Eli Lilly and Company

December 9, 2002

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

Re: Proposed Rule: File No. S7-42-02. Disclosure in Management's Discussion and Analysis About Off-Balance Sheet Arrangements, Contractual Obligations and Contingent Liabilities and Commitments

Dear Mr. Katz:

Eli Lilly and Company appreciates the opportunity to respond to the Proposed Rule: File No. S7-42-02, Disclosure in Management's Discussion and Analysis About Off-Balance Sheet Arrangements, Contractual Obligations and Contingent Liabilities and Commitments (referred to as the "Proposed Rule").

We are supportive of the Commission's initiatives in establishing appropriate disclosure about off-balance sheet arrangements, contractual obligations and contingent liabilities and commitments as identified under the Sarbanes-Oxley Act of 2002. We wish to comment on two aspects of the Proposed Rule.

1. Disclosure Threshold

We believe the "higher than remote" threshold for disclosure is too low and is not mandated by Sarbanes-Oxley. The Act calls for disclosure of items that "may" have a material effect. We do not believe Congress intended "may" to mean "more than remote." We believe this lowered disclosure threshold will be subject to broad interpretation since it is not generally accepted terminology within the accounting literature. We think it more likely that Congress would expect the SEC to adopt a disclosure threshold that is consistent with other disclosure thresholds generally recognized and one that facilitates meaningful disclosures of realistic risks but discourages lengthy, boilerplate disclosures of minutiae.

We see no reason to apply a lower disclosure threshold to MD&A disclosures of off-balance sheet arrangements than is applied to disclosures of revenues, expenses and income. We strongly urge the Commission to apply the same "reasonably likely" standard to off-balance sheet disclosures that applies to all other aspects of MD&A. To do otherwise would be to risk an "imbalanced" MD&A in which the off-balance sheet disclosures dwarf the disclosures of operating results and trends, creating a distorted picture of the company's results and risk profile.

We also believe that this may add a perceived additional legal liability in the assessment of "more than remote" if an item initially determined to be remote (and therefore not disclosed), actually occurred in the future.

2. Transition

We note that the Commission is required by Sarbanes-Oxley to adopt a final rule by January 26, 2003. We are concerned by the lack of transitional guidance in the Proposed Rule. Based upon the extraordinary number of accounting and disclosure rule proposals currently pending or recently approved, and the short time period between the expected completion of this final rule and Annual Report and Form 10-K filings for calendar year companies, we strongly recommend the Commission adopt the final rule effective for fiscal years beginning no sooner than December 15, 2002.

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