income tax rate due primarily to state taxes and earnings considered as indefinitely reinvested in foreign operations. Future effective tax rates could be adversely affected if earnings are lower than anticipated in countries where we have lower statutory rates, by unfavorable changes in tax laws and regulations, or by adverse rulings in tax related litigation.

 

Fiscal 2007 Compared to Fiscal 2006:   Provision for income taxes increased in fiscal 2007 primarily due to higher earnings before tax, partially offset by a lower effective tax rate. Our effective tax rate for fiscal 2007 was slightly lower than in fiscal 2006 primarily due to additional research and development tax credits as well as agreements reached with foreign tax authorities on certain tax positions.

 

Fiscal 2006 Compared to Fiscal 2005:   Provision for income taxes increased in fiscal 2006 due to higher earnings before tax and a higher effective tax rate. The increase in the effective tax rate in fiscal 2006 is primarily attributable to a higher percentage of earnings in high tax jurisdictions as compared with other lower tax rate jurisdictions. In addition, we did not benefit from certain non-recurring tax events in fiscal 2006 that occurred in fiscal 2005, including the settlement of audits and expiration of statutes of limitations on certain tax assessments and the true-up of estimated tax accruals upon the filing of our prior year tax returns. We also incurred higher non-deductible in-process research and development charges in fiscal 2006.

 

Liquidity and Capital Resources

 

Working capital:   The decrease in working capital in fiscal 2007 was primarily a result of cash used to pay for our acquisitions and stock repurchases, partially offset by increases in operating cash flows from higher sales volumes, proceeds received from employee stock option exercises and an increase in our long-term borrowings. The increase in working capital in fiscal 2006 is primarily due to our issuance of $5.75 billion long-term senior notes in January 2006 as well as greater cash flows from operations from higher sales volumes, partially offset by cash used to pay for acquisitions, stock repurchases, and the reduction of our other debt obligations.

 

Cash, cash equivalents and marketable securities:   Cash and cash equivalents consist of highly liquid investments in time deposits held at major banks, commercial paper, United States government agency discount notes, money market mutual funds and other money market securities with original maturities of 90 days or less. Marketable securities primarily consist of commercial paper, corporate notes and United States government agency notes. Cash, cash equivalents and marketable securities include $5.0 billion held by our foreign subsidiaries as of May 31, 2007. The decrease in cash, cash equivalents and marketable securities is a result of cash used to pay for acquisitions and stock repurchases, partially offset by an increase in our operating cash flows from higher sales volumes, increases in our short-term and long-term borrowings and proceeds from stock option exercises.

 

Days sales outstanding, which is calculated by dividing