Note 3—U.S. and Europe Retrospective Responsibility Plans

U.S. Retrospective Responsibility Plan

Under the terms of the U.S. retrospective responsibility plan, the Company maintains an escrow account from which settlements of, or judgments in, the U.S. covered litigation are paid. The escrow funds are held in money market investments along with interest income earned, less applicable taxes, and are classified as restricted cash on the consolidated balance sheets. The balance of the escrow account was $1.0 billion at March 31, 2017 and September 30, 2016. The Company did not make any payments to opt-out merchants from the litigation escrow account during the six months ended March 31, 2017. See Note 13—Legal Matters.

The accrual related to the covered litigation could be either higher or lower than the litigation escrow account balance. The Company did not record an additional accrual for the covered litigation during the six months ended March 31, 2017. See Note 13—Legal Matters.

Europe Retrospective Responsibility Plan

Under the terms of the Europe retrospective responsibility plan, the Company is entitled to recover VE territory covered losses through a periodic adjustment to the class A common stock conversion rates applicable to the U.K.&I. and Europe preferred stock. VE territory covered losses are recorded in "right to recover for covered losses" within equity before the corresponding adjustment to the applicable conversion rate is effected. Adjustments to the conversion rate may be executed once in any six-month period unless a single, individual loss greater than €20 million is incurred, in which case, the six-month limitation does not apply. When the adjustment to the conversion rate is made, the amount previously recorded in "right to recover for covered losses" as contra-equity is then recorded against the book value of the preferred stock within stockholders' equity.

During the six months ended March 31, 2017, the Company recovered $120 million of VE territory covered losses through adjustments to the class A common stock conversion rates applicable to the U.K.&I and Europe preferred stock, from 13.952 at September 30, 2016 to 13.388 and 13.948, respectively, at March 31, 2017.

The following table sets forth the activities related to VE territory covered losses in preferred stock and "right to recover for covered losses" within equity during the six months ended March 31, 2017. VE territory covered losses incurred reflect settlements with merchants and additional legal costs. See Note 13—Legal Matters.



	Preferred Stock						Right to Recover for Covered Losses
	U.K.&I			Europe			Right to Recover for Covered Losses
	(in millions)
Balance as of September 30, 2016	$	2,516		$	3,201		$	(34	)
VE territory covered losses incurred	$	—		$	—		$	(163	)
Recovery through conversion rate adjustment	(119		)	(1		)	120
Balance as of March 31, 2017	$	2,397		$	3,200		$	(77	)

The following table sets forth the as-converted value of the preferred stock available to recover VE territory covered losses compared to the book value of preferred shares recorded in stockholders' equity within the Company's unaudited consolidated balance sheet as of March 31, 2017.⁽¹⁾



	March 31, 2017
	As-Converted Value of Preferred Stock⁽²⁾			Book Value of Preferred Stock
	(in millions)
U.K.&I preferred stock	$	2,951		$	2,397
Europe preferred stock	3,913			3,200
Total	$	6,864		$	5,597
Less: Right to recover for covered losses	(77		)	(77		)
Total recovery for covered losses available	$	6,787		$	5,520


⁽¹⁾	Figures in the table may not recalculate exactly due to rounding. As-converted and book values are based on unrounded numbers.

⁽²⁾

The as-converted value of preferred stock is calculated as the product of: (a) 2 million and 3 million shares of the U.K.&I and Europe preferred stock outstanding, respectively, as of March 31, 2017; (b)13.388 and 13.948, the class A common stock conversion rate applicable to the U.K.&I and Europe preferred stock as of March 31, 2017, respectively; and (c) $88.87, Visa's class A common stock closing stock price as of March 31, 2017.