Stock Plans:

In May 2017, PMI’s shareholders approved the Philip Morris International Inc. 2017 Performance Incentive Plan (the “2017 Plan”). The 2017 Plan replaced the 2012 Performance Incentive Plan, and there will be no additional grants under the replaced plan. Under the 2017 Plan, PMI may grant to eligible employees restricted shares and restricted share units, performance-based cash incentive awards and performance-based equity awards. Up to 25 million shares of PMI’s common stock may be issued under the 2017 Plan. At December 31, 2017, shares available for grant under the 2017 Plan were 24,991,850.

In May 2017, PMI’s shareholders also approved the Philip Morris International Inc. 2017 Stock Compensation Plan for Non-Employee Directors (the “2017 Non-Employee Directors Plan”). The 2017 Non-Employee Directors Plan replaced the 2008 Stock Compensation Plan for Non-Employee Directors, and there will be no additional grants under the replaced plan. A non-employee director is defined as a member of the PMI Board of Directors who is not a full-time employee of PMI or of any corporation in which PMI owns, directly or indirectly, stock possessing at least 50% of the total combined voting power of all classes of stock entitled to vote in the election of directors in such corporation. Up to 1 million shares of PMI common stock may be awarded under the 2017 Non-Employee Directors Plan. As of December 31, 2017, shares available for grant under the plan were 1,000,000.

Restricted share unit (RSU) awards

PMI may grant RSU awards to eligible employees; recipients may not sell, assign, pledge or otherwise encumber such awards. Such awards are subject to forfeiture if certain employment conditions are not met. RSU awards generally vest on the third anniversary of the grant date. RSU awards do not carry voting rights, although they do earn dividend equivalents.

During 2017, the activity for RSU awards was as follows:



	Number of Shares		Weighted- Average Grant Date Fair Value Per Share
Balance at January 1, 2017	4,500,990		$	82.08
Granted	1,210,210		98.59
Vested	(2,022,856	)	78.19
Forfeited	(75,944	)	88.82
Balance at December 31, 2017	3,612,400		$	89.65

During the years ended December 31, 2017, 2016 and 2015, the weighted-average grant date fair value of the RSU awards granted to PMI employees and the recorded compensation expense related to RSU awards were as follows:



(in millions, except per RSU award granted)	Total Weighted-Average Grant Date Fair Value of RSU Awards Granted		Weighted-Average Grant Date Fair Value Per RSU Award Granted		Compensation Expense related to RSU Awards
2017	$	119	$	98.59	$	111
2016	$	108	$	89.03	$	126
2015	$	126	$	82.28	$	166

The fair value of the RSU awards at the date of grant is amortized to expense over the restriction period, typically three years after the date of the award, or upon death, disability or reaching the age of 58. As of December 31, 2017, PMI had $108 million of total unrecognized compensation costs related to non-vested RSU awards. These costs are expected to be recognized over a weighted-average period of two years, or upon death, disability or reaching the age of 58.

During the years ended December 31, 2017, 2016 and 2015, share and fair value information for PMI RSU awards that vested were as follows:



(dollars in millions)	Shares of RSU Awards that Vested	Grant Date Fair Value of Vested Shares of RSU Awards		Total Fair Value of RSU Awards that Vested
2017	2,022,856	$	158	$	208
2016	2,302,525	$	202	$	210
2015	2,711,974	$	217	$	224

Performance share unit (PSU) awards

PMI may grant PSU awards to certain executives; recipients may not sell, assign, pledge or otherwise encumber such awards. The PSU awards require the achievement of certain performance factors, which are predetermined at the time of grant, over a three-year performance cycle. PMI’s performance metrics consist of PMI’s Total Shareholder Return (TSR) relative to a predetermined peer group and on an absolute basis, PMI’s currency-neutral compound annual adjusted operating companies income growth rate, excluding acquisitions, and PMI’s performance against specific measures of PMI's innovation and transformation. The aggregate of the weighted performance factors for the three metrics determines the percentage of PSUs that will vest at the end of the three-year performance cycle. The minimum percentage of PSUs that can vest is zero, with a target percentage of 100 and a maximum percentage of 200. Each vested PSU entitles the participant to one share of common stock. An aggregate weighted PSU performance factor of 100 will result in the targeted number of PSUs being vested. At the end of the performance cycle, participants are entitled to an amount equivalent to the accumulated dividends paid on common stock during the performance cycle for the number of shares earned. PSU awards do not carry voting rights.

During 2017, the activity for PSU awards was as follows:



	Number of Shares	Grant Date Fair Value Subject to TSR Performance Factor Per Share^(a)		Grant Date Fair Value Subject to Other Performance Factors Per Share^(b)
Balance at January 1, 2017	427,570	$	104.60	$	89.02
Granted	393,460	128.72		98.29
Vested	—	—		—
Forfeited	—	—		—
Balance at December 31, 2017	821,030	$	116.16	$	93.46

^(a) The grant date fair value of the PSU market based awards subject to the TSR performance factor was determined by using the Monte Carlo simulation model.

^(b) The grant date fair value of the PSU awards subject to the other performance factors was determined by using the average of the high and low market price of PMI’s stock at the date of grant.

During the years ended December 31, 2017 and 2016, the grant date fair value of the PSU awards granted to PMI employees and the recorded compensation expense related to PSU awards were as follows:



(in millions, except per PSU award granted)	PSU Grant Date Fair Value Subject to TSR Performance Factor^(a)				PSU Grant Date Fair Value Subject to Other Performance Factors^(b)				Compensation Expense related to PSU Awards
	Total		Per PSU Award		Total		Per PSU Award		Total
2017	$	25	$	128.72	$	19	$	98.29	$	37
2016	$	22	$	104.60	$	19	$	89.02	$	27

^(a) The grant date fair value of the PSU market based awards subject to the TSR performance factor was determined by using the Monte Carlo simulation model.

^(b) The grant date fair value of the PSU awards subject to the other performance factors was determined by using the average of the high and low market price of PMI’s stock at the date of grant.

The fair value of the PSU award at the date of grant is amortized to expense over the performance period, which is typically three years after the date of the award, or upon death, disability or reaching the age of 58. As of December 31, 2017, PMI had $34 million of total unrecognized compensation cost related to non-vested PSU awards. This cost is recognized over a weighted-average performance cycle period of two years, or upon death, disability or reaching the age of 58.

During the years ended December 31, 2017, and 2016, there were no PSU awards that vested. PMI did not grant any PSU awards during 2015.