Projected income taxes for the year can be impacted by changes in the mix of pre-tax income and losses in the countries in which we operate, which can also impact earnings per share. The valuation allowance on US deferred tax assets results in a GAAP tax rate on U.S. pre-tax income or losses of essentially 0%. If the mix of income or losses shifts from the U.S. to a country where the income tax rate is in the normal range, that in some cases approaches 30%, this can have a significant impact on the amount of reported income tax expense when compared to the projections that are the basis of our outlook.
- Net revenues are expected to be in the range of $665.0 million to $685.0 million. This represents 0.9% year over year growth when comparing the $675.0 million midpoint of 2013 guidance to 2012 results, after adjusting the 2012 base for $22.0 million in revenue reductions resulting from eliminating non-strategic products and sales units in our Apparel Labeling Solutions, Retail Merchandising Solutions and Library businesses. The expected 2013 revenue growth is 2.8% when compared to the midpoint of 2012 guidance, after the adjustments noted above. The tables below show how the growth rates were calculated. Our previously communicated 2013 outlook was an increase of 2% to 3%.
- Gross profit margins are expected to be in the range of 41.8% to 42.8%. As outlined in the table below, this is a 290 basis point improvement in gross profit margins when comparing the 42.3% midpoint of 2013 guidance to 2012 results, after adjusting the 2012 base for $7.6 million in gross profit reductions resulting from eliminating non-strategic products and sales units in our Apparel Labeling Solutions, Retail Merchandising Solutions and Library businesses. Our previously communicated 2013 outlook was an improvement of 300 basis points.
- Operating expenses are expected to be in the range of $233.0 million to $243.0 million. As outlined in the table below, when compared to the $238.0 million midpoint of 2013 guidance this represents a 10.3% reduction in operating expenses after increasing the 2012 adjusted non-GAAP base by $3.1 million to restore R&D expenditures to $19.5 million, consistent with our normal historical level of R&D spending. Our previously communicated 2013 outlook was an operating expense reduction of approximately 10%.
- Non-GAAP operating income margin is expected to be in the range of 6.8% to 7.3%.
- Full year non-GAAP effective income tax rate is expected to be approximately 27% to 29%.
- Non-GAAP diluted net earnings per share attributable to Checkpoint Systems, Inc. are expected to be in the range of $0.65 to $0.75.
- Free cash flow (cash flow from operations less capital expenditures) is expected to be in the range of $50.0 million to $60.0 million.
The Company expects that increased revenue will primarily be driven by growth in the RFID business. Anticipated improvements in gross margins and operating expenses are driven by all profit improvement initiatives.
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