Phone 317 276 2000

May 21, 2002

Mr. Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549

Re: Proposed Rule: File No. S7-08-02. Acceleration of Periodic Report Filing Dates and Disclosure Concerning Website Access to Reports.

Dear Mr. Katz:

Eli Lilly and Company appreciates the opportunity to respond to the Proposed Rule: File No. S7-08-02, Acceleration of Periodic Report Filing Dates and Disclosure Concerning Website Access to Reports (the "Proposed Rule").

We support the Commission's overall effort to make information publicly available to investors on an ongoing and timely basis. However, we disagree with certain aspects of this Proposed Rule, which are discussed further in our attached response.

This Proposed Rule and the Proposed Rule: File No. S7-09-02, Form 8-K Disclosure of Certain Management Transactions, appear to be, in part, a response to the recent accounting and financial reporting failures. The root cause of these failures was not the timeliness of the filings of periodic reports with the SEC, but rather the quality of the accounting and financial reporting contained in the reports. This Proposed Rule could result in a decrease in the depth and breadth of review of periodic reports by key business people within a company, outside advisors, and board members. This could lead to periodic reports with less valuable information and more boilerplate language.

We believe that to improve timeliness of disclosure, a better approach might be to require registrants to "furnish" or "file" (at the registrant's option) a Form 8-K that includes the registrant's comprehensive quarterly earnings release. The earnings release should include a balance sheet, income statement, and a summary of significant events that have transpired during the recent period. This would allow information important to investors to be accessible quickly through the EDGAR database. We also request that the SEC develop best practices around earnings releases, in order to improve the overall quality of the earnings releases that would be furnished or filed under Form 8-K. These best practices should incorporate the guidelines previously established by Financial Executives International and National Investor Relations Institute.

Our comments addressing these specific issues as well as other concerns we have with the Proposed Rule are discussed in detail below.

Timeliness of Periodic Report Filing Dates

The periodic reporting process can roughly be broken into three steps that, for the most part, must be completed seriatim: data collection, drafting, and review. At Lilly, and we believe at many other companies, there is limited ability to compress the data collection and drafting processes. Therefore, the proposed accelerated timelines for periodic reports will add pressure on the review process undertaken by senior management, audit committees, outside legal counsel and independent auditors.

We at Lilly complete the data collection and drafting processes as quickly as possible after information is available. We do not believe we can compress those processes by more than a few days. Therefore, to meet the proposed due dates, we would be required to restrict the time available for review of the draft reports by senior management, outside advisors, and the board of directors. We believe these reviewers help ensure quality and accuracy in our filings, and in particular, help provide a broader perspective to our Management's Discussion and Analysis. However, these individuals' schedules are not always predictable and frequent travel further restricts their flexibility. Accelerating the timeline will limit their ability to add value and insight to these filings. See Attachment A for an illustration of our current 10-Q timeline and an illustrative timeline under the Proposed Rule. As you will see, the review periods must be shortened considerably.

In addition, global companies may be unfairly penalized by the acceleration of these deadlines. Obtaining information from overseas affiliates is typically a slower, more time consuming process, compared with obtaining information from US domiciled companies. Some global companies may have to choose between late filings and filings that contain more estimated (and hence less accurate) information.

The pharmaceutical industry generally completes the quarterly and annual closing process fairly quickly. However, we are aware that Fortune 100 companies in other industries may not be able to complete their closing process as quickly. A slower closing process puts additional strain on the review process by senior management, audit committees and independent auditors.

New regulations continue to put pressure on reporting timelines. Recently adopted regulations such as the required independent reviews by auditors of Form 10-Q's, and the required quarterly communication by management and auditors with their audit committees restrict the period of time in which the periodic reports can be completed and reviewed by the appropriate parties. Proposed and contemplated regulations will put even more pressure on timelines. These initiatives will require careful, thoughtful analysis and presentation. For example, the proposed rule on Disclosure in MD&A about the Application of Critical Accounting Policies, if adopted, would require, among other things, disclosure of assumptions, alternative assumptions, and sensitivity analysis of the assumptions underlying critical accounting policies. We also note the Commission's January 22, 2002 release regarding MD&A, as well as the contemplated new disclosures on trend information mentioned in Section II. A of the "Critical Accounting Policies" release. The disclosures contemplated by these initiatives require significant analysis and judgment, first by the accounting, financial and legal resources who initially prepare financial reports, and then by senior management, the auditors and the Board or Audit Committee. Time will be needed to respond carefully and thoughtfully to these proposals.

EDGARization has added approximately 2-3 business days to the end of our process. Some companies (including Lilly) utilize outside service providers for the completion of the EDGAR document. We are aware that in order to meet filing deadlines, these service providers depend, in part, on having a number of clients submit reports well before the deadline. With the proposed deadlines, we believe that very few companies will be in a position to submit their completed filings substantially ahead of the deadline. This will add more pressure on the service providers, which will increase costs, errors, and missed deadlines.

With these thoughts in mind, we strongly recommend establishing timelines of at least 40 days for the Form 10-Q and 75 days for the Form 10-K. We believe a requirement by the SEC for public registrants to furnish an earnings release (including a balance sheet) on a Form 8-K within 24 hours of public release of the data would enable investors to have access to important information on a timely basis.

Due Dates Linked With the Timing of the Press Release

We do not believe that linking the periodic reporting deadlines to the timing of an earnings press release is appropriate. Rather than providing more timely information to investors, we fear that this approach would encourage companies to delay their earnings announcement. We also believe the administrative burden on companies and the SEC to monitor compliance of various deadlines for various companies would not be cost effective.

Conforming Revisions to Rule 3-01, 3-05, and 3-12 of Regulation S-X

We agree that conforming revisions should be made to Rules 3-01 and 3-12 of Regulation S-X.

With respect to Rule 3-05, we agree that conforming changes are necessary; however, this Rule adds additional difficulty in completing the periodic financial statements on an accelerated basis. For example, if a Registrant completes a significant acquisition as defined in Rule 3-05 with a company that has never required an audit prior to the acquisition, the Proposed Rule would make it more difficult to complete the necessary procedures for filing of the periodic reports on a timely basis. We believe the required timing for filing financial statements of an acquired company should not be accelerated.

Website Access to Reports

We agree with all aspects of this portion of the Proposed Rule regarding website access to reports filed with the SEC. We also believe it is important that the SEC eliminate the 24-hour delay for the EDGAR website so that companies can comply with this requirement by linking directly to the EDGAR website. This allows investors to access all filings that a particular company has made to the SEC, including our proposed Earnings Release 8-K.

We appreciate the opportunity to express our views and concerns in regards to this Proposed Rule. If you have any questions regarding our response or would like to discuss our comments, please feel free to call me at (317) 276-2024.




Arnold C. Hanish
Executive Director, Finance and
Chief Accounting Officer