Thank you, Jim, and good morning, everyone.
Before I get into the details of our financial results this morning, I'll start by summarizing the takeaways, a couple of which Jim just mentioned.
First, our second quarter results were better than we expected, and the strength was a factor in our recent decision to restore pay to 100% for most of our global salaried workforce. We recorded higher adjusted operating income compared to the prior year, despite the negative impact from the 17% organic revenue decline, due primarily to our strong cost containment efforts.
Second, we are seeing improved demand patterns in Asia Pacific and EMEA.
Some markets are improving more than others, like China, while a few other markets remain very soft, like the UK, plus the monthly order rates - the monthly rates of order decline in total for both regions, showed fairly consistent improvement between April and August. Plus our quarter end backlogs are higher than the prior year, and our opportunity pipelines have also improved.
While the economic environment remains dynamic, and a resurgence of the virus could further delay employees returning to the office, and negatively impact demand for furniture, it seems the industry recovery in these regions could be starting to take shape. In the Americas, the monthly year over year order declines, also improved through the quarter, but less significantly, and ended with a year over year decline of 31% in August. The dollar amount of weekly orders did stabilize, which was good relative to the volatility we experienced in the first quarter, as well as compared to seasonal patterns, which sometimes reflect a modest decline over the summer months, before rebuilding into the fall. And orders reflected lower declines in project business and from smaller customers, than the overall average, which was also relatively positive.
However, with August orders down 31%, and our pipelines continuing to reflect significant declines compared to the prior year, we decided to implement actions to more permanently reduce our cost structure. And lastly, our liquidity remains very strong at $684 million, which includes $168 million of COLI balances. And we have full access to our $250 million global credit facility.
Moving into more of the detailed drivers of our financial results, I will start with a sequential comparison of the second quarter versus the first quarter. Adjusted operating income increased by $139 million, from a loss of $35 million in the first quarter, to $104 million of income in the second quarter. And the increase was driven by a $336 million increase in revenue. We shipped much of the strong beginning backlog of customer orders, which exceeded the prior year by 11%, and had accumulated while our manufacturing and delivery activities were restricted during the first quarter. And the second quarter also benefited from the strong summer seasonality of Smith System. Total revenue of $819 million in the quarter, was a little better than we expected, as we experienced minimal supply chain disruptions, and fewer project delays compared to the projections we modeled. The relatively high sequential operating leverage, or incremental margin, was favorably impacted by a number of factors, including some that were also better than we expected.
First, we tightly controlled our semi variable and discretionary costs, keeping them relatively flat with the first quarter, despite the significant sequential increase in revenue.
Second, the incremental margin benefited from variable compensation expense not being accrued until we had offset the first quarter adjusted operating loss, and began to exceed our return on invested capital target thresholds.
Third, our operating performance across manufacturing and distribution was very strong compared to the first quarter, and exceeded our expectations. We experienced minimal inefficiencies once our hourly workforce was called back fully to work through the significant backlog, which is impressive on its own, but especially so given the heat of the summer months, and the modifications to standard work due to social distancing and other safety measures. Plus, given the higher level of revenue, we were able to more efficiently optimize our deliveries compared to what we experienced during the shutdown and initial restart of our operations in the first quarter. And lastly, we recorded $4 million of land gains during the quarter, and our COLI income exceeded deferred compensation expense by approximately $3 million, versus more closely offsetting each other in a typical quarter. Compared to the prior year, our second quarter adjusted operating income improved by $19 million, even though revenue declined by 17% organically. The results were driven by approximately $65 million of cost reductions, including approximately $25 million of lower employee costs driven by the temporary salary reductions, and the balance from essentially eliminating travel, events, contracted services, and other discretionary spending.
We also realized pricing benefits compared to the prior year, and we recorded $14 million of lower variable compensation expense. And lastly, our results also benefited from the land gains and strong COLI income mentioned a moment ago.
Before I move to our liquidity, I will cover the income tax expense recorded in the quarter, which approximated 33% of our pretax income compared to 26% in the prior year and a 30% benefit recorded in the first quarter of this year. Variations in our quarterly effective tax rate, are a function of accounting rules for interim period, discrete items, benefits available under the CARES Act, and our financial results. We recorded our tax provision estimate in the first quarter based only on actual results, essentially as if we were filing a three month tax return.
For the second quarter, we are now able to use an estimated annual effective tax rate approach.
Our tax expense in the second quarter, includes the impact of transitioning between the two methods.
For the third quarter, our earnings estimates include an effective tax rate of approximately 25%, or approximately 30% when adjusted for the estimated restructuring costs and related 39% tax benefit, which are considered discrete and must be fully accounted for in the quarter. We estimate a higher tax benefit on restructuring costs, as they contribute to our estimated tax loss for the year in the US, that we intend to carry back under the CARES Act to fiscal 2016, when the domestic tax rate was 35%.
