.6%, down 50 basis points. For the quarter and full year, healthcare's adjusted EBITDA margins were strong, coming in at nearly 31%. Lastly, our consumer business finished out the year strong with organic growth of 4.9% year on year on top of last year's 10% comparison. Consumer's operating income was $316 million, flat compared to last year. Operating margins were 21.4%, down 100 basis points year on year. Against this backdrop, the 3M team kept a relentless focus on serving customers, ensured continuity of raw material supply, managed ever-changing manufacturing production plans, navigated logistic constraints, and delivered strong full-year organic growth of 9%, with all business segments posting high single-digit growth. These actions, combined with strong organic growth, helped to deliver full-year operating margins of 20.8% or down 50 basis points year on year on an adjusted basis. In addition, we continue to focus on working capital improvement, which helped contribute to another year of robust adjusted free cash flow coming in at $6 billion. In the face of an uncertain environment, we delivered strong organic growth of 9%, with strength across all business groups, along with margins of 21%. This drove a 14% increase in adjusted earnings per share. We generated robust free cash flow of $6 billion with an adjusted conversion rate of 101%, enabling us to invest in the business, reduce net debt by $1 billion and return significant cash to shareholders. All in, 3M returned $5.6 billion to our shareholders through dividends and share repurchases, and 2021 marked our 63rd consecutive year of dividend increases. We continue to help the world respond to COVID-19 with 2.3 billion respirators distributed last year for a total of 4.3 billion since the onset of the pandemic, while engaging with governments on how to prepare for future emergencies. In Zwijndrecht, Belgium, we installed and activated a treatment system last month to reduce PFAS discharges by up to 90%. This is part of a EUR 125 million commitment to improve water quality and support the local community. This includes multiple programs to make STEM education more available to underrepresented groups and achieve our goal to deliver 5 million learning experiences. We are innovating faster and differently, including new ways to collaborate with customers and partners virtually, while investing $3.6 billion in the combination of R&D and capex to strengthen 3M for the future. In 2021, for example, our automotive electrification platform grew 30% organically, and our biopharma business grew 26%. Our home improvement business grew 12% on top of 13% growth in 2020, driven by iconic brands, including our Command damage-free hanging solutions and Filtrete home filtration products. To accelerate our ability to meet increasing demand for Command and Filtrete, last week, we announced a nearly $500 million investment to expand our operations in Clinton, Tennessee, adding nearly 600 manufacturing jobs by 2025. This includes the ongoing deployment of our ERP system, which went live in Japan in Q4, and also moving more than 60% of our enterprise applications and global data center infrastructure to the cloud, while streamlining our business group-led operating model.

Organic growth companywide was 1% on top of 6% in last year's Q4, with earnings of $2.31 per share driven by a good December strong execution and a lower-than-anticipated tax rate. While focusing on customers, we also saw good benefits from our actions to drive productivity, improve yields and control costs, which helped offset the margin impact of supply chain disruptions, inflation and COVID-19. Sales were $8.6 billion, up 0.3% year-on-year or an increase of 1.3% on an organic local currency basis against our toughest quarterly comparison last year. Operating income was $1.6 billion with operating margins of 18.8% and earnings per share of $2.31. Fourth-quarter adjusted free cash flow was $1.5 billion or down 30% year on year, with conversion of 110%. I will start with our Safety and Industrial business, which posted an organic sales decline of 1.3% year on year in the fourth quarter. We continue to help the world respond to COVID-19 with 2.3 billion respirators distributed last year for a total of 4.3 billion since the onset of the pandemic, while engaging with governments on how to prepare for future emergencies.

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During the pandemic, we added over 2 million new eCommerce customers and with the support of our wholesale customers, the online sales of our brands exceeded $1 billion last year. With respect to sales trends, the fourth quarter got off to a strong start with October sales at 95% of prior year sales, consistent with the very strong demand we saw in September. November and December sales were 84% of prior year sales. All of our U.S. stores remained open for the quarter though we did curtail hours 13% based on lower traffic. Our border and tourist stores represent 10% of our U.S. stores that contributed over 20% of the decline in comparable sales. Our store conversion rate grew 5% in the quarter. The average transaction value grew 9%, driven by higher units per transaction and better price realization. In the fourth quarter 94% of our comparable stores were cash flow positive. 90% of our stores are in open-air shopping centers and these stores outperformed the chain. As we shared with you last year, we plan to close about 25% of our 2019 store portfolio upon lease expiration. About 60% of those closures are planned this year, 80% of the closures are planned by the end of next year. These stores collectively contributed over $140 million in sales in 2020 with an EBITDA margin of less than 3%. By comparison, the balance of our stores had an EBITDA margin of nearly 18%. Our store closure plan is expected to be accretive to earnings in 2021 and provide a $10 million cumulative earnings benefit by 2025. ECommerce penetration grew to 45% of our retail sales, up from 38% in the third quarter. Omni-channel sales grew to 24% of our eCommerce orders in the fourth quarter, up from 12% last year. Last year, we leveraged our stores from Maine to Hawaii to ship online purchases from over 600 stores. We expect the mix of omni-channel sales to grow to nearly 40% of online orders by 2025. ECommerce sales of our brands through our wholesale customers grew over 30% in the fourth quarter and up over 50% for the year. Our International segment contributed over 11% of our fourth quarter sales. Canada and Mexico contributed nearly 90% of our international sales. Our eCommerce sales in those markets grew over 60% in the fourth quarter and grew to 30% of our international retail sales from 18% last year. Most challenging component of our International segment is with smaller retailers, representing our brands in over 90 countries. Though individually small, collectively they contributed about 15% of our international sales in 2019 and were margin accretive. Wholesale sales to these retailers were down over 50% in the fourth quarter. Our suppliers were running on average 10 days late due to COVID-related challenges and precautions and transportation delays. By 2025, we expect sales to grow to nearly $3.7 billion with an expansion of our operating margin to 13%. Carter's is the number one brand in baby apparel with over 4 times this year of our nearest competitor. We've seen births decline almost every year since the Great Recession began in 2007. And since 2007, our sales and earnings have more than doubled. The largest growth in our sales before the pandemic, both in percentage and absolute dollars, was driven by our product offerings focused on 10 -- 5 to 10-year-old children. International sales contributed about 12% of our consolidated sales in 2020 and are expected to grow to 15% of sales by 2025. Over the next five years, over 60% of our international sales growth is forecasted to be driven by our multichannel operations in Canada and Mexico. I'll begin on Page 2 with our GAAP income statement for the fourth quarter. Net sales in the quarter were $990 million, down 10% from the prior year. This year's fiscal year included a 53rd week, so the fourth quarter consisted of 14 weeks versus 13 weeks last year. This extra week represented $32 million in additional net sales in 2020 and contributed roughly $1 million of operating income. Reported operating income was $134 million, a decrease of 18% and reported earnings per share for the fourth quarter was $2.26, down 20% compared to $2.82 a year ago. On Page 3 is our GAAP income statement for the full year. Net sales for the year were just over $3 billion, a decline of 14%. Reported operating income was $190 million, down nearly 50% and reported earnings per share for the year was $2.50, down 57% from $5.85 in 2019. Our fourth quarter and full year results for both 2020 and 2019 contained unusual items which are summarized on Page 4. On Page 5, we've summarized some highlights of the fourth quarter. ECommerce comparable sales were strong, up 16% in the U.S. and up 47% in Canada. Turning to Page 6 for a summary of net sales for the fourth quarter; reported net sales declined 10% to $990 million. On a comparable 13-week basis, net sales declined 13% year-over-year. We've estimated that the impact of late arriving product negatively affected sales by about $30 million in the fourth quarter. Turning to Page 7 and our adjusted P&L for the fourth quarter; while sales were down versus last year, as I mentioned, the profitability of our sales increased significantly with our gross margin increasing by 460 basis points to 47.1%. So despite sales decreasing over $100 million, gross profit dollars were roughly comparable with a year ago. Royalty income declined about $1 million versus last year, largely due to the timing of shipments of spring seasonal goods which shifted from the fourth quarter last year into first quarter 2021 and late arriving product. Adjusted SG&A increased 5% to $327 million. Adjusted operating income was $145 million compared to $162 million in the fourth quarter of 2019 and adjusted operating margin was 14.7%, comparable to last year. Below the line, net interest expense was $15 million, up from $9 million in the prior period due to the $500 million in new senior notes we issued in the second quarter. We had a $2 million foreign currency gain in the fourth quarter and our effective tax rate was approximately 18%, down from about 19% last year. On the bottom line, adjusted earnings per share was $2.46, down 12% compared to $2.81 in 2019. Moving to Page 8 with some balance sheet and cash flow highlights. Total liquidity at the end of the fourth quarter was approximately $1.8 billion with $1.1 billion of cash on hand and virtually all of the borrowing capacity under our $750 million credit facility available to us. Quarter-end net inventories were up 1% to $599 million. Our Q4 accounts receivable balance declined 26% compared to the prior year, principally due to lower wholesale sales. Accounts payable increased by $290 million to $472 million, which reflects the extension of payment terms and rent deferrals. Long-term debt was nearly $1 billion, up from roughly $600 million at the end of last year. Operating cash flow in 2020 increased by about $200 million to $590 million. Moving to Page 9 with a summary of our adjusted full year performance; while 2020 sales and earnings were of course meaningfully affected by the pandemic, the combination of our strong product offering, marketing, inventory management and productivity initiatives enabled us to minimize the overall profit impact of lower sales. The effectiveness of our initiatives is most evident and looking at the difference in our performance between the first and second halves of the year, which we've summarized on Page 10. In the first half our gross margin declined by 350 basis points in part due to taking higher provisions for excess inventory. Turning to Page 12 with a summary of our business segment performance in the fourth quarter. Now, turning to Page 13 with some detail on U.S. retail performance in the fourth quarter. Total segment sales declined 6% compared to last year. Total comparable sales declined 9%, reflecting strong eCommerce growth and lower store sales. The adjusted operating margin of our U.S. Retail segment improved by 280 basis points to 19.1%, driven by higher product margins as a result of improved price realization, lower product costs and lower inventory provisions. Moving to Page 14 with an update on our omni-channel initiatives; our investments in recent years to build our omni-channel capabilities are clearly paying off. Lastly, our ship-to-store and pickup in-store options have driven significant traffic to our stores accounting for 1.7 million store visits in 2020. About 25% of the time customers picking up their online orders made incremental purchases while in the store. Moving to Page 15 to some of our recent marketing; fourth quarter marked the arrival of the first babies conceived during COVID. On Page 16 we continued to innovate in our marketing in the fourth quarter and lean into emotionally driven digital experiences for families such as our virtual visits with Santa and virtual PJ parties with Leslie Odom Jr., the star of Hamilton. As Mike said, we added 1 million new online customers in 2020. These brand's storytelling and customer engagement efforts resulted in a record 8 billion media impressions across the year, a significant increase over 2019. Turning to Page 17; we continue our efforts to expand the reach of our brands to more diverse consumers, which reflects our company's broader focus on diversity and inclusion. Moving to Page 18 and with a recap of the U.S. wholesale results for the fourth quarter; net sales were $290 million compared to $349 million a year ago. Sales of the Carter's brand and sales in the off-price channel were each down about 40%, tracking with our reduced inventory positions in these parts of the business. Online demand for our brands through our wholesale customers was strong in the fourth quarter with growth of 36% over the prior year. U.S. wholesale adjusted segment income was $54 million in the fourth quarter compared to $67 million a year ago. Adjusted segment margin declined 60 basis points, reflecting higher compensation and marketing expenses that were offset in part by lower inventory-related charges and lower bad debt expense. On Page 19, we've included a photo from Kohl's, which is one of our largest and longest tenured wholesale customers. On Pages 20 through 22, we've included a few slides that highlight our exclusive brands which are available at Target, Walmart and on Amazon. These brands had a terrific 2020 and that momentum continued into the fourth quarter where collectively sales of the exclusive brands increased 13% over 2019. On Page 21, we've depicted some of the beautiful Child of Mine product carried at Walmart. Moving to Page 23 and our fourth quarter results for our International segment; international net sales declined 13% to $114 million. Online demand in Canada was very strong with eCommerce comps up nearly 50%. International adjusted operating margin was 13.3% compared to 16.2% a year ago. On the next few pages, beginning on Page 25, we've summarized some of our thoughts on our strategic positioning in the industry and the growth we're targeting over the next few years. On Page 26, we've summarized our mission and vision. On Page 27, there are a number of elements which we believe will contribute to our planned growth in sales and earnings over the coming years. Turning to Page 29 and our outlook for 2021; while there remains significant uncertainty regarding the ongoing impact of COVID-19, we believe we will have good growth in both sales and earnings in 2021. We're expecting all of our business segments will deliver growth in net sales with our consolidated net sales growing about 5%. Adjusted earnings per share is expected to grow about 10%, a bit less than what we are planning for operating income growth because of the higher interest costs from the senior notes we issued last year and an assumption of a higher tax rate with more of our income expected to be generated in the United States this year versus overseas. We do expect first quarter profitability will increase significantly with operating income in the neighborhood of $30 million and adjusted earnings per share of approximately $0.25 compared to losses a year ago.

Our border and tourist stores represent 10% of our U.S. stores that contributed over 20% of the decline in comparable sales. Our store conversion rate grew 5% in the quarter. Our store closure plan is expected to be accretive to earnings in 2021 and provide a $10 million cumulative earnings benefit by 2025. Our suppliers were running on average 10 days late due to COVID-related challenges and precautions and transportation delays. The largest growth in our sales before the pandemic, both in percentage and absolute dollars, was driven by our product offerings focused on 10 -- 5 to 10-year-old children. Net sales in the quarter were $990 million, down 10% from the prior year. Reported operating income was $134 million, a decrease of 18% and reported earnings per share for the fourth quarter was $2.26, down 20% compared to $2.82 a year ago. On Page 5, we've summarized some highlights of the fourth quarter. ECommerce comparable sales were strong, up 16% in the U.S. and up 47% in Canada. Turning to Page 6 for a summary of net sales for the fourth quarter; reported net sales declined 10% to $990 million. Adjusted SG&A increased 5% to $327 million. On the bottom line, adjusted earnings per share was $2.46, down 12% compared to $2.81 in 2019. The effectiveness of our initiatives is most evident and looking at the difference in our performance between the first and second halves of the year, which we've summarized on Page 10. On Page 16 we continued to innovate in our marketing in the fourth quarter and lean into emotionally driven digital experiences for families such as our virtual visits with Santa and virtual PJ parties with Leslie Odom Jr., the star of Hamilton. We're expecting all of our business segments will deliver growth in net sales with our consolidated net sales growing about 5%. Adjusted earnings per share is expected to grow about 10%, a bit less than what we are planning for operating income growth because of the higher interest costs from the senior notes we issued last year and an assumption of a higher tax rate with more of our income expected to be generated in the United States this year versus overseas. We do expect first quarter profitability will increase significantly with operating income in the neighborhood of $30 million and adjusted earnings per share of approximately $0.25 compared to losses a year ago.

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In the fourth quarter, net income of $25.7 million drove earnings per share of $0.27, beating the consensus estimate of $0.23 per share. Core ROAA and the core efficiency ratio were 1.14% and 56%, respectively. Our core pre-tax pre-provision ROAA was 1.76%, due to an increase in the core net interest margin to 3.29% and continued strength in non-interest income driven by mortgage, interchange income, wealth management and SBA. Provision expense of $7.7 million included a pass-through item of $3.2 million in unfunded commitment expense. This is why we continue to make significant investments in next-generation technology in 2020 with the new online mobile platform, a new treasury management system, 100% issuance of a contactless debit and credit cards and new P2P solutions like Zelle and real-time payments, and we refreshed our digital account opening, customer experience with the new mobile responsive design. Debit card interchange income was up 11% or over $2.3 million year-over-year, driven by robust increase in transactions and dollar volume. New digital deposit account openings were up 189%. Digital customer conversations are up 233% from 2019. Mobile remote deposit capture users increased 45%. Image deposits at ATMs increased 84%. Virtual meeting collaboration increased 175% to over 2,600 a month. And then there is our favorable Apple Store rating of 4.8 on our FC Mobile Banking app. During 2020, and per Page 10 in our supplemental deck, we quickly built our loan loss reserve using qualitative overlays. It now stands at 1.61% of total loans ex-PPP and covers fourth quarter non-performing loans of $54.1 million by 187%, the highest coverage figure for the year. NPLs or non-performing loans, as a percentage of loans, was 0.80% or 80 basis points and net charge-offs in 2020 were 27 basis points for the year. On Page 13, the increase stems almost entirely from expanding deferrals to a handful of hospitality credits totaling $76 million or 29.6% of that particular portfolio. During 2020, we grew our top line some $7 million while our expenses grew only $2 million, net of some restructuring charges. Our full-year core efficiency ratio fell from 56.97% in 2019 to 56.28% in 2020, indicative of the result of the management team. Among dozens of initiatives here, we consolidated some 20% of our branches before year-end after starting the process in late March. We also nimbly used the remainder of a previously authorized buyback to purchase 2 million shares at a weighted average of $7.84 per share in the fourth quarter. In 2020, we also had a record year with $94 million in non-interest income, as interchange, mortgage, wealth management and SBA all had record years as well. Non-interest income for the fourth quarter was 28% of revenues and was 26% for the entire year. Ex-PPP, total loans grew $111 million or 2% in 2020 on the backs of strong consumer and mortgage lending and modest growth in small business. Once again, however, our newer Ohio markets found the path for broad-based growth and they now account for 34% of total loans. Fee income was actually suppressed by $1.2 million due to the mark-to-market on a single derivative. Second, the net interest margin expanded from 3.11% last quarter to 3.28%[Phonetic] this quarter, in part due to our intentional efforts to reduce excess customer cash levels. Core NIM expanded by 1 basis point in the quarter from 3.28% last quarter to 3.29% as the cost of deposits continued to come down. Third, core non-interest expense was up from last quarter as strong mortgage originations and other activity drove increased incentive expense, while at the same time reduced loan originations in other areas resulted in a slowdown of 1091 [Phonetic] expense deferrals. Hospitalization expense was up by $600,000 from last quarter and we had a $400,000 expense in the fourth quarter related to the annual true-up of our BOLI liability. So those two items alone accounted for $1 million of the increase in expense from last quarter. As far as we can tell right now, we believe that our core NIM will be approximately 5 basis points on either side of 3.20% in 2021, but many factors could change that number and we'll update you as the year progresses. Our expectation had been that we'd reach neutrality in asset yield in mid-2021, but in the fourth quarter negative replacement yields only brought down the loan portfolio yield by 2 basis points, so we're almost there. We have $471.2 million in CDs maturing in 2021 with $289.9 million yielding 1.21% maturing in the first half. And we also have $129.4 million in money market savings deposits that currently yield 1.22% that will reprice in the first half of 2021. Turning now to non-interest expense, we believe core NIE should come in at between $52 million to $53 million per quarter. That's up from $206.4 million in 2020 and from our previous guidance. Part of the increase was due to a $2 million to $3 million expected increase in collection and repo expense, but that remains quite unclear, especially if foreclosure, moratoriums and unemployment insurance are extended. As we announced yesterday, our Board has approved an additional $25 million share repurchase program. Our consumer delinquencies at year-end continue to be very low and were only 2 basis points, I'm sorry our commercial delinquencies. Our consumer delinquencies kicked up a bit at year-end to 45 basis points, due to seasonality. We were pleased to see that our investments in the collections team resulted in a favorable comparison to pre-COVID-19, 12/31/19, consumer delinquencies at 54 basis points. Criticized loans increased by approximately $114 million, largely due to downgrades in the hospitality portfolio. Non-performing loans at year-end totaled $54.1 million, an increase of $4.3 million from the prior quarter. We had a number of smaller credits that we moved to accrual and one hospitality relationship with the balance of approximately $7 million that was moved to non-accrual. The net increase was $4 million in non-performing loans. Non-performing loans as a percentage of total loans, excluding PPP, was 0.86% and our allowance for credit losses as a percentage of non-performing loans increased to a healthy 187%. Non-performing assets as a percentage of total assets increased from 0.55% in Q3 to 0.62% in Q4. Net charge-offs for the fourth quarter came in at $4.8 million. Net charge-offs as a percentage of average loans, excluding PPP, was 0.30%. First, you should note that we adopted CECL at 12/31/2020 and booked a transition amount of $13.4 million. Provision for Q4 was $7.7 million, including $3.2 million related to the unfunded commitments. As noted on Page 10 of the supplemental slide deck, the total qualitative reserve factors increased by a net $8.3 million quarter-over-quarter. Specific to the identified COVID-19-related high risk portfolios, the qualitative reserve is applied for the quarter of $9.1 million. Credit carefully considered the five high risk portfolios as outlined on Page 13 of the slide deck. The reserve build slide in the deck provides a bridge from a 12/31/19 balance of $51.6 million to the year-end reserve of $101.3 million. This is exclusive of the $3.2 million of provision for unfunded commitments. Reserves to total loans grew to 1.50% of total loans and 1.61% of total loans net PPP loans.

In the fourth quarter, net income of $25.7 million drove earnings per share of $0.27, beating the consensus estimate of $0.23 per share.

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Through the first four months of 2021, our participation rate in recently approved new molecular entities in the U.S. and Europe continues to be strong with over 95% of these approvals using either West or Daikyo components. We have accelerated the timeline for capacity builds within our existing footprint by working closely with our incumbent suppliers and staging installations around the 24/7 plant schedules. Our first phase, which began at the start of the pandemic is about 75% installed and operational, with expected completion in second half of the year. Our financial results are summarized on Slide 9, and the reconciliation of non-U.S. GAAP measures are described in Slides 17 to 20. We recorded net sales of $670.7 million representing organic sales growth of 31.1%. COVID-related net revenues are estimated to have been approximately $102.9 million in the quarter. Proprietary products sales grew organically by 39.6% in the quarter. High-value products, which made up more than 70% of proprietary products sales in the quarter grew double digits and had solid momentum across all market units throughout Q1. We recorded $271.9 million in gross profit, $104.9 million or 62.8% above Q1 of last year. And our gross profit margin of 40.5% was a 650-basis-point expansion from the same period last year. We saw improvements in adjusted operating profit with $179.2 million recorded this quarter, compared to $88 million in the same period last year, for a 103.6% increase. Our adjusted operating profit margin of 26.7% was an 880-basis-point increase from the same period last year. Finally, adjusted diluted earnings per share grew 103% for Q1. Excluding stock-based compensation tax benefit of $0.15 in Q1, earnings per share grew by approximately 102%. Volume and mix contributed $146.7 million or 29.8 percentage points of growth, including approximately $102.9 million of volume driven by COVID-19-related net demand. Sales price increases contributed $6 million or 1.2 percentage points of growth, and changes in foreign currency exchange rates increased sales by $26.5 million or an increase of 5.4 percentage points. Slide 12 shows our consolidated gross profit margin of 40.5% for Q1 2021, up from 34% in Q1 2020. Proprietary products first-quarter gross profit margin of 46.3% was 610 basis points above the margin achieved in the first quarter of 2020. The key drivers for the continued improvement in proprietary products gross profit margin were favorable mix of products sold driven by growth in high-value products, production efficiencies, one-time fees associated with certain canceled COVID supply agreements of approximately $11.8 million, and sales price increases, partially offset by increased overhead costs, inclusive of compensation. Contract manufacturing first-quarter profit gross margin of 15.7% was 140 basis points above the margin achieved in the first quarter of 2020. Operating cash flow was $88.7 million for the first quarter of 2021, an increase of $31.6 million compared to the same period last year or a 55.3% increase. Our first-quarter 2021 capital spending was $54.7 million, $22.6 million higher than the same period last year and in line with guidance. Working capital of $844.2 million at March 31, 2021, declined slightly by $26.1 million from December 31, 2020. Our cash balance at March 31 of $483.7 million was $131.8 million less than our December 2020 balance primarily due to our share repurchase program activity offset by the positive operating results. Full-year 2021 net sales are expected to be in a range of $2.63 billion and $2.655 billion, compared to prior guidance range of $2.5 billion and $2.525 billion. This guidance includes estimated net COVID incremental revenues of approximately $345 million. There is an estimated benefit of $75 million based on current foreign exchange rates. We expect organic sales growth to be approximately 19% to 20%. We expect our full-year 2021 adjusted diluted earnings per share guidance to be in a range of $6.95 to $7.10, compared to a prior range of $6 to $6.15. We are keeping our capex guidance at $230 million to $240 million but continue to evaluate the levels needed to support our continued growth. Estimated FX benefit on earnings per share has an impact of approximately $0.23 based on current foreign currency exchange rates.

We recorded net sales of $670.7 million representing organic sales growth of 31.1%. Full-year 2021 net sales are expected to be in a range of $2.63 billion and $2.655 billion, compared to prior guidance range of $2.5 billion and $2.525 billion. We expect our full-year 2021 adjusted diluted earnings per share guidance to be in a range of $6.95 to $7.10, compared to a prior range of $6 to $6.15.

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We continued our record of strong core operations and FFO growth, with an 8.1% growth in normalized FFO per share in the quarter. Our new home sales grew by 24%, contributing to the high quality of occupancy at our MH communities. We ended the quarter with Core Portfolio occupancy of 95.4%. Home sale leads from websites increased by 37% in the quarter. We ended the quarter with a 15% increase in transient revenue. Over 5,000 new members purchased the camp pass, which was an increase of 64% over the first quarter of 2020. Our members we're looking for expanded access to our portfolio and we saw an increase of $5 million in sales. We now have 117,000 members with access to the Thousand Trails footprint. The survey results show that 98% of respondents who were new to camping last year, plan to camp again this year. The survey indicate the plan for increased camping adventures with 65% of those responding indicating an intention to more this year. The survey also showed that 70% of those responding do not plan to travel by plane this year. Since launch, over 160,000 guests completed the online checking process, allowing them to get to their site more quickly and with less direct interaction. Based on the first quarter survey results, guests responded to customer experienced questions with a rating of 4.5 out of 5. Our COVID response team has been instrumental in arranging 39 vaccination events at our properties that supplied vaccinations for approximately 8,700 individuals. For the first quarter, we reported $0.64 normalized FFO per share. Core MH rent growth of 4.7% includes 4.1% rate growth and approximately 60 basis points related to occupancy gains. Annual RV rental income represents 90% of the combined RV and marina rental income from annuals, and has increased 3.5% with 3.4% from rate. Within the core marina portfolio, marina rent from annuals represents approximately 99% of total marina rental income. Included with our guidance assumptions composed in January, we estimated a $10 million decline from combined seasonal and transient revenues compared to first quarter 2020. The actual decline was approximately $6 million. Upgrade sales volume increased by 640 units compared to first quarter 2020. The price of upgrade sold increased approximately 10% compared to last year. In addition to strong demand for upgrades, our camping pass sales volume increased more than 60% during the quarter. First quarter core property operating maintenance and real estate tax expenses increased 2.3% compared to prior year. Utility expense payroll, real estate taxes and repairs and maintenance combined represent more than 80% of our core expenses in the quarter, and the average increase across these categories was 2.3%. In summary, first quarter core property operating revenues increased 2.8% and core NOI before property management increased 1.9%. Property operating income from the non-core portfolio, which includes assets acquired in 2020 and during the first quarter 2021, was $3.3 million. Property management and corporate G&A were $25.9 million, flat to first quarter 2020. Other income and expenses were approximately $3.1 million higher than first quarter 2020, mainly from home sale profits and ancillary income. Interest and related amortization was $26.3 million, slightly higher than prior year. Our full-year 2021 normalized FFO guidance is $2.38 per share, at the midpoint of our range of $2.33 to $2.43. Normalized FFO per share at the midpoint represents an estimated 9.7% growth rate compared to 2020. Core NOI is projected to increase 5.3% at the midpoint of our range of 4.8% to 5.8%. We expect second quarter normalized FFO at the midpoint of our range of approximately $103.5 million, with a per share range of $0.51 to $0.57. We expect the second quarter to contribute 22% to 23% of full year normalized FFO. We project a core NOI growth rate range of 6.9% to 7.5%. Our guidance for the second quarter assumes a growth rate of approximately 14% compared to 2019. This represents a core transient RV revenue increase of approximately $8.8 million compared to 2020. During the quarter, we closed the previously disclosed $270 million 10-year secured loan with a fixed interest rate of 2.4%. In April, we closed on an amended unsecured credit facility, including a $500 million revolver and a $300 million fully funded term loan. The term loan matures in five years and we've executed a fixed rate swap that locks in the interest rate at 1.8% for three years. Current secured debt terms available for MH and RV assets range from 55% to 75% LTV, with rates from 2.5% to 3% for 10-year maturities. Our debt to EBITDA is 5.7 times and our interest coverage is 5.2 times. The weighted average maturity of our outstanding secured debt is almost 13 years.

For the first quarter, we reported $0.64 normalized FFO per share.

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We delivered 5% organic sales growth in the second quarter, which marked our 10th consecutive quarter, delivering organic sales growth either in or above our targeted range of 3% to 5%. We delivered growth in both developed markets with 3% organic sales growth and emerging markets, which delivered 7% organic sales growth. Our largest category, Oral Care, delivered organic sales growth of nearly 10%, with organic sales growth across toothpaste, manual toothbrushes and electric toothbrushes, and organic sales growth in every division. Pet Nutrition delivered organic sales growth of 15%. Net sales increased 9.5% in the quarter, which was our highest net sales increased in almost 10 years. Foreign exchange was a 4.5% benefit to net sales as we lap the peak of last year's COVID-driven strength in the dollar. In the second quarter, our gross profit margin was 60%, which was down 80 basis points year-over-year on both a GAAP basis and a base business basis. Year-to-date, our gross margin of 60.4%, down 10 basis points. For the second quarter, pricing was 90 basis points favorable to gross margin, less than in the first quarter as we lapped lower promotional spending in the year-ago period when many of our markets reacted to COVID restrictions by pulling back on promotional activity. Raw materials were at 370 basis point headwind as we continue to see significant pressure from resins, fats and oils and agriculture-related costs, and many other materials. Productivity was a 200 basis point benefit. Our SG&A was up 100 basis points as a percent of sales for the second quarter on both a GAAP and base business basis. This was primarily driven by an increase in logistics costs and also by a 30 basis point increase in advertising to sales. For the second quarter on a GAAP basis, our operating profit was up 5.5% year-over-year, while it was up 2.5% on a base business basis. Our earnings per share was up 12% on a GAAP basis and up 8% on a base business basis. North American net sales declined 4% in the second quarter with organic sales down 4.5% and a modest benefit from foreign exchange. Volumes were down 8. 5% in the quarter, driven by Home Care and Personal Care, which saw strong growth in the year ago period, driven by COVID-related demand. It comes with an aluminum handle and by using our replaceable heads, consumers can use 80% less plastic compared to similarly sized Colgate toothbrushes. Latin America net sales were up 12.5% with 8.5% organic sales growth and a 400 basis point benefit from foreign exchange. Volume was plus 2.5% in the quarter despite a sizable negative impact due to political unrest in Colombia, our third largest market in Latin America. Pricing was up 6% despite lapping lower promotional spending in Q2 2020 as well as some incremental pricing in the year-ago period as we look to offset foreign exchange. Europe net sales grew 15% in the quarter. Organic sales grew 5% driven by mid-teens growth in Oral Care, offset by declines in personal and home care as we lap COVID-related demand in the year-ago period. Volume grew 7% in the quarter, offset by a 2% decline in pricing as we lap lower promotions in the year-ago period as store traffic declined in Q2 2020 due to COVID restrictions. We delivered 7.5% net sales and 1% organic sales growth in Asia Pacific this quarter, with organic growth in oral care partially offset by a decline in home care. Volume growth of 3.5% was partially offset by negative pricing as we cycled lower promotional levels in the year-ago period given COVID-related lockdowns across the region, with the biggest impact coming on our South Pacific business. After Eurasia continued its strong performance trend in the third quarter with net sales growth of 15.5%, as we delivered strong organic sales growth throughout the division once again. Volume grew 9.5% in the quarter, while pricing was up 3.5%. Foreign exchange was a 2.5% benefit in the quarter. Hill's strong growth continued in the second quarter with 18% net sales growth and 15% organic sales growth. Both developed and emerging markets delivered 10% volume growth as our increased investment around the globe is driving this highly differentiated brands. We still expect organic sales growth to be within our 3% to 5% long-term target range. All in, we still expect net sales to be up 4% to 7%. Our tax rate is now expected to be between 23% and 24% for the year on both a GAAP and base business basis. So the overriding message I want to lead with you today is that our strategy to reaccelerate profitable growth by focusing on our core adjacencies all over the world, new channels and markets is really working, as we like to say nothing moves in a straight line, but we now have 10 straight quarters of organic sales growth at or above our long-term target range. Year-to-date, we at the high end of the range despite difficult comparisons and continued volatility in the business. And as I look back at my comments to you over the past 18 months that we've been dealing with the implications of COVID, there's one consistent theme that we keep coming back, managing through this crisis with an eye on the future. So 18 months into the COVID, many of the challenges are the same, some have changed, but our approach remains we will manage through the crisis with an eye on the future, and so far we feel we've done a pretty good job. But we have to deliver gross margin expansion to fund our brand investment, while we know -- while we now expect gross margin to be down modestly for 2021, it comes on the heels of strong gross margin expansion in 2020 and in the face of unprecedented increases in raw material prices.

Pricing was up 6% despite lapping lower promotional spending in Q2 2020 as well as some incremental pricing in the year-ago period as we look to offset foreign exchange. Volume grew 9.5% in the quarter, while pricing was up 3.5%. All in, we still expect net sales to be up 4% to 7%. Year-to-date, we at the high end of the range despite difficult comparisons and continued volatility in the business. But we have to deliver gross margin expansion to fund our brand investment, while we know -- while we now expect gross margin to be down modestly for 2021, it comes on the heels of strong gross margin expansion in 2020 and in the face of unprecedented increases in raw material prices.

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He joined Donaldson last week after two decades on the sell side, which included 15 years of covering our company. First quarter sales were up 3% sequentially, which is not typical seasonality, signaling that the worst of the impact from the pandemic on our business may be behind us. Gross margin was up 60 basis points from the prior year resulting in the highest first quarter gross margin in four years, and the best sequential improvement in at least a decade. We reduced operating expenses by 5% while maintaining investments in our strategic growth priorities, particularly as they relate to the Industrial segment. And altogether, we had a decremental operating margin of only 4% which we view as very positive given the uneven economic environment. Total sales were down 5.4% from prior year or 6.4% in local currency. On-Road sales were down 21% in the quarter, which is still a steep decline, but notably better than the past few quarters. Although Class 8 truck production in the US remains depressed, order rates are increasing and third party forecast for the next calendar year suggest the Class 8 recovery is on the horizon. We had a very strong quarter in China with Off-Road sales up more than 50%. First quarter sales and aftermarket were down only slightly from the prior year and they were up 6% from the prior quarter. In Europe, first quarter sales were up 4% in local currency as conditions improved in Western Europe. In China, first quarter sales of Engine aftermarket were up more than 30% reflecting strong growth in both channels. PowerCore is our most mature example of how our razor to sell razor blade strategy works and the brand is still going strong after 20 years. First quarter sales were down about 6% including a benefit from currency of about 2%. While these type of optimization initiatives are standard work for us, I'm calling it out because during our fourth quarter call, we said Process Filtration sales were about $50 million of fiscal 2020. Following our reorganization that number is more like $68 million. Sales of Gas Turbine Systems were up 11%, driven by strong growth of replacement parts and we continue to gain share. Versus the prior year operating margin was up 50 basis points, driven entirely by gross margin. That translates to a decremental margin of 4%, but that's probably not the level to expect over time. First quarter sales were up 3% from the fourth quarter and our operating profit was up almost 6%. That yields in incremental margin of 24.5%, which is in line with our longer term targets from Investor Day and several points ahead of our historic average. First quarter gross margin increased 60 basis points to 35% despite the impact from the loss of leverage and higher depreciation. Operating expenses were down 5% from the prior year, which resulted in a slight increase as a rate of sales. Moving down the P&L, first quarter other expense of $1.5 million compared with income in the prior year of $2.6 million. We returned more than $40 million of cash to shareholders last quarter, including a repurchase of 0.3% of outstanding shares and dividends of $27 million. We have paid a dividend every quarter for 65 years and we are on track to hit another milestone next month. So this anniversary signals that we have been increased our dividend annually for the past 25 years. In terms of sales, we expect second quarter Will end between a 4% decline and a 1% increase from the prior year and that means sales should be up sequentially from the first quarter. We also expect a year-over-year sales increase in the second half of fiscal '21, and sales are planned to migrate toward a more typical seasonality meaning that second half Will carry slightly more weight than the first. For our full year tax rate, we are now expecting something between 24% and 26%. Our long-term target is plus or minus 3% of sales and we would expect our capex to be below that level this year. We plan to repurchase at least 1% of our outstanding shares which Will opt dilutions [Phonetic] with stock based compensation. Should we see incremental improvement in the economic environment, it is reasonable to expect that we Will repurchase more than 1% this fiscal year. Finally, our cash conversion is still expected to exceed 100%. Baghouses have used the same low-tech solution for decades, and they represent about half of the $3 billion to $4 billion industrial air filtration market. We are currently competing for projects with an aggregate 10 year value of more than $3.5 billion, telling us the market for innovation is healthy and we have a significant opportunity to win new business. Our focus is very consistent with what we laid out 18 months ago at our Investor Day.

