Roche Surprises With New Charge in Vitamins Case 
10/11/2002, The Wall Street Journal

Swiss health-care group Roche Holding took a surprise additional provision of 1.2 billion Swiss francs ($811 million) to cover liabilities from a vitamins price-fixing case and reported basically flat nine-month core sales. The new charge brings to 4.39 billion francs the amount Roche has set aside to cover the cost of punitive fines and legal challenges from customers that overpaid for vitamins in the early 1990s as a result of an international cartel. Roche recently agreed to sell the vitamins business to Dutch company DSM for 2.25 billion euros ($2.23 billion), but retained liability for all legal action.

Roche said it can't rule out further provisions but stuck by its 2002 sales and profit targets. Nine-month sales in the company's core drugs and diagnostics businesses rose 1.3% to 19.27 billion francs.


  1. Why did Roche add to its liabilities?  The potential liability is not definite; is the company legally obligated to take the set-aside?
  2. Why would Roche sell the business itself, but retain the legal liability for actions that involved the business?
  3. Is this business sale good or bad for the customers who might sue Roche in the future?
  4. Could Roche hedge itself against these legal liabilities?  If so, how?
  5. Since Roche was part of an international cartel when it allegedly overcharged customers, it might be sued in various countries.  If so, the liability would involve exchange risk as well.  Considering that the amount of the liability is also unknown, so that there is both quantity and price risk, how could Roche protect itself?
  6. If Roche's liabilities are increasing due to this provision, what other account will be affected so as to maintain the equality of assets and liabilities required under double-entry bookkeeping?