US Airways 2005 Annual Report Download - page 110

Table of Contents
US Airways Group, Inc.
Notes to Consolidated Financial Statements — (Continued)
continue until the expiration date, which is the later of December 31, 2012 or seven years from the date on which Juniper commences marketing to the general
public.
Under the amended credit card agreement, Juniper will pay to US Airways Group fees for each mile awarded to each credit card account administered by
Juniper, subject to certain exceptions. Pursuant to the original credit card agreement, Juniper paid to AWA a bonus of $20 million. Juniper also agreed to pay
a one-time bonus payment of $130 million, following the effectiveness of the merger, subject to certain conditions. The $130 million bonus payment was
made to AWA on October 3, 2005. The entire $150 million balance for bonus payments are included in "Deferred gains and other liabilities" in the
accompanying consolidated balance sheet as of December 31, 2005. US Airways Group will not recognize any revenue from the bonus payments until the
dual branding period has expired, approximately February 2008. At that time the Company expects to begin recognizing revenue from the bonus payments on
a straight-line basis through December 2012, the expiration date of the Juniper agreement. Further, if Juniper is not granted exclusivity to offer a co-branded
credit card after the dual branding period, US Airways Group must repay the bonus payments and used pre-paid miles with interest, plus a $50 million
penalty. Juniper will pay an annual bonus of $5 million to US Airways Group, subject to certain exceptions, for each year after Juniper becomes the exclusive
issuer of the co-branded credit card.
On October 3, 2005, Juniper pre-paid for miles from US Airways Group totaling $325 million, subject to the same conditions as apply to the $130 million
bonus payment. To the extent that these miles are not used by Juniper as allowed under the co-branded credit card program in certain circumstances,
US Airways Group will repurchase these miles in 12 equal quarterly installments beginning on the fifth year prior to the expiration date of the co-branded
credit card agreement with Juniper, until paid in full. US Airways Group makes monthly interest payments at LIBOR plus 4.75% to Juniper, beginning on
November 1, 2005, based on the amount of pre-purchased miles that have not been used by Juniper in connection with the co-branded credit card program and
have not been repurchased by US Airways Group. US Airways Group will be required to repurchase pre-purchased miles under certain reductions in the
collateral held under the credit card processing agreement with JPMorgan Chase Bank, N.A. Accordingly, the prepayment has been recorded as additional
indebtedness.
Juniper requires US Airways Group to maintain an average quarterly balance of cash, cash equivalents and short-term investments of at least $1 billion for
the entirety of the agreement. Further, the agreement requires US Airways Group to maintain certain financial ratios beginning January 1, 2006. Juniper may,
at its option, terminate the amended credit card agreement, make payments to US Airways Group under the amended credit card agreement in the form of pre-
purchased miles rather than cash, or require US Airways Group to repurchase the pre-purchased miles before the fifth year prior to the expiration date of the
co-branded credit card agreement with Juniper in the event that US Airways Group breaches its obligations under the amended credit card agreement, or upon
the occurrence of certain events.
Restructuring of Credit Card Processing Agreement — In connection with the merger, AWA, JPMorgan Chase Bank, N.A., successor-in-interest to
JPMorgan Chase Bank, and Chase Merchant Services, L.L.C. (collectively, "Chase"), entered into the First Amendment to the Merchant Services Bankcard
Agreement on August 8, 2005. Pursuant to the amended card processing agreement, Chase will perform authorization, processing and settlement services for
sales on Visa and Mastercard for AWA and US Airways following the merger. The original card processing agreement is guaranteed by America West
Holdings, and US Airways Group executed a guaranty of the amended card processing agreement on the effective date of the merger.
US Airways' credit card processing is currently administered by Bank of America, and these processing services are expected to be transferred to Chase on
or before April 25, 2006. US Airways will 104