In terms of sales, we expect second quarter Will end between a 4% decline and a 1% increase from the prior year and that means sales should be up sequentially from the first quarter. We also expect a year-over-year sales increase in the second half of fiscal '21, and sales are planned to migrate toward a more typical seasonality meaning that second half Will carry slightly more weight than the first.

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And we have proven pricing power, elevating our AUR across every channel and geography over the last 4.5 years so that we have room to absorb near-term pressures we've seen in our business, such as tariffs or current inflationary headwinds. On top of all of this, we made further progress toward our long-term target of mid-teens operating margins, with second quarter margins of 17%, representing the highest Q2 rate since fiscal '13. Together, these campaigns generated over 71 billion media impressions in the second quarter as we continue to inspire new generations of athletes and dreamers. Early engagement has outpaced our expectations with 100,000 items already sold in just a few weeks. In all, we added 1.4 million new consumers to our direct-to-consumer channels alone this quarter, a 19% increase to last year. And our total social media followers continue to grow, reaching 46.9 million globally led by Instagram. And in its first month, it ranked among the top three men's fragrances in key markets around the globe, including in the U.S. and more than 75% of purchases on ralphlauren.com were made by consumers who are new to the brand. We continued the build-out of our brand-elevating key city ecosystems around the world in the second quarter, with 35 new stores and concessions opening in top cities globally and 13 locations closed. Despite COVID-related shutdowns in July and August, our Mainland sales were still up more than 25% to last year and more than 70% to LLY in constant currency. Our global digital ecosystem, including our directly operated sites, departmentstore.com, pure players and social commerce, grew approximately 45% in the quarter in constant currency and 50% to LLY. All channels and geographies are showing strong momentum as we build on the healthier foundation we set over the past 18 months. Second quarter revenues increased 26% to last year with positive growth in every region, led by Europe and North America. Compared to second quarter fiscal '20 or LLY, revenues declined 12%. Total digital ecosystem sales grew approximately 45% in constant currency to last year and 50% to LLY, including 35% growth in our own digital business. Digital margins were also strongly accretive to our second quarter profitability, consistent with last year and about 1,300 basis points higher than LLY. Total company adjusted gross margin was 67.3% in the second quarter, up 80 basis points to last year on a reported basis and 50 basis points in constant currency despite increased freight headwinds of approximately 150 basis points. Adjusted gross margins increased 580 basis points to LLY. Second quarter AUR grew 14% on top of 26% growth last year, with increases across every region. Adjusted operating expenses increased 17% to last year to $755 million and declined 5% compared to LLY, reflecting our restructuring savings. Marketing increased 83% to 6.1% of sales in the quarter with a focus on new customer acquisition and long-term brand-building initiatives. Operating expenses were below our initial plan as we shifted about $25 million of investment into the second half of the year based on COVID disruptions. Adjusted operating margin for the second quarter was 17.1%, up 450 basis points to last year and 220 basis points to LLY. This was above our guidance of 13% to 14% margin, largely driven by improvements in Europe and North America wholesale. Excluding the timing shift, operating margin was still well ahead of our plan, above 15%. Second quarter revenue increased 30% to last year, supported by strong product assortments, new customer acquisition and market share gains. Compared to LLY, North America revenues declined 20%, but included a 15-point headwind from our strategic distribution reset and Chaps similar to Q1. In North America retail, revenues grew 34% to last year. Comps increased on improved traffic and 23% AUR growth, reflecting our continued elevation around product, marketing and more targeted pricing and promotions. Brick-and-mortar comps increased 31%, driven by double-digit growth in AUR, basket sizes and traffic. Although foreign tourist sales improved significantly to last year, they were still down more than 80% to LLY due to continued softness in international travel. Comps in our owned digital commerce business grew 32% this quarter. New consumers increased 12% to last year and more than 50% to LLY. In North America wholesale, revenues increased to 23% to last year. Overall, wholesale AUR growth continues to accelerate, up 30% to LLY as we elevated our assortments and pulled back on seasonal promotions in the channel. And our momentum on Wholesale Dot Com drove digital sellout growth of more than 45% to both last year and LLY. Second quarter revenue increased 38% on a reported basis and 36% in constant currency, above our expectations. Europe comps increased 27% in the quarter. Bricks-and-mortar comps were up 28%, driven by improved traffic, AUR and basket sizes. Digital commerce comps increased 24% on top of a 26% comp last year when COVID-related closures shifted more business online. Revenue increased 14% on a reported basis and 13% in constant currency. Our Asia retail comps increased 7% with 69% growth in digital commerce and 4% growth in bricks-and-mortar stores. In total, COVID-related closures and operating restrictions negatively impacted Asia sales by about 3.5% in the quarter. And while the Chinese Mainland still grew more than 25% this quarter, our performance was also tempered by COVID lockdowns from late July through August. We ended the quarter with $3.1 billion in cash and investments and $1.6 billion in total debt, which compares to $2.4 billion in cash and investments and $1.6 billion in total debt last year. Net inventory increased 5%, modestly below our plan due to global supply chain delays. As we move into the second half of this fiscal year, we are recommitting to our long-term capital allocation priorities outlined prior to COVID. Second, with peak pandemic closures likely behind us, we are focused on returning 100% of our free cash flow to shareholders in the form of dividends and share repurchases. And we expect to resume our share repurchase program starting in the second half of this fiscal year, with about $580 million remaining under our current share authorization. For fiscal '22, we are raising our revenue growth to 34% to 36% growth to last year in constant currency on a 53-week basis, excluding approximately $700 million in annualized revenue we reset during the pandemic. Foreign currency is expected to negatively impact full year revenues by about 20 basis points. We expect gross margins to expand at the high end of our prior range of 50 to 70 basis points or roughly 450 basis point increase to LLY. Our outlook improved on more favorable pricing and product mix this year despite increased freight costs, which we now expect to be in the range of 130 to 150 basis points due to our plans to use more air freight to fulfill strong demand in the back half. We still expect operating margins of 12% to 12.5%, which compares to 4.8% operating margin last year and 10.3% in fiscal '20. We continue to expect operating margin rates for the back half of the year to moderate from first half levels based on increased second half marketing investments of approximately 7% to 8% of sales reaching our full year target of at least 6% of sales this year, increased air freight expense in the back half of the year and our assumption of more normalized channel mix compared to last year's COVID disruptions. For the third quarter, we expect constant currency revenues to increase approximately 14% to 16%. Foreign currency is expected to negatively impact revenues by about 140 basis points. We expect operating margins of about 13% to 13.5% in the third quarter, roughly in line with last year. We now expect the full year tax rate to be about 21% to 22% with a third quarter tax rate of around 22% to 23%.

Total digital ecosystem sales grew approximately 45% in constant currency to last year and 50% to LLY, including 35% growth in our own digital business. Second quarter AUR grew 14% on top of 26% growth last year, with increases across every region. Adjusted operating expenses increased 17% to last year to $755 million and declined 5% compared to LLY, reflecting our restructuring savings. This was above our guidance of 13% to 14% margin, largely driven by improvements in Europe and North America wholesale. Second quarter revenue increased 30% to last year, supported by strong product assortments, new customer acquisition and market share gains. Second quarter revenue increased 38% on a reported basis and 36% in constant currency, above our expectations. Revenue increased 14% on a reported basis and 13% in constant currency. As we move into the second half of this fiscal year, we are recommitting to our long-term capital allocation priorities outlined prior to COVID. For fiscal '22, we are raising our revenue growth to 34% to 36% growth to last year in constant currency on a 53-week basis, excluding approximately $700 million in annualized revenue we reset during the pandemic. We expect gross margins to expand at the high end of our prior range of 50 to 70 basis points or roughly 450 basis point increase to LLY. For the third quarter, we expect constant currency revenues to increase approximately 14% to 16%. We expect operating margins of about 13% to 13.5% in the third quarter, roughly in line with last year.

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The demand environment in the quarter was robust and continued the momentum from the first quarter and despite posting a 30% organic top-line growth, we exit Q2 with a sequentially higher order backlog. It's been 90 days since the last time we were asked the question about the duration of "transitory inflation". We are raising our annual revenue growth guidance to 15% to 17%, and our adjusted earnings per share guidance to $7.30 a share to $7.40 a share. Engineered Products revenue was up 25% organically. Importantly, waste handling bookings were robust and the backlog was up nearly 75% versus the prior year. Fueling Solutions was up 25% organically in the quarter on the strength of the above ground and below ground retail fueling globally, including some remaining tailwinds from the EMV opportunity in the U.S. following the April deadline. Order backlogs were up 29%, and we expect our software and service business hanging hardware, vehicle wash and compliance-driven underground product offerings to help offset the anticipated headwinds from the EMV roll-off. Sales in Imaging & ID improved 20% organically. Margins improved by 420 basis points on volume leverage, pricing and productivity initiatives. Pumps & Process Solution posted another banner quarter at 34% organic growth on improved volumes across all businesses except Precision Components. Industrial pumps grew by over 20% on robust end customer demand with particular strength in China. Margins in the quarter expanded by 910 basis points on strong volumes, favorable mix and pricing. Top-line growth in Refrigeration & Food Equipment continued its impressive clip posting a 44% organic growth. Margins in the segment improved by 580 basis points, driven by strong volumes and productivity actions partially offset by availability issues with installation raw materials and labor and food retail operations, we expect -- which we expect to subside in the second half. Our top-line organic revenue increased by 30% in the quarter with all five segments posting growth with particular strength in our Pumps & Process Solutions and Refrigeration & Food Equipment segments. FX benefited the top-line by about 5% or $68 million. Acquisitions added $19 million of revenue in the quarter. The U.S., our largest market posted 25% organic growth in the quarter on solid trading conditions in retail fueling, marking & coding, biopharma, food retail and can making. Europe grew by 30% on strong shipments in vehicle aftermarket, biopharma and industrial pumps and heat exchangers. All of Asia was up 38% organically on growth in biopharma, marking & coding, plastics and polymers, heat exchangers and retail fueling demand outside of China. China, which represents a little over half of our business in Asia was up 33% organically in the quarter. Moving to the bottom of the page, bookings were up 61% organically, reflecting continued broad-based momentum across the portfolio. On the top of the chart, adjusted EBIT was up $173 million and margin improved 400 basis points, as improved volumes, continued productivity initiatives and strategic pricing offset input cost inflation. Adjusted segment EBITDA was up 350 basis points. Adjusted net earnings improved by $135 million as higher segment EBIT more than offset higher taxes, as well as higher corporate expenses primarily relating to compensation accruals and deal expenses. The effective tax rate excluding discrete tax benefits was approximately 21.7% for the quarter compared to 21.6% in the prior year. Discrete tax benefits were $11 million in the quarter or $9 million higher than 2020 for approximately $0.07 of a year-over-year earnings per share impact. Rightsizing and other costs were $11 million in the quarter or $8 million after-tax. We are pleased with the cash performance thus far this year, with free cash flow of $364 million, a $96 million increase over last year. Free cash flow conversion stands at 9% of revenue for the first half of the year, 80 basis points higher than the comparable period last year, despite a significant investment in working capital and the impact of prior year tax deferrals that did not repeat this year. On the left hand, you can see a sample of the current growth and productivity capex projects that we are working on, that add up to $75 million of spend. Our current dry powder on a full-year '21 basis is approximately $3.3 billion. Our revised annual guidance is on Page 11. We now expect to achieve 15% to 17% all-in revenue growth this year.

We are raising our annual revenue growth guidance to 15% to 17%, and our adjusted earnings per share guidance to $7.30 a share to $7.40 a share. We now expect to achieve 15% to 17% all-in revenue growth this year.

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We rapidly accelerated our transformation to a digital-first company, fast-tracking numerous innovation and technology investments, which drove higher consumer engagement and year-over-year digital sales increase of nearly 20%, led by Soma's digital sales increase of 72%. And according to the NPD Group, for the 12 months ended January 2021, Soma's growth exceeded that of the U.S. apparel market and the market leader for nonsport bras and panties and was in the top five brands overall in the sleepwear market. The average age of our new customers dropped 10 years for Chico's and eight years for Soma. We significantly enhanced our liquidity and financial flexibility by amending and extending our credit facility to $300 million and ended the year with a solid cash position. We obtained landlord commitments of $65 million in rent abatements and reductions and further rationalized our real estate position by permanently closing 40 underperforming locations over the last year. These efforts resulted in approximately $235 million of annual savings in fiscal 2020 or 23% greater than our original plan. Today, the intimate apparel and loungewear market is a nearly $7 billion business in the U.S. and is forecasted to reach over $11 billion by 2025. We have successfully enrolled 42% of our active customer file in Style Connect, representing almost three million customers. We have a growing customer base with the most meaningful growth in our under 34 age group, as a result of more inclusive branding and evolved product assortment. And our loyalty program already has some of the highest participation rates in retail at over 90%. Our Chico's customers averaged well over 12 years with us. Over the last year, we have reduced our supplier base by 20%, and agents currently represent 32% of the business, and we expect to lower that to about 18% by 2022. While Soma is now a digital-first business, it is supported by 259 boutiques. We have opened 10 so far this year, and we will open 40 more by early May. We've closed 40 underperforming locations since the beginning of fiscal 2020 and ended the fiscal year with 1,302 boutiques. We have strong lease flexibility with nearly 60% of our leases coming up for renewals or kick-outs available over the next three years. To further improve store productivity, we anticipate closing 13% to 16% of our remaining store fleet over the next three years, with 40 to 45 of those closures occurring in fiscal 2021. This means from the beginning of fiscal 2019 through the end of fiscal 2023, we will close up to a total of 330 stores, well ahead of our original multiyear closure target of 250 stores. We ended the fiscal year with $109 million of cash and cash equivalents after paying $38 million in fourth-quarter rent settlements. And we navigated the fourth quarter without increasing debt levels on our newly amended credit facility, which matures in October 2025. As you recall, last year, we renegotiated over 90% of our store leases, resulting in commitments of $65 million in rent abatements and reductions. On a cash basis, approximately $44 million of these savings were realized in fiscal 2020, with the majority of the balance expected to be realized in fiscal 2021. This $65 million represented about 25% of our annual rent expense, which we felt was a reasonable request at the time. However, with the effect of the pandemic now extending well beyond original expectations this month we are launching Phase 2 of our lease renegotiation process, going back to our landlords for additional reductions. Phase 2 will focus on the continuing COVID impact on our stores. In the fourth quarter, we permanently closed eight stores, bringing our net year-to-date closures to 39. As of fiscal year-end, we have closed 123 stores since the beginning of fiscal '19. Net sales totaled $386.2 million compared to $527.1 million last year. This 26.7% decrease reflects a comparable sales decline of 24.9% as well as the impact of 39 net store closures in the year, partially offset by a double-digit growth in digital sales. For the fourth quarter, we reported a net loss of $79.1 million or $0.68 per diluted share, which included $35.9 million or $0.32 per diluted share and significant after-tax noncash charges outlined in today's release. The majority of these charges related to a $32.1 million or $0.28 per share deferred tax asset valuation allowance. Gross margin in the fourth quarter was 19% of net sales compared to 32.5% last year. We ended the year with inventories down over 17% from the prior fiscal year-end. Our apparel inventories are down over 20%, and some inventories are up 2% year over year. As we look ahead to the first half of fiscal '21, we are planning year-over-year apparel inventories down more than 30%, and Soma inventories up over 30% as we continue to cannibalize on the momentum in this rapidly growing business. SG&A expenses for the fourth quarter totaled $136.2 million, an improvement of $40.8 million from last year, reflecting our ongoing expense reduction initiatives to align our cost structure with sales. The effective fourth-quarter tax rate was a provision of 20.4% compared to a benefit of 21.6% from last year's fourth quarter. In addition, our fiscal year-end balance sheet reflects a federal income tax receivable of approximately $35 million that we expect to realize in the second quarter of fiscal '21. We are continuing to implement supply chain efficiencies and intend to maintain stringent inventory controls, with fiscal 2021 first half inventories planned down roughly 30% to last year.

And we navigated the fourth quarter without increasing debt levels on our newly amended credit facility, which matures in October 2025. Net sales totaled $386.2 million compared to $527.1 million last year. This 26.7% decrease reflects a comparable sales decline of 24.9% as well as the impact of 39 net store closures in the year, partially offset by a double-digit growth in digital sales. For the fourth quarter, we reported a net loss of $79.1 million or $0.68 per diluted share, which included $35.9 million or $0.32 per diluted share and significant after-tax noncash charges outlined in today's release. We ended the year with inventories down over 17% from the prior fiscal year-end.

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Starting with safety, as we always do, we had a 33% reduction in record incidents. Sales grew about 1%. The organic decline was minus 1%, but in particular, if you take out aerospace and look at the industrial only, industrial segment grew organically almost 4%, so that was significant. We had 5 all-time quarterly records. EBITDA margin was very strong at 21.6% as reported, 21.8% adjusted a huge increase versus prior 250 basis points, year-to-date cash flow was an all-time record of $1.9 billion and 18 -- a little over 18% of sales. If you go to the very last row of this page, you see segment operating margin on an adjusted basis, 21.4% and again, a significant improvement versus prior, plus 240 basis points. The earnings per share over this time period is more than doubled from $7 to our guidance of $14.80, so approaching $15 and was propelled that over that time period as an EBITDA margin that's grown 600 basis points. Then our performance, which really sits with the strategy of the company, Win Strategy 2.0, at the kind of the beginning of this journey and then The Win Strategy 3.0 most recently in FY 2020. On the right-hand side is really the internal things we've been doing, Win Strategy 3.0, in particular, but that last slide that I just went through, spoke to all those internal actions because that's what's been propelling us. And it's one of the key reasons why our LORD business has grown so nicely even despite the pandemic we grew 11% organically in Q3 from LORD. Sales for the quarter were $3.746 billion. That is an increase of 1.2% versus prior year. Industrial segment organic growth was 3.7%. Obviously, that was offset by the Aerospace Systems segment, their organic decline was 19.7%. So all in, that drove total organic sales to minus 1.0. Currency was a favorable impact this quarter of 2.2%. Moving to segment operating margins, you saw the number, 21.4%, that's an improvement of 240 basis points from prior year. It's also an improvement of 130 basis points sequentially, strong margin performance there. Adjusted EBITDA margins did expand 250 basis points from prior year, finished the quarter at 21.8%. And net income is $540 million, which is a 14.4% ROS. That's increased by 22% from prior year. Adjusted earnings per share is $4.11 that is $0.72 or 21% increase compared to prior year's results of $3.39. If you slide to slide 12, this is really a bridge of that $0.72 increase in adjusted earnings per share versus prior year. Adjusted segment operating income did increase by $98 million or 14% versus prior year, that equates to $0.58 of earnings per share and really is the primary driver of the increase in our adjusted earnings per share number. Interest expense was favorable to prior by $0.12 as we posted yet another quarter of sizable repayment of our serviceable debt, and that is really benefiting from our strong cash flow generation. Other expense, income tax and shares netted to a $0.02 favorable impact compared to prior year. Discretionary statements came in exactly as we guided, at $25 million for Q3, and now total $215 million year-to-date. That remains $10 million. And we continue to forecast the total year to be $225 million in full year savings. If you move to permanent savings, we realized $65 million in Q3. Our total year-to-date is $190 million. The full year forecast, again, here remains, as previously communicated, at $250 million. One item to note, we did guide that the cost of the FY 2021 restructuring would come in around $60 million. It's now expected to be $10 million less or $50 million but there is no change to the expected savings that we are forecasting. Total incremental impact for the year for both permanent and discretionary savings is $260 million. In our diversified North America business, sales were $1.76 billion. It still is down 1.2% from prior year, but if you look at the adjusted operating margins, we did increase those operating margins by 190 basis points versus prior year and reached 21.9% for the quarter. If you slide over to order rates, another positive here, they improved significantly from plus one last quarter, and they're now ending the quarter at plus 11. Looking at the diversified industrial international sales, robust organic growth here of 11.1%. Total sales came in at $1.39 billion, and another great story here, adjusted operating margins expanded substantially and reached 21.6%, an improvement of 400 basis points versus prior year. And again, another plus here is order rates accelerated in this segment and are now plus 14% for the quarter. If you look at aerospace systems, they continue to really perform soundly in the current environment sales were $599 million for the quarter. Organic sales showed a slight sequential improvement from Q2, but are still down basically 20% from prior year. What's nice here is operating margins were 19.4%, 30 basis points better than prior year, despite that 20% decline in volume. And if you look at our fiscal year, that performance of 19.4% is the highest they've done all year, so we're really proud about that. This quarter, they're 18% decremental margins. Order rates appeared to have bottomed and finished at minus 19% for this quarter. That diversified industrial segment, organic growth of 3.7% as a positive. Total segment margins improved 240 basis points from prior year and at record levels. Orders have turned positive and are plus 6% and our teams really continue to leverage the Win Strategy to drive significant improvements in our business and increased productivity and generate strong cash flow. Year-to-date cash flow from operations is now $1.9 billion. That's 18.1% of sales. That's up 45% from prior year, and it is a year-to-date record. Moving to free cash flow at 16.8% of sales. That's an increase of 630 basis points over prior year, and our free cash flow conversion is now 141%, which compares to 1.22% in the prior year, so great cash flow generation there. We did pay down $426 million of debt this quarter. That brings our total debt reduction to a little over $3.2 billion in the last 17 months since the LORD acquisition closed. This reduced our gross debt-to-EBITDA to 2.4%, it was 3.8% in the prior year, and net debt-to-EBITDA is now 2.2%, and that's down from 3.5% in the prior year. Last week, you saw our Board of Directors approved a quarterly dividend increase of $0.15 or 17%. This raises our quarterly dividend from $0.88 to $1.03 per share and extends our record of increasing the annual dividends paid per share to 65 consecutive years. Have positioned us to increase our full year outlook for sales to a year-over-year increase of 4.5% at the midpoint and the breakdown of that sales change is this. Organic sales are now expected to be flat year-over-year. Acquisitions will add 3%, and the full year currency impact is expected to be 1.5%. We've calculated the impact of currency to spot rates as of the quarter ended March 31 and we held those rates constant to estimate the Q4 21 impact. Our guidance for the full year is raised to 20.8% and that would equate to an increase of 190 basis points versus prior year. Corporate G&A, interest and other is expected to be $381 million on an as-reported basis and $479 million on an adjusted basis. The main difference between those two numbers is that $101 million pre-tax or $76 million after-tax gain on real estate that we recognized and adjusted in the other income line in Q2. We're now expecting the full year tax rate to be 22.5% and moving to earnings per share on a full year basis. Our as-reported earnings per share guidance range has increased from $12.96 to $13.26, that's $13.11 at the midpoint. And on an adjusted basis, we're increasing the range from $14.65 to $14.95, and that's $14.80 at the midpoint. For Q4, adjusted earnings per share is projected to be $4.18 per share, that excludes $0.54 or $93 million of acquisition-related amortization expense, the finishing of our business realignment expenses and integration cost to achieve. That increases our previous guide by $0.57. The order strength that we just reviewed and really the exceptional operation and execution by our teams have allowed us to increase Q4 guide by an additional $0.33, and that is exclusively based on increased segment operating income. This raises our full year earnings per share guide by about 6.5% from prior guide. And our dividend increase, which I would just highlight the first time, we've ever been over at $1.03 on a quarterly dividend, which we're very proud of. So the Win Strategy 3.0 and our purpose statement is well positioned, in addition to those inflection points for a very strong future.

Industrial segment organic growth was 3.7%. Adjusted earnings per share is $4.11 that is $0.72 or 21% increase compared to prior year's results of $3.39. Organic sales are now expected to be flat year-over-year. Our as-reported earnings per share guidance range has increased from $12.96 to $13.26, that's $13.11 at the midpoint. And on an adjusted basis, we're increasing the range from $14.65 to $14.95, and that's $14.80 at the midpoint.

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Our team delivered net sales growth of 7.6% and adjusted earnings per share growth of 9.3%, excluding divestitures. Consolidated gross profit rate increased 10 basis points for the quarter, including more than 50 basis points in Walmart U.S. We're working closely with our suppliers to manage inflation, finding a few places where we can roll back prices. During the fiscal year just ended, excluding divestitures, we grew net sales by 9%, grew operating profit by 18%, invested $13 billion in capex to grow our business, returned 16 billion to shareholders via share buybacks and dividends, grew advertising business globally to $2.1 billion, and took important steps to build our U.S. financial services capabilities with agreements to make two key acquisitions. If you look at growth since the beginning of fiscal '21 through the end of fiscal '22, excluding divestitures, our company is about 17% larger in terms of revenue, 31% larger in terms of operating income, and globally, our percentage of digital sales grew from 6% to 13%. We increased capacity by nearly 20% last year, and we expect to increase capacity by another 35% this year. For Walmart InHome, we recently announced an expansion of this membership service to make it available to about 30 million homes in the U.S., up from 6 million. To enable the expansion, we're creating roles for more than 3,000 associate delivery drivers. We'll be building out a fleet of all electric delivery vans to support our delivery services and our goal of a zero emissions logistics fleet by 2040. We added more than 20,000 new sellers to the platform in the U.S. last year and expect to add nearly 40,000 more this year. We're now up to nearly 170 million SKUs, and we're adding more every day. We grew our U.S. GMV delivered by our Fulfillment Services by 500% last year. For Q4, our Fulfillment Services represented 44% of total marketplace orders in India and 22% in Mexico. We have nearly a thousand GoLocal service to pickup points, and we expect to end this year closer to 5,000. Globally, it's been growing at a high rate with high margins and is now a $2.1 billion business in only a few years. Because of how the fly wheel is coming together, I feel great about our ability to deliver against the growth algorithm we discussed last year of about 4% top-line growth and operating income growth rates higher than sales. They drove comp sales of 5.6%. Last year, we increased the number of orders coming from our stores by 170% versus the previous year, and that's on top of more than 500% from the year before. Excluding fuel and tobacco, comps were 10.8% for the quarter and nearly 26% on a two-year stack. Membership income grew 9.1%, driven by membership count, which reached another record high during the quarter. The team leveraged operating expenses and grew operating income 24%, excluding fuel. Overall sales were strong again in Q4 with growth of 9.8% in constant currency, excluding divestitures. Our 21% e-commerce penetration is a new record and up nearly 400 basis points from last year. During Big Billion Days, 40% of sellers were first time sellers on the marketplace, and more than 100,000 kiranas participated by making last-mile deliveries. And, BAIT, our value-based internet and telephone service that enables customers in Mexico to enjoy digital connectivity, surpassed 2 million members. For the full year, we had record sales of $568 billion with increased traffic to stores and clubs, while e-commerce penetration approached 13%. Walmart U.S. grew sales by more than $23 billion and saw strong market share gains in food and consumables. Over the past two years, our U.S. segments have grown sales by $67 billion, or 17%, and operating income by 25%. Total constant currency revenue grew 7.9% to over $153 billion and reached another important milestone with quarterly net sales exceeding $150 billion. gross margin rate increasing by a healthy 54 basis points, reflecting primarily price management resulting from cost increases in mix, along with benefits from a growing advertising business, partially offset by higher supply chain costs. Supply chain costs were over $400 million higher than expected, but we expect some of those costs to abate overtime. In the first three quarters combined, COVID leave costs were about $600 million but increased over $450 million just in Q4, presenting an unexpected headwind of over $300 million. Despite these expense challenges, adjusted operating income increased more than 6% and earnings per share increased more than 9%. Free cash flow was $11.1 billion for the year, down versus last year due primarily to inventory build throughout the year, higher capex, and cost increases. We increased share repurchases significantly this year with buybacks of just under $10 billion, a pace we plan to continue or increase in the coming year given our view of the long-term value of the company. ROI increased 90 basis points to just under 15%, the best level in five years due primarily to growth in operating income. had its first ever $100 billion-plus sales quarter with sales of $105 billion. Comp sales grew 5.6%, up more than 14% on a two-year stack. Transactions were up more than 3% despite COVID pressures. E-commerce sales grew 1% against strong gains last year, resulting in a 70% two-year stack. In fact, the number of active advertisers using Walmart Connect grew more than 130% year over year. We expect Walmart Connect to continue to scale over the next few years with plans to become a top 10 ad business in the midterm. In fact, we expect to have over 200 million items in our e-commerce assortment by the end of the year. We continue expanding capabilities, including announcing the acceleration of in-home delivery to 30 million households by year-end. SG&A expenses deleveraged 95 basis points as increased wage costs were partially offset by strong sales and lower total COVID-related expenses year over year. Inventory increased about 28% overall, including higher cost of goods due to inflation, mix, and higher-than-normal in-transit shipments, reflecting continued efforts to improve in-stock. International sales were strong, up nearly 10%, led by China, Mexico, and Flipkart as seasonal events, omni growth, and good inventory position contributed to results. E-commerce sales in constant currency grew 21% on top of strong gains last year with growth of more than 75% on a two-year stack. China comps increased nearly 20% in constant currency with continued strength from Sam's Clubs, as well as more than 90% growth in e-commerce sales. Comp sales in Mexico increased nearly 8% and grew faster than the market according to ANTAD. We're also pleased with the strong growth of PhonePe with TPV of more than 130% versus last year with a current run rate of $650 billion. In Canada, comp sales were up 4.6%, led by in-store shopping and comps increased more than 13% on a two-year stack. International adjusted operating income in constant currency increased nearly 3%, reflecting lower COVID costs, partly offset by gross margin rate decrease related to higher sales penetration from Sam's China and e-commerce. For the full year, international adjusted operating income grew 12.7%. Sam's Club had another impressive quarter with comps up 10.8%, excluding fuel and tobacco, an increase of nearly 26% on a two-year stack. Transactions increased 7% and ticket was up 3.2%. E-commerce sales grew 21%, and we expanded the rollout of delivery capabilities of digital orders to nearly all clubs during the quarter. Membership income was up more than 9% with another record in member counts and strong Plus penetration. Operating income was up 41% as higher fuel and membership income, as well as strong expense leverage were partially offset by gross margin pressure from inflation and supply chain costs. As a reminder, the divestitures of our businesses in the U.K. and Japan were completed near the end of the first quarter last year, contributing about $5 billion in sales and about $0.07 of earnings per share in Q1, FY '22. We expect total company sales to increase about 4% with Walmart U.S. comp sales slightly above 3% for the year. Given the timing of stimulus overlaps, we expect about a 1% to 2% comp sales increase from Walmart U.S. in the first quarter, followed by somewhat higher comp sales growth throughout the remainder of the year. We expect FY '23 total company operating income to increase at a rate slightly higher than sales growth and earnings per share to grow 5% to 6% versus FY '22 adjusted earnings per share due in part to our aggressive share repurchase program. We expect Q1 operating income and earnings per share to be down low double digits to low-teens as we cycle the stimulus effects from last year that resulted in nearly 30% operating income growth, as well as increased wages this year. Our effective tax rate is expected to increase to 25% to 26% due primarily to earnings mix. FY '22 capex was about $13.1 billion, lower than anticipated due to timing of projects impacted by supply chain challenges. Due to that and continued investment in strategic priorities, we anticipate this year's capex being at the upper end of the guidance we gave last year of 2.5% to 3% of sales.

Because of how the fly wheel is coming together, I feel great about our ability to deliver against the growth algorithm we discussed last year of about 4% top-line growth and operating income growth rates higher than sales. They drove comp sales of 5.6%. Membership income grew 9.1%, driven by membership count, which reached another record high during the quarter. Comp sales grew 5.6%, up more than 14% on a two-year stack. Transactions were up more than 3% despite COVID pressures. E-commerce sales grew 1% against strong gains last year, resulting in a 70% two-year stack. Inventory increased about 28% overall, including higher cost of goods due to inflation, mix, and higher-than-normal in-transit shipments, reflecting continued efforts to improve in-stock. International adjusted operating income in constant currency increased nearly 3%, reflecting lower COVID costs, partly offset by gross margin rate decrease related to higher sales penetration from Sam's China and e-commerce. We expect total company sales to increase about 4% with Walmart U.S. comp sales slightly above 3% for the year. Given the timing of stimulus overlaps, we expect about a 1% to 2% comp sales increase from Walmart U.S. in the first quarter, followed by somewhat higher comp sales growth throughout the remainder of the year. Due to that and continued investment in strategic priorities, we anticipate this year's capex being at the upper end of the guidance we gave last year of 2.5% to 3% of sales.