Our liquidity of $684 million at the end of the quarter, compares to $701 million at the end of fiscal year 2020. Through the first half of this year, our profitability and working capital management, including a significant increase in customer deposits, has generated strong operating cash flows, which largely offset our seasonal disbursements during the first quarter. Year to date capital expenditures, which are 45% lower than last year, reduced dividends, and the repurchases we completed during the first three weeks of March. Because of the strength of our liquidity profile and the stability of the overall capital markets, we repaid all of the borrowings under our credit facility, which we had drawn as precaution earlier in the year.
Moving to our outlook for the third quarter, our beginning backlog of customer orders totaled $577 million, and was 8% lower than the prior year.
Over the first three weeks of September, orders declined an average of 38% compared to the prior year, including declines of 41% in the Americas, 27% in EMEA, and 37% in the other category. It will be interesting to see how the fall seasonality plays out in the Americas over the next three months.
As I said earlier, we typically see an improvement heading into the end of the calendar year. It's possible we could see some seasonal improvement from some customers continuing to support their employees through work from home programs, and or if other customers begin to make investments to ready the office for the return of their employees. But it's also possible that uncertainty around the pandemic, the economy, and the political landscape, could further push out demand.
Our outlook for the third quarter, assumes we will shift most of our current backlog, and demand patterns will remain relatively stable, reflecting a minimal amount of seasonal improvement.
The third quarter revenue estimate of $690 million to $725 million, represents a sequential decline of $94 million to $129 million compared to the second quarter, or approximately $100 million to $135 million in constant currency. From the outlook information we provided in the release, you should be able to reverse engineer an estimated range of adjusted operating income in the third quarter, leveraging the projected range of earnings and the estimates we provided for non-operating expenses and income taxes. And to further help you with your modeling of adjusted operating income scenarios relative to our revenue estimates, we also included an estimated range of operating expenses for the third quarter.
Our earnings estimates for the third quarter, reflects the relatively high decremental margin related to the expected sequential declines in adjusted operating income and revenue. The following factors are impacting the sequential comparison.
First, the estimated operating expenses of $180 million to $185 million for the third quarter, represent a sequential increase compared to the second quarter, which benefited from temporary salary reductions, and lower variable compensation expense relative to income, due to the netting of the first quarter loss I mentioned earlier. Plus, the second quarter benefited from the land gains and strong COLI income.
Second, we expect some typical seasonal shifts in our business mix, including less business from the education sector, and increased government business in the Americas, which has an unfavorable impact on our gross margin comparison. Plus the very large project in EMEA that is scheduled to ship in the third quarter was competitively priced, and leverages our global supply chain over an accelerated timeframe, which is expected to increase our costs.
Third, our estimate includes a modest reduction in inefficiencies from the strong level that we experienced across manufacturing and distribution during the second year quarter.
As we approach the fourth quarter, our revenue will be dependent on the state of the broader economic recovery and capital spending, which will be influenced by CEO and CFO sentiment. There are positive scenarios wherein employees return to the office more quickly and broadly. And in preparation, companies invest to reconfigure and retrofit their spaces for a post COVID world. And there are other scenarios wherein one could imagine that companies defer their return to the office and prolong capital preservation.
Given the ongoing uncertainty, we are unable to provide an outlook for the full year. What I will share is some updated color around our estimated breakeven point, taking into consideration the restoration of salaries, our workforce reductions, and expected modest level of increased investment, and the recent strengthening of some foreign currency exchange rates. At our current level of spending controls, we estimate our adjusted operating income breakeven point approximates $650 million of quarterly revenue. That level of revenue would represent an approximate organic decline in the fourth quarter of 26%, compared to the prior year, adjusted for the sale of PolyVision and the extra week due to the timing of our year end.
Let me stress though that this is not a forecast. Demand levels remain uncertain, and our breakeven estimate assumes the continuation of our current cost reduction efforts. And those may change or take on a different form, as we may choose to more significantly increase our investments in growth strategies over the coming quarters. In closing, it was a strong quarter in light of the circumstances. We executed well, delivered strong financial results, which supported the restoration of salaries. And our liquidity remains very strong. EMEA and Asia Pacific showed positive signs through the end of the quarter.
As the monthly rates of order decline moderated, the level of backlog was higher than the prior year, and our pipelines also improved. In the Americas, it's more mixed, and the demand environment may remain stressed for at least another quarter or two, which is why we took the actions to permanently reduce our cost structure.
However, we believe the recovery will include reinvention of the workplace, and may begin to take shape as customers get their employees back into their offices. From there, we will turn it over for questions.