HONG KONG, Aug. 10 – LAWFUEL – The Law News Network — Tommy Hilf…

HONG KONG, Aug. 10 – LAWFUEL – The Law News Network — Tommy Hilfiger Corporation (NYSE: TOM) announced today that it has resolved the previously announced investigation by the U.S. Attorney’s Office for the Southern District of New
York by executing a non-prosecution agreement with the U.S. Attorney’s Office

The USAO has concluded that criminal tax charges are not warranted
in connection with the buying office commission rate paid by the Company’s
U.S. subsidiaries for the fiscal years 1990-2004, and will close its
investigation. In addition, the USAO has agreed that it will not criminally
prosecute Tommy Hilfiger U.S.A., Inc. (“THUSA”), or its parent or affiliates
for any offenses relating to underpayment of Hong Kong taxes as a result of
activities attributed to Tommy Hilfiger (Eastern Hemisphere) Limited (“THEH”).

The non-prosecution agreement with the USAO is subject to certain
understandings, including that THUSA will file amended U.S. federal income tax
returns for the fiscal years ending March 31, 2001 through 2004 reflecting a
reduced buying office commission rate for those four years, adopt and
implement the recommendations of the Special Committee of the Company’s Board
of Directors, adopt and implement an effective ethics and compliance program,
and provide information to the Hong Kong Inland Revenue Department (“IRD”) for
it to evaluate whether THEH or its Hong Kong subsidiary owe any Hong Kong
taxes to the IRD. THUSA also agreed for a period of three years to provide the
USAO, upon request, with information so that the USAO can monitor THUSA’s
compliance with the agreement.

David Dyer, President and Chief Executive Officer of the Company stated,
“We have worked hard for nearly a year to cooperate fully with the United
States Attorney’s Office, and are pleased that it has determined to close its

As a result of the reduction in the buying office commission rate and
other unrelated adjustments that are also to be reflected in the amended tax
returns, THUSA expects to pay approximately $15.4 million in additional
federal income taxes and $2.7 million in interest for these four years, taking
into account the effect of changes in other tax attributes, including net
operating loss carry forwards. The effect of adjusting the buying office
commission rate for the four fiscal years results in a tax provision in fiscal
2005 of approximately $12 million, after taking into account previously
established reserves for this matter.

Background of the Investigation and Hong Kong Tax Matters
As previously disclosed on September 24, 2004, THUSA had received a grand
jury subpoena issued by the USAO seeking documents generally related to
domestic and/or international buying office commissions since 1990 and that
certain of THUSA’s current and former employees had received subpoenas.
Several domestic and international subsidiaries of the Company pay buying
office commissions to THEH, a British Virgin Islands corporation which is a
wholly-owned and consolidated subsidiary of the Company, pursuant to contracts
to provide or otherwise secure through sub-agents certain services, including
product development, sourcing, production scheduling and quality control
functions. The Company disclosed that the USAO investigation was focused on
the appropriateness of the commission rate paid by the Company’s subsidiaries
to THEH, as well as other related tax matters.

In October 2004, the Board of Directors of the Company formed a Special
Committee of independent directors to conduct an independent investigation
into matters arising out of the governmental investigation. The Special
Committee retained Debevoise & Plimpton LLP as legal counsel, with a team
headed by Mary Jo White, former U.S. Attorney for the Southern District of New
York. The Special Committee reported on its investigation to the Board in
March 2005 and to the USAO in April 2005. As previously disclosed, the Special
Committee found that the Company had a good faith basis for adopting the
buying office commission rate paid by the Company’s subsidiaries to THEH. Also
as previously disclosed, the Special Committee did identify certain questions
about Hong Kong tax matters and supported the Company’s determination to
engage the IRD in discussions regarding whether THEH was subject to profits
tax in Hong Kong, and the Special Committee made recommendations to the
Company to enhance procedures for tax matters, including transfer pricing, and
to review its buying office structure. The Company’s management has adopted
all of the Special Committee’s recommendations.

As previously disclosed, the Company initiated discussions in May 2005
with the IRD with respect to the potential Hong Kong profits tax liability of
THEH. In the course of these discussions, the Company made a settlement offer
to the IRD to resolve this issue, which offer had been reflected in the
expected tax provisions that the Company previously announced. The IRD has not
accepted the Company’s settlement offer, and discussions are ongoing.
Accordingly, the Company cannot predict the timing or outcome of its
settlement discussions with the IRD, and there can be no assurance that the
resolution of these discussions will not have a material effect on the

On June 15, 2005, the Company disclosed that it expects to record net
provisions in the range of $30 million to $40 million (taking into account $15
million of pre-existing tax reserves for these matters) with respect to the
USAO investigation, the Hong Kong IRD matter, the Tommy Hilfiger Licensing,
Inc. (a Delaware intangible holding company) matter, and the New Jersey
Alternative Minimum Assessment refunds.

Update on Shareholder Class Action Litigation
On August 1, 2005, pursuant to a revised scheduling order, the Company
filed a motion to dismiss the consolidated amended complaint in the previously
disclosed shareholder class action litigation that was filed following the
Company’s September 24, 2004 announcement of the USAO investigation. The
Company currently expects that a hearing on its motion to dismiss will be held
in October 2005.

Safe Harbor Statement
Statements made by the Company that are not historical are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995, Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Such statements are
indicated by words or phrases such as “anticipate,” “estimate,” “project,”
“expect,” “believe” and similar words or phrases. Such statements are based on
current expectations and are subject to certain risks and uncertainties,
including, but not limited to, the overall level of consumer spending on
apparel; the financial strength of the retail industry generally and the
Company’s customers, distributors, licensees and franchisees in particular;
changes in trends in the market segments and geographic areas in which the
Company competes; the level of demand for the Company’s products; actions by
our major customers or existing or new competitors; the effect of the
Company’s strategy to reduce U.S. distribution in order to bring supply and
demand into balance; changes in currency and interest rates; changes in
applicable tax laws, regulations and treaties; changes in economic or
political conditions or trade regulations in the markets where the Company
sells or sources its products; the effects of any consolidation of the
Company’s facilities and actions to reduce selling, general and administrative
expenses; the outcome of the class action lawsuits and the discussions with
the Hong Kong Inland Revenue Department and other tax authorities and the
financial statement impact of such matters; the ability of the Company to
satisfy covenants or obtain waivers, if necessary, under its indenture on a
timely basis relating to the providing of required financial information; as
well as other risks and uncertainties set forth in the Company’s publicly-
filed documents, including this press release and the Company’s Annual Report
on Form 10-K for the fiscal year ended March 31, 2004. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual results may vary materially from those anticipated,
estimated or projected. The Company disclaims any intention or obligation to
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.

Tommy Hilfiger Corporation, through its subsidiaries, designs, sources and
markets men’s and women’s sportswear, jeanswear and childrenswear. The
Company’s brands include Tommy Hilfiger and Karl Lagerfeld. Through a range of
strategic licensing agreements, the Company also offers a broad array of
related apparel, accessories, footwear, fragrance, and home furnishings. The
Company’s products can be found in leading department and specialty stores
throughout the United States, Canada, Europe, Mexico, Central and South
America, Japan, Hong Kong, Australia and other countries in the Far East, as
well as the Company’s own network of outlet and specialty stores in the United
States, Canada and Europe.


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