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MFA's tireless efforts to find new attractive investments were also rewarded in the third quarter as record asset acquisitions exceeded runoff and led the portfolio growth of $1.5 billion. Please turn to Page 4. We reported GAAP earnings of $0.28 per share for the third quarter, largely driven by gains of $43.9 million or $0.10 per share related to our acquisition of Lima One. Our net interest income from our loan portfolio increased by 15%, over the second quarter to $55 million from $48 million. GAAP book value was $4.82, up $0.17 or 3.7% from June 30 and economic book value was $5.27, up $0.15 or 2.9% from June 30. 5.8% GAAP and 4.9% economic book value. Our leverage picked up slightly over the core to 2.2 to 1 versus 1.8 to 1 at June 30. And we paid a $0.10 dividend to shareholders on October 29. Please turn to Page 5. We acquired $2 billion of loans in third quarter, the highest quarterly loan purchase volume in our history, and we grew our loan portfolio by $1.5 billion to $7 billion. These purchases included $820 million of agency eligible investor -- sorry about that. So these loan purchases included $820 million of agency eligible investor loans and $485 million of business purpose loans. The business purpose loan acquisitions included approximately $170 million of loans that were on Lima One's balance sheet at July 1. So while $1.5 billion of portfolio growth was an extraordinary quarter, we believe that we are well positioned with our originator partners to continue to grow our portfolio. Our net interest income increased versus Q2 by 5% to $61.8 million. Please turn to Page 6. The increase of approximately $1 billion in mark-to-market financing versus last quarter is primarily related to our agency eligible investor loans, which are financed with traditional repo as a bridge to securitization. Please turn to Page 7. Despite the normal challenges associated with the corporate acquisition, Lima One did not miss a beat in the third quarter as they originated over $400 million of loans during the quarter. Please turn to Page 8. We structured $312 million bonds and we retained a 5% vertical slice of the deal. Please turn to Page 9. Firstly, earnings include gains totaling $43.9 million that relate to the Lima One purchase transaction. This includes the following: $38.9 million gain arising from revealing our previously held investment of approximately 43% of Lima One's common equity. We impaired the value of our prior investment by $21 million back in March of 2020, when valuations of mortgage originators were highly uncertain. Consequently, the $38.9 million gain includes a reversal of its prior impairment charge, while the remaining $18 million represents the incremental adjustment to reflect the prior investment at the fair value implied by the current transaction. The gain recorded reflects $5 million impairment reversal. Secondly, under the required GAAP purchase accounting to consolidate Lima One onto MFA's balance sheet, we recorded $28 million of intangible assets and $61.6 million of residual goodwill. These assets are amortized over their estimated useful lives with $3.3 million of amortization expense recorded this quarter. Net interest income of $61.8 million was $2.8 million higher or 5% higher sequentially. As Craig noted residential whole loan net interest income again increased, this quarter by 15%, primarily due to impressive portfolio growth and the ongoing impact of securitizations to lower the cost of financing. Now, net interest spread was essentially flat to last quarter at 2.98%. The CECL allowance in our carrying value loans decreased for the six quarter in a row, and at September 30, this $44.1 million down from $54.3 million at June 30. This reversal to our CECL reserves positively impacted net income for the quarter by $9.7 million. Actual charge-off experience continues to remain very modest with approximately $2.1 million of net charge-offs taken in the nine-month period ended September 30, 2021. This primarily drove the net gains recorded of $21.8 million. Approximately $11.3 million of this amount relates to business purpose loans originated at par by Lima One during the third quarter, because we elect the fair value option on these loans. In addition to the fair value gains on originated loans, Lima One also contributed $9.6 million of origination, servicing and other fee income during the quarter, reflecting strong origination volumes. Finally, our operating and other expense, excluding the amortization of Lima One intangible assets was $30.1 million for the quarter. This includes approximately $10.3 million of expenses, primarily compensation related at Lima One. MFA's G&A expenses this quarter were approximately $14.5 million, which is in line with our normal run rate. Moving forward, we would expect our consolidated G&A expense to run at around $25 million per quarter, up since significant changes in Lima One origination volumes. Other loan portfolio related costs meaning those not related to Lima One loan origination servicing are expected to run at around $5 million to $7 million a quarter, but will fluctuate based on the level of loan at acquisition activity, REO portfolio management expenses and costs incurred to the extent we continue to favor securitization over warehouse financing. Turning to Page 11, home prices showed continued strength over the quarter. We saw prices increased at year-over-year rate of 18%. The unemployment rate is now down below 5% as economic activity continues to increase. Turning to Page 12, non-QM origination volume remained elevated over the quarter and we were able to purchase almost $700 million of loans, which represents another significant quarter-over-quarter increase. Prepayment speeds remain elevated over the quarter as the three month average CPR for the portfolio was 39%. We executed on our fifth securitization in the third quarter, bringing the total amount of collateral securitized to over $2 billion. Securitizations combined with non-mark-to-market term facility have resulted in approximately 50% of our non-QM portfolio funded with non-mark-to-market leverage at the end of the quarter. Turning to Page 13. In the third quarter, we saw 60-plus-day delinquency rates improved by two anda half percent and 30 day delinquencies dropped by 0.3%. In addition, approximately 30% of those delinquent loans made a payment in the most recent months. Turning to Page 14. In September, the FHFA and treasury suspended the 7% cap on investor loan purchases for Fannie Mae and Freddie Mac for at least one year. We took advantage of the opportunity over the quarter acquiring over $2 billion or acquiring over $1 billion in loans since we started purchasing these loans in the second quarter, from our existing originator relationships at attractive prices. Turning to Page 15. Our RPL portfolio of approximately $700 million continues to perform well. 81% of our portfolio remains less than 60 days delinquent. And although the percentage of the portfolio of 60 days delinquent in status was 19%, almost 30% of those borrowers continue to make payments. Prepaid speeds in the third quarter continue to be elevated at a three month CPR of 17. Turning to Page 16. 38% of loans that were delinquent at purchase are not either performing or have paid in full. 48% have either liquidated or REO to be liquidated. 14% are still a non-performing status. Turning to Page 17. Lima One originated over $400 million of business purpose loans in the third quarter, a record quarter for the company and a 34% increase over second quarter origination levels. September origination of over $150 million was a record month for the company, but that record was short-lived as the fourth quarters off to a strong start with October volume setting a new record with origination of over $170 million. When we announce the transaction in May, we also mentioned that we believe that Lima had the potential to grow substantially beyond the run rate at the time of $1.2 billion annual origination. We are already seeing that play out as we now expect full 2021 origination volume of between $1.4 billion to $1.5 billion. Lima generated $10.6 million of net income from origination servicing activities in the quarter, representing an annualized return on allocated equity of approximately 30%. We have been very impressed by Lima's operational efficiency as they've consistently closed over 450 loan units in the last few months, up from about 300 units per month in the first quarter. We added $600 million of BPL financing capacity in the quarter – in the third quarter, as we close on two new financing facilities. Turning to Page 18. The portfolio grew by over $160 million or 37% in the quarter. In total, we purchased approximately $230 million UPB with $350 million max loan amount in the quarter and have added over $95 million maximum loan amounts so far in the fourth quarter. The flix and flip portfolio delivered strong income in the third quarter with an average portfolio yield of 7.11% in the quarter, a 67-basis-point increase from the second quarter. The housing market remains extremely strong with record low mortgage rates and low levels of inventory supporting annual home price appreciation in excess of 15%. 60-plus-day delinquent loans continue to decline and drop $13 million or about 10% to $107 million at the end of the third quarter. And we continue to see a solid amount of loans payoff in full out of 60 plus. Since inception, we have collected approximately $5.6 million and these types of fees across our fix and flip portfolio. 60-plus-day delinquency as a percentage of UPB declined 10% to 18% and remain somewhat elevated. One thing to note here is that Lima originated fix and flip loans held by MFA have approximately 5% 60 day delinquency, speaking to the quality of origination and servicing. Due to the short term nature of fix and flip loans with expected payoff in about six to 12 months, delinquent loans can be outstanding for longer than performing loans due to the time it takes to complete foreclosure. Keep in mind that we acquired over $2.2 billion of fix and flip loans and have had over $1.6 billion payoff in full. Turning to Page 19. The portfolio yield has remained steady in a mid-to-high 5% range post-COVID and was 5.76% in the second quarter. Underlying credit trends remain solid and 60-plus-day delinquency declined 140 basis points to 3.5% at the end of the third quarter. Purchase activity more than doubled from the second quarter, as we acquired over $250 million of single family rental loans in the quarter, a record quarterly acquisition volume. The SFR portfolio group by 39% to $717 million at the end of the third quarter. Acquisition activities have remained robust in the fourth quarter, as we've already added over $70 million in the month of October. Approximately, 50% of our single family rental portfolio is financed in non-mark-to-market financing and slightly over one-thirds of securitizations.

We reported GAAP earnings of $0.28 per share for the third quarter, largely driven by gains of $43.9 million or $0.10 per share related to our acquisition of Lima One. Our net interest income increased versus Q2 by 5% to $61.8 million. Net interest income of $61.8 million was $2.8 million higher or 5% higher sequentially.

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This quarter 3, we've seen the REPREVE hang tags with our co-branding partners increase by 80%. Now that number year-to-date is 50% so that we can see the trends continuing to strengthen. For the fiscal year, we expect to end the year at 90 million hang tags on products across the marketplace, so the awareness of our brand is climbing in a very positive way. I got to say that I'm very proud of the team, and I'm grateful for their resiliency over these last 12 months. Q3 revenues were up 10% sequentially and 5% on a year-over-year basis, with solid performance across all segments and geographies. We generated a 530 basis point improvement in gross margin year-over-year due to the strong results we saw in our Brazil and Asia segments. I am pleased to report that momentum remains, comprising 33% of net sales in this Q3 -- in Q3 versus 29% for the year ago quarter. In March, our sponsorship of the Pac-12 Team Green resulted in additional television advertising on the Pac-12 network and ESPN, with circular economy stories that explain how we take bottles from many university campuses and transform them into well-known branded apparel that can be purchased from their university bookstores. This quarter, we hit a milestone of 25 billion bottles recycled into REPREVE. That said, over the last nine months, the Polyester segment has shown strength, achieving a gross margin of 10% during the pandemic versus 8.2% in the prior pre-pandemic comparable period. As such, we recorded approximately $2.4 million of expense in the just completed quarter that was originally anticipated for the fourth quarter of fiscal year 2021. Of this additional expense, approximately 2/3 affected SG&A expense and the other 1/3 affected cost of sales. We disposed of some older machinery with remaining book value, generating a noncash loss of $2.5 million in this third quarter. Consolidated net sales increased to $178.9 million, up 4.6% from $171.0 million in Q3 of fiscal 2020. The Asia segment exhibited a return to pre-pandemic momentum with continued underlying demand from REPREVE, driving segment revenue growth of 25.5%. The Brazil segment maintained its position of market strength, adjusting prices to accommodate movements in global pricing dynamics and competition, driving 22.1% revenue growth in spite of a much weaker Brazilian real than one year ago. Slide six provides an overview of gross profit, exhibiting the 66% increase in gross profit and 530 basis point increase in gross margin from Q3 fiscal 2020 to Q3 fiscal 2021. Gross profit for the Polyester segment increased $190,000 as the shortfall in sales volume was more than offset by an improved sales mix. The Asia segment was able to increase gross profit by $2.6 million or 290 basis points from an improved sales mix and supply chain efficiencies. In Brazil, we were able to triple gross profit from $3.4 million to $10.6 million and achieved a record gross margin of 41.2% due to higher pricing levels underpinned by a strong market position. Great progress recently on our net debt metric, we continue to have 0 borrowings on our ABL revolver, which had an availability of $63 million as of March 28, 2021. Unifi's commitment to financial health has allowed us to leverage our strong balance sheet during 12 months challenged by the global pandemic. With this sustained business momentum, the company anticipates sales volumes to increase and June 2021 quarter net sales to improve sequentially on the March 2021 quarter by approximately 1% to 3%. Its adjusted EBITDA for the fourth quarter of fiscal 2021 is expected to be in the range of $12 million and $14 million and includes our current expectations for the following: pandemic uncertainty, especially following a quarter of record performance from the Brazil segment; raw material cost increases that occurred in the March 2021 quarter that will adversely impact gross profit for the June 2021 quarter due to the inherent lag in responsive selling price adjustments, with those impacts partially offset by a lack of incentive compensation expense due to the full recognition during the first nine months of fiscal 2021. Lastly, we expect an effective tax rate of between 45% and 55%. And given the momentum from the third quarter, our fourth quarter capex should fall in the range of $10 million to $12 million.

Consolidated net sales increased to $178.9 million, up 4.6% from $171.0 million in Q3 of fiscal 2020.

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Our bookings were up 60% compared to Q2 2020 and were a new record for the third consecutive quarter. Q2 revenue was up 28% compared to the second quarter of 2020 and up 14% sequentially and to a record $196 million. Our aftermarket parts and consumables revenue was also up 28% compared to the same period last year and up 6% sequentially to a record $125 million in Q2. Solid execution contributed to boosting our adjusted EBITDA margin to 21% which led to a record operating cash flows of $44 million in Q2. Bookings and revenue were up 45% and 38%, respectively, compared to the same period last year and parts made up 65% of total revenue in the second quarter. Improved operating leverage led to a record adjusted EBITDA and an adjusted EBITDA margin of nearly 30%. Our Industrial Processing segment continued to experience strong demand with bookings in this segment up 92% to a record $102 million. Strong end market demand for wood products continued throughout the quarter as U.S. housing starts increased 23% in June 2021 compared to June 2020. Although housing starts were down 5% from May to June of this year, overall demand for housing and wood products is high and is expected to remain strong throughout the second half of 2021. Revenue in this segment increased 26% to $83 million with parts and consumables leading to growth, up 32% compared to the same period last year and 11% sequentially. A favorable product mix and good execution led to a 340 basis point improvement in our adjusted EBITDA margin. Revenue in the second quarter was up 18% to $42 million and parts and consumables revenue was strong, making up 60% of total revenue. Although not a record, total bookings were up 29% at the top end of our historical bookings. Solid execution by our businesses in this segment helped boost our EBITDA by 30% and adjusted EBITDA margin by 180 basis points to its highest level since Q4 of 2019. Consolidated gross margins were 43.6% in the second quarter of 2021 compared to 43.5% in the second quarter of 2020. Our parts and consumables revenue represented 64% of revenue in both periods. SG&A expenses were $49.3 million and 25.2% of revenue in the second quarter of 2021 compared to $45.1 million and 29.5% of revenue in the second quarter 2020. The $4.2 million increase in SG&A expenses includes a $2.6 million unfavorable foreign currency translation effect and increases in incentive compensation outside labor and travel-related costs due to improved business conditions. We received $1 million from the government assistance programs in the second quarter of 2021 compared to $0.8 million in the second quarter of 2020. Our GAAP diluted earnings per share was a record $1.96 in the second quarter, up 96% compared to $1 in the second quarter of 2020. Adjusted EBITDA increased 56% to $41.3 million or 21.1% of revenue compared to $26.6 million or 17.4% of revenue in the second quarter of 2020 due to strong performance in our Flow Control and Industrial Processing segments. I would like to note that both adjusted EBITDA of $41.3 million and the 21.1% of revenue were records. Operating cash flow increased 101% to a record $44.4 million in the second quarter of 2021 compared to $22 million in the second quarter of 2020. Free cash flow was also a record at $42.3 million in the second quarter of 2021 compared to $21.1 million in the second quarter of 2020. During the quarter, we were able to utilize our strong cash flows to pay down our existing debt by $27 million. We borrowed $78.7 million at the end of the second quarter to fund the third quarter acquisition of Clouth. We also paid $2.1 million for capital expenditures and paid a $2.9 million dividend on our common stock. In the second quarter of 2021, our GAAP diluted earnings per share was $1.96, and after adding back acquisition costs of $0.05 our adjusted diluted earnings per share was $2.01. In the second quarter of 2020, our GAAP diluted earnings per share was $1, and our adjusted diluted earnings per share was $1.06. The $0.06 difference includes restructuring costs of $0.03 and acquisition costs of $0.03. As shown in the chart, the increase of $0.95 in adjusted diluted earnings per share in the second quarter of 2021 compared to the second quarter of 2020 consists of the following: $1.15 due to higher revenue, $0.08 due to higher gross margin percentage and $0.05 due to lower interest expense. These increases were partially offset by $0.27 due to higher operating expenses, $0.04 due to a decrease in the amounts received from government assistance programs and $0.02 due to higher weighted average shares outstanding. Collectively, included in all the categories I just mentioned, was a favorable foreign currency translation effect of $0.16 in the second quarter of 2021 compared to the second 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 subtracting days in accounts payable decreased to 109 at the end of the second quarter of 2021 and compared to 128 at the end of the second quarter of 2020. Working capital as a percentage of revenue was 12.7% in the second quarter of 2021 compared to 14.8% in the second quarter of 2020. Our net debt, that is debtless cash, decreased $40 million or 26% sequentially to $116 million at the end of the second quarter 2021. We paid down $27 million of our debt in the quarter. And as previously mentioned, we also borrowed $79 million of debt at the end of the second quarter to fund our acquisition of Clouth, which was largely completed in mid-July. We borrowed an additional $4 million at the end of July associated with the acquisition of the remaining legal entity, which we expect will be completed in mid-August. Our leverage ratio calculated in accordance with our credit agreement increased to 1.71% at the end of the second quarter of 2021 compared to 1.5% at the end of the first quarter of '21. Our net interest expense decreased $0.9 million or 47% to $1 million in the second quarter of 2021, compared to $1.9 million in the second quarter of 2020. At the end of the second quarter of 2021, we had $141 million of borrowing capacity available on our revolving credit facility which matures in December of 2023. As a result, we are updating our revenue range for the year to an increase over 2020 of approximately 23% to 25% and or $783 million to $793 million, up from our previous estimated range of $710 million to $730 million. The majority of this increase is organic with approximately 1/3 of the revenue range increase related to the addition of Clouth. For the third quarter, we anticipate revenue between $195 million to $200 million and for the fourth quarter revenue of $220 million to $225 million. We now anticipate gross margins for the year will come in at approximately 42.5%, down from our prior estimate of 43%, principally, as a result of including the amortization of the acquired profit and inventory related to our Clouth acquisition. As a result, we anticipate gross margins will be 42% in the second half of the year, which includes the impact of amortization of the acquired profit and inventory. Our current estimate for the inventory write-up is approximately $3.5 million with $1.4 million or $0.09 turning in the third quarter and the remaining $2.1 million or $0.12 turning in the fourth quarter. We anticipate SG&A expenses will be a little over $54 million per quarter in the third and fourth quarter. We now anticipate that SG&A expenses as a percentage of revenue will be lower than we projected at the beginning of the year and will be approximately 26% of revenue for the full year 2021. This includes backlog amortization expense of approximately $400,000 or $0.03 in the third quarter. Our interest expense will be approximately $1.3 million per quarter in the second half of 2021 due to the incremental borrowings related to our recent acquisition. We anticipate the tax rate for the year will be approximately 28% and the third and fourth quarter of '21, approximately 28.5% to 29%. We anticipate that our adjusted earnings per share will be lower in the third quarter compared to the second quarter of 2021 due to several factors, including a lower anticipated gross margin percentage versus the second quarter and the lack of payments received from government programs that contributed $0.10 to the second quarter results. We have recast our first quarter 2021 non-GAAP financial metrics to reflect that our SG&A expense included $1.3 million of acquisition costs related to our acquisition of Clouth, which was announced in June. We reported diluted earnings per share of $1.43 in the first quarter of 2021. With these acquisition costs added back, our adjusted diluted earnings per share was $1.53 in the first quarter of 2021. Also, we reported adjusted EBITDA of $31.1 million or 18% of revenue in the first quarter of 2021. With the addition of these acquisition costs, our adjusted EBITDA was $32.4 million or 18.8% of revenue.

Q2 revenue was up 28% compared to the second quarter of 2020 and up 14% sequentially and to a record $196 million. Our GAAP diluted earnings per share was a record $1.96 in the second quarter, up 96% compared to $1 in the second quarter of 2020. In the second quarter of 2021, our GAAP diluted earnings per share was $1.96, and after adding back acquisition costs of $0.05 our adjusted diluted earnings per share was $2.01. As a result, we are updating our revenue range for the year to an increase over 2020 of approximately 23% to 25% and or $783 million to $793 million, up from our previous estimated range of $710 million to $730 million.

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As you know, roughly 40% of our Core Portfolio NOI consists of street retail and about half of that is in the highest density corridors of the major gateway markets. This is evidenced by our second-quarter lease with wire sales at our Gold Coast location at Rush and Walton in Chicago, where they are expanding their existing store by over 50% and they entered into a new 10-year lease. So with respect to Fund V, we're continuing to selectively buy out of favor properties with unleveraged yields of about 8% than lever them two to one with borrowing costs well below 4% and clip a mid-teens current cash flow. Are relatively small size means that every $100 million of acquisitions as about 1% to our earnings base. Starting with the quarter, FFO came in above our expectations at $0.30 a share, and this was driven by a combination of 2 items. We collected 96% of our pre-COVID rents during the second quarter and saw continued consistency within our Street Urban and Suburban portfolios. And that a 96% cash collection rate, our quarterly reserve should trend in the $2 million range or $0.02 or $0.03 a share. Additionally, during the second quarter, we recognized a one-time benefit of approximately $0.02 from cash collections on past due rents. The majority of this benefit came from our German theater tenants that represent approximately 4% of our core ABR. As outlined in our release, given the continued growth and conversion of our pipeline into executed leases along with a significantly improved outlook on our operations, we have once again raised our full-year FFO guidance with an updated expectation of $5 to $14 and this represents a 7% increase at the low end of our original guidance. And in terms of our FFO outlook for the second half of the year, we are anticipating that our quarterly FFO should trend in the 25% to 27%. As it relates to Albertsons specifically, we have revised our 2021 guidance to reflect an updated range of zero to $7 million or $0.00 to $0.08 a share for potential share sales. Using today's share price, we have over $20 million of profit representing am excess of $0.20 a share of FFO. This growth is being driven by the recovery in our street and urban portfolio and if our business continues to perform in line with our expectations, this should provide us with meaningful multi-year internal growth, which in summary has us growing our Core NOI between 5% to 10% annually through 2024 with an expectation of more than $25 million of incremental NOI over 2020 that we believe gets us to $150 million in 2024. As outlined in our release, we have approximately $14 million of pro rata ABR in our core pipeline with more than half or approximately $7.5 million dollars of that already executed. And to further highlight the recovery that we see playing out within our street in urban markets, 60% of our executed leases have come from our street and urban portfolio with New York City alone representing nearly 40% on our current pipeline. In terms of the pipeline itself, you may recall when we initially started discussing it in the second half of last year, it stood at $6 million. So with the $7.5 million of leases that we have signed to date, not only have we signed 125% of our original pipeline, but we have also more than doubled in a short period of time. The spread between our physical and leased occupancy grew over 100 basis points during the quarter to 260 basis points with our New York metro portfolio leading the way with a pro rata physical to lease spread of approximately 700 basis points at June 30. The $14 million pipeline represents our pro rata share of ABR and is comprised of over 400,000 square feet of space with approximately 70% of the $14 million being incremental to our 2020 NOI. In terms of the timing as to when we expect that our pipeline will impact earnings, we anticipate that about 2 million this will show up in 2021 as compared to our initial expectation of $800,000 with an incremental $6 to $8 million in 2022 and the balance coming in during 2022. As I mentioned earlier, at a 96% cash collection rate, this translates into quarterly reserves in the $2 million range or $8 million when annualized equating to $0.09 of FFO. We anticipate that of the $8 million in annualized reserves that approximately 75% or $6 million when annualized will ultimately revert back to full rents with the remaining 25% or $2 million annualized ultimately not making it to the other side, providing our leasing team with the opportunity to profitably retanating space into what we are currently experiencing as a very robust leasing environment. Driven by the higher contractual rent steps built into our street leases, this blends to about 2% a year across our portfolio and contributes approximately $3 million of incremental annual NOI. As an update on near-term expirations, consistent with the tenant rollover assumptions that we provided on our last call, our NOI forecast continues to assume that we get back approximately $9 million of ABR at various points over the next 18 months from our remaining 2021 and 2022 these expirations. This $9 million includes approximately $4 million of ex of ABR expiring within the next six months from two tenants located in some of our best locations and we have meaningful traction to profitably retenant these locations with a portion of the space already reflected in our pipeline. During the second quarter, we successfully closed on a $700 million unsecured credit facility with an accordion feature enabling us to upsize it to $900 million. Lastly, as outlined in our release, we raised approximately $46 million through our ATM at an average issuance price of 20 to 37 and we were able to accretively redeploy these proceeds to the funding of investments and repayment of debt. We currently have approximately $170 million of Fund V acquisitions under contract or under agreements in principle. This includes the $100 million we previously reported as of the first quarter. For stable properties, pricing remains at approximately an 8% unleveraged yield. At this going in cap rate, we have been able to maintain an approximate 400 basis point spread to our borrowing costs, enabling us to equip a mid-teens leveraged yield on our invested equity. At the beginning of the year, we had allocated 60% of Fund-V $520 million of capital commitments. Including our committed acquisition pipeline, we are now approximately 75% allocated, and we have until August of 2022 to fully deploy the rest of our dry powder. And every 50 basis points of cap rate compression would add 250 to 300 basis points to our projected IRRs. Recall that City Point is located at the epicenter of a development boom in Downtown Brooklyn, which has resulted in the completion of nearly 16,000 new residential units since 2004, and another 13,000 units either under construction or in the development pipeline. Among on New York city neighborhoods, Downtown Brooklyn, now ranks 13th for median home price up nearly 80% year-over-year to 1.4 million. On the City point leasing front, we've seen strong interest in the former Century 21 space from both traditional retail users and commercial tenants. And we're pleased to announce that we recently executed a lease with Sphere physical therapy for a 2000 square feet space fronting Gold Street and the New York City development of a new one acre park. With all these positive indicators, this is the perfect time for us to go to market to refinance this project over the next 12 months.

Starting with the quarter, FFO came in above our expectations at $0.30 a share, and this was driven by a combination of 2 items.

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But after 40 years in this business, I'll take managing costs over searching for sales and traffic any day. The impact of these staffing challenges cost us 3% to 4% in first quarter in sales, which we view as upside as we -- as we get those restaurants staffed and trained over the coming months. When we look at the totality of the business, Chili's is running positive sales and traffic and maintaining a sizable traffic gap to the industry, most recently at 9% on a two-year look as measured by NAFTrack. For the first quarter, Brinker reported total revenues of $860 million with consolidated comp sales of 17%. Keeping with our ongoing strategy, the majority of these sales were driven by traffic up 11% for the quarter, a 9% beat versus the industry on a two year look. The top-line increase resulted in an adjusted earnings per share of $0.34, up from $0.28 in the previous fiscal year. We do consider the portion of these costs above our normal operating levels to be transitory, approximately 130 basis points in the quarter, 60 of which are incremental training and overtime costs. Following this increase, Chili's will be carrying a total of 3% of incremental price compared to last year. Due to the timing of price actions and the fact that Maggiano's will evaluate its menu pricing after the holiday season, we expect the second quarter blended Brinker price to be closer to 2%. Our cash flow for the first quarter remained strong, with cash from operating activities of $40 million and EBITDA of $69 million. Our total funded debt leverage was 2.6 times and our lease-adjusted leverage ended the quarter at 3.7 times. Specifically, annual revenues between $3.75 billion and $3.85 billion and annual adjusted earnings per share between $3.50 and $3.80.

The top-line increase resulted in an adjusted earnings per share of $0.34, up from $0.28 in the previous fiscal year. Specifically, annual revenues between $3.75 billion and $3.85 billion and annual adjusted earnings per share between $3.50 and $3.80.

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Natural gas futures for 2022 through 2026 have rallied approximately $0.75, which has translated to a meaningful increase to our near-term free cash flow projections. For example, if we were to replace only China's new build coal power plants with natural gas, we would eliminate approximately 370 million tons of CO2 equivalent per year. The United States represents about 1/4 of global natural gas supply. Appalachia alone represents almost 10%. What that means is that global demand has looked all around the world and, instead, we need almost 1/10 of our natural gas coming from Appalachia. These are the main reasons that global natural gas prices rose over $20 per dekatherm during the quarter, with the back end of the futures curve having also revved nearly $1 in the past six months. In 2021, we are now expecting to deliver approximately $950 million in free cash flow generation. In 2022, our preliminary estimates are $1.9 billion, with 65% of our gas hedged. As our hedges roll off in 2023, we see free cash flow generation potential growing even further to approximately $2.6 billion, equating to an approximate 30% free cash flow yield for a company that expects to be investment grade, highlighting how robust the free cash flow generation is from our business. As such, we are updating our 2021 through 2026 cumulative free cash flow projection to over $10 billion, a 40% increase since our July estimate and materially above our current market cap. Bottom line is we are projected to have approximately $5.6 billion in available cash through 2023. And if 100% of that cash was allocated to shareholder returns, we would still be left with leverage of sub 1.5 times. Sales volumes for the second quarter were 495 Bcfe, at the high end of our guidance range. Our adjusted operating revenues for the quarter were $1.16 billion. And our total per unit operating costs were $1.25 per Mcfe. During the third quarter of 2021, we incurred several onetime items totaling approximately $116 million, which impacted our financial results and free cash flow generation. First, we purchased approximately $57 million of winter calls and swaptions to reposition our hedge book to provide upside exposure to rising fourth quarter '21 and all of 2022 prices, which I'll discuss in more detail in a moment. Second, we incurred transaction-related costs, mostly from Alta of approximately $39 million. And finally, we incurred approximately $20 million to purchase seismic data covering the area associated with the Alta assets, which hit exploration expense. Our third quarter capital expenditures were $297 million, in line with guidance. Adjusted operating cash flow was $396 million. And free cash flow was $99 million. Rising commodity prices and actions taken to unwind fourth quarter hedge ceilings have resulted in an increase to our fourth quarter free cash flow expectations of approximately $200 million. But at the midpoint, we expect fourth quarter sales volumes to be 525 Bcfe, total operating cost of $1.25 per Mcfe, capital expenditures of $325 million and free cash flow generation of $435 million. First, we successfully sold down 525 million a day of MVP capacity, which when combined with 125 million a day previously sold down, amounts to approximately 50% of our original capacity. Going forward, we believe that retaining our remaining $640 million a day of MVP capacity provides appropriate diversity to our transportation portfolio. During the quarter, we were also successful in securing 205 million a day of Rockies Express capacity, with access to the premium Midwest and Rockies markets. As part of the agreement, the parties agreed to significantly discount the reservation rates during the first 3.5 years of the contract, which results in a material uplift to price realization and margins during that period. In the aggregate, we expect these arrangements to lower our go-forward firm transportation costs by approximately $0.05 per Mcfe, while simultaneously improving realized pricing. In essence, we removed approximately 28% and 13% of tax for ceilings for the balance of 2021 and all of 2022 and lowered our floor percentages by 11% and 9%, respectively. These actions resulted in a onetime cost of approximately $57 million in the third quarter and approximately $18 million in the fourth quarter, with the current market value sitting at well over three times the execution cost. For our 2023 hedge book, which sits at under 15%, we expect to hedge with a more balanced and opportunistic approach as we have reduced debt and achieved our investment-grade metrics in 2022. Last, we remain relatively unhedged on our liquids volumes for 2022 and 2023 at less than 15%, which represents about 5% of our volumes and 7% of our revenues. Pro forma the full year impact of Alta and the removal of margin postings, our year-end 2021 leverage sits at 1.8 times and is expected to decline to 0.9 times by year-end 2022 and 0 leverage by year-end 2023 without the impact of shareholder returns. If you add all our free cash flow through 2023, plus the $700 million in current cash margin posting, we are looking at $5.6 billion in cash available for shareholder returns and leverage management. As of September 30, our liquidity was $1.2 billion, which included approximately $0.7 billion in credit facility borrowings largely related to margin balances tied to our hedge portfolio. As of October 22, our margin balance sits at approximately $0.4 billion and our liquidity will end October at around $1.5 billion. We continue to make progress on lowering our letters of credit postings under the credit facility, which dropped approximately $0.1 billion during the third quarter to $0.6 billion, and it declined another $0.1 billion through October 22. From mid-2020, we have effectively cut our letters of credit in half from approximately $0.8 billion to an anticipated $0.4 billion by year-end 2021.

Sales volumes for the second quarter were 495 Bcfe, at the high end of our guidance range.

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Overall, Harsco consolidated revenue was up 7% versus Q3 of 2020 while adjusted EBITDA was up 22% on the same basis. I joined Harsco because I thought the promise of the Company's ongoing transformation to a single investment thesis environmental solutions company, and the value creation opportunities. Harsco consolidated revenues in the third quarter increased 7% compared with the prior year quarter to $544 million and adjusted EBITDA increased 22% to $72 million. Harsco's adjusted EBITDA margin as a result reached 13.2% in the third quarter versus 11.6% in the comparable quarter of 2020. Harsco's adjusted earnings per share from continuing operations for the third quarter was $0.20. This figure compares favorably to adjusted earnings per share of $0.08 in the prior year quarter. Revenues totaled $270 million and adjusted EBITDA was $56 million. Revenues were 21% higher than the prior year quarter and EBITDA increased 40% year-on-year. Liquid Steel Tonnage or LST increased roughly 20% versus the prior year. Compared to the second quarter of 2020 revenues increased 3% to $200 million with hazardous materials business driving this growth. Segment EBITDA increased to $21 million and Q3 of this year supported by higher hazardous material volumes and ESOL integration benefits. Lastly on Clean Earth, I'd highlight that our year-to-date free cash flow now totals $39 million. This total represents more than 70% of segment EBITDA. Rail revenues totaled $74 million and its EBITDA totaled $3 million in the second quarter. We incurred a negative LIFO adjustment in the quarter of approximately $2 million, which has not been anticipated. Our adjusted EBITDA guidance is now $248 million to $256 million for the year while adjusted earnings per share is anticipated to be within a range of $0.51 to $0.54. These figures consider $4 million of stranded corporate costs that were previously allocated to Rail. This outlook also includes 100% of Harsco's interest costs and a pro forma estimated tax rate. Meanwhile, our outlook for Clean Earth's adjusted EBITDA is lowered by $5 million at the midpoint. These efforts are anticipated to provide annual run rate benefits of $10 to $15 million when fully realized in the second half of 2022. Q4 adjusted EBITDA is expected to range from $55 million to $62 million. We ended the quarter with a leverage ratio of 4.48 times. Importantly, we are targeting a leverage ratio of approximately 3 times at the end of 2022.

I joined Harsco because I thought the promise of the Company's ongoing transformation to a single investment thesis environmental solutions company, and the value creation opportunities. Harsco consolidated revenues in the third quarter increased 7% compared with the prior year quarter to $544 million and adjusted EBITDA increased 22% to $72 million. Harsco's adjusted earnings per share from continuing operations for the third quarter was $0.20. Our adjusted EBITDA guidance is now $248 million to $256 million for the year while adjusted earnings per share is anticipated to be within a range of $0.51 to $0.54.

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During the third quarter, we delivered 5% same-store sales growth or 3% same-store sales growth on a two-year basis. Despite a challenging operating environment due to the ongoing COVID pandemic, I'm extremely proud that we opened 760 net new units; a Q3 record, with broad-based strength across our portfolio. China continues to be a leader in development, we opened 379 net new units across the rest of our portfolio, roughly equivalent to our Q3 2019 global net new units, including China. third quarter system sales grew 8%, led by same-store sales growth of 5%. On a two-year basis, same-store sales grew 3%, which includes the impact of around 500 stores or 1% temporarily closed due to COVID as of the end of Q3. As we previously shared, looking across the more than 150 countries in which we operate, our recovery will neither be consistent from country-to-country nor linear within a country, reinforcing the competitive advantages of our diversified portfolio and our ability to serve customers through multiple on- and off-premise channels. We posted over $5 billion in global digital sales with a near 40% digital mix during Q3. We continued to expand delivery capabilities across the globe, setting a record this quarter with over 41,000 stores offering delivery to our customers. Starting with the KFC division, which accounts for 52% of our operating profit, Q3 system sales grew 11%, driven by 6% same-store sales growth and 7% unit growth. On a two-year basis, Q3 same-store sales were up 1%, which included the impact of 1% of the stores being temporarily closed due to COVID. At KFC International, same-store sales grew 6% during the quarter. Same-store sales declined 1% on a two-year basis. Next, at KFC U.S., same-store sales grew 4% during the quarter, while same-store sales increased 13% on a two-year basis. Now on to the Pizza Hut Division, which accounts for 17% of our operating profit. Q3 system sales grew 4%, driven by 1% unit growth and 4% same-store sales growth. For the Division, two-year same-store sales grew 1% during the quarter, which included the impact of 1% of stores being temporarily closed as of the end of Q3 2021. Pizza Hut International same-store sales grew 6% during the quarter. On a two-year basis same-store sales declined 4%. While our Pizza Hut International business continues to be pressured, given our substantial dine-in index, the sustained strength in our off-premise business as reflected by 21% same-store sales growth on a two-year basis bodes well for the future of the brand and continues to fuel franchisee interest in investing in assets focused on serving the off-premise occasions. At Pizza Hut U.S., we continued to see positive momentum with 2% same-store sales growth. On a two-year basis, same-store sales grew 8% and the off-premise channel grew 17%. Moving on to Taco Bell, which accounts for 31% of our operating profit, third quarter system sales grew 8%, driven by 3% unit growth and 5% same-store sales growth. Two-year same-store sales growth was 8% for the quarter. And finally, at the Habit Burger Grill, we saw system sales grow 19% during the quarter, driven by 11% same-store sales growth and 7% unit growth. on a two-year basis, same-store sales grew 7%, which included the impact of about 1% of stores being temporarily closed as of the end of Q3. With their combined experience of over 40 years with Yum! We are advancing our plans to reduce greenhouse gas emissions across our global system and supply chain by nearly half by 2030 while we work to implement, learn from, and scale pilots for reusable, recyclable and compostable packaging in the front of our restaurants to meet our 2025 public commitment. Our results year-to-date, through Q3, highlighted by 15% system sales growth translating into strong core operating profit growth of 26% demonstrate the resilience and strength of our economic model. The continued momentum reflected in our results reaffirms our confidence in delivering, on an annual basis, the long-term growth algorithm we reinstated on our last call, specifically 2% to 3% same-store sales growth, plus 4% to 5% net new unit growth, translating to mid-to-high single-digit system sales growth and high-single-digit operating profit growth. system sales grew 8%, driven by 5% same-store sales growth or 3% on a two-year basis, which includes the impact of about 1% of stores being temporarily closed as of the end of Q3. We delivered 4% unit growth year-over-year, which included a record of 760 net new units this quarter. Core operating profit increased 3% for the quarter, in line with our internal expectations, when accounting for one-time items that impacted comparability. The largest of these items was the lap of last year's bad debt recoveries, which accounted for a 5 point headwind to core operating profit growth. EPS, excluding special items, was $1.22, representing a 21% increase compared to ex-special earnings per share of $1.01 in the third quarter last year. Reflected in our ex-special earnings per share this quarter, is an investment gain on our approximate 5% investment in Devyani International Limited, an entity that operates KFC and Pizza Hut franchise units in India. Our minority stake in Devyani was acquired in lieu of cash proceeds upon the refranchising of approximately 60 KFCs in India during 2019 and 2020. This resulted in $52 million of pre-tax investment gains on our approximate 5% stake, which added $0.16 to EPS, but did not impact our core operating profit. During Q3, we had bad debt expense of $3 million. As a reminder, we had large quarterly swings in bad debt last year due to COVID and were lapping $21 million in bad debt recoveries in the third quarter of last year, resulting in a year-over-year headwind of 5 points, or $24 million to core operating profit growth this quarter. We expect core operating profit growth to be negatively impacted again in Q4 as we lapped bad debt recoveries of $8 million in the fourth quarter last year. Our general and administrative expenses on an ex-special basis for the quarter were $249 million. On a full year basis this year, we now estimate consolidated G&A will be approximately $1.05 billion, an increase of about $60 million above our incoming expectations for the year, driven entirely by our above-target incentive compensation based on our strong business performance. We expect our G&A to system sales ratio to move back to 1.7% next year on a full year basis. Thus far, the Dragontail solution has been deployed in 13 markets and in over 1,700 stores across the Pizza Hut system. Moving on to our Bold Restaurant Development growth driver, I'm thrilled to discuss how we delivered another record development quarter with 760 net new units, including meaningful contributions across multiple geographies at our KFC, Pizza Hut and Taco Bell global brands. Additionally, over the past year, Pizza Hut International has driven a significant inflection in their unit growth, going from negative net new units in 2020 to opening nearly 200 net new units during the third quarter. As an example, we now have 23 Go Mobile locations at Taco Bell U.S. These technology-forward restaurants, which include dual drive-thru's with a dedicated mobile pickup lane, mobile pickup shelves and a faster Bellhop experience, among other things, have been a big hit, and we have more in our development pipeline. In August, we completed our third whole business securitization issuance at Taco Bell in the past five years, issuing $2.25 billion of new Securitization Notes. The weighted average yield of the new notes was approximately 2.24% and the proceeds were used to opportunistically repay $1.3 billion of existing higher coupon Taco Bell Securitization Notes and to support our share buyback program. We still expect our 2021 interest expense to be approximately $500 million, in line with 2020. We ended the quarter with cash and cash equivalents of $1 billion, excluding restricted cash. Due to our continued recovery in EBITDA, our consolidated net leverage continues to be temporarily below our target of approximately 5 times. With respect to our share buyback program, during the quarter, we repurchased 2.6 million shares at an average share price of $127 per share, totaling approximately $330 million. Year-to-date, we've repurchased $860 million of shares at an average price of $117. Capital expenditures, net of refranchising proceeds, during the quarter were $49 million. We now expect net capital expenditures of approximately $175 million for the full year, reflecting roughly $75 million in refranchising proceeds and $250 million of gross capex. Overall, I'm pleased with our performance this quarter, driven by impressive unit growth and sustained digital sales.

