The latest numbers from Cisco (CSCO) - Get Report should give investors something to chew on.

The San Jose network-equipment titan says that treating the issuance of employee stock options as an expense would have slashed net income by $311 million, or 26%, in the latest quarter. Cisco, which has opposed advocates of stock-option expensing, provided the calculation in Thursday's 10-Q filing with the

Securities and Exchange Commission

.

The numbers come a few weeks after Cisco reported third-quarter results that hit Wall Street's expectations without impressing skeptics who want to see faster growth from the company. Cisco's shares have slipped since their early-year peak on worries that the company is richly priced in light of its tepid top-line expansion.

The toll from the options-expense exercise highlights the pain tech investors could feel if, as expected, accounting rules soon force companies to count options costs against earnings. The Financial Accounting Standards Board unveiled a preliminary rule last month that would force companies to more openly disclose the cost of options. The board is expected to adopt the rule for keeps at the end of the year.

Cisco's latest disclosure is also sure to reignite debate over its heavy reliance on stock compensation and the operation of a

virtual cash machine for use by employees, particularly fat cats. On Thursday, the stock rose 9 cents to $22.44.

For Cisco's third quarter ended in April, the company reported net income of $1.2 billion. Subtracting $311 million in costs associated with options issuance leaves $900 million in profit. On a per-share basis, recognizing the FASB option proposal would cut earnings to 13 cents from 18 cents.

The options-issuance cost wasn't limited to the latest quarter. For its previous quarter ended in January, Cisco's earnings would have been cut by $312 million, or 43%, by the options-expense treatment.

To be sure, Cisco is far from the only company in Silicon Valley that objects to the push for options expensing. Chip giant

Intel

(INTC) - Get Report

and Net media outfit

Yahoo!

(YHOO)

have rejected calls for expensing as well, reasoning that the so-called fair value method of assessing option costs will only confuse investors.

That said, Cisco's defense of its stock-happy compensation strategies is hardly disinterested. Take the pay arrangements for Cisco's chief, John Chambers. He takes no salary, but in 2003 received options on 4 million shares worth a net $25 million. Chambers has said that forcing companies to expense options would likely drive more jobs to Asia.

Chambers further argues that 80% of Cisco's options are given to non-executives, and that the grants give employees a shot at the "American dream" of equity ownership. Critics say creating Cisco millionaires is all well and good, but only if the company accurately accounts for the cost of employee stock compensation.

There's another issue for shareholders, and that's dilution. Since 1998, Cisco has issued employees options on 873 million shares. To help mop up the dilution created by all those shares, Cisco has repurchased 866 million shares. This effort has cost Cisco $14.9 billion over the past three years.

Some critics point out that Cisco has been generating over $1 billion in cash per quarter. But even with that big inflow, the company's total cash pile has declined. In the most recent quarter, Cisco showed positive cash flow of $3 billion -- but saw its cash pile actually dip to $18.9 billion from $21 billion in the previous quarter. Cisco blamed the decline on its investments.

Shareholder advocates say the buyback program is clearly siphoning off cash to offset employee stock issueance. These people argue that some proceeds should flow to investors via dividends.

In March, Chambers said that the company would

probably start paying a dividend at some point.

Stock option reformers may see in that concession some reason to be optimistic about future treatments of option expenses.