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PCLN News Priceline.com Reports Financial Results For 4th Quarter and Full-Year 2006

NORWALK, Conn.--(BUSINESS WIRE)--Priceline.com Incorporated (Nasdaq: PCLN) today reported its financial results for the 4^th quarter and full-year 2006. Gross travel bookings for the 4^th quarter, which refers to the total dollar value, inclusive of all taxes and fees, of all travel services purchased by consumers, rose 38.3% year-over-year to $742.4 million. Revenues in the 4^th quarter were $260.1 million, a 27.5% increase over a year ago.

Priceline.com’s GAAP gross profit for the 4^th quarter 2006 was $99.5 million, up 53.3% from the prior year. Priceline.com had 4^th quarter 2006 GAAP net income of $13.2 million, or $0.33 per diluted share, which compares to $3.8 million, or $0.09 per diluted share in the same period a year ago. GAAP net income in the 4^th quarter 2006 was positively affected by an income tax benefit in the amount of $3.0 million resulting from the impact on deferred taxes of a reduction in the Netherlands’ statutory tax rate enacted in the 4^th quarter of 2006.

Pro forma gross profit for the 4^th quarter 2006 was $99.9 million, an increase of 53.0% over the same period in the prior year. Pro forma net income for the quarter was $22.4 million, or $0.58 per diluted share, which compares to $11.4 million, or $0.28 per diluted share in the same period a year ago. First Call analyst consensus for the 4th quarter 2006 was $0.41 per diluted share. The section below entitled “Non-GAAP Financial Measures” provides a definition and information about the use of pro forma financial measures in this press release and the attached financial and statistical supplement reconciles pro forma financial information with priceline.com’s financial results under GAAP.

For full-year 2006, priceline.com reported gross travel bookings of $3.3 billion, a 49.1% increase over full-year 2005. Full-year 2006 revenues were $1.1 billion versus $962.7 million a year ago. Priceline.com’s GAAP gross profit for 2006 was $401.1 million, a 49.7% increase over the prior year. Full-year 2006 GAAP net income was $72.5 million, or $1.68 per diluted share. Pro forma gross profit for full-year 2006 was $401.0 million, a 48.6% increase over 2005. Pro forma net income for 2006 was $83.1 million, or $2.03 per diluted share. Full-year 2006 results include the operating results of Booking.com B.V., which was acquired in July 2005. GAAP net income for full-year 2006 and 2005 was positively affected by non-cash US income tax benefits amounting to $28.1 million and $170.5 million, respectively, from reversing a portion of priceline.com’s deferred tax asset valuation allowance. GAAP net income in 2006 was also positively affected by $3.0 million resulting from the benefit described above from the reduction in the Netherlands’ statutory tax rate.

“Two major factors contributed to Priceline.com’s over-performance in the 4^th quarter,” said priceline.com President and Chief Executive Officer Jeffery H. Boyd. “First was the strong performance of Booking.com, our European business, which experienced gross travel bookings of $319.1 million, a year-over-year increase of 101%. During the quarter, Booking.com successfully maintained high growth rates in continental Europe, enhanced the brand’s ability to market on a pan-European basis, and continued to grow its business between Europe and the United States. We believe that solid execution by Booking.com’s management and employees continues to yield increased market share for our European business. Second, high retail travel prices during the holidays created strong demand for priceline.com’s money-saving domestic services, particularly our Name Your Own Price® option. Fourth-quarter domestic gross travel bookings were up 12% year over year and merchant bookings, which include our opaque services, were up 18%.”

In the United States, priceline.com’s goal is to be the leading online destination for value-conscious leisure travelers. 2006 milestones achieved include:

• Roll-out of More Ways to Save, providing a consistent presentation of retail and opaque options for all travel services
• Over 19,000 participating hotels in merchant retail and over 13,000 in opaque
• Launch of Sabre and G2 as GDS alternatives and recontracting with major airlines
• Launch of the new multi-media advertising campaign called The Negotiator, featuring William Shatner

Priceline Europe’s goal is to be the leading online hotel reservation service in Europe. 2006 milestones achieved include:

• Annual gross travel bookings growth of 111% (assuming Booking.com was owned for all of 2005)
• 10.9 million room nights booked in 2006
• Over 25,000 participating hotels
• Hotel inventory available in more than 50 countries
• Hotel content available in 15 languages
• Development of Eastern European and cross-Atlantic business

Looking towards 2007, Mr. Boyd said, “We are building our flagship brand in Europe, Booking.com, on a foundation of outstanding inventory, true pan-European demand and a differentiated business model that we believe is better for both customers and suppliers. In the United States, our full-service travel offering adds choices and context to our deeply discounted opaque service, creating a unique customer experience and, in our opinion, the best travel value available. We believe these distinctive brand strengths served us well in 2006 and position us well for 2007.”