During the third quarter, we delivered 5% same-store sales growth or 3% same-store sales growth on a two-year basis. third quarter system sales grew 8%, led by same-store sales growth of 5%. We posted over $5 billion in global digital sales with a near 40% digital mix during Q3. On a two-year basis, same-store sales grew 8% and the off-premise channel grew 17%. Moving on to Taco Bell, which accounts for 31% of our operating profit, third quarter system sales grew 8%, driven by 3% unit growth and 5% same-store sales growth. Two-year same-store sales growth was 8% for the quarter. The continued momentum reflected in our results reaffirms our confidence in delivering, on an annual basis, the long-term growth algorithm we reinstated on our last call, specifically 2% to 3% same-store sales growth, plus 4% to 5% net new unit growth, translating to mid-to-high single-digit system sales growth and high-single-digit operating profit growth. system sales grew 8%, driven by 5% same-store sales growth or 3% on a two-year basis, which includes the impact of about 1% of stores being temporarily closed as of the end of Q3. The largest of these items was the lap of last year's bad debt recoveries, which accounted for a 5 point headwind to core operating profit growth. EPS, excluding special items, was $1.22, representing a 21% increase compared to ex-special earnings per share of $1.01 in the third quarter last year. Reflected in our ex-special earnings per share this quarter, is an investment gain on our approximate 5% investment in Devyani International Limited, an entity that operates KFC and Pizza Hut franchise units in India. This resulted in $52 million of pre-tax investment gains on our approximate 5% stake, which added $0.16 to EPS, but did not impact our core operating profit. As a reminder, we had large quarterly swings in bad debt last year due to COVID and were lapping $21 million in bad debt recoveries in the third quarter of last year, resulting in a year-over-year headwind of 5 points, or $24 million to core operating profit growth this quarter. We expect core operating profit growth to be negatively impacted again in Q4 as we lapped bad debt recoveries of $8 million in the fourth quarter last year. Due to our continued recovery in EBITDA, our consolidated net leverage continues to be temporarily below our target of approximately 5 times. Overall, I'm pleased with our performance this quarter, driven by impressive unit growth and sustained digital sales.

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Sales for the quarter declined 30% primarily due to reduced ethanol gallons sold offset by an $0.11 increase in per-gallon ethanol pricing. Sales for the quarter were based upon 47.6 million gallons this year versus 71.4 million last year. Our consolidated corn cost per bushel rose 25% compared to the prior year, again, largely reflecting the concern for corn availability. Combining these factors led to gross profit for the ethanol and by-product segment decreasing from $11.3 million in the prior year to $25,000 for the current year. The refined coal segment had a gross loss of $1.8 million for the third quarter of fiscal 2019 versus $3.5 million for the prior year, reflecting lower production levels in the current year. These losses are offset by tax benefits recorded under Section 45 credits. SG&A decreased for the third quarter from $5.4 million to $4.1 million, primarily due to reduced incentive compensation associated with corporate profitability and reduced commission fees associated with the lower refined coal production. Equity and income of unconsolidated ethanol affiliates decreased from $611,000 [Phonetic] to a small loss of $15,000 for the quarter. Interest and other income increased from $809,000 to $1 million, primarily reflecting higher interest rates in the current year. We booked a tax benefit of $3.2 million for the third quarter of this year versus a benefit of $10 million in the prior year. The benefit is primarily as a result of the Section 45 credits from our refined coal operation, and again reflects lower refined coal production in the current year. The above factors led to a net loss attributable to REX shareholders for the third quarter of $2.1 million this year compared to income of $11.9 million, and a loss per share of $0.32 this year versus income of $1.86 in the prior year. Our cash balance was approximately $196 million. We have -- still, have our authorized share repurchase program, 350,000 shares are still open to be bought. Recently the EPA approved 31 small refineries exemptions for 2018, effectively reducing by 1.4 billion gallons obligation required under the renewable fuel standard. The EPA has granted a waiver of 2016 and 2017 totally, 2.6 billion gallons. The EPA has already received 10 petitions for small refinery exemption for -- from the 2019 renewable fuel standard compliance year. As far as concerned about ethanol export, during the first nine-month of 2019, export fell to 1.1 billion gallons compared to 1.25 billion gallons during the same period last year. Last year, ethanol export were very healthy 1.7 billion gallon. We expect ethanol export will drop to 1.5 billion gallon this year due to the continued trade uncertainty. The ethanol stock last week drew 237,000 barrels and the stock ended 22.277 million barrels. That's almost -- that's now of almost 1.6 million barrels over just the last three weeks, according to a EIA data release on November 27, for the week ending in November 22nd. Ethanol stock is down 11.6% compared to the same week, last year. As far as concern about the distiller grain, in the first nine months of 2019, export felt to approximately 8.3 million metric tons compared to 8.9 million metric tons in the first nine months of 2018, according to the USDA. That's a reduction of 6% U.S. export of distiller grain in the September dropped approximately 72,000 metric tons to 1,046,000 metric tons, about 6.4% reduction in August. However, that was 2% above the 1,020,000 metric tons exported in September 2018. The country bought approximately 137,000 metric tons, down about 23% from the 180,000 metric tons it bought in August. DDG is currently trading at approximately 100 -- 210% [Phonetic] of the corn value. Farmers planted 19 million acres of corn and estimated corn yield is about 167 bushels per acre. Corn use for ethanol field were down 25 million bushels each and export and domestic consumption was down about 50 million bushels each. Because of the delayed planting season, it is estimated approximately 1 billion or more bushels of corn are left to be harvested. The carryout for 2019 and 2020 is expected to be 1.91 [Phonetic] billion bushels according to USDA. We have not seen this kind of situation during the last 10 years, including the drought year of 2012. As far as concern about the capital expenses, during the last nine months, we made total capital expenses up approximately $2.6 million at our consolidated ethanol plant. We estimate $5 million to $6 million of capital expenses during the fourth quarter, excluding any maintenance expenses.

Combining these factors led to gross profit for the ethanol and by-product segment decreasing from $11.3 million in the prior year to $25,000 for the current year. The above factors led to a net loss attributable to REX shareholders for the third quarter of $2.1 million this year compared to income of $11.9 million, and a loss per share of $0.32 this year versus income of $1.86 in the prior year.

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mdu.com under the Investors tab. Yesterday, we announced third quarter earnings of $139.3 million or $0.68 per share compared to third quarter 2020 earnings of $153.1 million or $0.76 per share. On a year-to-date basis, we have earned $291.6 million or $1.44 per share compared to the prior year's $277.9 million or $1.39 per share. Construction Services reported third quarter earnings of $23.1 million compared to the prior year's record third quarter earnings of $29.8 million. EBITDA at this business decreased $10.9 million from the same period in 2020 to $35.9 million. Results were negatively impacted by $5.5 million after-tax for changes in estimates on a construction contract during the quarter. Our Construction Materials business reported earnings of $96.3 million for the third quarter, down from the prior year's $107.3 million. EBITDA decreased $13.4 million from the same period last year to $158.9 million. Turning to our Regulated Energy Delivery business, our Combined Utility business reported net income of $5.2 million for the quarter compared to a net loss of $800,000 in the third quarter of 2020. The Electric Utility segment reported strong third quarter earnings of $20.6 million compared to $16.8 million for the same period in 2020. Warmer weather helped drive an 11.1% increase in electric retail sales volumes, along with more businesses being open when compared to last year due to pandemic-related impacts. Our natural gas segment reported an expected seasonal loss of $15.4 million for the quarter, which was a $2.2 million improvement from the previous year. Higher adjusted gross margin from rate relief and a 2% increase in retail and natural gas sales volumes drove the decreased loss, partially offset by higher O&M expense. The pipeline business had earnings of $10.6 million in the third quarter compared to $8 million in the third quarter of 2020 primarily from higher AFUDC on the company's North Bakken Expansion project. Also during the quarter MDU Resources experienced lower income tax benefits of approximately $4.6 million when compared to the third quarter of 2020 related to the timing of recognition of our consolidated annualized estimated tax rate. On a combined basis, we saw 1.7% customer growth since the same period in 2020 and in the third quarter our natural gas utility refiled in the State of Washington for a $13.7 million annual rate increase that is currently pending. We expect this fully subscribed project will be in service in early 2022 with capacity to transport 250 million cubic feet of natural gas per day for our customers. I recently had the opportunity to visit the construction site in North Western North Dakota with other members of our management team and I can tell you first hand, it was an impressive to see over 700 employees and contractors are safely and efficiently working together to complete this $260 million project. This project involves constructing approximately 60 miles of 12-inch pipeline from our existing facilities at Mapleton, North Dakota, extending to Wahpeton, North Dakota. It will add 20 million cubic feet per day of natural gas capacity and is expected to cost approximately $75 million. When the North Bakken and Wahpeton expansion projects are complete, WBI's total system capacity will be more than 2.4 billion cubic feet of natural gas per day, which will help to reduce natural gas flaring in the region and allow producers to move more natural gas to markets. Construction Services ended the quarter with a backlog of $1.27 billion, down just slightly from the prior year's third year record of $1.28 billion. We now expect revenues to be in the range of $2.0 billion to $2.2 billion with margins comparable to 2020 levels. The Knife River training center features and 80,000 square foot heated indoor arena for training on trucks and heavy equipment and an attach 16,000 square foot office with classroom and lab facility. Revenues are still expected to be in the range of $2.1 billion to $2.3 billion. Knife River backlog as of September 30 was $651.7 million, a 14% increase from the prior year's $571.3 million. Based on our results through the third quarter, we have adjusted our earnings per share guidance to now a range of $1.90 to $2.05 per share.

mdu.com under the Investors tab. Yesterday, we announced third quarter earnings of $139.3 million or $0.68 per share compared to third quarter 2020 earnings of $153.1 million or $0.76 per share. Based on our results through the third quarter, we have adjusted our earnings per share guidance to now a range of $1.90 to $2.05 per share.

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And we proved that again with an all-time ammonia production record of 10.4 million tons. Our sales and logistics team rose to the challenge and set all-time sales and shipping records of over 20 million product tons. This supports our projection of 90 million to 92 million planted corn acres in the US this year with upside potential. We expect the urea tender volumes in India this year will be well above the five year average and close to the 10 million metric tons of last year. For Brazil, we project 2021 imports of urea to be approximately 6.57 million metric tons, similar to last year. For 2020, the company reported net earnings attributable to common stockholders of $317 million or $1.47 per diluted share. EBITDA was $1.32 billion and adjusted EBITDA was $1.35 billion. Net cash provided by operating activities was $1.2 billion and free cash flow was approximately $750 million. As you can see on slide 9, we converted more than 55% of our adjusted EBITDA into free cash in 2020, which is the highest rate among our peers. This will lower our gross debt to $3.75 billion. We anticipate that our capital expenditures for 2021 will be in the range of $450 million. Our annual cash interest expense will fall to $175 million with the repayment of the 2021 notes. With our planned maintenance schedule and recent gas driven curtailments, we expect gross ammonia production to be around 9.5 million to 10 million tons.

For 2020, the company reported net earnings attributable to common stockholders of $317 million or $1.47 per diluted share. We anticipate that our capital expenditures for 2021 will be in the range of $450 million.

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We generated about $681 million in fee revenue, that was up 43% year over year. Our diluted and adjusted diluted earnings per share was $1.54 and $1.59, respectively, and those were also new highs. We're now up 32% compared to the quarter preceding the pandemic, which at that time was an all-time high, and we haven't just talked about it we've walked it. We developed over 1 million professionals a year. Elements of our strategy include driving a top-down go-to-market approach based on our marquee and regional accounts, which year to date represent about 37% of our portfolio. For example, on a year-to-date basis, about 28% of our revenue is driven by cross referrals within our firm, up several million dollars sequentially which demonstrates the effectiveness of our go-to-market strategy. 150,000 professionals around the world have used Advance, both as individuals and as part of their professional development journeys with their employers. And as I stand here today, after 10 years, looking at the business we built, the data, the assets, the solutions, and most of all, the incredibly talented colleagues we have to serve our clients, it's pretty clear to me that I underestimated our true potential. Fee revenue, as Gary indicated, was $681 million. That's up $205 million or 43% year over year. However, in the current year, fee revenue was actually up $41 million or 6% sequentially. By line of business, fee revenue growth for executive search was up 42% year over year, while RPO and professional search was up 98%. Year-over-year growth for consulting and digital was also very strong at 20% and 19%, respectively. Adjusted EBITDA grew $42 million or 43% year over year to $138 million with an adjusted EBITDA margin of 20.3%. If you go back and you look at the first three quarters of fiscal '20, that's right before the pandemic recession hit, our adjusted EBITDA is up 71% and it's actually grown two and a half times faster than our fee revenue has grown. Our adjusted fully diluted earnings per share also advanced to a new high in the quarter, improving to $1.59 per share, which was actually up $0.64 year over year. New business was also very strong in the third quarter, up 30% year over year, reaching a new quarterly high. Of particular note, growth in our RPO new business was very strong at $135 million of new contract awards, and that's the second consecutive quarter they achieved that level. At the end of the third quarter, cash and marketable securities totaled about $1.1 billion. Now if you exclude amounts reserved for deferred compensation arrangements and accrued bonuses, our global investable cash balance was approximately $592 million, which is up $58 million or 11% year over year. I would note that the investable cash position is net of $91 million that we used to acquire the Lucas Group on November 1 and about $22 million for share repurchases in the quarter. In addition to investing in M&A and hiring of additional fee earners and execution staff, we have repurchased approximately $55 million worth of our stock and have paid cash dividends of approximately $20 million so far in fiscal year '22. Global fee revenue for KF Digital was $90.2 million in the third quarter, which was up 19% year over year. Additionally, the subscription and licensing component of KF Digital fee revenue grew to $29 million in the third quarter, which was up 26% year over year and up 12% sequentially. Globally, new business for KF Digital in the third quarter grew 8% year over year to $108 million, which was the fifth consecutive quarter over $100 million. $39 million or 37% of the total digital new business in the third quarter was related to subscription and license sales. Earnings and profitability remained strong with adjusted EBITDA of $28.1 million and a 31.2% adjusted EBITDA margin. In the third quarter, Consulting generated $162.9 million of fee revenue, which was up approximately $27 million or 20% year over year. Fee revenue growth continued to be broad-based across all solution areas and strong regionally in North America and EMEA, which were up 28% and 16%, respectively. Consulting new business also reached a new high in the third quarter, growing approximately 10% year over year. Regionally, new business growth in the third quarter was strongest in North America and EMEA, which were up 10% and 16%, respectively. Adjusted EBITDA for Consulting in the third quarter was $28.6 million with an adjusted EBITDA margin of 17.5%. Globally, fee revenue grew to $188.6 million, which was up 98% year over year and up approximately $38 million or 25% sequentially. RPO fee revenue grew approximately 68% year over year and 3% sequentially, while professional search revenue was up approximately 150% year over year, and up 67% sequentially. Revenue in the third quarter for the Lucas Group was approximately $33 million, which was up approximately 10% compared to the revenue for the three months preceding the acquisition. Professional search new business was $93 million and RPO was awarded $135 million of new contracts, consisting of $74 million of renewals and extensions and $61 million of new logo work. Adjusted EBITDA for RPO and professional search continued to scale with revenue improving to $44.1 million with an adjusted EBITDA margin of 23.4%. Finally, in the third quarter, global fee revenue for executive search reached another new high of $239 million, which was up 42% year over year. Growth was also broad-based with North America growing 44% year over year and EMEA and APAC growing 32% and 45%, respectively. The total number of dedicated executive search consultants worldwide at the end of the third quarter was 581, just up 59 year over year and up 11 sequentially. Annualized fee revenue production per consultant in the third quarter remained steady at $1.66 million. And the number of new search assignments opened worldwide in the third quarter was up 37% year over year to 1,787. In the third quarter, global executive search adjusted EBITDA grew approximately $66 million, which was up 24 -- grew to approximately $66 million, which was up $24 million year over year with an adjusted EBITDA margin of 27.5%. With this in mind and assuming no new major pandemic-related lockdowns or further changes in worldwide geopolitical conditions, economic conditions, financial markets or foreign exchange rates, we expect our consolidated fee revenue in the fourth quarter to range from $670 million to $690 million and our consolidated adjusted diluted earnings per share to range from $1.49 to $1.63 per share and our GAAP diluted earnings per share to range from $1.44 per share to $1.60.

Our diluted and adjusted diluted earnings per share was $1.54 and $1.59, respectively, and those were also new highs. Our adjusted fully diluted earnings per share also advanced to a new high in the quarter, improving to $1.59 per share, which was actually up $0.64 year over year. With this in mind and assuming no new major pandemic-related lockdowns or further changes in worldwide geopolitical conditions, economic conditions, financial markets or foreign exchange rates, we expect our consolidated fee revenue in the fourth quarter to range from $670 million to $690 million and our consolidated adjusted diluted earnings per share to range from $1.49 to $1.63 per share and our GAAP diluted earnings per share to range from $1.44 per share to $1.60.

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Our operating revenue for the quarter was up to a $147.7 million from $125.6 million in the first quarter of 2020 and we'll talk about the reasons for that in a moment. And our net loss decreased from $20.3 million to $3 million, as well as our earnings per share, loss per share rather went from $0.42 loss to a $0.06 loss for the quarter. So as we mentioned -- as I mentioned a moment ago, the net loss decreased by $17.3 million and that was primarily the result of the adoption of the California General Rate Case late last year. The first was obviously, the rate increases associated with that, that added $4 million of revenue. We're adding $7.6 million of revenue associated with that. So we're expecting to see lower AFUDC equity here in the quarter, it was down about $1 million. The market value of certain of our retirement plan assets was in -- so the market value increased $0.3 million as compared to a loss of $4.7 million in the first quarter of 2020. And then our unbilled revenue very similar, we had a $1,000 loss on unbilled revenue, very small and probably more typical as compared to a negative $3.7 million in 2020 which was a sort of an atypical drop in that unbilled revenue accruals. Just wanted to remind everyone that during 2021 we are refunding to customers in rates, $19 million of excess deferreds associated with the change in tax rate for the Tax Cuts and Jobs Act. And that drives down the effective income tax rate to 6%. And just to update you on the estimates, in 2020 we had $160 million of deductible mains and services repairs investments, and our current estimate for 2021 is that we will have $60 million that qualifies for that tax treatment, and so that's going to be a factor that's going to be a little bit lower for the year 2021. Capital spending is still anticipated to be between $270 million to $300 million. We will be filing that cost of capital application on Monday, May 3rd, and in our application that we will be filing with the Commission we're requesting a return on equity of 10.35%, that is up from the currently approved 9.2% cost of equity. So that our embedded cost of debt is going down a 128 basis points from the previously authorized 5.51% cost of debt, to a new cost of debt of 4.23%. Coupling those two together the increase in cost of equity and the decreased cost of debt means that our rate of return -- authorized rate of return that we are requesting would go up just slightly from 7.48% to 7.5%, and what that really means from a customer perspective is that the median bill increase should be about $0.34 a month. I might also point out that our capital structure, which is about 53% equity and 47% debt will remain unchanged in this particular application. We have seen and continue to see an increase in customer account aging from suspension of collection activities, that bills currently over 90 are about $11.6 million, and we have adjusted our bad debt reserve, an additional $0.5 million from $5.2 million to $5.7 million, and I'll talk more about some creative things we're doing working with the Commission a little bit later on collection activities. The incremental expenses associated with our COVID response was approximately $300,000. Interesting to note that water sales have been a 105% of adopted, really driven by the fact the residential demand has been higher and that's been offset by lower business and industrial use. We had $84.4 million of cash, and additional capacity of about $115 million on the lines of credit, subject to some borrowing conditions. And so this chart, and projection only goes through system there are of $285 million is the midpoint between our window of $270 million to $300 million of capex during the year, and we --- when we have our second quarter call, and we release the details of our General Rate Case in California, I'll be updating this slide. Additionally, and this is more kind of late breaking news, some of you may have seen in the press, the last 24 hours to 48 hours, a few parts of the state of California have declared drought emergencies. Given that the very mild winter season that we had this year coupled with the fact that our snow pack as of earlier this week was only 25% of normal, we fully expect to see more drought declarations at the local level happen throughout 2021. What does that mean at a 25,000 foot level, the reservoirs in California, currently, they're in decent shape, I wouldn't say they're in great shape. As we think about fire season and PSPS season as we point out in our ESG report despite the many challenges of operating in a COVID environment over 97% of our employees have completed their emergency response training this year and our efforts are well under way to be prepared for early fire season and the various PSPS events that could happen throughout the state. We do not have our of employees back in the office yet, 90% of our employees have been at work every day, because they are field employees.

Our operating revenue for the quarter was up to a $147.7 million from $125.6 million in the first quarter of 2020 and we'll talk about the reasons for that in a moment. And our net loss decreased from $20.3 million to $3 million, as well as our earnings per share, loss per share rather went from $0.42 loss to a $0.06 loss for the quarter.

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During the second quarter, the S&P 500 continued to rise on the growing dominance of the FANG stocks which now represent almost 13% of the index's market cap and 4.3% of the 500 companies earnings. 15 months ago our focus value strategy posted the best absolute 10 year performance record in its history. While our most recent 10 year history is more representative of our long-term average. Meanwhile, the S&P 500s most recent 10 year record is substantially above it's average and appears to be anomalously high. When we calculate a sharp ratio using our recent performance record and our higher short-term volatility, our investment skill appears questionable versus the S&P 500. However, when we do the same calculation using average 10 year returns and the volatility of those 10 year returns, we see a completely different picture which one actually represents our true investment skill after 25 years of deep value investing. We finished the quarter with approximately $400 million in net outflows. For the previous 12 months, we had net positive flows of approximately $300 million. We reported diluted earnings of $0.13 per share for the second quarter compared to zero last quarter and $0.18 per share for the second quarter of last year. Revenues were $30.1 million for the quarter and operating income was $11 million. Our operating margin was 36.4% this quarter, increasing from 32.1% last quarter and decreasing from 46.4% in the second quarter of last year. We ended the quarter at $31.5 billion, up 17.5% from last quarter, which ended at $26.8 billion and down 15.5% from the second quarter of last year which ended at $37.3 billion. The increase in assets under management from last quarter, was driven by market appreciation including the impact of foreign exchange of $5.1 billion, partially offset by net outflows of $0.4 billion. The decrease from the second quarter of last year reflects $6.1 billion in market depreciation, including the impact of foreign exchange, partially offset by net inflows of $0.3 billion. At June 30, 2020, our assets under management consisted of $13 billion in separately managed accounts. $16.4 billion in sub-advised accounts and $2.1 million in our Pzena Funds. Compared to last quarter, assets under management across all channels increased with separately managed account assets reflecting $2 billion in market appreciation and foreign exchange impact and $0.2 billion in net inflows. Sub-advised account assets reflecting $2.8 billion in market appreciation and foreign exchange impact, partially offset by $0.7 billion in net outflows. And assets in Pzena Funds being $0.3 billion in market appreciation and $0.1 billion in net inflows. Average assets under management for the second quarter of 2020 were $29.8 billion, a decrease of 15.8% from last quarter and a decrease of 19.7% from the second quarter of last year. Revenues decreased 13.1% from last quarter and 20.4% from the second quarter of last year. During the quarter, we did not recognize any performance fees, similar to last quarter and compared to $0.3 million recognized in the second quarter of last year. Our weighted average fee rate was 40.4 basis points for the quarter, compared to 39.1 basis points last quarter and 40.8 basis points for the second quarter of last year. Our weighted average fee rate for separately managed accounts was 55.2 basis points for the quarter, compared to 52.6 basis points last quarter and 54.5 basis points for the second quarter of last year. Our weighted average fee rate for sub-advised accounts was 26 basis points for the quarter, compared to 26.6 basis points for last quarter and 28.7 basis points for the second quarter of last year. During each of the second and first quarters of 2020, we recognized $1 million reduction in base fees related to these accounts, compared to a $0.5 million reduction in base fees during the second quarter of last year. Our weighted average fee rate for Pzena Funds was 65.9 basis points for the quarter, increasing from 62.5 basis points last quarter and decreasing from 69.4 basis points for the second quarter of last year. Looking at operating expenses, our compensation and benefits expense was $15.6 million for the quarter, decreasing from $19.1 million last quarter and from $16 million for the second quarter of last year. G&A expenses were $3.6 million for the second quarter of 2020, compared to $4.4 million last quarter and $4.3 million for the second quarter of last year. Other income was $3.2 million for the quarter, driven primarily by the performance of our investments. The effective rate for our unincorporated and other business taxes was 4.1% this quarter compared to 29.9% last quarter and 4.3% in the second quarter of last year. We expect the effective rate associated with the unincorporated and other business taxes of our operating company to be between 3% and 5% on an ongoing basis. Our effective tax rate for our corporate income taxes ex-UBT and other business taxes was 26.6% this quarter, compared to our effective tax rate of 100% last quarter and 23.8% for the second quarter of last year. We expect this rate to be between 23% and 25% on an ongoing basis. The allocation to the nonpublic members of our operating company was approximately 77.7% of the operating company's net income for the second quarter of 2020, compared to 74.5% both last quarter and in the second quarter of last year. During the quarter, through our stock buyback program, we repurchased and retired approximately 266,000 shares of Class A common stock for $1.4 million. At June 30, there was approximately $11.2 million remaining in the repurchase program. At quarter end, our financial position remains strong with $33.1 million in cash and cash equivalents as well as $7.3 million in short-term investments. We declared a $0.03 per share quarterly dividend last night.

We reported diluted earnings of $0.13 per share for the second quarter compared to zero last quarter and $0.18 per share for the second quarter of last year. Revenues were $30.1 million for the quarter and operating income was $11 million.

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Some of the results the team produced include, funds from operations coming in above guidance up 14% compared to third quarter last year and ahead of our forecast. This marks 34 consecutive quarters of higher FFO per share as compared to the prior year quarter, truly a long-term trend. Our quarterly occupancy averaged 97.1%, up 50 basis points from third quarter 2020 and at quarter end, we're ahead of projections at 98.8% lease and 97.6% occupied. Quarterly releasing spreads were at record levels at 37.4% GAAP and 23.9% cash and year-to-date, those results are 31% GAAP and 18.5% cash. Finally, cash same-store NOI rose 5.2% for the quarter and 5.6% year-to-date. I'm grateful we ended the quarter at 98.8% leased, our highest quarter on record and to demonstrate the market strength, our last four quarters marked the highest four quarterly rates in our company's history. Looking at Houston, we're 96.7% leased. It now represents 12% of rents, down 140 basis points from a year ago and is projected to continue shrinking. Based on the market strength we're seeing today, we're raising our forecasted starts to $340 million for 2021. FFO per share for the third quarter exceeded our guidance range at $1.55 per share and compared to third quarter 2020 of $1.36 represented an increase of 14%. From a capital perspective, during the third quarter, we issued $49 million of equity at an average price over $176 per share. In July, we repaid a maturing $40 million senior unsecured term loan. And in September, we closed on the refinance of $100 million unsecured term loan that reduced the effective fixed interest rate from 2.75% to 2.1%, with five years of term remaining. Our debt to total market capitalization was below 17%, debt-to-EBITDA ratio at 4.7 times and our interest and fixed charge coverage ratio increased to over 8.5 times. Bad debt for the first three quarters of the year is a net positive $346,000 because of tenants whose balance was previously reserved but brought current, exceeding new tenant reserves. Looking forward, FFO guidance for the fourth quarter of 2021 is estimated to be in the range of $1.54 to $1.58 per share and $6.01 to $6.05 for the year, a $0.15 per share increase over our prior guidance. The 2021 FFO per share midpoint represents a 12.1% increase over 2020. Among the notable assumption changes that comprise our revised 2021 guidance include: increasing the cash same-property midpoint by 8% to 5.6%, decreasing reserves for uncollectible rent by $900,000, increasing projected development starts by 24% to $340 million and increasing equity and debt issuance by combined $95 million.

Finally, cash same-store NOI rose 5.2% for the quarter and 5.6% year-to-date. FFO per share for the third quarter exceeded our guidance range at $1.55 per share and compared to third quarter 2020 of $1.36 represented an increase of 14%.

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On our April investor call, we referenced rising inflation across our P&L at structurally high single digits with some select spikes of 150% to 200%. In Q4, this raw material availability cost us an estimated $100 million in revenue. Our full-year consolidated sales increased 11% to $6.1 billion, our EBIT margin increased by 150 basis points, and adjusted EBIT was up 26.5%. Operating cash flow climbed nearly 40% to a record $766.2 million, and our adjusted EBIT margin climbed to 12.8%, which was also a record. This team launched our MS-168 manufacturing system, which is allowing us to produce better products more quickly, more cost-effectively, and more sustainably. In addition, we reduced our global manufacturing footprint by 28 facilities, consolidating production to more strategically advantageous plants. Our original target was 31 plants but consolidation efforts were slowed by the COVID pandemic. Through our financial realignment, we consolidated 46 accounting locations, improved controls, developed more effective and efficient accounting processes, and reduced costs. Similar initiatives were undertaken in our IT infrastructure as we have migrated 75% of our organization to one to four group-level ERP platforms. Over the course of the three-year MAP to Growth program, we have returned $1.1 billion of capital to shareholders through a combination of cash dividends and share repurchases. While we have reached the 2020 MAP to Growth conclusion, there will be some runoff from the MAP to Growth program in fiscal '22, during which we expect to capture approximately $50 million in incremental savings. Over the next six to 12 months, we will be working on a MAP 2.0 program in conjunction with our operating leaders. We remain fully committed to achieving our long-term goal of a 16% EBIT margin, and we will be sharing more information about our progress for a new program in the coming quarters. For the fourth quarter, we generated consolidated net sales of $1.74 billion, an increase of 19.6%, compared to the $1.46 billion reported in the year-ago period. Sales growth was 13.9% organic, 2.2%, the result of recent acquisitions, and 3.5% due to foreign currency translation tailwinds. Adjusted diluted earnings per share increased 13.3% to $1.28, compared to $1.13 in the fiscal 2020 fourth quarter. Our adjusted EBIT was $236.2 million, compared to $213.6 million during the year-ago period, which was an increase of 10.6%. If you exclude the impact of our nonoperating segment from both years, our four operating segments combined generated impressive sales growth of 19.6% and adjusted EBIT growth of 27.5% as they overcame margin pressures and supply availability challenges. Construction products group net sales were a record $629.4 million during the fiscal 2021 fourth quarter, which was an increase of 33.2%, compared to fiscal 2020 fourth-quarter net sales of $472.4 million. Organic growth was 28.4% and foreign currency translation provided a tailwind of 4.8%. Adjusted EBIT was a record $110.4 million, compared to adjusted EBIT of $77.3 million reported during the year-ago period. This represents an increase of 42.7%. The segment's net sales were $283.3 million during the fiscal 2021 fourth quarter, which was an increase of 20.5%, compared to the $235.1 million reported a year ago. Organic sales increased 12.9% and acquisitions contributed 2.9%. Foreign currency translation increased sales by 4.7%. Adjusted EBIT was $31 million during the fourth quarter of fiscal 2021, compared to $23.7 million during the year-ago period, representing an increase of 31.2%. Our consumer group reported record net sales of $628.9 million during the fourth quarter of fiscal 2021, an increase of 2%, compared to net sales of $616.2 million reported in the fourth quarter of fiscal 2020. Organic sales decreased 3.8% since this was the first quarter in which we comped against the surge in demand at the beginning of the pandemic. Acquisitions contributed 3.8% to sales. Foreign currency translation increased sales by 2%. Fiscal 2021 fourth-quarter adjusted EBIT was $93.6 million, a decrease of 10.4%, compared to adjusted EBIT of $104.5 million reported during the prior-year period. The specialty products group reported record net sales of $202.8 million during the fourth quarter of fiscal 2021, which increased 49.9%, compared to net sales of $135.2 million in the fiscal 2020 fourth quarter. Organic sales increased 46.2% while acquisitions contributed 0.7% to sales and foreign currency translation increased sales by 3%. Adjusted EBIT was a record $36.3 million in the fiscal 2021 fourth quarter, an increase of 395%, compared to adjusted EBIT of $7.3 million in the prior-year period. Our fiscal 2021 cash flow from operations, as Frank mentioned, was a record $766.2 million, compared to last year's record of $549.9 million. At year end, our total liquidity was $1.46 billion and included $246.7 million of cash and $1.21 billion in committed available credit. Our net leverage ratio, as calculated under our bank agreements, was 2.17 as of May 31, 2021. This was an improvement, as compared to 2.89 a year ago. Total debt at the end of fiscal 2021 was $2.38 billion, compared to $2.54 billion a year ago. Since the beginning of the fourth quarter, we repurchased approximately 38 million of stock. As a result of the lag impact from our FIFO accounting methodology, we expect that our fiscal 2022 first-half performance will be significantly impacted by inflation throughout our P&L, which is currently averaging in the upper teens. More importantly, the limited availability of certain key raw material components is negatively impacting our ability to meet demand. Our most significant challenge for the first half of fiscal 2022 will be in our consumer group. We expect consolidated sales to increase in the low to mid-single digits compared to Q1 of fiscal 2021 when sales grew 9%, creating a difficult year-over-year comparison. Sales in our consumer group are expected to decline double digits as it continues to experience difficult comparisons to the prior year when organic growth was up 34%. However, the consumer group's fiscal 2022 Q1 sales are expected to be above the pre-pandemic record, indicating that we have expanded the user base for our products since then. Based on the anticipated decline in this one segment, our Q1 consolidated adjusted EBIT is expected to decrease 25% to 30% versus a difficult prior-year comparison when adjusted EBIT in last year's first quarter was up nearly 40%. As discussed earlier, the challenges in this segment are anticipated to result in a significant decline in adjusted EBIT against difficult prior-year comparisons when sales were up 21% and adjusted EBIT was up 66%. We anticipate that the Q2 decline in consumers will be mostly offset by the combined EBIT growth in our three other segments, leading to consolidated adjusted EBIT being roughly flat versus another difficult prior-year comparison when consolidated adjusted EBIT was up nearly 30%.

