Genesco Inc.
SECURITIES EXCHANGE ACT OF 1934
Release No. 48962 / December 19, 2003
ACCOUNTING AND AUDITING ENFORCEMENT
Release No. 1930 / December 19, 2003
Admin. Proc. File No. 3-11363
In the Matter of GENESCO INC., Respondent. |
: : : : : : : : : : |
ORDER INSTITUTING CEASE-AND-DESIST PROCEEDINGS, MAKING FINDINGS, AND IMPOSING A CEASE-AND-DESIST ORDER PURSUANT TO SECTION 21C OF THE SECURITIES EXCHANGE ACT OF 1934 |
I.
The Securities and Exchange Commission ("Commission") deems it appropriate that cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Genesco Inc. ("Genesco" or "Respondent").
II.
In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the "Offer") which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over it and the subject matter of these proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease-and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist Order Pursuant to Section 21C of the Securities Exchange Act of 1934 ("Order"), as set forth below.
III.
On the basis of this Order and Respondent's Offer, the Commission finds1 that:
1. Genesco is a Tennessee corporation headquartered in Nashville, Tennessee. Genesco's common stock is registered pursuant to Section 12(b) of the Exchange Act and is listed on the New York Stock Exchange under the symbol "GCO."
IMPROPER REVENUE RECOGNITION IN FOURTH QUARTER OF FISCAL YEAR 2001
2. In the last few weeks of Genesco's fiscal year ended February 3, 2001, the president of Genesco's Johnston & Murphy division (the "Division President") learned that the division would not meet its internal sales targets. On January 31, three business days before the end of Genesco's fiscal year, the Division President convened a meeting of her staff to discuss the shortfall. During this meeting, the Division President conveyed that a failure to achieve the division's sales targets was not acceptable. She instructed her staff to take whatever action was necessary to achieve the division sales targets.
3. Two Genesco employees, a Johnston & Murphy division vice president (the "Division Vice President") and the Johnston & Murphy Director of Customer Care, met with a manager in Genesco's distribution center (the "Distribution Manager") to discuss shipping the orders for a specific Genesco customer by Genesco's fiscal year end. Such a shipment would be in advance of that customer's requested shipping date and these two Genesco employees knew that this customer had already specifically refused early shipment. The Division Vice President told the Division President about the plan to ship these orders early, and the Division President approved the plan.
4. Genesco did not ship the orders as planned, but the Distribution Manager, after meeting with the Director of Customer care, prematurely recorded the orders as shipped. This caused Genesco to prematurely record $2.8 million of sales revenue, making its books and records inaccurate. Because Genesco improperly recognized this sales revenue in the fourth quarter of fiscal 2001, Genesco overstated its net earnings on the financial statements it included in its Form 10-K for fiscal year 2001 filed with the Commission in May 2001; net earnings after a charge for discontinued operations for the fourth quarter were overstated by 2.7% and for the year by 1.6%.
IMPROPER REVENUE RECOGNITION IN CERTAIN OTHER QUARTERS IN FISCAL YEARS 2001 AND 2002
5. In late 2001, the Director of Customer Care told Genesco's human resources department that she could not sign her annual ethics certification as a result of her involvement in certain conduct that occurred during the fourth quarter of fiscal year 2001. She disclosed the scheme to prematurely record sales revenue.
6. Genesco immediately commenced an internal investigation. Based on the results of its investigation, Genesco informed the Division President, the Division Vice President, and the Distribution Manager that they could resign or they would be terminated for cause. The Director of Customer Care, who previously had transferred to a position with no financial reporting responsibilities, was disciplined. Genesco also revised its internal controls, made a public announcement with respect to these matters and self-reported to the Commission's staff. Genesco cooperated with the staff during its investigation.
7. Genesco's investigation revealed that in the first three quarters of Genesco's fiscal year 2001 and the first two quarters of its fiscal year 2002, the Distribution Manager caused other orders to be recorded as shipped even though shipment did not occur until the respective following quarter, making Genesco's books and records inaccurate. As a result of this misconduct, Genesco's net earnings after a charge for discontinued operations in each of the six quarters ended between April 29, 2000, and August 4, 2001, were overstated or understated by 2.7% to 18.0%.
GENESCO FAILED TO MAINTAIN ADEQUATE INTERNAL ACCOUNTING CONTROLS
8. During its fiscal year 2001 and the first two quarters of fiscal year 2002, Genesco failed to establish or maintain adequate internal accounting controls sufficient to allow the preparation of its financial statements in conformity with generally accepted accounting principles ("GAAP"). Genesco failed to monitor or verify whether invoice dates and bill of lading2 dates matched. Genesco has since implemented such a control.
VIOLATIONS
9. Section 13(a) of the Exchange Act and Rule 13a-13 thereunder requires issuers of registered securities to file with the Commission quarterly reports prepared in conformity with the requirements of the Commission's rules and regulations. In addition, Exchange Act Rule 12b 20 requires that such reports contain, in addition to disclosures expressly required by statute and rules, such other information as is necessary to ensure that the statements made in those reports are not, under the circumstances, materially misleading.
10. Section 13(b)(2)(A) of the Exchange Act requires issuers of registered securities to make and keep books, records, and accounts which, in reasonable detail, accurately and fairly reflect their transactions and the dispositions of their assets.
11. Section 13(b)(2)(B) of the Exchange Act requires issuers of registered securities to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions are executed in accordance with management's authorization and that transactions are recorded as necessary to permit the preparation of financial statements in conformity with GAAP and to maintain accountability for assets.
12. By reason of the conduct described above, Genesco violated Section 13(a) of the Exchange Act and Rules 13a-13 and 12b-20 by filing a Form 10-Q that contained financial statements for the second quarter of fiscal year 2001 that materially overstated its net earnings. Genesco violated Section 13(b)(2)(A) of the Exchange Act by failing to keep books and records that accurately recorded its transactions and disposition of assets for each quarter in fiscal year 2001 and the first two quarters of fiscal year 2002. Genesco violated Section 13(b)(2)(B) of the Exchange Act by failing to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that its transactions were executed in accordance with management's authorization and that its transactions were recorded as necessary to permit the preparation of financial statements in conformity with GAAP.
IV.
In determining to accept the Offer, the Commission considered remedial acts promptly undertaken by Respondent and cooperation afforded the Commission staff.
V.
In view of the foregoing, the Commission deems it appropriate to impose the sanctions specified in Respondent Genesco's Offer.
Accordingly, it is hereby ORDERED that:
Respondent Genesco cease and desist from committing or causing any violations and any future violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 13a-13 and 12b-20 thereunder.
By the Commission.
Jonathan G. Katz
Secretary
Endnotes
Last Reviewed or Updated: June 27, 2023