In this step we add a section to our accounting adjustments called “Deferred Stock-Based Compensation Expense” that calculates the annual after-tax compensation expense arising from the amortization of unearned compensation. Recall that unearned compensation is recorded as an asset on the balance sheet and amortized over the remaining future service (vesting) period. A more detailed discussion of unearned compensation and FIN 44 can be found here.