For the fourth quarter, we generated consolidated net sales of $1.74 billion, an increase of 19.6%, compared to the $1.46 billion reported in the year-ago period. Adjusted diluted earnings per share increased 13.3% to $1.28, compared to $1.13 in the fiscal 2020 fourth quarter. As a result of the lag impact from our FIFO accounting methodology, we expect that our fiscal 2022 first-half performance will be significantly impacted by inflation throughout our P&L, which is currently averaging in the upper teens. More importantly, the limited availability of certain key raw material components is negatively impacting our ability to meet demand. Our most significant challenge for the first half of fiscal 2022 will be in our consumer group. However, the consumer group's fiscal 2022 Q1 sales are expected to be above the pre-pandemic record, indicating that we have expanded the user base for our products since then.

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Our primary rate increases continue to flow through our book, as evident by our strong direct premiums written growth of 19.4% in the quarter. We continue to selectively write new business, are quickly approaching $1.5 billion in premiums in force, and are optimistic about our prospects in the future. EPS for the quarter was a loss of $0.10 on a GAAP basis and a loss of $1.43 on a non-GAAP adjusted earnings per share basis. Year-to-date, GAAP earnings per share was $1.14 and negative $0.08 on a non-GAAP adjusted earnings per share basis. Despite elevated activity year-to-date, we produced an annualized year-to-date return on average equity of 10% with a book value per share that remained relatively flat since the end of 2019 at $15.15. As to underwriting, direct premiums written were up 19.4% for the quarter, led by strong direct premium growth of 18.8% in states outside of Florida and 19.6% in Florida. On the expense side, the combined ratio increased 36.9 points for the quarter to 134.7%. Turning to services, total services revenue increased 14.9% to $17.1 million for the quarter, driven by commission revenue earned on CD premiums and an increase in policy fees. On our investment portfolio, net investment income decreased 40.1% to $4.6 million for the quarter, primarily due to lower yields on cash and fixed income investments during 2020 when compared to 2019. Realized gains for the quarter were $53.8 million and resulted from taking advantage of increased market prices on our available-for-sale debt investment portfolio. Cash and cash equivalents increased 122.5% to $405.1 million when compared to the end of 2019 as a result of the actions taken to realize investment gains leading to higher investment cash flows. In regards to capital deployment, during the third quarter, the company repurchased approximately 534,000 shares at an aggregate cost of $9.9 million. Year-to-date, the company repurchased 1.4 million shares at an aggregate cost of $26.5 million. On July 6, 2020, the Board of Directors declared a quarterly cash dividend of $0.16 per share of common stock, which was paid on August 7, 2020, to shareholders of record as of the close of business on July 31, 2020. We now expect a GAAP earnings per share range of $1.80 to $2.10 and a non-GAAP adjusted earnings per share range of $0.55 to $0.85, assuming no extraordinary weather events in the fourth quarter of 2020 and no realized or unrealized gains for the fourth quarter. This would yield a return on average equity derived from GAAP measures of between 11.1% and 14.1% for the full year. We did see over 2,000 new Irma claims reported during the third quarter and we elected to book the un-gross ultimate at $1.55 billion. As of 9-30, Hurricane Michael had a little over 100 claims open, as we start to approach the end on this storm. We did elect to book the Michael gross ultimate at $386 million. Each of these events was booked at 9-30, expecting a full retention loss under its respective reinsurance program. For Hurricane Isaias, that was $15 million pre-tax under our other states program, and for Hurricane Sally, that was $43 million pre-tax under our all states program. Together, these two events resulted in a total net impact of approximately $58 million pre-tax, approximately $44 million after-tax.

EPS for the quarter was a loss of $0.10 on a GAAP basis and a loss of $1.43 on a non-GAAP adjusted earnings per share basis. We now expect a GAAP earnings per share range of $1.80 to $2.10 and a non-GAAP adjusted earnings per share range of $0.55 to $0.85, assuming no extraordinary weather events in the fourth quarter of 2020 and no realized or unrealized gains for the fourth quarter.

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Now for context on the magnitude of the inflation, in our materials businesses alone, we will be exiting this year with annualized inflation of more than $600 million. That's a nearly 20% increase; a rate we have not seen in decades. The segment grew 22% on a constant currency basis and 14% organically, driven by strength in both high-value product categories, as well as the core Apparel business. Intelligent Labels sales, enterprisewide, were up 15% in the quarter and we are on track for approximately 30% organic growth for the year versus 2020 and 40% versus 2019, toward the higher end of our long-term target. In the Industrial and Healthcare Materials segment, sales continue to rebound off prior year lows and were up relative to 2019 by 11% on a constant currency basis. We now anticipate an earnings growth of roughly 25% over last year's record and are on track to achieve all of our five-year companywide goals that we established in early 2017. We delivered another strong quarter with adjusted earnings per share of $2.14, up 12% over prior year, and up 29% compared to 2019, driven by significant revenue growth and strong margins. Sales were up 17% ex-currency and 14% on an organic basis compared to prior year, driven by strong volume across the portfolio and higher prices. We also delivered strong growth compared to 2019 with organic sales up 10% versus two years ago. Despite the impact of inflation, supply chain disruptions, and the headwind of last year's temporary cost reduction actions, we delivered a strong adjusted EBITDA margin of 15.4%, down 70 basis points from last year and up 120 basis points compared to 2019. Year-to-date, we've generated $639 million of free cash flow, up over [Phonetic] $251 million in the third quarter. And we closed the Vestcom acquisition in the quarter for a total purchase price of roughly $1.45 billion. To fund the acquisition, we used the net proceeds from an $800 million senior note offering in August, along with cash in commercial paper. Additionally, in the first three quarters of the year, we returned a total of $290 million in cash to shareholders, through $164 million in dividends and the repurchase of over 700,000 shares at an aggregate cost of $126 million. Our balance sheet continues to be strong with a net debt to adjusted EBITDA ratio of 2.3 at quarter end, at the bottom end of our long-term target leverage range. Label and Graphic Materials sales were up 15% ex-currency and 14% on an organic basis, driven by strong volume and roughly 5 points from higher prices. Compared to 2019, sales were up 11% on an organic basis. Label and Packaging Materials sales were up roughly 15% organically, with strong volume growth in both the high-value product categories and the base business. Graphics and Reflective sales were up 11% organically. Western Europe grew more than 20%, partially due to easier comps, given the impact of the pandemic we saw in Q3 last year. While LGM's profitability remained strong, adjusted EBITDA margin decreased from last year to 15.9%. This pricing impact led to a reduction in operating margin by roughly 0.75% [Phonetic] in the third quarter. RBIS sales were up 22% ex-currency and 14% on an organic basis as growth remained strong in both the high-value categories and the base business due, in part, to lower prior year comps. Compared to 2019, organic growth was up 9%. As Mitch mentioned, Intelligent Labels sales were up organically, roughly 15% and up about 40% compared to 2019. Adjusted operating margin for the segment increased to 13.8% as the benefits from higher volume and productivity more than offset the headwinds from prior year temporary cost reduction actions, higher employee-related costs, and growth investments. Sales increased 20% ex-currency and 15% on an organic basis, reflecting strong growth in both the Industrial and Healthcare categories. Compared to 2019, sales were up 6% on an organic basis. Adjusted operating margin decreased to roughly 10% as the benefit from higher volume was more than offset by the net impact of pricing, higher freight and raw material costs and higher employee-related cost. We have raised our guidance for adjusted earnings per share to be between $8.80 and $8.95, a roughly $0.08 increase to the midpoint of the range. And we now anticipate roughly 15% organic sales growth for the full year, at the high end of our previous range reflecting strong volume growth and the impact from higher prices. In particular, the impact of the extra week in the fourth quarter of 2020 and the resulting calendar shift will be a headwind to reported sales growth of roughly 8 points in the fourth quarter of this year, with a roughly $0.30 earnings per share headwind. The anticipated tailwind from currency translation is now $30 million in operating income for the full year, based on current rates. And we expect a modest earnings per share benefit from Vestcom in 2021, net of purchase accounting amortization, which we estimate to be nearly $60 million on an annualized basis and net of financing costs. [Technical Issues] target over $700 million of free cash flow this year, up significantly from previous years.

We delivered another strong quarter with adjusted earnings per share of $2.14, up 12% over prior year, and up 29% compared to 2019, driven by significant revenue growth and strong margins. We have raised our guidance for adjusted earnings per share to be between $8.80 and $8.95, a roughly $0.08 increase to the midpoint of the range.

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Our reported sales in the quarter were $1,037.7 million. They were up 10.2%, including $9.6 million of favorable foreign currency and $19.5 million of acquisition-related sales. Organic sales growth was up 7%, with 7% gains in every group. opco operating income of $201.3 million was up $15.6 million from last year. The OI margin was 19.4%, down 30 basis points, impacted negatively by acquisitions, but still very strong at a strong level. For financial services, operating income of $70.6 million increased 7.6% and the delinquencies were down even below the 2019 pre-pandemic levels, a continued testimony to our unique business model and its ability to navigate the most threatening of environments. First quarter earnings per share was $3.57, up $0.29 or 8.8% from last year. Compared with 2019, before we ever heard of the virus, our sales grew $135.9 million or 15.1%, which includes $21 million from acquisition-related sales, $13.6 million of favorable foreign currency and a $101.3 million or 11.1% organic gain. And that 2021 opco operating margin of 19.4% was up 80 basis points from the pre-pandemic levels, even while absorbing the impact from acquisitions and while meeting what we can call a considerable disruption of these days. They've been at their post for the last 18 months undoing it, and they won't be shots again, and they are optimistic about the future of their profession, about the outlook of individual transportation, and about the greater need for their skills as the vehicle park changes with new technology. Our new diagnostic, our new diagnostic TRITON-D10, intelligent diagnostic and our claimed Mitchell 1 ProDemand repair estimating guide, all representing new technologies and data deployed to make work easier in the shop. In C&I, volume in the quarter rose 13.9% or $42 million versus 2020 on significant growth across all divisions, reflected a $32.9 million or 10.6% organic uplift and $7.5 million from our AutoCrib acquisition. C&I operating income of $53.6 million was up $10.5 million or 24.4%, and the operating margin was 15.3%. That's an increase of 130 basis points versus last year. Now compared to the pre-pandemic 2019 results, sales were up 4.8%, including a 0.9% organic gain. And that OI margin of 15.3% was up 90 basis points against the 70-point impact of acquisitions and unfavorable currency. Like our 14.4-volt 3h-inch drive brushless reaction, the CTR at 61. It's a powerful combination of strength and speed, high torque, 60-foot [Inaudible], the bus loose, very suborn bolts and rapid operations, 275 RPM for getting those fashions off in quick time. Sale of $471.4 million, up $21.8 million, including $4.9 million of favorable currency and a $16.9 million or 3.7% organic gain. And the operating margin was 20.8%, one of our highest effort and up 140 basis points from last year. Compared with the pre-virus 2019 level, the organic gain was $80.4 million or 20.6%. And the 20.8% operating margin was up 700 basis points compared with the pre-pandemic level, 700 basis points in the midst of operating turbulence. Over 9,000 attendees, a record. It's built in our Algona, Iowa factory, and the new part enables young mechanics to invest a step on storage at a value price, while at the same time getting some very attractive professional features, a lockable comp compartment, fourfold distort and adjustable power tool rack that holds up the 10 tools and a power strip with five outlets and two USB ports for battery and device charging. Over $1 million of sales, it's rising upward on a steep trajectory. Sales were up 14.8% or $46.9 million, including a $31.7 million or 9.9% organic uplift. RCI operating earnings were $83.3 million, representing a rise of $3.2 million. Comparing with 2019, sales grew $41.7 million or 12.9%, including $24.2 million or 7.4% organic gain, nice growth. The RS&I OI margin was down versus the last two years, attenuated by business mix, acquisitions and currency, but it was still a strong 22.9%. The overall corporation, organic sales rising 7%. opco operating margin, 19.4% and earnings per share of $3.57 a considerable rise and most important, more testimony that Snap-on has emerged from the turbulence much stronger than we entered. Net sales of $1,037.7 million in the quarter increased 10.2% from 2020 levels, reflecting a 7% organic sales gain, $19.5 million of acquisition-related sales and $9.6 million of favorable foreign currency translation. Additionally, net sales in the period increased 15.1% from $901.8 million in the third quarter of 2019, including an 11.1% organic gain, $21.0 million of acquisition-related sales and $13.6 million of favorable foreign currency translation. Consolidated gross margin of 50.2% improved 30 basis points from 49.9% last year. The gross margin contributions from the higher sales volumes, 60 basis points of favorable foreign currency effects and benefits from the company's RCI initiatives more than offset higher material and other costs. Operating expenses as a percentage of net sales of 30.8% increased 60 basis points from 30.2% last year, primarily due to 60 basis points of unfavorable acquisition effects. Operating earnings before financial services of $201.3 million compared to $185.7 million in 2020 and $167.7 million in 2019, reflecting an 8.4% and a 20% improvement, respectively. As a percentage of net sales, operating margin before financial services of 19.4% compared to 19.7% last year and 18.6% in 2019. Financial services revenue of $87.3 million in the third quarter of 2021 compared to $85.8 million last year, while operating earnings of $70.6 million increased $5 million from 2020 levels, reflecting the higher revenue as well as lower provisions for credit losses. Consolidated operating earnings of $271.9 million increased 8.2% from $251.3 million last year and 18.9% from $228.7 million in 2019. As a percentage of revenues, the operating earnings margin of 24.2% compared to 24.5% in 2020 and 23.2% in 2019. Our third-quarter effective income tax rate of 23.7% compared to 23.4% last year. Net earnings of $196.2 million or $3.57 per diluted share increased $16.5 million or $0.29 per share from last year's levels, representing an 8.8% increase in diluted earnings per share. As compared to the third quarter of 2019, net earnings increased to $31.6 million or $0.61 per share, representing a 20.6% increase in diluted earnings per share. Sales of $351.4 million increased 13.9% from $308.4 million last year, reflecting a 10.6% organic sales gain, $7.5 million of acquisition-related sales, and $2.6 million of favorable foreign currency translation. As a further comparison, net sales in the period increased 4.8% from 2019 levels, reflecting a $3 million organic sales gain, $7.5 million of acquisition-related sales and $5.6 million of favorable foreign currency translation. Gross margin of 38.2% improved 90 basis points from 37.3% in the third quarter of 2020. Operating expenses as a percentage of sales of 22.9% improved 40 basis points as compared to last year, primarily due to the improved volumes, which were partially offset by higher travel and other costs. Operating earnings for the C&I segment of $53.6 million compared to $43.1 million last year. The operating margin of 15.3% compared to 14% a year ago. Sales of Snap-on Tools Group of $471.4 million increased 4.8% from $449.8 million in 2020, reflecting a 3.7% organic sales gain and $4.9 million of favorable foreign currency translation. Net sales in the period increased 22.4% from $385.2 million in the third quarter of 2019, reflecting a 20.6% organic sales gain and $5.8 million of favorable foreign currency translation. Gross margin of 45.8% in the quarter improved 30 basis points from last year, primarily due to the higher sales volumes and 130 basis points from favorable foreign currency effects, which offset higher material and other costs. Operating expenses as a percentage of sales of 25% improved from 26.1% last year, primarily reflecting the higher sales. Operating earnings for the Snap-on Tools Group of $98.2 million compared to $87.1 million last year. The operating margin of 20.8% compared to 19.4% a year ago, an improvement of 140 basis points. Sales of $364.4 million compared to $317.5 million a year ago, reflecting a 9.9% organic sales gain, $12 million of acquisition-related sales and $3.2 million of favorable foreign currency translation. As compared to 2019 levels, net sales increased $41.7 million from $322.7 million, reflecting a 7.4% organic sales gain, $13.5 million of acquisition-related sales and $4 million of favorable foreign currency translation. Gross margin of 46.8% declined from 47.3% last year, primarily due to the impact of higher sales and lower gross margin businesses, increased material and other costs and 10 basis points of unfavorable foreign currency effects. These declines were partially offset by savings from RCI initiatives and 60 basis points of benefits from acquisitions. Operating expenses as a percentage of sales of 23.9% increased 180 basis points from 22.1% last year, primarily due to 170 basis points of unfavorable acquisition effects. Operating earnings for the RS&I Group of $83.3 million compared to $80.1 million last year. The operating margin of 22.9% compared to 25.2% a year ago. Revenue from financial services of $87.3 million compared to $85.8 million last year. Financial services operating earnings of $70.6 million compared to $65.6 million in 2020. As a percentage of the average portfolio, financial services expenses were 0.8% and 0.9% in the third quarter of 2021 and 2020, respectively. In the third quarters of both 2021 and 2020, the average yield on finance receivables was 17.8%. The respective average yield on contract receivables were 8.5% and 8.4%, respectively. Total loan originations of $269.3 million in the third quarter increased $16.5 million or 6.5% from 2020 levels, reflecting a 5.7% increase in originations of finance receivables and a 9.5% increase in originations of contract receivables. Our worldwide gross financial services portfolio increased $7.5 million in the third quarter. The 60-day plus delinquency rate of 1.4% for U.S. extended credit compared to 1.5% in the third quarter of 2020 and 1.7% in the third quarter of 2019. On a sequential basis, the rate is up 20 basis points, reflecting the typical seasonal increase of 20 to 30 basis points we experienced between the second and third quarters. As it relates to extended credit or finance receivables, trailing 12-month net losses of $42.7 million represented 2.48% of outstanding at quarter end, down 22 basis points as compared to the same period last year. Cash provided by operating activities of $186.4 million in the quarter reflects 92.5% of net earnings. While this represents a decrease of $37.6 million from 2020 levels, this cash conversion rate compares favorably with 77.5% of net earnings in both the third quarters of 2019 and 2018. The decrease from the third quarter of 2020, primarily reflects the higher net earnings being more than offset by net changes in operating assets and liabilities, including a $61.9 million increase in working capital. Net cash used by investing activities of $29.7 million included net additions of finance receivables of $7.6 million and $16.2 million of capital expenditures. Net cash used by financing activities of $385.8 million included $250 million in senior note repayments, cash dividends of $66.3 million and the repurchase of 300,000 shares of common stock for $66.5 million under our existing share repurchase programs. As of quarter end, we had remaining availability to repurchase up to an additional $197 million of common stock under existing authorizations. Trade and other accounts receivable increased $12.5 million from 2020 year end. Days sales outstanding of 56 days compared to 64 days of 2020 year-end. Inventories increased $43.1 million from 2020 year-end. On a trailing 12-month basis, inventory turns of 2.7 compared to 2.4 at year-end 2020. Our quarter end cash position of $735.5 million compared to $923.4 million at year-end 2020. Our net debt to capital ratio of 10.3% compared to 12.1% at year-end 2020. In addition to cash and expected cash flow from operations, we have more than $800 million in available credit facilities. We now forecast that capital expenditures will approximate $90 million. tax legislation that our full year 2021 effective income tax rate will be in the range of 23% to 24%. Our broad product line, more than 80,000 SKUs supports flexible marketing to guide around shortages, and our RCI culture drives cost offsets. C&I sales up both from last year and 2019, OI margin, 15.3% strong and rising 130 basis points and 90 basis points versus 2020 and 2019, respectively. RS&I, up organically, 9.9% versus last year and 7.4% beyond the pre-pandemic levels. OI margins of 22.9%. And the Tools Group, organic volume rising 3.7% versus last year's record level and up 20.6% versus the day before the virus. OI margin, it was 20.8%, up 140 basis points from last year and up 700 basis points from 2019. It all led to our corporation being organically up 7% compared with last year and a strong 11.1% versus pre-pandemic numbers. Overall, OI margin was 19.4%, solid in the face of turbulence in our credit company, navigating then certainly without disruptions. And EPS, $3.57, rising emphatically versus all comparisons. We've now recorded 5, 5 straight quarters of above pre-pandemic performances, and we believe that with our markets reaching beyond resilience to exhilaration, with the capabilities of our model to overcome the challenges of the environment, and with a considerable advantage nurtured by our continuing investment in product, brand and people will continue to rise, maintaining our upward trajectory through the end of this year and well beyond.

First quarter earnings per share was $3.57, up $0.29 or 8.8% from last year. And that OI margin of 15.3% was up 90 basis points against the 70-point impact of acquisitions and unfavorable currency. opco operating margin, 19.4% and earnings per share of $3.57 a considerable rise and most important, more testimony that Snap-on has emerged from the turbulence much stronger than we entered. Net earnings of $196.2 million or $3.57 per diluted share increased $16.5 million or $0.29 per share from last year's levels, representing an 8.8% increase in diluted earnings per share. Gross margin of 38.2% improved 90 basis points from 37.3% in the third quarter of 2020. We now forecast that capital expenditures will approximate $90 million. C&I sales up both from last year and 2019, OI margin, 15.3% strong and rising 130 basis points and 90 basis points versus 2020 and 2019, respectively. And EPS, $3.57, rising emphatically versus all comparisons.

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We ended the first quarter with $217 million cash on hand and a zero balance drawn on our $900 million line of credit. Our largest tenants operate over 1,000 units each on average and are typically the leaders in their respective lines of trade. Our entire management team was with the company during the great recession in 2008 and most of us have been through a number of other major downturns in the past. Our portfolio of 3,125 single-tenant retail properties ended the quarter with an occupancy rate of 98.8%, which is consistent with our long-term average occupancy. We acquired 21 new properties in the first quarter, investing slightly over $67 million at an initial cash cap rate of 6.9%. We also sold 14 properties during the quarter, generating proceeds of just over $36 million at a cash cap rate of 4.7%. Due to the sudden impact of the COVID-19 pandemic on retail businesses and the economy beginning in mid-March, we are reporting today that we received approximately 52% of our rents due for the month of April. We also entered into rent deferral agreements or are currently negotiating such agreements with tenants representing approximately 37% of our annualized base rent. While we are dealing with deferrals on an individual case-by-case basis, generally our rent deferral discussions involve deferring one to three months of second quarter base rent with the deferred rent to be repaid commencing in late 2020 through late 2021. We do believe however that our impressive streak of consistently increasing the dividend for 30 consecutive years is a powerful indicator of the value of our consistent, conservative balance sheet philosophy and business model. And just a couple of comments about the first quarter, which I'm guessing few are focused on at this point, but our AFFO dividend payout ratio for the quarter was 72.4% and that was consistent with full year 2019 levels. Occupancy was 98.8% at quarter-end, G&A expense was 5.8% of revenues for the first quarter and that's flat with the prior fourth quarter and we ended the quarter with $677.5 million of annual base rent in place for all leases as of March 31, 2020. As Jay mentioned, on February 18th, we issued $700 million of unsecured debt, $400 million with a 10-year maturity and a 2.5% coupon plus $300 million with a 30-year maturity and a 3.1% coupon. We used about half of those proceeds to redeem our $325 million of 3.8% 2022 notes due in March -- we paid those off in March, they weren't due till 2022. I will note that first quarter interest expense include $2.3 million of accelerated note discount and no cost amortization as a result of that early 2022 note redemption. Absent this, incremental non-cash expense that would have allowed us to report $0.71 of core FFO per share, representing 6% growth over prior year results. We ended the quarter of $217 million of cash on the balance sheet and we have no amounts outstanding on our $900 million bank line. These transactions pushed our weighted average debt maturity to 11.2 years with a weighted average interest rate of 3.7%. Leverage metrics remain very strong, debt to gross book assets was 35.3% that was flat with year-end, net debt to EBITDA was 4.9 times at March 31, interest coverage was 4.6 times and fixed charge coverage was 4.1 times for the first quarter. If you excluded the $2.3 million of note discount and note cost amortization, those two metrics would have been 5.0 times and 4.3 times respectively for interest coverage and fixed charge. Only five of our 3,125 properties are encumbered by mortgages, totaling $12 million.

While we are dealing with deferrals on an individual case-by-case basis, generally our rent deferral discussions involve deferring one to three months of second quarter base rent with the deferred rent to be repaid commencing in late 2020 through late 2021. Absent this, incremental non-cash expense that would have allowed us to report $0.71 of core FFO per share, representing 6% growth over prior year results.

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Dick's broad executive experience and deep operational understanding of the Company from serving in a variety of senior leadership roles for Vector Group and its affiliates since 1995 make him a valuable addition to our Board and a natural fit to be COO. As of December 31, 2020, Vector Group maintained significant liquidity with cash and cash equivalents of $353 million, including cash of $94 million at Douglas Elliman and $45 million at Liggett, and investment securities and investment partnership interests with a fair market value of $188 million. Additionally, in the first quarter of 2021, we took advantage of favorable capital markets and issued $875 million of 5.75% senior secured notes till 2029. For the three months ended December 31, 2020, Vector Group's revenues were $554.6 million compared to $439.6 million in the 2019 period. The $115 million increase in revenues was a result of an increase of $25.7 million in the Tobacco segment and $89.3 million in the Real Estate segment. Net income attributed to Vector Group was $32.3 million or $0.21 per diluted common share compared to $10.7 million or $0.06 per diluted common share in the fourth quarter of 2019. The company recorded adjusted EBITDA of $93.4 million compared to $52.5 million in the prior year. Adjusted net income was $32.6 million or $0.21 per diluted share compared to $17.8 million or $0.11 per diluted share in the 2019 period. For the year ended December 31, 2020, Vector Group's revenues were $2 billion compared to $1.9 billion in the 2019 period. Net income attributed to Vector Group was $92.9 million or $0.60 per diluted common share compared to $101 million or $0.63 per diluted common share for the year ended December 31, 2019. The company recorded adjusted EBITDA of $333.4 million compared to $259.4 million in the prior year. Adjusted net income was $139.5 million or $0.91 per diluted share compared to a $110.11 million or $0.70 per diluted share in the 2019 period. Before we review the results, I'd like to recognize the resilience of the Douglas Elliman team of 6,700 agents and 750 employees in addressing the challenges of 2020. For the three months ended December 31, 2020, Douglas Elliman reported $267.5 million in revenues, net income of $14 million and an adjusted EBITDA of $16.7 million compared to $178.1 million in revenues and net loss of $432,000, and adjusted EBITDA loss of $5.7 million in the fourth quarter of 2019. For the year ended December 31, 2020, Douglas Elliman reported $774 million in revenues, a net loss of $48.2 million and adjusted EBITDA of $22.1 million compared to $784.1 million in revenues, net income of $6.2 million and adjusted EBITDA of $5.3 million in 2019. Douglas Elliman's net loss for the year ended December 31, '21 included pre-tax charges for non-cash impairments of $58.3 million as well as restructuring charges and related asset write-offs of $4.6 million. In the fourth quarter of 2020, Douglas Elliman's revenues increased by 50% from the fourth quarter of 2019 as its closed sales continue to improve in rural markets complementary to New York City, including the Hamptons, Palm Beach, Miami, Aspen and Los Angeles. Furthermore, Douglas Elliman's expense reduction initiatives continued in the fourth quarter and its fourth quarter 2020 operating and administrative expenses, excluding restructuring and asset impairment charges, declined by approximately $7.9 million compared to the fourth quarter of 2019 and $47.7 million compared to the year ended December 31, 2019. During the fourth quarter Liggett continued its strong year-to-date performance with revenue increases and margin growth contributing to a 33% 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. Our market-specific retail programs have proven successful, and we remain optimistic about Eagle 20's increasing profit contributions and long-term potential. The three months and year ended December 31, 2020 revenues were $286.1 million and $1.2 billion, respectively compared to $260.3 million and $1.11 billion for the corresponding 2019 periods. Tobacco adjusted operating income for the three months and year ended December 31, 2020 were $80 million and $320.2 million, respectively compared to $60.1 million and $262.6 million for the corresponding periods a year ago. According to Management Science Associates, overall industry wholesale shipments for the fourth quarter increased by 3.4% while Liggett's wholesale shipments increased by 2.1% compared to the fourth quarter in 2019. For the fourth quarter, Liggett's retail shipments declined 0.3% from 2019, while industry retail shipments increased 0.6% during the same period. Liggett's retail share in the fourth quarter declined slightly to 4.21% from 4.25% in the same period last year. It remains the third largest discount brand in the U.S. and is currently sold in approximately 84,000 stores nationwide. 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 to an additional 10 states, primarily in the southeast. Montego represented 8.6% of Liggett's volume for the fourth quarter 2020, and 6.3% of Liggett's volume for the year ended December 31, 2020. To date, we remain very pleased with the initial response to Montego now sold in approximately 25,000 stores representing a 50% increase from the end of the third quarter.

For the three months ended December 31, 2020, Vector Group's revenues were $554.6 million compared to $439.6 million in the 2019 period. Net income attributed to Vector Group was $32.3 million or $0.21 per diluted common share compared to $10.7 million or $0.06 per diluted common share in the fourth quarter of 2019. Adjusted net income was $32.6 million or $0.21 per diluted share compared to $17.8 million or $0.11 per diluted share in the 2019 period.

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As you know, I'm joining ESCO from Emerson, where I spent the last 24 years of my career. I started off in the Corporate Accounting and Finance team back in 1997 and finished up as the Group CFO for one of the few business platforms. Our solid operating results in Q2 and for the first six months of the year, coupled with our increasing liquidity, demonstrate that the measures we've taken over the past 12 months have significantly mitigated COVID impact on earnings. And I'm confident that our disciplined approach to operating business will result in continued success, throughout the balance of the year. Our portfolio diversity allowed us to mitigate this headwind, as we're able to hold our ESCO consolidated adjusted EBITDA constant at $31 billion in Q2, compared to pre-COVID Q2 results from last year. Additionally, we were able to increase our fiscal 21 year-to-date adjusted EBITDA and adjusted earnings per share from a prior year, despite a 6% decrease in sales. USD delivered an adjusted EBITDA margin of 26% for the first six months of the year, up from approximately 22% in the prior year's first half. We delivered free cash flow conversion at 134% of net earnings for the first six months. Today, we have approximately $760 million of liquidity at our disposal between cash on hand and available credit capacity, while carrying a modest leverage ratio 0.23. We beat the consensus estimate of $0.55, as we reported Q2 adjusted earnings per share of $0.59 cents of share. This compares to $0.68 of share in the prior year Q2. Considering Q2 of this year was influenced by the COVID operating environment, I'm pleased to report that we've delivered adjusted EBITDA of $31 million in the current period, which is equal to the $31 million we reported last year in Q2 pre-COVID. Our Q2 adjusted EBITDA margin increased at 19% from 17% last year. Year-to-date our adjusted EBITDA increased over $60 million with an 18% margin up from 17% prior year today. Over the past year, we took several cost reduction actions across the company, and as a result, we were able to increase our Q2 and year-to-date gross margins to 38.1% and 38.7%, respectively. We reduced our Q2 and year-to-date SG&A spending by 3% in both Q2 and year-to-date periods compared to prior year. Q2 orders were solid as we booked $176 million in new business and ended the quarter with a backlog of $522 million with a book-to-bill of 106%. A bright spot worth mentioning was the order volumes recorded in our commercial aerospace businesses, which grew their backlog $7 million during the quarter. While we solidly beat Q2, and are ahead of our original plan at the halfway point, we still expect the second half of 2021 to be slightly favorable in comparison to the second half of fiscal 2020, given the various elements of recovery that we are anticipating. Our Test business delivered another really solid quarter by beating our internal expectations and delivering the EBIT margin of 13%.

And I'm confident that our disciplined approach to operating business will result in continued success, throughout the balance of the year. We beat the consensus estimate of $0.55, as we reported Q2 adjusted earnings per share of $0.59 cents of share. While we solidly beat Q2, and are ahead of our original plan at the halfway point, we still expect the second half of 2021 to be slightly favorable in comparison to the second half of fiscal 2020, given the various elements of recovery that we are anticipating.

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We posted net written premium growth of 8.4% and a combined ratio excluding catastrophes in line with our original expectations for this quarter. Year-to-date through September, our growth rate of 8.4% was equally robust, driven by successful execution of our differentiated business strategy and disciplined capital allocation. As I noted during our Investor Day, in my more than 3.5 decades in this business, industry trends have never been as dynamic as they are today. At $153.5 million, our third quarter losses were in line with the preliminary estimate we shared with you in our September 22, pre-release. Hurricane Ida represented approximately $75 million of the total with the balance comprised of rain, flood and tornado events. I will now turn to a review of our business, beginning with Personal Lines, which generated net written premium growth of 8% in the quarter. At 88.7%, our retention places us in the top quartile in the industry, supported by our account strategy and focus on being a market leader for customers with sophisticated insurance needs. This solution has found a sweet spot between commodity players and high net worth carriers for customers in the $750,000 to $3 million homeowners coverage range with broader and more complex insurance needs, providing us a substantial competitive advantage and future growth opportunities. Strong growth of 8.7% in the quarter was driven by positive exposure activity, rate increases, strong renewals in core Commercial Lines and continued momentum in specialty. We achieved core commercial rate increases of 6.9% in the third quarter consistent with the second quarter dynamics. We added 10 more states over the last three months, bringing the total number to 30, now covering the vast majority of our existing small commercial footprint. Specialty continues to be a strong source of revenue expansion with underlying growth holding at near double digits for our most profitable businesses and continuing robust rate of 8% in the quarter. We conducted over 40 executive meetings both in-person and virtually talking with many of the top 100 agents around the country. In the third quarter we reported net income of $34 million or $0.94 per fully diluted share compared with net income of $118.9 million or $3.13 per fully diluted share in the same period last year. After-tax operating income was $30.8 million or $0.85 per diluted share compared with $93.5 million or $2.46 per diluted share in the prior year third quarter. We recorded an all-in combined ratio of 102.3% which included catastrophe losses from Hurricane Ida. Third quarter catastrophe losses of $153.5 million before taxes which represented 12.9% of net earned premiums were at the lower end of the guidance we provided in our prerelease on September 22. Ida added $75 million in losses to an already active cat season within our geographic footprint. Our ex-CAT combined ratio is 89.4%, reflecting the strong underlying performance of our diversified business. Turning to our reserves, we reported net favorable development of $20.9 million in the third quarter 2021, primarily due to continued favorability in Personal Auto and workers' compensation, in addition to some favorability in other commercial lines. Personal Auto favorability of $10 million includes the benefit from revised fee schedules and loss control measures that came into effect in Michigan on July 1st, 2021, as part of the PIP insurance reform there. Looking at expenses, our expense ratio improved 0.7 points from the prior year third quarter to 31.1%, largely as expected. Our expense ratio year-to-date stands at 31.3%, a 20 basis point improvement from the first nine months of 2020. And we are confident in our ability to deliver on a 30 basis point improvement for the full year. We delivered a combined ratio excluding catastrophes of 87.7%, better than our original quarterly expectations driven by favorable development. Our Personal Auto current accident year loss ratio was 68.9%, which is consistent with our plan and was contemplated in our guidance. However, it rose 8.8 points relative to the third quarter of 2020, and was up 6.7 points sequentially. And the current Personal Lines rate of 2.1% in the third quarter is the low watermark in our rate trajectory. Homeowners current accident year loss ratio excluding cats was 51.9%, up 3.7 points from the prior year period, which was reduced last year during COVID. Our homeowners rate including exposure is approximately 6% in the third quarter and it is moving to approximately 8% starting in 2022. Premium growth of 8% in personal lines was driven by robust new business activity and increased retention. Turning to Commercial Lines, we reported a combined ratio excluding catastrophes of 90.5%, a decrease of 1.3 points from the prior year period helped by an improved expense ratio from growth and higher favorable development. Our CMP current accident year loss ratio ex-CAT was 64.2%, an increase from the third quarter of last year and above our expectations. In Commercial Auto, the ex-cat loss ratio was generally in line with the third quarter of 2020 at 65%. Our workers' comp ex-cat loss ratio improved 4.2 points to 57%, primarily due to positive audit premium adjustments for prior period policies. In other Commercial Lines, the ex-cat loss ratio improved 2.4 points from Q3 2020 to 51.7%, which was also better than our expectations driven entirely by Marine and HSI, which both experienced lower than expected losses in the quarter. Our Commercial Lines segment generated premium growth of 8.7% in the quarter with solid contributions from both core and specialty. Professional lines, as well as excess and surplus fueled the growth momentum in Specialty, which overall achieved rate increases of 8% in the quarter. Q3 was a strong quarter from an investment income perspective, as we delivered net investment income of $78.8 million up nearly 17% from the prior year quarter, on higher investment partnership income. Partnership income continued to contribute significantly to our investment income, adding approximately $19 million to our pre-tax income instead of an expected $7 million based on the strong equity returns and some meaningful underlying investment monetization. Fixed maturities earned yields, continue to slowly drift lower, now standing at 2.96%, due to lower new money yields. Cash and invested assets were $9.3 billion at the end of the third quarter, with fixed income securities and cash representing 85% of the total. Our fixed maturity investment portfolio has duration of five years and is 96% investment grade. Turning now to our equity and capital position, our book value per share of 87.04 reflects a decline of 1.3% from the second quarter, due to the impact of rising interest rates on our fixed income portfolio and quarterly dividends. For the third quarter and through October 27, we repurchased approximately $34 million of stock, slowing down the pace of repurchases a bit during the cat season. In addition we paid a regular cash dividend of approximately $25 million during the quarter. Reflecting the higher catastrophe losses during the quarter, our return on equity was 4.3% well below our historical trends and our long-term target. Our annualized year-to-date ROE was 9.3%. Additionally, with three quarters of the year now in the books, we believe that we will end the year at the bottom of our 89% to 90%, ex-CAT combined ratio guidance. We're also on target to reduce our expense ratio by at least 30 basis points, in 2021 to 31.3%. And we expect our fourth quarter cat load to be 3.9%.