Forward Guidance

For full-year 2007, priceline.com said that it expects to generate approximately $4 billion in gross travel bookings. Priceline.com said that it expects to earn approximately $2.60 to $2.90 of pro forma net income per diluted share for full-year 2007.

Priceline.com said it was targeting the following for 1^st quarter 2007:

• Year-over-year increases in overall gross travel bookings of approximately 25-30%.
• Year-over-year increases in gross travel bookings from Priceline Europe of approximately 75-80%.
• Year-over-year increase in revenue of approximately 15%.
• Year-over-year increase in pro forma gross profit of approximately 30% to 35%.
• Pro forma net income of between $0.22 and $0.30 per diluted share.

Pro forma net income per diluted share guidance for the 1st quarter and full-year 2007:

• excludes non-cash amortization expense of acquisition-related intangibles,
• excludes non-cash stock-based compensation expense,
• excludes option payroll tax expense,
• excludes non-cash income tax expense,
• excludes non-cash preferred stock dividends,
• includes the additional impact on minority interest expense of the pro forma adjustments described above,
• includes the anti-dilutive impact of the Conversion Spread Hedges on outstanding diluted common shares outstanding, and
• includes the dilutive impact of additional shares of unvested restricted stock and restricted stock units.

When aggregated, the foregoing adjustments are expected to increase pro forma net income over GAAP net income by approximately $11 million for the 1^st quarter 2007 and $50 million for full-year 2007. On a per share basis, the company estimates between a GAAP net loss of approximately $0.06 per diluted share and GAAP net income of approximately $0.03 per diluted share for the 1^st quarter 2007 and GAAP net income of approximately $1.35 to $1.65 per diluted share for the full-year 2007.

About Priceline.com® Incorporated

Priceline.com Incorporated (Nasdaq: PCLN) operates priceline.com, a leading U.S. online travel service for value-conscious leisure travelers, and Priceline Europe, a leading European online hotel reservation service.

In the U.S., priceline.com gives customers more ways to save on their airline tickets, hotel rooms, rental cars, vacation packages and cruises than any other Internet travel service. In addition to getting all the best published prices, leisure travelers can narrow their searches using priceline.com’s TripFilter™ advanced search technology, create packages to save even more money, and take advantage of priceline.com’s famous Name-Your-Own-Price® service, which can deliver the lowest prices available.

Priceline Europe operates one of Europe’s fastest growing hotel reservation services through its Booking.com network of hotel reservation services, Activehotels.com and priceline.co.uk. Priceline Europe operates in more than 50 countries in 15 languages and offers its customers in Europe and the U.S. access to approximately 25,000 participating European hotels.

Priceline.com also operates the following travel websites: Travelweb.com, Lowestfare.com, RentalCars.com and BreezeNet.com. Priceline.com also has a personal finance service that offers home mortgages, refinancing and home equity loans through an independent licensee. Priceline.com licenses its business model to independent licensees, including priceline mortgage and certain international licensees.

Information About Forward-Looking Statements

This press release may contain forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict; therefore, actual results may differ materially from those expressed, implied or forecasted in any such forward-looking statements. Expressions of future goals and similar expressions including, without limitation, “goal,” "believe(s)," "intend,” "expect(s)," "will," "may," "should," "could," "plan(s)," "anticipate(s)," "estimate(s)," "predict(s)," "potential," "target(s)," or "continue," reflecting something other than historical fact are intended to identify forward-looking statements. The following factors, among others, could cause the Company's actual results to differ materially from those described in the forward-looking statements:

-- adverse changes in general market conditions for leisure and other travel services as a result of, among other things, terrorist attacks, natural disasters, or the outbreak of an epidemic or pandemic disease;

-- adverse changes in the Company’s relationships with airlines and other product and service providers which could include, without limitation, the withdrawal of suppliers from the priceline.com system (either priceline.com’s “retail” or “opaque” services, or both);

-- the loss or reduction of global distribution fees;

-- the bankruptcy or insolvency of another major domestic airline;

-- the effects of increased competition;

-- systems-related failures and/or security breaches, including without limitation, any security breach that results in the theft, transfer or unauthorized disclosure of customer information, or the failure to comply with various state laws applicable to the company’s obligations in the event of such a breach;

-- difficulties integrating recent acquisitions, such as Active Hotels Ltd. and Bookings B.V., including ensuring the effectiveness of the design and operation of internal controls and disclosure controls of acquired businesses;

-- a change by a major search engine to its search engine algorithms that negatively affects the search engine ranking of the company or its 3^rd party distribution partners;

-- legal and regulatory risks; and

-- the ability to attract and retain qualified personnel.

