Brocade is to restate two years worth of financial statements after discovering that it improperly accounted for stock-based employee compensation.

The storage networking firm today said that an internal audit turned up two specific ways in which it miscalculated the stock compensation. In one case, it granted stock to new hires on their acceptance date instead of the day they actually started work. In another, it granted part-time workers similar stock deals prior to their being hired as full-time workers. Brocade doesn't expect to report material changes to revenue for the periods in question, which are its 2002 and 2003 fiscal years.

"Our core business remains strong and the restatement does not affect the underlying fundamentals of our business," said Brocade's CEO Greg Reyes.

Shares of Brocade were down more than six per cent to $6.47, at the time of this report.

Brocade, which makes switches for storage networks, will delay the filing of a financial statement with the US Securities and Exchange Commission, as it sorts out this matter. It, however, expects to report its first quarter of 2005 earnings on time on Jan. 29. ®

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