Microsoft's fourth quarter showed 16.2% revenue growth, and for the year revenue increased by 11.3%. Earnings per share in the quarter declined 17.6%, but both years have legal charges, and last year's fourth quarter had a one-time $0.09 per share in tax benefits. Netting out those figures, earnings per share were up $0.01 versus a year ago and, more importantly, were up 11.3% for the year. Free cash flow was down slightly -- primarily because of changes in working capital -- but remains quite healthy.
The two other points of interest are the company's guidance, which is a bit stronger than I expected, and the $20 billion tender offer that is being made. Of the two, I find the tender offer most interesting, because the price range of $22.50 to $24.75 per share is about 20%-25% lower than where I conservatively value the shares. Also, if the offer is fully executed, the share count will be reduced by a little more than 8%. The tender offer is in addition to the $30 billion in shares that the company has purchased during the last two years, and Microsoft has announced another $20 billion in ongoing share repurchases to be executed over the next four years.
This brings us to the company's guidance, which is affected not only by the launch of Vista, Office 2007, and the continued rollout of the Xbox 360, but also by the announced tender offer. For fiscal 2007, management expects revenue to increase by 12% to 14% -- to the tune of $50 billion -- and earnings per share are forecasted to increase to $1.43-$1.47 from the $1.20 delivered this year. Included in the guidance is $0.05 to $0.06 per share that will come from the tender offer.
A note to file away: If Vista were to slip by a quarter, Microsoft anticipates that it would miss out on only $200 million to $400 million in revenues. The reason for this is that many of the company's customers are on annual contracts. Obviously that's not good, and I think everyone wants to see Vista out sooner rather than later. However, the consequences are not nearly as dire as the market's reaction to the last Vista delay would suggest.
Overall, I see no reason to change my views or valuation assumptions on Microsoft. In fact, I see some reasons to be optimistic about what the company is accomplishing outside of its traditional operating system and productivity software sales. Capital expenditures may run a bit higher next year, which is a slight concern. But given the company's valuation and growth potential, I see it as more attractive than competitors such as Apple