In the third quarter we reported net income of $34 million or $0.94 per fully diluted share compared with net income of $118.9 million or $3.13 per fully diluted share in the same period last year. After-tax operating income was $30.8 million or $0.85 per diluted share compared with $93.5 million or $2.46 per diluted share in the prior year third quarter. We recorded an all-in combined ratio of 102.3% which included catastrophe losses from Hurricane Ida. Q3 was a strong quarter from an investment income perspective, as we delivered net investment income of $78.8 million up nearly 17% from the prior year quarter, on higher investment partnership income.

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Yesterday, we reported second quarter net income of $207 million or $2.17 per share. Excluding special items, second quarter 2021 net income was also $207 million or $2.17 per share compared to the second quarter of 2020 net income of $132 million or $1.38 per share. Second quarter net sales were $1.9 billion in 2021 and $1.5 billion in 2020. Total company EBITDA for the second quarter excluding special items was $397 million in 2021 and $299 million in 2020. Reported earnings in the second quarter of 2021 included special items expense and income rounding to a negligible impact while last year's second quarter net income included special items expenses of $0.79 per share related primarily to the impairment of goodwill associated with our Paper segment. Excluding special items, the $0.79 per share increase in second quarter 2021 earnings compared to the second quarter of 2020 was driven primarily by higher prices and mix of $1.01 and volume $0.74 in our Packaging segment, higher volume in our Paper segment of $0.03, and lower non-operating pension expense of $0.03. These items were partially offset by higher operating costs of $0.57 primarily due to inflation related increases in the areas of labor and fringes, repairs, materials and supplies, recycled fiber cost as well as other indirect and fixed cost areas. We also had inflation related increases in our converting costs, which were higher by $0.05 per share while annual outage expenses were up $0.19 per share compared to last year. Freight and logistics expenses were higher by $0.19 per share driven by historically high load to truck ratios, driver shortages, increases in fuel costs, and a higher mix of spot pricing to keep pace with the box demand. Lastly, depreciation expense was higher by $0.01 per share and Paper segment prices and mix were lower by $0.01 per share. Looking at our Packaging business, EBITDA excluding special items in the second quarter of 2021 of $409 million with sales of $1.7 billion resulted in a margin of 24% versus last year's EBITDA of $313 million and sales of $1.4 billion or a 22% margin. 3 machine at our Jackson, Alabama mill provided our plants the necessary containerboard to achieve an all-time record for total box shipments. In addition, being a primarily virgin fiber based producer of containerboard minimizes the impact of significant increases in recycled fiber costs over the last several quarters. Our plants achieved a new all-time quarterly record for total box shipments as well as a second quarter record for shipments per day, both of which were up 9.6% compared to last year's second quarter. Through the first half of 2021, our box shipment volume is up 9% on a per day basis versus the industry being up 6.8%. Driven by higher domestic demand, outside sales volume of containerboard was about 43,000 tons above the second quarter of 2020, but was down slightly versus the first quarter of this year due to lower export shipments, supplying the record requirements of our box plants and the need to position inventory levels ahead of what appears to be a strong second half of the year. Domestic containerboard and corrugated products prices and mix together were $0.92 per share above the second quarter of 2020 and up $0.51 per share compared to the first quarter of 2021. Export containerboard prices were up $0.09 per share versus last year's second quarter and up $0.04 compared to the first quarter of 2021. Looking at the Paper segment, EBITDA excluding special items in the second quarter was $12 million with sales of $142 million or an 8% margin compared to second quarter 2020 EBITDA of $5 million and sales of $3 million or a 4% margin. Although about 1% below second quarter 2020 levels, prices and mix moved higher for the first and into the second quarter of 2021 as we continued to implement our announced price increases. Volume was 17% above last year when pandemic issues caused us to take both machines at the Jackson, Alabama mill down for two months during the second quarter while this year, we ran the No. 1 machine at Jackson on paper and the No. 3 machine ran linerboard. Cash provided by operations for the second quarter was $228 million with free cash flow of $97 million. The primary uses of cash during the quarter included capital expenditures of $131 million, common stock dividends of $95 million, cash taxes of $87 million, and net interest payments of $40 [Phonetic] million. We ended the quarter with $972 million of cash on hand or $1.1 billion including marketable securities. Our liquidity at June 30th was just under $1.5 billion. Considering these items, we expect third quarter earnings of $2.37 per share.

Yesterday, we reported second quarter net income of $207 million or $2.17 per share. Excluding special items, second quarter 2021 net income was also $207 million or $2.17 per share compared to the second quarter of 2020 net income of $132 million or $1.38 per share. Second quarter net sales were $1.9 billion in 2021 and $1.5 billion in 2020. In addition, being a primarily virgin fiber based producer of containerboard minimizes the impact of significant increases in recycled fiber costs over the last several quarters. Considering these items, we expect third quarter earnings of $2.37 per share.

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Core revenue growth excludes the impact of currency and the acquisitions and divestitures completed within the past 12 months. Revenues for the quarter are $1.525 billion. This is up 23% on a reported basis and up 19% core. COVID-19 related revenues accounted for roughly 2% of overall revenues as expected and contributes about 1 point to our overall growth. For example, our Q2 revenues are up more than 17% core from two years ago. Q2 operating margin of 23.9%. This is up 150 basis points. EPS of $0.97 is up 37% year-over-year. Our growth is led by 29% growth in pharma and 22% in food. We are seeing improving growth in the chemical and energy market with 14% growth. We also posted low-teens growth in diagnostics and over 20% growth in academia and government. Lastly, environmental forensics grew 8%. Geographically, the Americas led the way with 27% growth. The 30% growth in China is on top of 4% growth last year when the business started to recover from the pandemic. As we look at our performance by business group, the Life Sciences Applied Markets Group generated revenues of $674 million during the quarter. LSAG is up 28% on reported basis and up 25% core off a 7% decline last year. The LSAG Pharma business is very strong, growing 41% with strength in both biopharma and small molecule. During the quarter, Cell Analysis grew 34% with our BioTek business growing close to 40%. The Agilent Cross Lab Group posted revenues of $536 million. This is up a reported 19% and up 15% on the core basis versus a 1% increase last year. For the Diagnostics Genomics Group revenues were $315 million, up 20% reported and up 16% core versus the 5% increase last year. Revenue for the second quarter was $1.525 billion, reflecting reported growth of 23%. Core revenue growth was 19%, while currency contributed just under 4 points of growth. Pharma, our largest market, again led the way delivering 29% growth. This is on top of growing 5% last year. Our Biopharma business grew roughly 40% and represented over 35% of our Pharma business in the quarter. The food market continued its strong performance, growing 22%. And we were very pleased to see the non-COVID diagnostics businesses continue to improve throughout the quarter, growing 13% as routine doctor visits return closer to pre-pandemic levels. The chemical and energy market continues to recover as we grew 14% of a decline of 10% last year. With the increase in activity, our business grew 21% against the weakest comparison of the year. On a geographic basis, all regions grew led by the Americas at 27%, the pharma and academia and government markets in Americas grew in the low 30% range and all markets grew at least 20%. Europe experienced 16% growth led by food, academia and government and C&E. Those three markets all grew more than 20%. And as Mike noted, China grew 13% after growing 4% last year. Second quarter gross margin was 55.4% flat year-on-year, despite a headwind of more than 30 basis points from currency. Our operating margin for the second quarter came in at 23.9%, driven by volume, this is up a solid 150 basis points from last year, even as we saw increased spending as activity ramped and we invest in the future. Strong top line growth coupled with our operating leverage helped deliver earnings per share of $0.97, up 37% versus last year. Our tax rate was 14.75% and our share count was 307 million shares. We delivered $472 million in operating cash flow during the quarter, up more than 50% from last year. During the quarter we returned $254 million to our shareholders, paying out $59 million in dividends and repurchasing 1.55 million shares for $195 million. And as Mike mentioned, we also continue to strategically invest in the business, We spent a net of $547 million to purchase Resolution Bioscience and invested $31 million in capital expenditures. Year-to-date, we returned $657 million to shareholders in the form of dividends and share repurchases, while reinvesting in the business by spending $619 million on M&A and capital expenditures. During the quarter, we raised $850 million in long-term debt at very favorable terms, redeemed $300 million that was maturing next year and reduced our ongoing interest expense. We ended the quarter with $1.4 billion in cash, $2.9 billion in outstanding debt and a net leverage ratio of 1 time. For revenue, we are increasing our full-year range to a range of $6.15 billion to $6.21 billion, up nearly $320 million at the midpoint and representing reported growth of 15% to 16% and core growth of 12% to 13%. Included is roughly 3 points of currency and 0.5 point attributable to M&A. As Mike mentioned during our Investor Event in December, we provided a long-range plan of annual margin expansion in the range of 50 to 100 basis points. And in addition, we are increasing our fiscal 2021 non-GAAP earnings per share to a range of $4.09 to $4.14 per share. This is growth of 25% to 26% for the year. Now for the third fiscal quarter, we're expecting revenue to range from $1.51 billion to $1.54 billion, representing reported growth of 20% to 22% and core growth of 15% to 17.5%. And we expect third quarter non-GAAP earnings per share to be in the range of $0.97 to $0.99 per share with growth of 24% to 27%.

Revenues for the quarter are $1.525 billion. EPS of $0.97 is up 37% year-over-year. Strong top line growth coupled with our operating leverage helped deliver earnings per share of $0.97, up 37% versus last year. For revenue, we are increasing our full-year range to a range of $6.15 billion to $6.21 billion, up nearly $320 million at the midpoint and representing reported growth of 15% to 16% and core growth of 12% to 13%. And in addition, we are increasing our fiscal 2021 non-GAAP earnings per share to a range of $4.09 to $4.14 per share. Now for the third fiscal quarter, we're expecting revenue to range from $1.51 billion to $1.54 billion, representing reported growth of 20% to 22% and core growth of 15% to 17.5%. And we expect third quarter non-GAAP earnings per share to be in the range of $0.97 to $0.99 per share with growth of 24% to 27%.

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Our momentum continued this quarter with comparable sales up 2.2% for the total company and 2.6% for the U.S. on top of over 30% growth last year. Our elevated product assortment across our home decor offerings are resonating with consumers, resulting in particularly strong performance in appliances and flooring and contributing to an 11% increase in ticket over $500. Pro once again outpaced DIY this quarter with Pro growth over 16% and over 43% on a two-year basis. For the past 18 months, the home has increased in importance for all of us and perhaps especially for our baby boomer customers, who are increasingly interested in aging in place in their own homes. Sales grew 25% on top of 106% growth in the third quarter of 2020, which represents a 9% sales penetration this quarter and a two-year comp of 158%. Our recognition for the first time in 17 years as Fortune's Most Admired Specialty Retailer and our inclusion as one of the top three marketers of the year in Ad Age's annual list means that we are well positioned to put our vendor partners at the forefront of the home lifestyle movement, helping them to capitalize on the shift in consumer behavior and sentiment toward the home. During the quarter, operating margin expanded approximately 240 basis points, leading to diluted earnings per share of $2.73, which is a 38% increase as compared to adjusted diluted earnings per share in the prior year. This year, we're celebrating our centennial with a $10 million investment in 100 communities across the country with projects ranging from renovating homeless shelters, updating youth centers and addressing unique needs for communities all around the country. You can go to Lowes.com and see a full list of all 100 community projects. This is demonstrated by the $1 billion in discounts that we give our military families in our country this year through our Military Discount program. And I'm very pleased to announce that for the seventh consecutive quarter, 100% of our stores earned a Winning Together profit-sharing bonus. This $138 million payout to our frontline hourly associates is $70 million above the target payment level and reflects our appreciation for the hard work of our hourly workforce. In the third quarter, U.S. comparable sales increased 2.6% and 33.7% on a two-year basis as our Total Home strategy continues to gain traction with our DIY and Pro customers. Growth continued to be broad-based on a two-year basis with all product categories up more than 17% in that time frame. In our home decor division, appliances and flooring delivered standout performances as we leveraged our competitive in-stock positions and updated product assortments to deliver strong positive comps on top of 20% growth in these categories last year. Customers also invested in outdoor entertainment and upgrading their outdoor living spaces, as well as holiday decorations for their homes and yards, driving strong positive comps in seasonal and outdoor living and lawn and garden, resulting in two-year comps over 43% in each category. 1 position in outdoor power equipment to deliver over 20% growth in battery-operated outdoor power equipment. We delivered sales growth of 25% in the quarter and 158% on a two-year basis. As Marvin mentioned, this quarter, 100% of our stores earned their Winning Together profit-sharing bonus, resulting in a payout of $138 million to our frontline hourly associates. As a veteran, I'm particularly proud of the commitment to the 10% discount for active-duty service members and our veterans and their families every single day with no purchase limit. In Q3, we generated $1.9 billion in free cash flow, driven by better-than-expected operating results. Capital expenditures totaled $410 million in the quarter as we invest in our strategic initiatives to drive the business and support long-term growth. We returned $3.4 billion to our shareholders through a combination of both dividends, as well as share repurchases. During the quarter, we paid $563 million in dividends at $0.80 per share. Additionally, we repurchased 13.7 million shares for $2.9 billion and have over $10.7 billion remaining on our share repurchases authorization. And today, I'm excited to announce that we are now planning to repurchase an incremental $3 billion of shares in Q4. This will bring our total share repurchases to approximately $12 billion for the full year, a clear reflection of our commitment to driving long-term value for our shareholders. Our balance sheet remains very healthy with $6.1 billion in cash and cash equivalents at quarter end. Adjusted debt-to-EBITDAR stands at 2.14 times, well below our long-term stated target of 2.75 times. In the quarter, we reported diluted earnings per share of $2.73, an increase of 38% compared to adjusted diluted earnings per share last year. In the quarter, sales were $22.9 billion with a comparable sales increase of 2.2%. Comparable average ticket increased 9.7% driven primarily by higher-ticket sales of appliances and flooring, as well as product inflation. Year-to-date, commodity inflation had lifted total sales by approximately $2.1 billion and improved comp growth by 300 basis points. In the quarter, comp transaction count declined 7.5% due to lower sales to DIY customers of smaller-ticket items, as well as lower DIY lumber unit sales. Comp transactions increased 16.4% last year, which resulted in a two-year comp transaction increase of 7.7%. We delivered growth of over 16% in Pro, 25% on Lowes.com and positive comps across all home decor categories. U.S. comp sales increased 2.6% in the quarter and was up 33.7% on a two-year basis. monthly comp sales were down 0.4% in August, up 1.1% in September and up 7.7% in October. From 2019 to '21, August sales increased 28.4%, September increased 33.3% and October increased 40%. Gross margin was 33.1% of sales in the third quarter, up 38 basis points from last year. Product margin rate declined 25 basis points. In addition, higher credit revenue benefited margins by 60 basis points, while improved shrink contributed 20 basis points of benefits this quarter. These benefits were partially offset by 30 basis points of increased supply chain costs due to higher importation and transportation costs, as well as the expansion of our omnichannel capabilities. SG&A at 19.1% of sales levered 230 basis points versus LY due to better-than-expected sales and disciplined expense management. We incurred $45 million of COVID-related expenses in the quarter, as compared to $290 million of COVID-related expenses last year. The $245 million reduction in these expenses generated 110 basis points of SG&A leverage. Additionally, we incurred $100 million of expenses related to the U.S. stores reset in the third quarter of last year. As we did not incur any material expense related to this project this year, this generated 50 basis points of SG&A leverage compared to LY. And finally, we've generated approximately 50 basis points of favorable SG&A leverage from our PPI initiatives. For the quarter, operating profit was $2.8 billion, adding $600 million or a 28% increase over last year. Operating margin of 12.2% of sales for the quarter increased approximately 240 basis points over LY driven by improved SG&A leverage and higher gross margin rate. The effective tax rate was 26.1%. At the end of the quarter, inventory was $16.7 billion, which is $1 billion higher than the third quarter of 2020 when our in-stock positions were pressured due to strong consumer demand and COVID-related supply constraints. Our improved expectations for 2021 include sales of approximately $95 billion for the year, representing two-year comparable sales growth of approximately 33%. This compares to our prior expectations of approximately $92 billion of sales, which represents approximately 30% comparable sales growth on a two-year basis. With higher projected sales levels and our productivity efforts taking hold, we are raising our outlook for operating income margin to 12.4% from 12.2% for the full year. We expect capital expenditures of up to $2 billion for the year. And as I mentioned earlier, we're now planning to return excess capital to shareholders via an additional $3 billion in share repurchases in Q4. This will bring our total share repurchases to approximately $12 billion for the full year, which is higher than our original expectations of $9 billion due to better-than-anticipated performance.

Our momentum continued this quarter with comparable sales up 2.2% for the total company and 2.6% for the U.S. on top of over 30% growth last year. During the quarter, operating margin expanded approximately 240 basis points, leading to diluted earnings per share of $2.73, which is a 38% increase as compared to adjusted diluted earnings per share in the prior year. In the third quarter, U.S. comparable sales increased 2.6% and 33.7% on a two-year basis as our Total Home strategy continues to gain traction with our DIY and Pro customers. In the quarter, we reported diluted earnings per share of $2.73, an increase of 38% compared to adjusted diluted earnings per share last year. In the quarter, sales were $22.9 billion with a comparable sales increase of 2.2%. U.S. comp sales increased 2.6% in the quarter and was up 33.7% on a two-year basis. Our improved expectations for 2021 include sales of approximately $95 billion for the year, representing two-year comparable sales growth of approximately 33%. We expect capital expenditures of up to $2 billion for the year.

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EBITDAR increased 65% to $347 million as we posted companywide operating margins of 39.5%, once again proving our ability to deliver strong operating margins. Our fourth-quarter operating margin was almost 640 basis points ahead of the fourth quarter record we set 12 months ago and was up more than 1,200 basis points from the fourth quarter of 2019. Revenues grew more than 38% year over year and were up nearly 6% from the fourth quarter of 2019. Every segment of our business contributed to this exceptional performance with 24 of our 27 open properties growing revenues at a double-digit rate during the quarter. And 26 of our properties achieved double-digit EBITDAR increases. In Las Vegas Locals business, revenues rose 46% over the prior year. EBITDAR was up 76% and margins exceeded 52%. This marks the fourth straight quarter that we have achieved margins of 50% or greater in our locals business. Downtown Las Vegas had an equally impressive performance, posting record EBITDAR of $20.2 million and margins of nearly 38% for the quarter. And in our midwest & south segment, revenues grew more than 29%, EBITDAR was up over 42% and margins increased approximately 350 basis points to more than 38%. On a full year basis, we achieved record companywide revenues of nearly $3.4 billion, EBITDAR of almost $1.4 billion and operating margins of 40%. 2021 marked the first time that our EBITDAR exceeded the $1 billion mark, surpassing our previous annual record by nearly $500 million. And at 40.5%, our companywide margin was more than 1,250 basis points higher than the prior annual record set in 2020. This strong performance is the direct result of our operating team's incredible efforts over the past 18 months. Next, in Louisiana, we will soon begin work on a $95 million project that will convert Treasure Chest Casino into a fully land-based facility, meaningfully enhancing this property's performance after its projected opening in late 2023. This $50 million project will upgrade Fremont's food and beverage offerings while expanding and enhancing its gaming floor. In 2021, our digital operations generated approximately $24 million in EBITDAR for our company, and we expect EBITDAR to exceed $30 million in 2022 from our online operations. Earlier today, we announced that our board has approved a $0.15 per share dividend starting this April. This dividend is in addition to the $300 million share repurchase program our board approved in October. To date, we have bought back $150 million in stock since we resumed our share repurchase program. We finished the year with EBITDAR approaching $1.4 billion, more than 50% higher than the previous record set in 2019. With EBITDA increasing since the end of 2019 by approximately $500 million and debt balances reduced during that same period of time by approximately $850 million, our leverage has been reduced by half from pre-COVID levels. Our current leverage is approximately 2.4 times, and lease-adjusted leverage is 2.8 times. As of the end of 2021, our NOL balance was $7 million. Our expected tax rate is 23.5%. We expect our 2022 capital program to be approximately $250 million, which includes amounts for hotel room renovations and conversions of space previously utilized for buffets. We also expect to spend in 2022 an additional $50 million for the Treasure Chest and Fremont projects. As Keith mentioned, our board authorized the resumption of our quarterly dividend of $0.15 per share, which is more than double our previous quarterly amount. Also in late October, our board approved a $300 million share repurchase authorization that was in addition to $61 million remaining from our previous authorization. Since last October, we have repurchased $150 million in stock, representing approximately 2.5 million shares. We have approximately $210 million remaining under our current repurchase authorizations. For this year, assuming our business continues to perform at these levels and subject, of course, to board approval, we currently plan to repurchase on a recurring basis of approximately $100 million per quarter. So in total, with our planned share repurchases and the announced dividend, we expect to return approximately $500 million to shareholders this year.

Earlier today, we announced that our board has approved a $0.15 per share dividend starting this April. As Keith mentioned, our board authorized the resumption of our quarterly dividend of $0.15 per share, which is more than double our previous quarterly amount.

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At the same time, our global presence allowed us to capture the benefits of early recovery in places like China, which grew 18% in the quarter; and also in Europe, where we grew 6%. They're up 16% overall, and up 30% shippable in 2022 and beyond. The team corrected for the volatile conditions so quickly that, in fact, we delivered free cash flow conversion north of 180%. Fourth-quarter revenue growth was down 2% organically versus the same period last year. But in short, utilities and industrial were both down 3%. Commercial was flat and residential was up 15%. Organic orders were down 1% in the quarter as we delivered a second consecutive quarter of sequential orders improvement. Fourth-quarter operating margin and EBITDA margin of 13.8% and 18.8%, respectively, are above our forecasted range. Our earnings per share in the quarter was $0.81 due to higher-than-forecasted revenue and earnings and from a lower tax rate due to favorable jurisdictional mix. Water Infrastructure orders in the fourth quarter were down 16% organically versus last year. Notably, treatment was up 10% as wastewater utility capex budgets continue to show resilience globally. Operating margin and EBITDA margin for the segment were down a modest 60 to 70 basis points, respectively. Please turn to Page 6. Revenue declined 1% in the quarter. Segment operating margin and EBITDA margin declined 90 and 170 basis points, respectively. In M&CS, orders returned to growth in the quarter, up 13% organically. From the mid-teen declines we experienced in the second and third quarters, this quarter we finished the quarter down 5%. And Europe grew double digits from demand in the test business and from the start of the Anglian Water metrology project in the U.K. Segment operating income and EBITDA margins in the quarter were down 330 and 350 basis points, respectively. We grew free cash flow by 5% for the full year, exceeding our pre-pandemic free cash flow outlook, and delivered free cash flow conversion of 181%. In the difficult operating environment of 2020, they took that work another step forward, finishing at 17.6% of revenue. This is a 40 basis point improvement year on year, excluding foreign exchange impacts, and reflects the team's progress in managing inventories and driving solid improvements in accounts receivable collections. Our balance sheet is well positioned and includes a $1.9 billion cash balance. As a reminder, we'll take advantage of our cash position to repay one of our senior notes amounting to $600 million in the fourth quarter. And lastly, we announced an annual dividend increase of 8%. Backlog in our advanced digital solutions grew 70% year on year. With the current cash balance of nearly $1.9 billion, capital deployment is clearly top of mind for us. We remain disciplined about valuations, but we do see opportunity for additional investments over the next 18 months. We anticipate our utility business overall, which is just north of 50% of Xylem revenues, will grow in the low to mid-single digits in 2021. For Xylem overall, we foresee full-year 2021 organic revenue growth in the range of 3% to 5%. For 2021, we expect adjusted EBITDA to be up 40 to 140 basis points to a range of 16.7% to 17.7%. For your convenience, we're also providing the equivalent adjusted operating margin here, which we expect to be in the range of 11.5% to 12.5%, up 70 to 170 basis points. This yields an adjusted earnings per share range of $2.35 to $2.60, an increase of 14% to 26%. Free cash flow conversion is expected to be in the range of 80% to 90%, following free cash flow conversion of 181% in 2020 and 124% in 2019. We believe this is purely a dynamic related to 2021, and we expect to drive 100% cash conversion in 2022 and beyond. We're assuming a euro to dollar conversion rate of 1.22. Now drilling down on the first quarter, we anticipate that total company organic revenues will grow in the range of 1% to 3%. We expect first quarter adjusted EBITDA margin to be in the range of 14% to 15%, representing 170 to 270 basis points of expansion versus the prior year, with the largest expansion coming from M&CS due to operational improvements and a prior year warranty charge.

Our earnings per share in the quarter was $0.81 due to higher-than-forecasted revenue and earnings and from a lower tax rate due to favorable jurisdictional mix. And lastly, we announced an annual dividend increase of 8%. This yields an adjusted earnings per share range of $2.35 to $2.60, an increase of 14% to 26%.

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You have all overcome a lot over these past 18 months, and I'm very proud of you. On a year-to-date basis, our businesses have delivered 19% organic net sales growth and 36% EBITDA growth. Our third quarter net sales grew 18.1%, driven by growth across all business units, with standout performance from HHI. This double-digit top line performance also reflects 14% total company growth against our 2019 levels and reflects our actions over the last few years to reignite the flywheel of growth for our trusted brands. Third quarter net income from continuing operations was $34.9 million, and adjusted EBITDA was $167.4 million, mainly driven by HHI's organic growth. What I'm actually most proud of this quarter is the discipline exhibited by all four business units, as our EBITDA this quarter included an additional $19 million in innovation, marketing and advertising spend versus the period a year ago. Adjusted earnings per share grew 15.4% despite headwinds from inflation and incremental investments in marketing and advertising, as our teams continue to focus on driving efficiencies from our Global Productivity Improvement Program and implementing pricing actions. We were also opportunistic this quarter with a share repurchase program, buying back over $10 million worth of Spectrum Brands shares. But despite these continued headwinds, we remain committed to delivering on our earnings framework with mid-teens net sales and adjusted EBITDA growth and adjusted free cash flow of $260 million to $280 million. Our balance sheet this quarter remained strong with net leverage of 3.6 times, and we have over $600 million in total liquidity. We also successfully closed on the Rejuvenate acquisition during the quarter for approximately $300 million, adding a fourth category to our ever-expanding Home & Garden business. We continue to target net leverage in the 3 times to 4 times range. Net sales increased 18.1%. Excluding the impact of $25.9 million of favorable foreign exchange and acquisition sales of $34.3 million, organic net sales increased 12%. Gross profit increased $58.5 million and gross margins of 35%, declined just 40 basis points from a year ago due to higher freight and input costs, partially offset by higher volumes, improved efficiencies from our GPIP initiative and favorable mix. SG&A expense of $275.4 million, increased 22.5% at 23.7% of net sales, with the dollar increase driven by higher volumes, higher advertising and marketing investments, higher distribution and incentive costs, higher transaction-related costs and SG&A from our recent acquisitions. Operating income of $98 million was driven by higher volumes, improved productivity and lower restructuring costs, partially offset by higher freight and input costs and marketing and advertising investments. Adjusted diluted earnings per share improved to $1.57, driven by favorable volumes and improved productivity. Adjusted EBITDA increased 1.8% from the prior year, primarily driven by HHI. Q3 interest expense from continuing operations of $31.4 million, decreased $4.7 million due to our lower cost of debt. Cash taxes during the quarter of $8.6 million were $4.8 million higher than last year. Depreciation and amortization from continuing operations of $38.6 million was $3.6 million higher than the prior year. Separately, share and incentive-based compensation decreased from $14.2 million last year to $7.5 million this year, driven by the change to incentive compensation payout methodology. Cash payments for transactions were $16 million, up from $7.2 million last year. And restructuring and related payments were $5.1 million versus $25.2 million last year. The company had a quarter-end cash balance of $130 million and $478 million available on its $600 million Cash Flow Revolver. Total debt outstanding was approximately $2.7 billion, consisting of $2.1 billion of senior unsecured notes, $497 million of term loans and revolver draws and $156 million of finance leases and other obligations. Additionally, net leverage is 3.6 times. And during the quarter, the company repurchased 115,000 shares for $10.2 million. Capex was $15.2 million in Q3 versus $12.9 million last year. We are reiterating our earnings framework for the year as we continue to expect mid-teens reported net sales growth in 2021, with foreign exchange expected to have a positive impact based on current rates. This includes benefits from higher volumes, our GPIP efficiencies, approximately 11 months of results from the recent Armitage transaction in Global Pet Care and now includes approximately 4 months of Rejuvenate for Home & Garden, offset by net tariff headwinds of about $30 million to $35 million driven by the expiration of previously disclosed retrospective tariff exclusions in 2020. In addition, as David mentioned, we have factored in $120 million to $130 million of input cost inflation compared to a year ago primarily in the second half of the fiscal year. Fiscal 2021 adjusted free cash flow from continuing operations is expected to be between $260 million and $280 million. Depreciation and amortization is expected to be between $180 million and $190 million, including stock-based compensation of approximately $30 million to $35 million. Full year interest expense is expected to be between $130 million and $135 million. Both restructuring and transaction-related cash spending as well as capital expenditures are expected to be between $70 million and $80 million. Cash taxes are expected to be between $35 million and $40 million, and we do not anticipate being a significant US federal cash taxpayer during fiscal 2021 as we continue to use net operating loss carryforwards. We ended the prior year with approximately $800 million of usable federal NOLs. For adjusted EPS, we use a tax rate of 25%, which includes state taxes. Regarding our capital allocation strategy, we continue to target a net leverage range of 3 times to 4 times adjusted EBITDA. First, we continue to plan for incremental brand support investments of approximately $45 million for the year as we continue to raise awareness, consideration and purchase intent. Second, recall the Q4 results this fiscal year will have 60 reselling days compared to the prior year. Third, we continue to manage through inflationary pressures, which are still expected to be $120 million to $130 million higher than last year. Fourth, Q4 results this fiscal year will include the change to our incentive compensation program that was enacted in Q4 last year, positively impacting comparability by about $12.7 million compared to the prior year in Q4. Third quarter reported net sales increased 48.8% and organic net sales increased 46.7%. EBITDA increased 56%, primarily driven by volume growth and productivity improvements and partially offset by higher freight and input costs and higher advertising investments. This represents our fourth consecutive quarter of strong double-digit sales growth for HHI, as well as 18% growth compared to 2019 levels. We will continue to invest in innovation, marketing and advertising and are seeing positive results in retail POS and benefits from recent commercial wins with Clayton Homes, Shea Homes and another -- and a number of other top 100 US builders. Also contains SmartKey technology, which allows users to rekey their own locks to any Kwikset key in about 15 seconds. Reported inorganic net sales increased 9.5% and 4.2%, respectively. Adjusted EBITDA decreased to $11.8 million. Reported net sales grew 6.5%, while organic sales declined 7.2%. Adjusted EBITDA declined 2.8%. Our Global Pet Care business has been a very strong performer for several years, with 11 consecutive quarters of sales growth. Our new partner is a Fortune 500 world-class service provider with extensive experience working with some of the largest companies in the consumer product space. While our partnership goes back almost 10 years, this quarter, we completed one of our most successful fundraising campaigns ever through Well Aware's Shower Strike Program. Third quarter reported net sales increased just less than 1%. Organic sales declined 3% and adjusted EBITDA decreased 3.8%. Recall that net sales for the business last year were over $60 million. This program continues to be our most important strategic initiative as we transform our global operating model, and we remain on track to deliver our total gross savings target of at least $200 million by the end of fiscal 2022. As we said during our last quarter, we continue to expect these gross headwinds to be approximately $120 million to $130 million higher than fiscal 2020 levels. Second, our third quarter financial results reflect adjusted EBITDA growth, despite inflationary headwinds, which stepped up in the quarter and continued challenges with our supply chain, but most importantly, it covered an incremental $19 million investment in innovation, marketing and advertising. Additionally, the backdrop of low interest rates, the US consumer with approximately $2.5 trillion in liquid assets, combined with a strong housing market and a permanent demand shift higher for our Pet and Home & Garden product offerings paints the picture of a very strong macro demand environment for our company.

Adjusted diluted earnings per share improved to $1.57, driven by favorable volumes and improved productivity. We are reiterating our earnings framework for the year as we continue to expect mid-teens reported net sales growth in 2021, with foreign exchange expected to have a positive impact based on current rates.

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On a per share basis, third quarter earnings were $1.52 compared with $2.52 last year and $1.16 for the third quarter of 2019. During the third quarter of 2021, the Company recorded pre-tax adjustments to earnings, including a $30 million impairment in one of the company's minority investments, $13 million of costs related to the wind down of the Footaction banner, and $14 million of acquisition and integration costs related to WSS. As a reminder, last year's third quarter included a pre-tax non-cash gain of $190 million related to the higher valuation of GOAT. On a non-GAAP basis, earnings per share were $1.93 compared to $1.21 for the third quarter of last year, and $1.13 for the third quarter of 2019. Number 1 is the democratization of sneaker culture, with more brands and more consumers participating in the ecosystem of sneaker culture. And fourth, we are focused on leveraging the advantage that having approximately 3,000 stores globally offers us to serve our customers and deliver the types of diversified product offerings, inclusive of apparel, accessories and complementary products that our customers come to us for. It's been about 18 months since we combined these operating units. Our first home field store will be the largest format we have in our global fleet at about 35,000 gross square feet. In fact, there are 12 high schools within a 10-mile radius of the home field location. To date, we've converted 18 locations, and there are another nine under construction, with over half of them rebranding as Foot Locker. About 40% is Champs Sports and the remaining 10% of Kids Foot Locker. We have negotiated or worked with our lease flexibility to close about 85% of the total fleet by year-end. We are continuing our negotiations with landlords for the approximately 35 stores that will remain open into fiscal '22. The majority of our top 20 vendors posted gains driving excitement in their respective categories, all of which helped to offset supply chain disruption that impacted the flow of some of our franchisees and launch products. This momentum continues into Q4. We delivered 15 exclusive concepts in the third quarter, which were significant in terms of scale and consumer engagement. Local areas of development for the team in the quarter included enhancing our mobile and app experience where we see 90% of our online traffic come from evolving our launch reservation process with new data algorithms to improve fairness and work toward ensuring unique individual winners and enhancing our buy online, pick-up in store experience, leading to greater adoption. We now have over 28 million enrolled members with over 3 million joining in this quarter alone. On a year-over-year comparable basis, our third quarter sales were up 2.2% and earnings per share grew almost 60%. Impressively, this strong result was on top of the robust 7.7% comp gain in last year's third quarter and speaks to the strong connection we have built with our customer base. Total sales for the quarter rose to $2.2 billion or a 3.9% increase over the prior year and up 13.3% versus the third quarter of 2019. This includes a $56 million contribution from WSS since the close of the transaction in mid-September. For the third quarter, our global fleet was open for 97% of possible operating days with temporary closures in Australia, New Zealand, certain markets in Asia and Germany. Our year-over-year comp sales through our store channel increased 4.2%. Store traffic increased approximately 30% compared to fiscal 2020 as our customers continued to want an in-store experience with our multi-brand product assortment. In our digital channels, which continued to be an important connection point with our customers, sales were down 4.6% in the third quarter as we lapped an approximate 50% increase from last year. Digital sales penetration rate was 19.8%. While down 160 basis points in 2020, it was well above the 15.3% from 2019. The other North American banners posted comp declines with Foot Locker in the U.S. down low single digits, Eastbay down high single digits and Footaction in wind-down mode closed the quarter down over 20%. Our EMEA fleet was opened 99% of possible operating days in the quarter compared to 96% in the third quarter of last year. The fleet was open approximately 55% of possible operating days, down from 82% in Q2 of this year. Gross margin was 34.7% compared to 30.9% last year and 32.1% in the third quarter of 2019. Our merchandise margin rate improved 470 basis points over last year and 80 basis points over 2019, driven primarily by the meaningful reduction in markdowns. As a percent of sales, our occupancy and bias compensation costs delevered 90 basis points over Q3 of 2020. As a reminder, in last year's third quarter, we benefited from $32 million of COVID-related tenancy relief versus $3 million this year. When compared to Q3 of 2019, we leveraged our occupancy expense by 180 basis points. Our SG&A expense came in at 20.9% of sales in the quarter compared to 20.1% in the prior year period. When compared to 2019, our SG&A rate improved by 40 basis points. For the quarter, depreciation expense was $49 million, up from $44 million last year. Interest expense rose to $4 million from $2 million in the prior year due to the incremental expense related to the company's new bond issuance. Within other income, there was a benefit of $26 million or $0.18 per share from the mark-to-market of our investment in Retailers Limited. Our non-GAAP tax rate came in at 27.8% compared to last year's rate of 30.7%. We ended the quarter with approximately $1.3 billion of cash, down $54 million from a year ago. At the end of the quarter, inventory was up 9.1% to last year, driven by our supply chain and logistics team efforts to position us well for the upcoming holiday season combined with the inventory that was included in the WSS acquisition. On a constant currency basis, inventory was up 8.5% and sales increased 3.6%. In terms of capital expenditures, we invested $50 million in the quarter, bringing the year-to-date total to $137 million. This funded the opening of 32 new stores, including new Foot Locker community stores in Downey, California and Brixton, UK. Champs Sports Power stores in the Bronx, New York and Torrance, California; the expansion of Sidestep in Belgium; and the conversion of 18 Footaction stores. We also relocated or remodeled 29 stores and closed 80 stores in the quarter, including 50 Footaction stores. With the addition of WSS stores, we finished the quarter with 2,956 company-owned stores. For the full year, we now expect to open approximately 144 stores, including eight new WSS stores, remodel or relocate 200 stores and close 370 stores, including about 205 Footaction doors. Looking forward, we now expect to invest approximately $240 million in capital expenditures this year, lower than our prior guidance of $260 million due primarily to supply chain challenges with the balance shifting into 2022. First, we returned $30 million to our shareholders through our quarterly dividend program. Next, we saw opportunity given the value of the company's stock, and we repurchased 2.75 million shares of common stock for $129 million during the quarter. In total, we have returned $242 million to shareholders through the first nine months of the year through share repurchases and dividends while continuing to make strategic investments to fuel our growth. We also returned to the capital markets during the quarter, taking advantage of favorable market conditions to create more flexibility by issuing $400 million worth of 4% senior notes due in 2029. Proceeds from the issuance will be used for general corporate purposes such as repaying $98 million of senior notes due in January 2022 and replenishing our inventory levels. We believe we are well positioned for the holiday season in terms of both strong customer demand and inventory levels to support that demand. We are expecting the gross margin rate to be up 540 basis points to 550 basis points for the full year versus 2020, mostly driven by a more rational promotional environment. Our SG&A expense rate is expected to leverage between 40 basis points and 50 basis points year-over-year. We expect depreciation and amortization expense to be approximately $190 million, interest expense of about $14 million and our year-over-year effective tax rate of around 28%. We now expect our non-GAAP earnings range to be approximately $7.53 to $7.60 per share.