For a detailed discussion of these and other factors that could cause the Company's actual results to differ materially from those described in the forward-looking statements, please refer to the Company's most recent Form 10-Q, Form 10-K and Form 8-K filings with the Securities and Exchange Commission. Unless required by law, the Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Non-GAAP Financial Measures

Pro forma gross profit, pro forma net income and pro forma net income per share are "non-GAAP financial measures," as such term is defined by the Securities and Exchange Commission, and may differ from non-GAAP financial measures used by other companies. Priceline.com believes that pro forma gross profit, pro forma net income and pro forma net income per share that exclude certain non-cash or non-recurring income or expense items are useful for investors to evaluate priceline.com's future on-going performance because they enable a more meaningful comparison of priceline.com's projected cash earnings and performance with its historical results from prior periods. Pro forma financial information is adjusted for the following items:

• Amortization expense of acquisition-related intangibles is excluded from pro forma gross profit and pro forma net income because it does not impact cash earnings.
• Stock-based compensation expense and the non-cash expense associated with the payment of preferred stock dividends are excluded from pro forma net income because they do not impact cash earnings and are reflected in earnings per share through increased share counts.
• Option payroll tax expense often shows volatility unrelated to operating results since the expense is driven primarily by stock option exercise activity and the market price of priceline.com's common stock.
• The restructuring charge, net and the impact of the favorable resolution of certain Federal transportation tax and state franchise tax issues are excluded because they can impact comparability of earnings with historical results from prior periods.
• Income tax (expense) benefit is adjusted for the tax impact of certain of the pro forma adjustments described above and to exclude tax expense recorded where no actual tax payments are owed because of available net operating loss carryforwards. In addition, the non-cash U.S. income tax benefit resulting from the release of a portion of priceline’s deferred tax valuation allowance in 3^rd quarter 2006 and 3^rd quarter 2005 is excluded because it does not impact cash earnings. The $3.0 million income tax benefit recorded in the 4th quarter of 2006 resulting from the impact on deferred taxes of a reduction in the Netherlands’ statutory tax rate is excluded from pro forma earnings because it could impact comparability of earnings with historical results from prior periods.
• Minority interest is adjusted for the impact of certain of the pro forma adjustments described above.
• Equity in income (loss) of investees and minority interests is adjusted to exclude the impairment charge related to the investment in pricelinemortgage.com because it is a non-cash charge and it can impact comparability of earnings with historical results from prior periods.
• Finally, for calculating pro forma net income per share:

        -- net income is adjusted for the impact of the pro forma           adjustments described above        -- the impact of EITF 04-08 ("Effect of Contingently           Convertible Debt on Diluted Earnings per Share"), which           requires that priceline.com use the "if-converted" method           of accounting for convertible debt instruments when           calculating earnings per share, has been excluded because           the common stock that underlie priceline.com's 1%           Convertible Senior Notes and priceline.com's 2.25%           Convertible Senior Notes are generally not issuable unless           our common stock trades at prices of $44.00 per share and           $45.54 per share, respectively. On November 10, 2006 (the           "Exchange Date"), the Company completed an exchange offer           for all of its existing 1% Notes and substantially all of           its existing 2.25% Notes, whereby the Company exchanged           $1,000 principal amount of new 2006 1.00% Convertible           Senior Notes due 2010 for each $1,000 principal amount of           the existing 1% Notes, and $1,000 principal amount of new           2006 2.25% Convertible Senior Notes due 2025 for each           $1,000 principal amount of the existing 2.25% Notes. The           new notes are substantially the same as the existing notes           except that the new notes have a net share settlement           feature requiring the Company to settle the principal           amount of the debt for cash upon conversion and cash or           shares of the Company's common stock or a combination of           cash and shares of the Company's common stock for the           conversion premium. As result of the exchange, there is no           material difference between the impact that EITF 04-08 has           on GAAP net income per share as compared to the method that           was used to calculate pro forma net income per diluted           share prior to the exchange. Accordingly, for periods           subsequent to the Exchange Date, EITF 04-08 is applied for           both GAAP and pro forma net income per share.        -- The Company entered into hedge transactions (the           "Conversion Spread Hedges") that increase the effective           conversion price of the Convertible Senior Notes due           September 30, 2011 and the Convertible Senior Notes due           September 30, 2013 from their stated $40.38 conversion           price to an effective conversion price of $50.47 per share.           Under GAAP, the anti-dilutive impact of the Conversion           Spread Hedges is not reflected on the outstanding diluted           share count until the end of the hedge when shares are           delivered. The company uses the effective conversion price           of $50.47 per share in its calculation of pro forma net           income per share because, as a result of the Conversion           Spread Hedges, the Convertible Senior Notes will not cause           any actual economic dilution to either the Company's           outstanding diluted shares or its net income per share           unless and until the Company's common stock trades above           the effective conversion price of $50.47 per share.        -- All common stock warrants and shares of restricted common           stock are included in the calculation of pro forma net           income per share because pro forma net income has been           adjusted to exclude our preferred stock dividend and stock-           based compensation expense.

The presentation of this financial information should not be considered in isolation or as a substitute for the financial information prepared and presented in accordance with generally accepted accounting principles in the United States. The attached financial and statistical supplement reconciles pro forma financial information with priceline.com’s financial results under GAAP.