On a per share basis, third quarter earnings were $1.52 compared with $2.52 last year and $1.16 for the third quarter of 2019. On a non-GAAP basis, earnings per share were $1.93 compared to $1.21 for the third quarter of last year, and $1.13 for the third quarter of 2019. This momentum continues into Q4. On a year-over-year comparable basis, our third quarter sales were up 2.2% and earnings per share grew almost 60%. Total sales for the quarter rose to $2.2 billion or a 3.9% increase over the prior year and up 13.3% versus the third quarter of 2019. At the end of the quarter, inventory was up 9.1% to last year, driven by our supply chain and logistics team efforts to position us well for the upcoming holiday season combined with the inventory that was included in the WSS acquisition. We believe we are well positioned for the holiday season in terms of both strong customer demand and inventory levels to support that demand.

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Let's begin with the summary of results on Page 3. Revenue declined 5% organically and bookings were flat, with a third of our operating companies posting positive year-over-year bookings for the quarter, and more than half posting positive comparable growth in the month of September. Cash flow in the quarter was strong at 17% of revenue and 127% of adjusted net earnings. Year-to-date, we have generated $117 million more in free cash flow over the comparable period last year, owing to a robust conversion management and capital discipline. As a result of our performance in the first three quarters of the year and a solid order backlog, we are raising our annual adjusted earnings per share guidance to $5.40 to $5.45 per share. General industrial capital spending remains subdued in Q3, resulting in a 10% organic decline for an Engineered Products, driven by softness in capex levered industrial automation, industrial winches and waste handling. Sales in Imaging & Identification declined 8% organically due to continued weakness in digital textile printing. This was another quarter of exemplary margin performance in the segment, with more than 300 basis points of margin expansion driven by broad based productivity efforts, cost controlled and impacted businesses, favorable mix and pricing, which more than offset lower volume and some of the portfolio. FX, which had been a net revenue headwind for us since mid-2018, flipped in the quarter and benefited top line by 1% or $12 million, driven principally by strengthening of the euro against the dollar. Acquisitions more than offset dispositions in the quarter by $3 million. The US, our largest market, declined by 4% organically due to softness in waste handling industrial winches and precision components, partially offset by a strong quarter in our above-ground retail fueling, marking and coding, beverage can making, and food retail businesses among others. Europe declined by 4% organically, a material improvement compared to a 19% decline in Q2, driven by constructive activity in our pumps, biopharma and hygienic, and plastics and polymer businesses. All of Asia declined 10% organically, while China representing approximately half of our business in Asia, posted an 8% year-over-year decline. Bookings were nearly flat, down 1% organically year-over-year, compared to a 21% decline in Q2, reflecting continued momentum across our businesses. Overall, our backlog is currently approximately $200 million or 14% higher compared to this time last year, positioning us well for the remainder of the year and into 2021. On the top of the chart, despite a $77 million revenue decline in the quarter, we were able to keep our adjusted segment earnings approximately flat year-over-year, a testament to our proactive cost containment and productivity initiatives that help drive 100 basis points of adjusted EBITDA margin improvement. Adjusted net earnings declined by $3 million, principally driven by higher corporate costs related to deal fees and expense accruals, partially offset by lower interest expense and lower taxes on lower earnings. The effective tax rate excluding discrete tax benefits is approximately 21.5% for the quarter, substantially the same as the prior year. Discrete tax benefits quarter-over-quarter were approximately $2 million lower in 2020. Right sizing and other costs were $6 million in the quarter relating to several new permanent cost containment initiatives that we pulled forward into this year. We are pleased with the cash performance, with year-to-date free cash flow of $563 million, a $117 million or [Indecipherable] over last year. Free cash flow now stands at 11.5% of revenue year-to-date, going into the fourth quarter, which traditionally has been our strongest cash flow quarter of the year. I'm on Page 8. Fueling Solutions remain constructive finishing the year and into 2021. With strong margin performance to date, we intend to deliver approximately flat year-over-year adjusted margin this year, despite a lower revenue base. As you may recall, we entered the year with a program entailing $50 million in structural cost reductions as part of our multi-year program highlighted at our 2019 Investor Day. We actioned more structural initiatives, which resulted in approximately $75 million of permanent cost reduction in 2020, leaving a $25 million annualized carryover benefit into 2021. We expect robust cash flow this year on the back of solid year-to-date cash flow generation and target free cash flow margin at the upper end of our guidance between 11% and 12%. Capital expenditures should tally up to approximately $159 for the year, with most of the larger outlays behind us. In summation, we're raising our adjusted earnings per share guidance to $5.40 per share to $5.45 per share for the full year, above the top end range of our prior guidance.

As a result of our performance in the first three quarters of the year and a solid order backlog, we are raising our annual adjusted earnings per share guidance to $5.40 to $5.45 per share. Fueling Solutions remain constructive finishing the year and into 2021. With strong margin performance to date, we intend to deliver approximately flat year-over-year adjusted margin this year, despite a lower revenue base. In summation, we're raising our adjusted earnings per share guidance to $5.40 per share to $5.45 per share for the full year, above the top end range of our prior guidance.

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All our segments set records for sales and EBITDA in the second quarter, with over 150,000 housing starts in June, single-family mix over 70% and repair and remodel indices equally robust, we are encouraged that demand for LP's products remain very strong. EBITDA was $684 million, generating $457 million in operating cash flow and $4.74 in earnings per share. Revenue for Siding Solutions grew by 39% compared to last year. This is composed of 27% volume growth, compounded by 9% price growth. In addition to market penetration and share gains, Siding is growing through product innovation, the most innovative and value-added subset of Siding Solutions, which includes SmartSide Smooth, Shakes and ExpertFinish and LP's new builder series Siding, combined for 9% of total volume in Q2. This is compared to 6% last year and these new products contributed more than one point to the 9% increase. Siding Solutions revenue grew by 39% and OSB and EWP prices were significantly higher in both North and South America. And Entekra delivered a record 324 units for $22 million of revenue, a tenfold increase over last year. As a result, LP generated $1.3 billion in sales, $684 million of EBITDA, $457 million of operating cash flow, and $4.74 in adjusted earnings per share. Inflationary pressures in wages, raw materials and freight, especially when compared to softer prices last year produced an EBITDA headwind of $24 million. Maintenance and other spending account for the remaining adverse $31 million. The waterfalls on slides nine and 10 show year-over-year revenue and EBITDA comparisons for the Siding and OSB segments. Siding Solutions saw volume growth of 27% and price growth of 9% for revenue growth of 39%. This generated an additional $81 million of revenue and $53 million of EBITDA and incremental EBITDA margin of 65%. Notably the 9% price increase in the quarter includes four percentage points from annual list price increases and three points on the packet that is from reduced discounts and rebates. The highest value-added subset of products, which includes ExpertFinish Smooth Shakes and Builder series punches well above its weight in terms of price accounting for just 9% of total volume, but over 100 basis points of the year-over-year price increase. The $4 million increase in selling and marketing costs represents the ongoing return to pre-COVID levels of spend consistent with our growth strategy and reflects the anniversary of reductions made last spring. With OEE flat to prior year still impressive 88%, the total Siding transformation impact is $81 million in revenue and $50 million in EBITDA. Costs associated with the Houlton conversion are making their first appearance in this waterfall with $1 million incurred in the second quarter. We have the last vestiges of the discontinued fiber sales this quarter with $10 million less revenue, but only $1 million less EBITDA. This brings us to second quarter revenue for the segment of $291 million an increase of 32% and EBITDA of $77 million, an increase of 51% for an EBITDA margin for the segment of 27%. Slide 10 shows the quarter in more detail for OSB and is obviously not to scale as OSB price increases dwarfed the other elements of the waterfall adding $554 million in year-over-year revenue and EBITDA. Volume was up about 8%, driven by Structural Solutions growth. High unscheduled downtime reduced OEE to 86% which contributed to the $18 million of unfavorable production costs. And lastly the restart of Peace Valley cost us $7 million in the quarter. The net result of these factors dominated as I said by price are increases in sales and EBITDA of $574 million and $519 million respectively and yet another quarter of extraordinary cash flow generation. All of which is reflected in the Siding and OSB waterfall charts to the tune of $8 million for raw materials and $12 million for freight across the two segments. On a blended unit cost basis, non-wood raw materials were down about 6% in 2020 compared to 2019, but are now up about 13% in 2021 compared to 2020. This represents an inflationary CAGR or compound annual growth rate of about 4% over the period. Let me turn to LP's capital allocation strategy which remains to return to shareholders over time at least 50% of cash flow from operations in excess of investments required to sustain our core businesses and grow Siding Solutions at OSB Structural Solutions. In the second quarter of 2021, we returned $481 million to shareholders through a combination of $465 million in share repurchases and $16 million in dividends. Furthermore, since the end of June, we've spent an additional $140 million on buybacks which leaves $572 million remaining under the current $1 billion authorization. And since LP embarked on its strategic transformation, we've returned over $1.8 billion to shareholders, repurchasing more than 5 million shares and bringing the current share count to a bit under 95 million. In order to consistently reflect ongoing Siding growth and the decrease in share count driven by aggressive share repurchases, LP has declared a midyear increase in the quarterly dividend of 13% or $0.02 per share raising it from $0.16 a share to $0.18 per share. We now anticipate spending $95 million in 2021 for the Houlton conversion an increase of $10 million of prior guidance largely due to increased costs for steel and labor. Spending for other growth capital, is expected to be $45 million and we anticipate spending about $120 million on sustaining maintenance for full-year total capital outlay of $270 million. For Siding Solutions, the third quarter should see year-over-year revenue growth of around 10%, which would be another quarterly record despite the much stronger comparative. And if we assume 10% year-over-year revenue growth for the second half of this year Siding Solutions revenue growth will hit 24% for the year, which is double our long-term guidance. But on a trailing 12-month basis, we still expect the EBITDA margin to meet our long-term guidance of 25%. We're therefore guiding to OSB revenue being roughly 10% sequentially lower than the second quarter. And so with further caveats about certain changes in demand raw material price and availability or other unforeseeable events, we expect EBITDA for the third quarter to be at least $530 million, which will not be another quarterly record for LP but will be second only to the quarter we've just finished to report it.

EBITDA was $684 million, generating $457 million in operating cash flow and $4.74 in earnings per share. As a result, LP generated $1.3 billion in sales, $684 million of EBITDA, $457 million of operating cash flow, and $4.74 in adjusted earnings per share. The waterfalls on slides nine and 10 show year-over-year revenue and EBITDA comparisons for the Siding and OSB segments. We have the last vestiges of the discontinued fiber sales this quarter with $10 million less revenue, but only $1 million less EBITDA. We now anticipate spending $95 million in 2021 for the Houlton conversion an increase of $10 million of prior guidance largely due to increased costs for steel and labor. Spending for other growth capital, is expected to be $45 million and we anticipate spending about $120 million on sustaining maintenance for full-year total capital outlay of $270 million. For Siding Solutions, the third quarter should see year-over-year revenue growth of around 10%, which would be another quarterly record despite the much stronger comparative. And if we assume 10% year-over-year revenue growth for the second half of this year Siding Solutions revenue growth will hit 24% for the year, which is double our long-term guidance. We're therefore guiding to OSB revenue being roughly 10% sequentially lower than the second quarter. And so with further caveats about certain changes in demand raw material price and availability or other unforeseeable events, we expect EBITDA for the third quarter to be at least $530 million, which will not be another quarterly record for LP but will be second only to the quarter we've just finished to report it.

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Net income was $69.7 million or $6.38 a share compared to net income of $85.5 million or $7.67 a share for the first quarter of last year was our performance. Petroleum additives net sales for the first three months of 2021 were $564.9 million compared to $557.4 million for the same period in 2020 or an increase of 1.4%. Sales increased about $8 million mainly due to a 2.6% increase in shipments with increases in lubricant additive shipments partially offset by decreases in fuel additive shipments. Petroleum additives operating profit for the quarter was $94.1 million lower than the first quarter operating profit last year of $113.7 million. The operating margin was 15.6% for the rolling four quarters for the first quarter of 2021. During the quarter, we funded capital expenditures of $20.5 million and paid dividends of $20.8 million. In March, we also issued new 10 year -- a new 10 year $400 million bond, pre-funding our current $350 million bond that come due in the fourth quarter of 2022. We continue to operate with very little leverage with net debt to EBITDA ending the quarter at 1.1 times. For 2021, we expect to see capital expenditures in the range of $75 million to $85 million.

Net income was $69.7 million or $6.38 a share compared to net income of $85.5 million or $7.67 a share for the first quarter of last year was our performance.

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We earned $9.11 per diluted share and funds from operation for the full year, which includes a $0.06 per share dilution from our recent equity offering in November. We generated over $2.3 billion in operating cash flow. We acquired an 80% interest in the Taubman Realty Group, made strategic investments in several widely recognized retail brands at attractive valuations and have already made significant progress in repositioning each brand and increasing their operating cash flow. We raised over $13 billion in debt and equity markets; opened two new international shopping destinations, expanded two others, completed three domestic redevelopments; abated rent for thousands of small and local businesses, regional entrepreneurs and restaurateurs who, frankly, needed our help to survive; paid $700 million in real estate taxes which, unbelievably, was an increase from 2019 despite losing approximately 13,500 shopping days in our domestic portfolio during the year due to the restrictive governmental orders placed upon us, and that's roughly 20% of the whole year to put in perspective; and we returned $2 billion in cash to our shareholders in dividends. Fourth-quarter FFO was $787 million. That's $2.17 per share. I'm pleased that -- to report that with the solid profitability and the $900 million in operating cash flow we generated within the fourth quarter, our domestic international operations in the quarter were negatively impacted by approximately a net $0.95 per diluted share, primarily due to the reduced lease income, including sales-based rents and other property revenues caused by COVID-19 disruption and $0.06 also from the international operations due to various restrictions placed upon those properties. As of last week, we have collected 90% of our net billed rents for the second, third and fourth quarters combined. Last year, our NOI was $1.6 billion in the fourth quarter. This year, it's $1.2 billion. That's a decrease of 23.9% or approximately $380 million. And here are the components of the decline: $220 million in aggregate from domestic rent abatements and higher uncollectible rents, primarily associated with retail bankruptcies. Approximately $205 million from lower minimum rents reimbursement, short-term leasing, ancillary property revenues and terminations associated with bankruptcy tenants and lower sales volume due to COVID-19 disruption, obviously, lots of government restrictions on restaurants and amount of people we could have in the properties and, just as a reminder to you, we have a great deal of seasonality in the fourth quarter, so obviously, the card kiosk overage rent was impacted by, again, the immense restrictions that we had in terms of operating our portfolio by government mandates. Average base minimum rent was $55.80, up 2.2% for the year. We signed over 1,400 leases, representing 6 million square feet and have a number of -- significant number of leases in our pipeline. We also added, which is essentially the Woodbury of Asia, the Gotemba outlet expansion, another 178,000 square feet and another property in Japan, adding another 110,000 square feet. So look for those to add to our cash flow in future years. They include Forever 21, Lucky Brand, Brooks Brothers and Penney. And let me just give Forever 21 as an example. And despite all of that -- despite all of that, Forever 21, both in -- in the company generated a positive EBITDA pre-royalties of approximately $75 million in 2020. And we basically paid $67 million for that. So our share of that is $30 million. And you can divide it by $67 million to give you our return on investment in COVID 2020. Now if you put all of our retail brand investments in context, we have approximately $330 million of remaining invested capital, net of cash distributions and the value of appreciation of our ABG investment, which has just had a recent trade. And so in marking that to market, our net investment in all of these activities is $330 million. And all of these brands will generate for us in 2021, our share, $260 million of EBITDA. So you can take $260 million, divide it by $330 million to get a sense of our return on investment. So the other point to make in these retail investments is all of these brands generate $3.5 billion in digital sales. $3.5 billion in digital sales. Now with respect to Taubman, I'm very pleased to have completed the transaction for 80% TRG and their premier retail portfolio, asset portfolio. As many of you know, we recently filed an S-1 with the SEC to raise $300 million in a Simon-sponsored special purpose acquisition corporation, i.e., SPAC. We've been very active in the debt and equity capital markets, raising $13 billion in the last 12 or so months and, just some highlights, amended and extended our credit facility with a $6 billion facility that included a $2 billion term loan, which was used to fund the Taubman transaction; issued $3.5 billion of senior notes including the recent $1.5 billion offering in January, addressing all of our 21 unsecured maturities and, obviously, before the treasury really moved up; we completed 15 secured loan financings -- refinancings for $2 billion; and again, in November, we completed a common stock issuance of 22 million shares for $1.56 billion. Fourth quarter, we ended our liquidity with $8.2 billion, consisting of about $1.5 billion of cash, including our share of joint venture and $6.7 billion of available credit facility. This is net of $623 million of commercial paper outstanding at quarter end. Dividend, we paid our fourth-quarter dividend of $1.30 per share, which is $6 in total for the year. We paid more than $2 billion in 2020. We're up to over $34 billion in dividends of our history as a public company. In 2021, our guidance is $9.50 to $9.75 per share. This range, it includes approximately $0.15 to $0.20 per share from our retailer investments. That's a growth range of 4.3% to 7%, compared to our full year of $9.11. And just no more -- our diluted share count will be 376.

That's $2.17 per share. As of last week, we have collected 90% of our net billed rents for the second, third and fourth quarters combined. So look for those to add to our cash flow in future years. In 2021, our guidance is $9.50 to $9.75 per share.

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In addition, we kept our full year adjusted EBITDA margin to within 50 basis points of 2019, despite significantly lower market demand, and we generated record free cash flow. These factors help us narrow the gap in rental revenue year-over-year from being down over 13% in Q3 to down just 10% in Q4. It was $275 million, almost 13% higher than prior year, and it was driven by healthy retail demand. In total, we plan to open another 30 specialty cold starts this year, which is double the number that we opened last year. And this will bring us close to 400 specialty locations by December. Rental revenue for the fourth quarter was $1.85 billion, which was lower by $208 million or 10.1% year-over-year. Within rental revenue, OER decreased $190 million or 10.9%. In that, a 5.6% decline in the average size of the fleet was a $98 million headwind to revenue. Inflation of 1.5% cost us another $25 million, and fleet productivity was down 3.8% or a $67 million impact. Sequentially, fleet productivity improved by a healthy 420 basis points, mainly from better fleet absorption. Rounding out the decline in rental revenue for the quarter was $18 million in lower ancillary and rerent revenues. As I mentioned earlier, used equipment sales were stronger-than-expected in the quarter, coming in at $275 million. That's an increase of $31 million or about 13% year-over-year, driven almost entirely by an increase in retail sales. That reflected OEC sold up 35% year-over-year in the retail channel for the second quarter in a row. Used margins in the quarter were solid at 42.5%. Notably, these results in use reflect our selling over seven-year-old fleet at just shy of 50% of original cost. Adjusted EBITDA for the quarter was just under $1.04 billion, a decline of $117 million or 10.1% year-over-year. The dollar change includes a $143 million headwind from rental. And in that, OER made up $140 million and ancillary and rerent together were the remaining $3 million. Used sales were a tailwind to adjusted EBITDA of $11 million, which offset a $3 million headwind from our other non-rental lines of business. And SG&A was another benefit in the quarter of $18 million, with the majority of that help coming from lower discretionary costs, mainly T&E. Our adjusted EBITDA margin in the quarter was 45.5%, down 150 basis points year-over-year, and flow-through as reported was about 66%. Adjusting for those two items implies a margin of 46.1% and flow-through for the quarter of just over 56%. A quick comment on adjusted EPS, which was $5.04 That compares with $5.60 in Q4 last year. For the quarter, rental capex was $176 million, bringing our full year spend to $961 million in gross rental capex, which was 55% less than what we spent in 2019. Proceeds in 2020 from used equipment sales were $858 million, resulting in net capex of $103 million. ROIC remained strong at year-end, coming in at 8.9%. That continues to meaningfully exceed our weighted average cost of capital, which currently runs about 7%. Year-over-year, ROIC was lower by 150 basis points, primarily due to the decline in revenue. Turning to free cash flow, which was a record for us at over $2.4 billion in 2020. This represents an increase of over $860 million versus 2019. As we look at the balance sheet, our having dedicated the majority of our free cash flow to debt reduction in 2020 resulted in a $1.9 billion or almost 17% decrease year-over-year in net debt. Leverage was 2.4 times at year-end, down from 2.6 times at the end of 2019. We finished 2020 with just under $3.1 billion in total liquidity. That's made up of ABL capacity of just over $2.7 billion and availability on our AR facility of $166 million. We also had $202 million in cash. We're planning for another strong year in used sales, and we'll look to increase our capex spend to replace that fleet. Within our guidance, that reflects over $1.9 billion in replacement capex. In 2021, we expect another year of generating significant free cash flow, and that's after considering a return to over $2 billion in capex spending.

Adjusted EBITDA for the quarter was just under $1.04 billion, a decline of $117 million or 10.1% year-over-year. We're planning for another strong year in used sales, and we'll look to increase our capex spend to replace that fleet.

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Jerry hit -- is an important part of the Rollins leadership team and his in-depth knowledge of our business and experience gained from working in our industry since 1991 adds perspective. As a recent example, we're pleased to share that Rollins made an in-kind donation originally costing $4.6 million dollars worth of personal protective equipment or PPE items during the third quarter. Working with the Federal Emergency Management Agency and several philanthropic organizations including the Friends of Disabled Adults and Children, the Foundation of HOPE Food Bank, as well as COPE Preparedness in Los Angeles, we donated 27 pallets or 6.8 million pieces of masks, gloves and other items. In accordance with accounting standard ASC 450, we have established a reserve related to this matter which we consider immaterial. Revenue increased 11.4% to $650.2 million compared to $583.7 million for the third quarter of last year. Our net income totaled $93.9 million or $0.19 per diluted share compared to $79.6 million or $0.16 per diluted share for the same period in 2020. Revenues for the first nine months of 2021 were $1.824 billion, an increase of 12.2% compared to $1.625 billion for the same period last year. Net income for the first nine months increased 44% to $285.3 million or $0.58 per diluted share compared to $198.2 million or $0.40 per diluted share for the comparable period last year. For the quarter, we experienced solid growth in all our business lines with residential increasing 11.7% and termite presenting percent growth over the third quarter 2020. Additionally, commercial excluding fumigation delivered an impressive 10.1% growth over the third quarter last year. This is also an improvement of 7.9% growth over two years ago when we were not experiencing COVID related shutdowns. Since 2010, the business has grown 800%. There are currently 84 franchises with the most recent franchise launching in Mansfield Ohio. We anticipate finishing the year with 12 new franchises, one of our strongest years in adding franchisees. Through the Rollins Employee Relief Fund, we granted 137 emergency grants to impacted employees within the first week following the hurricane to enable employees to address their personal essential needs. Think about this, over the last three years we have averaged 30 acquisitions per year. Our third quarter revenues of $650.2 million was an increase of 11.4% over last year. Of the 11.4% actual exchange rate revenue growth, acquisition growth was 2.2%, and organic equated to 9.2%. For the nine months ended September 2021, revenue of $1.824 billion was an increase of 12.12 percentage over year-to-date 2020. Of this actual exchange rate total revenue growth of 2. -- or excuse me, of 12.2%, 2.7% was related to acquisitions, and 9.5% organic growth. The constant year-to-date exchange rate total revenue growth for 2021 equaled 11.6%; 2.7% represented acquisitions and 8.9% organic revenue growth. For the third quarter in 2021, wildlife revenues grew 24.1% over last year, and year-to-date wildlife has presented an overall revenue growth of 27.6%. What makes us particularly impressive at this is that this is after their strong growth of 20.4% last year. So, third quarter 2021 EBITDA was $150.9 million or 8.7% over 2020 third quarter adjusted EBITDA of $138.9 million. Third quarter 2021 earnings per share was $0.19 per diluted share or 5.6% improvement over the 2020 third quarter adjusted EPS. For the nine months ended September 2021, our adjusted EBITDA was $422 million or 22.1% over last year's adjusted EBITDA of $344.9 million. Year-to-date 2021 adjusted earnings per share was $0.53 per diluted share or 26.2% over last year. For the third quarter 2021, gross margin increased to 53% or 0.4% over last year. Strong improvements in our materials and supplies were negatively offset by high overall fleet costs primarily from an increase in fuel of approximately $4 million over third quarter 2020, and lower vehicle gains of $900,000 compared to last year. Travel expenses have also increased $1.3 million in the third quarter as we have begun to lift our company travel restrictions. Amortization expenses for the third quarter 2021 increased $1.4 million due to the amortization of customer contracts from multiple acquisitions. This was offset by a decrease in depreciation of $201,000 due to the sale of owned vehicles and centralizing of IT function. Overall, this equated to a 5.1% increase in depreciation and amortization over the third quarter 2020. Our dividends paid year-to-date 2021 was $119.7 million or an increase of 30.4% over last year. We ended the current period with $117.7 million in cash, of which $73.6 million was held by our foreign subsidiaries. For the third quarter of 2021, our free cash flow is $72.9 million or a decrease of 27.5% over the same quarter last year. For the nine months ended 2021, our free cash flow equal $278.9 million or 13.6% decrease over year-to-date 2020. This fluctuation occurred due to the deferral of $30.3 million in FICA taxes payable in 2020 as allowed under the CARES Act. Lastly, I want to discuss that yesterday we were extremely pleased to announce that our Board has approved a 25% increase to our dividends. The quarterly dividend increased to $0.10 per share from $0.08 per share and will be paid on December 10, 2021 to stockholders of record at the close of business on November 10, 2021. Additionally, the Board also approved a special dividend of $0.08 to be paid on December 10, 2021 as well.

Revenue increased 11.4% to $650.2 million compared to $583.7 million for the third quarter of last year. Our net income totaled $93.9 million or $0.19 per diluted share compared to $79.6 million or $0.16 per diluted share for the same period in 2020. Our third quarter revenues of $650.2 million was an increase of 11.4% over last year. Third quarter 2021 earnings per share was $0.19 per diluted share or 5.6% improvement over the 2020 third quarter adjusted EPS.

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Pre-provision net revenue of $110.4 million increased 2% from Q2 as revenue grew in excess of expenses. Earnings per share in the quarter were $0.75 compared to $0.57 in Q2 and $1 in the prior year's third quarter. Our $23 million provision resulted in a reserve build of $11 million. Our third quarter return on common equity was 9% and the return on tangible common equity was 11%. Loans grew 12% from a year ago on Slide 3 or 5% when excluding $1.4 billion in PPP loans. Commercial loans grew more than 10% from a year ago or by almost $1.2 billion, led by growth of more than $900 million in high-quality commercial real estate loans. The decline in floating and periodic rate loans to total loans compared to a year ago reflects the $1.3 billion of fixed rate PPP loans added in the second quarter. Deposits grew 16% year-over-year driven across all business lines. Core deposits exceeded $4.3 billion and represent 90% of total deposits compared to 86% a year ago, while CDs declined $685 million from a year ago. Slide 4 through 6 set forth key performance statistics for our three lines of business. Loan balances increased to almost 10% from a year ago, excluding PPP loans. Deposits, up 32% from a year ago, are nearly $6 billion at September 30th as our commercial clients maintain liquidity on their balance sheets. Commercial deposits were up 11% linked quarter on seasonal strength in our treasury and payments solutions business, which includes government banking. Core deposit growth was 15% year-over-year or 12.6%, excluding the impact of the State Farm transaction, which closed in the third quarter and added 22,000 accounts and $132 million in deposit balances. COVID-19 has impacted the HSA business with new account openings 28% lower from prior year when adjusting for the State Farm acquisition. TPA accounts and balances declined 41,000 and 64,000,000, respectively linked quarter, continuing the outmigration of accounts that we disclosed a year ago. In the quarter, we recognized approximately $3 million of account closure fees related to the outmigration. Community banking loans grew almost 10% year-over-year and declined slightly excluding PPP. Business banking loans grew 5% from a year ago when excluding PPP. Personal banking loans decreased 3% from a year ago as an increase in residential mortgages was offset by declines in home equity and other consumer loans. Community banking deposits grew 12% year-over-year with consumer and business deposits growing 6% and 32% respectively. The total cost of community banking deposits was 24 basis points in the quarter, that's down 48 basis points from a year ago. Net interest and non-interest income both improved 3% from prior year driven by increased loan and deposit balances and by mortgage banking and swap fees, respectively. The key points on this slide are that overall loan outstandings to these sectors have declined 5% from June 30th and the payment deferrals have declined $282 million or 57%. On Slide 8, we provide more detail across our entire $20 billion commercial and consumer loan portfolio. The key takeaway here is that payment deferrals declined by 65% to $482 million at September 30th and now represent 2% of total loans compared to 7% at June 30th. Of the $482 million of payment deferrals at September 30th, $251 million or 52% are first time deferrals. CARES Act and Interagency Statement payment deferrals, which are included in the $482 million of total payment deferrals at September 30th, decreased to 62% from June 30th and now total just $283 million. Average securities grew $184 million or 2.1% linked quarter and represented 27% of total assets at September 30th, largely in line with levels over the past year. Average loans grew $262 million or 1.2% linked quarter. PPP loans average $1.3 billion in Q3 and grew $403 million from Q2, reflecting the full quarter impact of loans funded last quarter. During the quarter, we had $5.5 million of PPP fee accretion and the remaining deferred fees totaled $35 million. Apart from PPP loans, commercial real estate loans increased $124 million or 2%, while asset-based and other commercial loans decreased $108 million and $38 million, respectively. The $119 million decline in consumer loans include $62 million in home equity and $32 million of residential mortgages. Deposits increased $1 billion linked quarter, well in excess of the combined growth of $446 million in loans and securities. We saw increases across all deposit categories except CDs, which declined $280 million or nearly 10%. The cost of CDs declined 36 basis points and was a significant driver of our reduction in deposit cost. Public funds increased $599 million in a seasonally strong third quarter, while the cost of these deposits declined from 35 basis points to 18 basis points. Borrowings declined $744 million from Q2 and now represent 7% of total assets compared to 8.5% at June 30th and 10.5% in prior year. The tangible common equity ratio increased to 7.75% and would be 34 basis points higher, excluding the $1.4 billion in 0% risk-weighted PPP loans. Tangible book value per share at quarter end was $27.86, an increase of 1.7% from June 30th and 4.8% from prior year. Net interest income declined $5.1 million from prior quarter. Lower rates resulted in a quarter-over-quarter decline of $16.7 million in interest income from earning asset. This was partially offset by $7.9 million due to lower deposit and borrowing costs and $3.7 million as a result of loan and security balanced growth. As a result, our net interest margin was 11 basis points lower linked quarter. Core loan yields and balances contributed 14 basis points to the decline with PPP loans contributing another 2 basis points to the NIM decline. Lower reinvestment rates on our securities portfolio resulted in 3 basis points of NIM compression, while higher premium amortization resulted in an additional 4 basis points of NIM compression. This was partially offset by a 10 basis point reduction in deposit cost, reflective of reduced rates across all categories, which benefited NIM by 10 basis points and fewer borrowings contributed another 2 basis points of NIM benefit. As compared to prior year, net interest income declined $21 million, $65 million of the decline was the net result of lower market rates, which were partially offset by $44 million in earning asset growth. Non-interest income increased $15 million linked quarter and $5.2 million from prior year. HSA fee income increased $4.1 million linked quarter. Interchange revenue increased $1 million, driven by a 12% linked quarter increase in debit transaction volume. We also recognized $3.2 million of exit fees on TPA accounts during the quarter. The mortgage banking revenue increase of $2.9 million linked quarter was split between increased origination activity and higher spread. Deposit service fees increased $1.5 million quarter-over-quarter driven by overdraft and interchange fees. Consumer and business debit transactions increased 16% linked quarter. Other income increased $5.7 million, primarily due to a discrete fair value adjustment on our customer hedging book recorded last quarter. Reported non-interest expense of $184 million included $4.8 million of professional fees driven by our strategic initiatives, which John will review in more detail. We also saw a linked quarter increase of $4.3 million from higher medical costs due to an increase in utilization. Non-interest expense increased $4.1 million or 2.3% from prior year. The efficiency ratio remained at 60%. Pre-provision net revenue was $110 million in Q3, this compares to $108 million in Q2 and $131 million in prior year. The provision for credit loss for the quarter was $22.8 million, which I will discuss in more detail on the next slide. And our effective tax rate was 20.9% compared to 21.8% in Q2. As highlighted, the allowance for credit losses to loans increased to 1.69% or 1.8%, excluding PPP loans. The forecast improved slightly from prior quarter, but was offset by commercial risk rating migration resulting in a provision of $23 million. The $370 million allowance reflects our estimate of life of loan losses as of September 30th. Nonperforming loans in the upper left, decreased $10 million from Q2. Commercial real estate, residential mortgage and consumer each saw linked quarter decline, while commercial increased $3 million. Net charge-offs in the upper right decreased from second quarter and totaled $11.5 million after $4.3 million in recoveries. C&I gross charge-offs declined slightly and totaled $12 million, primarily reflecting credits that were already experiencing difficulty prior to the onset of the pandemic. Commercial classified in the lower left represented 332 basis points of total commercial loans, this compares to a 20-quarter average of 315 basis points and the allowance for credit losses increased to $370 million as discussed on the prior slide. Deposit growth of $565 million exceeded total asset growth and lowered the loan-to-deposit ratio to 81%. Our sources of secured borrowing capacity increased further and totaled $11.7 billion at September 30th. Our common equity Tier 1 ratio of 11.23% exceeds well capitalized by more than $1 billion. Likewise, Tier 1 risk-based capital exceeds well capitalized levels by $870 million. Assuming a flat rate environment with an average one-month LIBOR in the range of 15 basis points and an average 10-year treasury swap rate around 70 basis points, we believe we are near the bottom of core NIM compression. Core non-interest expense will remain in the range of Q3 and our tax rate will be around 21%. I'm now on Slide 15 and 16. What I will say is that with respect to efficiency opportunities, we anticipate reducing our current expense base by 8% to 10% fully realized on a run rate basis by the fourth quarter of next year. As we stated last quarter, we remain confident that even if the current operating environment persists with low interest rates and economic uncertainty that execution on our identified revenue enhancements and efficiency opportunities will allow us to sustainably generate returns in excess of our estimated 10% cost of capital by the end of 2021.

Earnings per share in the quarter were $0.75 compared to $0.57 in Q2 and $1 in the prior year's third quarter. The provision for credit loss for the quarter was $22.8 million, which I will discuss in more detail on the next slide.

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Additionally, we are helping to move relief to Ukraine, and we have provided more than $1.5 million in humanitarian aid. Execution of our strategies resulted in substantially higher operating income for the quarter as Team FedEx delivered yet another outstanding peak season. In January alone, the absentee rate of our crew due to omicron was over 15%, which caused significant flight disruptions. We estimate the effect of omicron-driven volume softness in our Q3 results was approximately $350 million. Even with these challenges, FedEx Express delivered strong adjusted operating income growth of 27% year over year. Speaking of the Express team, we announced that after nearly 40 years of distinguished service, Don Colleran, president and CEO of FedEx Express, will retire later this year and named Richard Smith, current executive vice president of global support and regional president of Americas at FedEx Express, as a successor. FedEx Freight once again delivered strong results with third quarter operating income nearly tripling year over year, driven by a continued focus on revenue quality. We estimate the total impact of approximately $210 million at ground in the third quarter, which is significantly lower than what we saw in Q1 and Q2 as we have seen substantial improvement in labor availability post peak. For example, FedEx Freight trucks have traveled more than 7 million miles while operating on behalf of FedEx Ground this fiscal year. FedEx Freight has also provided FedEx Ground with intermodal containers, which have already been dispatched more than 36,000 times. For example, during Cyber Week, this technology helped keep 1.9 million ground economy packages out of constrained sorts. U.S. GDP is now expected to increase 3.4% in calendar year 2022, revised down from 3.7%, and our outlook is 2.3% in calendar year 2023, with consumer spending tilting toward services and B2B growth supported by inventory rebuilding. Global GDP growth is expected to be 3.5% in calendar year 2022, previously 4.1% and it will be 3.1% in calendar year 2023. In the third quarter, revenue growth was 10% year over year, with double-digit yield improvement for FedEx Express and FedEx Freight, close behind with FedEx Ground at 9% year-over-year yield improvement. In the United States, our package revenue grew 9% in Q3 on strong yield improvement of 10%. We executed on our peak pricing strategy in the month of December, delivering more than $250 million in peak surcharge revenue. For the quarter, revenue increased 23% year over year, driven by a 19% increase in revenue per shipment. Seven new countries will now be connected on a next-day basis within Europe, while 14 countries will be expanding our noon delivery coverage. Additionally, our new modernized FedEx Ship Manager, which is our online shipping application, has now been rolled out in more than 153 countries. These challenges subsided during February, resulting in third quarter adjusted operating income of $1.5 billion, up 37% year over year on an adjusted basis. First, labor market conditions, although much improved, once again had a significant effect on our results at an estimated $350 million year over year, which was primarily experienced at Ground. For the third quarter, that was primarily due to higher rates for both purchase transportation and wages. The implications from the omicron variant surge reduced third quarter operating income by an estimated $350 million, predominantly at Express, as it influenced customer demand and pressured our operations, resulting in constrained capacity, network disruptions and lower volumes and revenue. The third quarter had favorable year-over-year comparisons for variable compensation of approximately $380 million, including the one-time Express hourly bonus last year and significantly less impactful winter weather that lead it to $310 million. Ground reported a 10% increase in revenue year over year, with operating income down approximately $60 million and an operating margin at 7.3%. While pressures from constrained labor markets began subsiding, the effect was still significant at an estimated $210 million year over year, predominantly due to the higher purchase transportation and wage rates. A 9% yield improvement partially offset these headwinds, and our teams remain very focused on improving ground performance, as Raj outlined earlier. Express adjusted operating income increased by 27% year over year, driven by higher yields and a net fuel benefit, with adjusted operating margin increasing by 100 basis points to 5.8%. Express results also benefited in the third quarter from $285 million of lower variable compensation, as well as much less severe winter weather. The strong results were partially offset by the headwinds I mentioned earlier, with the omicron surge having the largest effect, especially during January, of an estimated $240 million. Freight had another outstanding quarter, delivering an operating margin of 15%, 850 basis points higher year over year, and revenue for the third quarter increased 23% with operating income up over 180% despite the pressures from higher purchase transportation rates and wages. We ended our quarter with $6.1 billion in cash and are targeting over $3 billion in adjusted free cash flow for fiscal 2022. As such, I'm pleased to share the accelerated share repurchase program announced last quarter was completed during Q3 with 6.1 million shares delivered under the ASR agreement. Total repurchases during fiscal '22 are nearly 9 million shares or 3% of the shares outstanding at the beginning of the year. The decrease in outstanding shares resulting from the ASR benefited third quarter results by $0.06 per diluted share. Also during the quarter, we made a $250 million, a voluntary contribution to our U.S. pension plan and have funded $500 million year to date. We are affirming our full year adjusted earnings per share range at $20.50 to $21.50. We have lowered our FY '22 capital-spending forecast from $7.2 billion to $7 billion. Lastly, our projection for the full year effective tax rate is now 22% to 23%, prior to the mark-to-market retirement plan adjustments. With that, we are all very much looking forward to sharing additional background in our upcoming investor meeting on June 28 and 29 in Memphis.

Execution of our strategies resulted in substantially higher operating income for the quarter as Team FedEx delivered yet another outstanding peak season. FedEx Freight once again delivered strong results with third quarter operating income nearly tripling year over year, driven by a continued focus on revenue quality. For the third quarter, that was primarily due to higher rates for both purchase transportation and wages. We are affirming our full year adjusted earnings per share range at $20.50 to $21.50. We have lowered our FY '22 capital-spending forecast from $7.2 billion to $7 billion.

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CIRCOR delivered another solid quarter, and we're entering the back half of the year with high confidence that we'll achieve our 2021 guidance. Our Q2 performance was highlighted by 27% organic orders growth in our Industrial business as both short- and long-cycle demand remained strong. Book-to-bill in Industrial was 1.2, consistent with the first quarter. Our free cash flow conversion was 115%, a sign that our efforts to improve working capital are taking hold. Based on our strong orders performance in the first half, our $436 million backlog and all the work we've done to streamline our operations, we're well-positioned for a very strong second half. Organic orders of $210 million in the quarter were up 4% versus prior year. We saw a strong year-over-year increase of 27% in Industrial driven by improvements in virtually all of our end markets. As expected, orders were down 31% in Aerospace & Defense due to the timing of large defense orders. Our backlog remained strong at $436 million, up 4% sequentially. Our backlog in Industrial is $248 million, up 26% since the end of last year. Organic revenue was $190 million, down 2% versus prior year and up 5% sequentially. Sequentially, Industrial was up 7% as revenue starts to ramp from strong orders in Q1 and Q2. Adjusted operating income was $14.6 million, representing a margin of 7.7%, up 80 basis points from previous quarter and down 80 basis points from prior year. Finally, we delivered $0.35 of adjusted earnings per share and generated free cash flow of $8 million as the team continues to drive working capital improvements across the company. Industrial organic orders were up 27% versus last year and 1% sequentially. Our book-to-bill ratio for the quarter and for the first half was 1.2, which will support double-digit second-half revenue growth and represents a revenue inflection point post-COVID. As expected, Industrial organic revenue was down 1% versus last year and up 7% sequentially. Adjusted operating margin was 8%, down 200 basis points versus last year, which reflects the downstream volume and aftermarket mix challenges in the quarter. Aerospace & Defense orders of $54 million were down 31% versus last year and 26% sequentially. Versus prior quarter, the lower orders were driven by the timing of large orders for the Joint Strike Fighter and CVN-80 and 81 aircraft carriers. As expected, revenue in the quarter was $61 million, down 5% year over year and up 1% from prior quarter. Finally, operating margin was 19.9% in the quarter, down 120 basis points year over year. Sequentially, margins expanded 210 basis points due to pricing actions and material productivity. Free cash flow in the quarter was $8 million, a significant improvement versus prior year. We paid down $40 million of debt in Q2 with free cash flow and the proceeds from the sale of a noncore industrial product line. We ended the quarter with $451 million of net debt, and we are on track to improve our leverage by greater than one turn this year. In the third quarter, we expect revenue to be up 8% to 10% organically. We're expecting adjusted earnings per share of $0.55 to $0.60 in the third quarter, a 53% to 67% increase versus prior year. 3Q free cash flow conversion is expected to be between 120% and 140%. Organic revenue growth is expected to be in the range of 2% to 4%, with adjusted earnings per share of $2.10 to $2.30. Free cash flow conversion remains at 85% to 95%. We have high confidence in our second-half margin outlook, and we expect to exit the year with 4Q operating margin of 13% to 15% for the company. For Q3 Industrial revenue, we expect solid improvement year over year with growth between 7% and 11%. Our longer-cycle end markets are expected to be up 5% to 9%. Finally, pricing is expected to net roughly 1%, consistent with prior quarters. Revenue in the third quarter is expected to be up 12% to 15% versus prior year. Growth in defense revenue was primarily driven by strong volume on smaller OEM programs such as the Boeing P-8 Poseidon and various missile switch programs. Commercial aerospace is expected to be up between 15% and 20% in the third quarter. Revenue from commercial air framers will be up roughly 50%, mostly driven by increased A320 volume and favorable comparisons to last year. Aftermarket is expected to be up roughly 30%, in line with increased aircraft utilization. Finally, pricing is expected to be a net benefit of 3% for defense and 5% for commercial due to price increases secured earlier in the year, a higher level of spot orders and an increase in commercial aftermarket volume. We launched 21 new products through the first half of the year and remain on track to deliver 45 new products in 2021. On margin expansion, we're building on our CIRCOR operating system and simplification program by kicking off 80/20 at three of our largest Industrial businesses. It was an independent global survey with participation from roughly 70 of our largest customers. Our Net Promoter Score of 67 is exceptional and is a testament to our product quality and technical customer support.

CIRCOR delivered another solid quarter, and we're entering the back half of the year with high confidence that we'll achieve our 2021 guidance. Organic revenue was $190 million, down 2% versus prior year and up 5% sequentially. Finally, we delivered $0.35 of adjusted earnings per share and generated free cash flow of $8 million as the team continues to drive working capital improvements across the company. We're expecting adjusted earnings per share of $0.55 to $0.60 in the third quarter, a 53% to 67% increase versus prior year. Organic revenue growth is expected to be in the range of 2% to 4%, with adjusted earnings per share of $2.10 to $2.30. Revenue in the third quarter is expected to be up 12% to 15% versus prior year.

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I first want to take a minute to recognize our people for how they've risen to the occasion over the past 12 months. Now starting off on Slide 3 and 4. There were a lot of highlights and accomplishments last year that led to adjusted EBITDA jumping over 50%, to $263 million and free cash flow climbing to $49 million. Rochester finished the year much stronger than it started, with fourth quarter silver production increasing nearly 40%, and gold production up almost 50% quarter-over-quarter. The updated mine plan reflects a reserves-only 18-year mine life with an NPV of $634 million and an anticipated IRR of 31%. Production rates are also expected to double, driving average free cash flow to over $100 million per year. During this time, we'll also remain focused on further expanding Rochester's silver and gold reserves beyond the 58% and 65% growth we saw last year. Gold reserves grew by over 20%, and silver reserves increased by over 40% to the highest levels in Company history. We've now dramatically increased our overall average mine life from just over seven years in 2015 to well over 12 years currently. And with over $65 million allocated to exploration this year, we expect to see this number extend out even further. We included several recent drill holes in yesterday's release from C-Horst, including one that was over 216 meters, averaging just about 1 gram per ton of oxide gold. And we plan to invest approximately $10 million to continue growing this new discovery. With only around half of the assays back at the end of the year, total resource tons increased over 40% and we more than tripled the strike length of the high-grade deposit to over 3.5 kilometers. We plan to invest roughly $14 million in exploration at Silvertip this year, aimed at further expanding the resource and beginning to convert some of this material to reserves. We also have identified and expect to lock down the flow sheet for a straightforward 1,750 ton a day process plant that can reliably deliver consistent recoveries and generate high-quality concentrates. Before passing the call to Mick, I want to quickly highlight Slides 18 and 19 which provide a good high-level overview of our deep-rooted community relationships. Now taking a look at Slide 6 and 7 and beginning with Palmarejo. Strong results during the second half helped us finish the year on a high note, despite being down for roughly 45 days in the second quarter. Together, these great accomplishments helped to generate nearly $93 million of free cash flow; Palmarejo's largest free cash flow year since 2017. This will give us the opportunity to dial in the new unit before it goes into the expanded crusher corridor as part of POA 11. The team's diligent focus and efforts helped us achieve our full year production and cost guidance, which led to a record $60 million of free cash flow. Lastly, at Wharf, the team did a great job accomplishing their goals for the year, and achieved guidance by producing over 93,000 ounces of gold at an average cost around $890 per ounce. More importantly, Wharf generated $73 million of free cash flow, shattering its previous record by over 25%. Margin expansion from top line growth and prudent cost management helped us generate over $260 million in adjusted EBITDA and nearly $150 million in operating cash flow. Both metrics were over 50% higher year over year. These results showcase the power of our portfolio, especially during the second half of 2020 when our assets generated $86 million of free cash flow. The strong second half more than offset the slower start to the year, leading to nearly $50 million of free cash flow in 2020, our highest annual figure since 2017. I do want to flag that we are anticipating a relatively weaker first quarter, driven by, one, our mine plans, production profile and buildup of inventories on our leach pad; secondly, timing of tax payments in Mexico combined to be roughly $30 million to $35 million of cash outflow; and third, annual incentive payouts across the Company. We bolstered our financial flexibility during the fourth quarter by fully repaying our revolving credit facility borrowings and expanding the capacity of the revolver to $300 million. Together with our significantly improved cash position, this led to nearly $360 million of liquidity at the end of the year. Particularly, our key leverage metric, net debt-to-EBITDA was cut in half year-over-year ending 2020 at 0.7 times. We are targeting a net debt-to-EBITDA ratio of under 2 times, while maintaining at least $100 million of liquidity over the next two years as we complete major construction at Rochester.

We are targeting a net debt-to-EBITDA ratio of under 2 times, while maintaining at least $100 million of liquidity over the next two years as we complete major construction at Rochester.

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DirectPath operates directly nationwide through approximately 7,000 benefit broker partners. It serves 400 employers of all sizes from small businesses to Fortune 100 companies, which reflects a covered employee base of more than 2.5 million individuals. The purchase price of $50 million was funded out of holding company cash. The transaction is expected to add $0.01 per share to our earnings beginning in 2022. We reported operating earnings-per-share growth of 37% for the full year, $387 million of free cash flow or 107% of our operating income and we returned $330 million to shareholders in the form of buybacks and dividends, which reflects 12% of our market cap at the beginning of 2020. For the full year, virtual sales comprised 23% of total production. Operating earnings per share were up 17%. Our book value per diluted share excluding AOCI was up 8%. We issued $150 million in subordinated debt in November and ended the quarter with an RBC ratio of 411% with $388 million in cash at the holding company. Life sales were up 6% for the quarter and 12% for the full year, fueled by both continued strong direct-to-consumer growth and a sharp increase in sales from our exclusive field agents. Collected life premiums were up 3%, reflecting solid growth in NAP in recent quarters and the continued strong persistency of our customer base. Collective health premiums were down 4.7%, largely resulting from the impact of softer in-person health sales in recent quarters. Annuity collected premiums were up 6% for the quarter, reversing the trend in recent quarters. Client assets under management grew 18% to nearly $1.8 billion. Fee revenue was up a healthy 19% to $36 million, reflecting growth in third-party sales and growth within our broker-dealer and registered investment advisor. Health sales remained challenged, down 22% over the prior year, driven by a 29% decline in Medicare supplement sales. Sales of life insurance remained strong, up 17% for the quarter and up 19% for the full year. Direct-to-consumer life sales, which comprised about half of our total life sales, were up 10%. Life sales generated by our exclusive field agents were up 26% supported by leads shared from our direct-to-consumer channel. During this year's Medicare annual enrollment period, consumers were able to purchase Medicare products from us online or from one of 2,800 tele-sales and local exclusive field agents certified to sell Medicare plans. As a result, our Medicare Advantage policies sold in the fourth quarter increased 3% over the prior year and total third-party policies were up 5%. myHealthPolicy.com accounted for 14% of our third-party health sales in the quarter. Our producing agent count was down 3%, which makes our sales momentum and productivity even more impressive. Our total exclusive agent count, which includes our field and tele-sales agents was actually up 3% for the full year. We saw continued sequential improvement in our Worksite sales in the fourth quarter with sales up 61% over the third quarter. Relative to the year ago period, however, sales were down 41%. Web Benefits Design delivered solid results in 4Q, including a 3% increase in the average per employee per month charge. WBD cross-selling activities drove 5% of overall NAP in the quarter. We returned $117 million to shareholders in the fourth quarter, including $100 million in share buybacks. For the full year, we deployed $263 million on buybacks at an average price of $18.17. We intend to deploy 100% of our excess capital to its highest and best use over time. To date, we have invested a total of $21 million in five companies, including HealthCare.com, Human API and Kindur. Operating earnings per share were up 17% in the fourth quarter and up 21% excluding significant items, benefiting from favorable health insurance product margins, driven by continued customer deferral of care related to COVID and by strong net investment income, resulting from significant outperformance of our alternative investments. Earnings per share also benefited from our share repurchases, which reduced our fourth quarter weighted average share count by 7%. We deployed $100 million of excess capital on share repurchases in the fourth quarter and $263 million for the full year. In the 12 months ended December 31, 2020, we generated operating return on equity excluding significant items of 12%, which compares to 10.4% in the prior year period. Separately, as part of the assumption update, we lowered the new money rate assumption to 3.5% in 2021 and 3.75% in 2022, but that did not create material unlocking impacts. Our overall margin in the fourth quarter was up $30 million or 15%. Excluding significant items, it was up $9 million or 4%. This included a net favorable COVID impact of $18 million, driven by the deferral of care in our healthcare products and reflects modest spread compression in our annuity product and generally stable results in our life and health products ex-COVID. Investment income allocated to products was essentially flat in the period as the favorable impact of the 4% increase in net insurance liabilities was largely offset by a 19 basis point year-over-year decline in the average yield on those investments to 4.83%. Investment income not allocated to products increased $32 million year-over-year to $58 million driven by strong alternative investment performance. This translates to an annualized return on our alternative investments of 24% as compared to a mean expectation of between $7 million and 8%, reflecting outperformance driven by private equity realizations and strong private equity -- excuse me, private credit results. Our new money rate of 3.58% was down 50 basis points both year-over-year and sequentially with the sequential change driven primarily by tighter credit spreads. At quarter end, our invested assets were $27 billion, up 9% year-over-year. Approximately 95% of our fixed maturity portfolio is investment-grade rated with an average rating of single A. The BBB allocation comprised 42% of our investment-grade holdings, up slightly from the prior quarter. We continue to generate strong free cash flow to the holding company in the fourth quarter with excess cash flow of $122 million or 142% of operating income this quarter and $387 million or 107% of operating income on a trailing 12-month basis. At quarter end, our consolidated RBC ratio was 411%, down from 428% at September 30. This represents approximately $55 million of excess capital relative to the high end of our targeted range of 375% to 400%. Our Holdco liquidity at quarter end was $388 million, which represents $238 million of excess capital relative to our target minimum Holdco liquidity of $150 million or approximately $185 million of excess net of the capital deployed this quarter on the DirectPath transaction.

Excluding significant items, it was up $9 million or 4%.

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The sale resulted in net cash proceeds of $10.4 billion, which will support the repositioning of PPL as a high-growth U.S.-regulated utility company. As a reminder, we've earmarked $3.8 billion of those proceeds to acquire Narragansett Electric from National Grid. We also deployed some of the proceeds to achieve our previously stated objective of strengthening our balance sheet, utilizing $3.9 billion to retire $3.5 billion of outstanding holding company debt which will provide the company with substantial financial flexibility. On the topic of share repurchases, our board recently authorized the company to repurchase up to $3 billion in PPL common stock. We currently expect to repurchase about $500 million by year-end, while we continue to assess other opportunities to deploy proceeds to maximize shareowner value. PPL is fully committed to driving innovation to enable net-zero carbon emissions by 2050. Based on our latest reviews, we believe we are on a path to achieve 80% emissions reduction by 2040, a full decade ahead of our prior goal. As a result, in addition to today's announced net-zero emissions goal, we've also accelerated our previous interim goals, now targeting an 80% reduction by 2040 and a 70% reduction by 2035. Through our participation in the EIP platform, PPL will support up to $50 million in investments aimed at accelerating shift to a low carbon future and driving commercial-scale solutions needed to deliver deep economywide decarbonization. It's clear that we'll need to advance technology to achieve net-zero emissions by 2050 as we balance the need for affordable, reliable, and sustainable energy for our customers. Based on these current factors and consistent with our most recent rate case filings in Kentucky, we currently expect to achieve a reduction in our coal-fired capacity of 70% by 2035, 90% by 2040, and 95% by 2050 from our baseline in 2010. We anticipate having about 550 megawatts of remaining coal-fired generation in 2050 due to our highly efficient and relatively new Trimble County Unit 2 that started commercial operation in 2011. Our internal view of what it could take to achieve 100% carbon-free generation by 2035 as proposed by the Biden administration using current technologies would create significant affordability issues for our customers. our new commitment to achieve net-zero carbon emissions by 2050 is backed by the actions that we are and will continue to take to support a low-carbon energy system that is affordable and reliable and provides the time needed for technology to advance. Effective July 1, the KPSC authorized a combined $199 million increase in annual revenue for LG&E and KU with an allowed base ROE of 9.425% and a 9.35% ROE for the environmental cost recovery and gas line tracker mechanisms. In addition, the KPSC approved a $53 million economic release or credit that was proposed by LG&E and KU to help mitigate the impact of rate adjustments until mid-2022. The $350 million capital cost of the proposed AMI investment is not included in the new rates that took effect July 1. As we announced in January, Mill Creek Unit 1 is expected to retire in 2024. Mill Creek Unit 2 and EW Brown Unit 3 are expected to be retired in 2028 as they reach the end of their economic useful lives. These units represent a combined 1,000 megawatts of coal-fired generating capacity. And before leaving this slide, I would note that in approving the settlement agreements, the commission adjusted the proposed base ROE downward from 9.55% to 9.425% and disallowed the recovery of certain legal costs. These modifications reduced the annual revenue requirements proposed in the settlements by approximately $20 million. First, as one of the top utilities in the nation for workforce diversity, and second, as one of the top 50 companies for ESG, determined by several factors, including our programs and practices surrounding talent in the workforce, corporate social responsibility and philanthropy, supplier diversity programs and overall leadership in governance. Today, we announced second-quarter reported earnings of $0.03 per share. Adjusting for these special items, second-quarter earnings from ongoing operations were $0.19 per share compared with $0.20 per share a year ago. Total amount of these costs was about $0.02 per share for the quarter. Our Pennsylvania-regulated segment results were $0.02 per share lower compared to a year ago. We also experienced an additional $0.01 decline due to favorable tax-related items recorded in the second quarter of 2020. Results were $0.01 per share higher than our comparable results in Q2 2020. Higher interest costs of $0.01 a share related to the corporate debt previously allocated to the Kentucky segment were offset by several factors that were not individually significant. The result was a total reduction of PPL capital funding debt by about $3.5 billion, which was in line with our previously discussed targets. Through these actions, we've reduced total holding company debt to about 20% of PPL's total outstanding debt, while effectively clearing all near-term maturities at PPL capital funding through 2025. In addition to the activity of PPL capital funding, we redeemed at par $250 million at LG&E and KU Energy in July, which was part of our original financing plan for the year in order to simplify the capital structure of the company by eliminating intermediate holding company debt.

We currently expect to repurchase about $500 million by year-end, while we continue to assess other opportunities to deploy proceeds to maximize shareowner value. Based on our latest reviews, we believe we are on a path to achieve 80% emissions reduction by 2040, a full decade ahead of our prior goal. Today, we announced second-quarter reported earnings of $0.03 per share. Adjusting for these special items, second-quarter earnings from ongoing operations were $0.19 per share compared with $0.20 per share a year ago.

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We're off to a great start in the first half of fiscal 2021 with our second quarter revenue increasing 12%, adjusted EBITDA up 41%, and adjusted earnings per share up 109% compared to the prior year quarter. Highlighting this success is our increased cash generation profile coupled with our EBITDA margin expansion in both CPP and HBP, which increased 220 and 190 basis points, respectively over the prior year period. The AMES strategic initiative remains on schedule for completion by the end of 2023 and we reiterate our expectation to realize annual cash savings of $30 million to $35 million, and inventory reductions of the same magnitude when the benefits of the initiative are fully realized. Earlier this month Telephonics was awarded $162 million five-year support contract from Lockheed Martin for our multi-mode maritime surveillance radars for the U.S. Navy's MHR-60R (sic) MH-60R maritime helicopters. We continue to see additional opportunities for our products in domestic applications as well as through the MH-60 Romeo foreign military sales to countries like South Korea and Greece. Backlog in the quarter was $354 million with trailing 12-month book-to-bill of 1.1 times. We've delevered to 3.1 times net debt-to-EBITDA marking two full turns of improvement over the prior year period. Additionally, we have $176 million in cash and $363 million available on our revolving credit facility providing ample liquidity and putting us in an excellent position to capitalize on our active pipeline of acquisition opportunities. Earlier today, our Board authorized an $0.08 per share dividend payable on June 17, 2021 to shareholders of record on May 20, 2021. This marks the 39th consecutive quarterly dividend to shareholders, which has grown at an annualized compound rate of 17% since we initiated in 2012. Steve has served as the President of Clopay with distinction for the past 12 years, and has been part of Clopay since 2001. During his tenure, Steve navigated Clopay through the financial crisis of 2009 and subsequently has transformed the business into the industry leader it is today through building the company's facilities, equipment products, technologies, people and culture. Revenue increased by 12% to $635 million and adjusted EBITDA increased 41% to $67.8 million, both in comparison to the prior year quarter. Adjusted EBITDA margin increased 220 basis points to 10.7%. Gross profit on a GAAP basis for the quarter was $170 million, increasing 12% over the prior year quarter. Excluding restructuring-related charges, gross profit was $174 million increasing 13.2% over the prior year quarter with gross margin increasing 30 basis points to 27.4%. Second quarter GAAP selling, general, administrative expenses were $127 million compared to $226 million in the prior year quarter. Excluding restructuring-related charges from both periods selling, general and administrative expenses were $123 million or 19.3% of revenue compared to $122 million or 21.5% in the prior year quarter. Second quarter GAAP net income was $17 million or $0.32 per share compared to the prior year period of $1 million or $0.02 per share. Excluding items that affect comparability from both periods, current quarter adjusted net income was $25 million or $0.48 per share compared to $10 million in the prior year or $0.23 per share. Corporate and unallocated expenses excluding depreciation were $12 million in the current year quarter in line with the prior year second quarter. Our effective tax rate excluding items that affect comparability from all periods for the quarter was 30% and for the year-to-date period it was 31.1%. Capital spending was $12 million in the second quarter compared to $9 million in the prior year quarter. Depreciation and amortization totaled $15.9 million for the second quarter compared to $15.7 million in the prior year second quarter. Regarding our segment performance, Q2 revenue for CPP and HBP increased over the prior-year quarter by 21% and 16%, respectively while DE decreased 26% or 19% excluding the impact of SEG disposition. Adjusted EBITDA for CPP and HBP increased over the prior year by 50% and 31%, respectively, Defense Electronics decreased 48%. During the second quarter AMES incurred pre-tax restructuring-related charges were approximately $7.5 million supporting the AMES strategic initiative, capital expenditure supporting the initiative was $3.2 million in the quarter. The total cost for the facility consolidation will be approximately $4 million, which will primarily consist of capital expenditures occurring in 2021. Regarding our balance sheet and liquidity, as of March 31, 2021, we had net debt of $883 million and leverage of 3.1 times as calculated based on our debt covenants. This is a two turn reduction from our prior year second quarter and a 0.3 turn reduction from our fiscal year-end. Our cash and equivalents were $176 million and debt outstanding was $1.06 billion. Borrowing availability under the revolving credit facility was $360 million subject to certain loan covenants. The guidance provided on our November call was revenue of approximately $2.4 billion and adjusted EBITDA, excluding unallocated one-time charges related to AMES and Telephonics initiative of $285 million or better. As a result of our substantial outperformance in the first half of the year and with consideration to this year's Q3 and Q4 comparatives to strong prior year quarter results, we are expecting our fiscal 2021 performance will be substantially above our original guidance and in line with our trailing-12 months. That produced approximately $2.5 billion of revenue and $320 million of adjusted EBITDA, excluding unallocated and one-time charges.

Revenue increased by 12% to $635 million and adjusted EBITDA increased 41% to $67.8 million, both in comparison to the prior year quarter. Second quarter GAAP net income was $17 million or $0.32 per share compared to the prior year period of $1 million or $0.02 per share. Excluding items that affect comparability from both periods, current quarter adjusted net income was $25 million or $0.48 per share compared to $10 million in the prior year or $0.23 per share.

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We had an outstanding record-setting quarter, highlighted by a 71% increase in new contracts, a 29% increase in homes delivered and a 94% increase in net income. For the quarter, we sold 2,949 homes. Year-to-date through September, we have sold 7,299 homes, 43% better than last year and more than we sold all of 2019. Our absorption pace improved significantly to 4.6 sales per community per month compared to 2.6 a year ago. Our Smart Series sales comprised nearly 36% of total companywide sales during the quarter compared to 28% a year ago. We are now selling our Smart Series homes in all 15 of our divisions. We delivered 2,137 homes in the quarter. Year-to-date through September, we have now delivered 5,467 homes, which is 25% more than last year. Our backlog sales value at September 30 equaled $1.8 billion, an all-time record, and units in backlog increased 54% to a record 4,503 homes. Gross margins during the third quarter improved by 240 basis points to 22.9%, and our SG&A expense ratio improved by 60 basis points to 11.6%, and our pre-tax income percentage significantly improved to 11.2%. All of this resulted in a greater than 90% improvement in both pre-tax and net income for the quarter. As you know, we divide our 15 markets into two regions. The Northern region consists of six of our 15 markets: Columbus, Cincinnati, Indianapolis, Chicago, Minneapolis and Detroit. New contracts in the Southern region increased 63% for the quarter while new contracts in the Northern region increased 85%. Our deliveries increased by 27% over last year in the Southern region to 1,269 deliveries or 59% of company total. The Northern region posted 868 deliveries, an increase of 33% over last year and 41% of total. Our controlled lot position in the Southern region increased by 49% compared to a year ago and increased by 17% in the Northern region. 35% of our owned and controlled lots are in the Northern region with a balance roughly 65% in the Southern region. In total, we own and control approximately 40,000 lots or about a 4.5- to five year supply. Importantly, roughly 60% of our lots are controlled under option contracts, which, with more than half of our lots controlled by option, gives us tremendous flexibility to react to changes in demand or individual market conditions. We had 121 communities in the Southern region at the end of the quarter, which is down from 132 a year ago and also down from 126 at the end of this year's second quarter. We had 86 communities in the Northern region at the end of the third quarter, down slightly from a year ago and down from 94 at the end of this year's second quarter. As far as financial results, new contracts for the third quarter increased 71% to 2,949, an all-time quarterly record compared to 1,721 for last year's third quarter. Our new contracts were up 75% in July, up 94% in August and up 44% in September. Our sales pace was 4.6 in the third quarter compared to last year's 2.6. Our cancellation rate for the third quarter was 10%. As to our buyer profile, about 53% of our third quarter sales were to first-time buyers compared to 50% in the second quarter. In addition, 40% of our third quarter sales were inventory homes compared to 45% in the second quarter. Our community count was 207 at the end of the third quarter compared to 221 at the end of '19 third quarter. The breakdown by region is 86 in the Northern region and 121 in the Southern region. During the quarter, we opened 12 new communities while closing 25, and we opened 51 new communities during the nine months ended 9/30 this year. We delivered a third quarter record 2,137 homes, delivering 58% of our backlog, which was the same percentage as a year ago. And revenue increased 30% in the third quarter, reaching a third quarter record of $848 million. Our average closing price for the third quarter was $380,000, a 1% decrease when compared to last year's third quarter average closing price of $382,000. Our backlog sales price is $404,000, up from $390,000 a year ago, and the backlog average sales price of our Smart Series is $315,000. Our third quarter 2020 operating gross margin was 22.9%, up 240 basis points year-over-year and up 100 basis points from the second quarter. And our third quarter SG&A expenses were 11.6% of revenue, increasing -- improving 60 basis points compared to 12.2% a year ago, reflecting greater operating leverage. Interest expense decreased $3.4 million for the quarter compared to last year. Interest incurred for the quarter was $10 million compared to $12.9 million a year ago. During the third quarter, we generated $111 million of EBITDA compared to $67 million in last year's third quarter. We have $22 million in capitalized interest on our balance sheet, which is about 1% of our total assets. Our effective tax rate was 23% in the quarter compared to last year's 24% in the third quarter. Our third quarter rate benefited from energy tax credits that were retroactive to 2019, and we estimate our annual effective rate this year to be around 23%. And our earnings per diluted share for the quarter increased to $2.51 per share from $1.32 last year. Revenue was up 115% to $28.9 million due to a higher volume of loans closed and sold along with significantly higher pricing margins. For the quarter, the pre-tax income was $19.2 million, which was a 241% increase compared to 2019's third quarter. 76% of the loans closed in the quarter were conventional and 24% FHA or VA compared to 78% and 22%, respectively, for 2019's third quarter. Our average mortgage amount increased to $314,000 in 2020 third quarter compared to $312,000 last year. Loans originated increased to a third quarter and all-time record of 1,636 loans, 32% more than last year, and the volume of loans sold increased by 39%. Our borrower profile remains solid with an average down payment of over 15%. And for the quarter, the average credit score on mortgages originated by M/I Financial was 747, up slightly from 745 last year. Our mortgage operation captured over 85% of our business in the third quarter, which was in line with last year. At September 30, we had $136 million outstanding under these facilities. We extended our repo line this month through October of 2021 and increased the commitment amount from $65 million to $90 million. As far as the balance sheet, our total homebuilding inventory at 9/30 was $1.8 billion, an increase of $16 million over last year. Our unsold land investment at 9/30/20 is $762 million compared to $821 million a year ago. At September 30, we had $362 million of raw land and land under development and $400 million of finished unsold lots. We own 4,942 unsold finished lots with an average cost of $81,000 per lot, and this average lot cost is 20% of our $404,000 backlog average sale price. Lots owned and controlled as of 9/30/20, totaled 39,600 lots, 15,100 of which were owned and 24,500 under contract. We own 6,900 lots in our Northern region and 8,200 lots in our Southern region. A year ago, we owned more than 14,800 lots and controlled an additional 14,200 lots for a total of more than 29,000 lots. And during this year's third quarter, we spent $107 million on land purchases and $89 million on land development for a total of $196 million. Year-to-date, we have spent $267 million on land purchases and $222 million on land development for a total year-to-date land spend of $489 million, and about 48% of our purchase amount was raw land. At the end of the quarter, we had 266 completed inventory homes, about one per community, and 1,113 total inventory homes. And of the total inventory, 550 are in the Northern region and 563 are in the Southern region. At September 30, '19, we had 531 completed inventory homes and 1,513 total inventory homes.

Our backlog sales value at September 30 equaled $1.8 billion, an all-time record, and units in backlog increased 54% to a record 4,503 homes. As far as financial results, new contracts for the third quarter increased 71% to 2,949, an all-time quarterly record compared to 1,721 for last year's third quarter. We delivered a third quarter record 2,137 homes, delivering 58% of our backlog, which was the same percentage as a year ago. And our earnings per diluted share for the quarter increased to $2.51 per share from $1.32 last year. As far as the balance sheet, our total homebuilding inventory at 9/30 was $1.8 billion, an increase of $16 million over last year.

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