UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

(Mark One)

[X]  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934

For the fiscal year ended               December 25, 2005
                          ------------------------------------------------------

                                       OR

[    ]  TRANSITION  REPORT  PURSUANT  TO SECTION  13 OR 15(d) OF THE  SECURITIES
     EXCHANGE ACT OF 1934

For the transition period from                    to
                               ------------------    ---------------------------

Commission File Number:             000-17962
                        --------------------------------------------------------


                         Applebee's International, Inc.
              ----------------------------------------------------
             (Exact name of registrant as specified in its charter)

           Delaware                                      43-1461763
 ---------------------------------          ------------------------------------
  (State or other jurisdiction of           (I.R.S. Employer Identification No.)
   incorporation or organization)

                4551 W. 107th Street, Overland Park, Kansas 66207
 -------------------------------------------------------------------------------
              (Address of principal executive offices and zip code)

                                 (913) 967-4000
              ----------------------------------------------------
              (Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
                                                            value $.01 per share


Indicate by check mark if the  registrant is a well-known  seasoned  issuer,  as
defined in Rule 405 of the Securities Act.
                                                   Yes   X          No
                                                        ---             ---
Indicate  by  check  mark if the  registrant  is not  required  to file  reports
pursuant to Section 13 or Section 15(d) of the Act.
                                                   Yes              No   X
                                                        ---             ---
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.
                                                   Yes   X          No
                                                        ---             ---

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|

Indicate by check mark whether the registrant is a large  accelerated  filer, an
accelerated  filer, or a  non-accelerated  filer. See definition of "accelerated
filer" in Rule 12b-2 of the Exchange Act.

Large accelerated filer  X   Accelerated filer      Non-accelerated filer
                        ---                    ---                        ---

Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Act).
                                                   Yes              No   X
                                                        ---             ---


                                       1
<PAGE>
The aggregate market value of the voting and non-voting common stock equity held
by  non-affiliates  of the  registrant as of the last business day of the second
fiscal quarter ended June 26, 2005 was $2,105,448,271  based on the closing sale
price on June 24, 2005.

The number of shares of the registrant's common stock outstanding as of March 6,
2006 was 74,369,249.

                       DOCUMENTS INCORPORATED BY REFERENCE

Proxy  Statement to be filed  pursuant to  Regulation  14A under the  Securities
Exchange Act of 1934 is incorporated into Part III hereof.



                                       2
<PAGE>

                         APPLEBEE'S INTERNATIONAL, INC.
                                    FORM 10-K
                       FISCAL YEAR ENDED DECEMBER 25, 2005
                                      INDEX

<TABLE>
<CAPTION>
                                                                                                               Page

<S>                                                                                                             <C>

PART I

Item 1.             Business................................................................................      4

Item 1A.            Risk Factors............................................................................     14

Item 1B.            Unresolved Staff Comments...............................................................     18

Item 2.             Properties..............................................................................     19

Item 3.             Legal Proceedings.......................................................................     21

Item 4.             Submission of Matters to a Vote of Security Holders.....................................     21

PART II

Item 5.             Market for Registrant's Common Equity, Related Stockholder Matters
                       and Issuer Purchases of Equity Securities............................................     22

Item 6.             Selected Financial Data.................................................................     24

Item 7.             Management's Discussion and Analysis of
                       Financial Condition and Results of Operations........................................     25

Item 7A.            Quantitative and Qualitative Disclosures about Market Risk..............................     38

Item 8.             Financial Statements and Supplementary Data.............................................     39

Item 9.             Changes in and Disagreements with Accountants
                       on Accounting and Financial Disclosure...............................................     39

Item 9A.            Controls and Procedures.................................................................     39

Item 9B.            Other Information.......................................................................     41

PART III

Item 10.            Directors and Executive Officers of the Registrant......................................     42

Item 11.            Executive Compensation..................................................................     42

Item 12.            Security Ownership of Certain Beneficial Owners and Management and
                       Related Stockholder Matters..........................................................     42

Item 13.            Certain Relationships and Related Transactions..........................................     42

Item 14.            Principal Accounting Fees and Services..................................................     42

PART IV

Item 15.            Exhibits, Financial Statement Schedules.................................................     44


Signatures..................................................................................................     45

</TABLE>


                                       3
<PAGE>

                                     PART I

Item 1.       Business

General

References  to  "Applebee's,"  "we,"  "us,"  and  "our"  in  this  document  are
references  to  Applebee's  International,  Inc.  and its  subsidiaries  and any
predecessor companies of Applebee's  International,  Inc. We develop,  franchise
and operate casual dining  restaurants  under the name "Applebee's  Neighborhood
Grill & Bar." With over 1,800  restaurants  as of the fiscal year ended December
25,  2005,  Applebee's  Neighborhood  Grill & Bar is the largest  casual  dining
concept  in the  world,  in terms of number of  restaurants  and  market  share.
Applebee's  International,   Inc.  maintains  an  Internet  website  address  at
www.applebees.com.  We make  available  free of charge  through  our website our
annual report on Form 10-K,  quarterly reports on Form 10-Q,  current reports on
Form 8-K, and all  amendments  to those  reports as soon as they are  reasonably
available  after these materials are  electronically  filed with or furnished to
the Securities and Exchange Commission ("SEC").

We opened our first restaurant in 1986. We initially  developed and operated six
restaurants as a franchisee of the Applebee's  Neighborhood Grill & Bar Division
of an  indirect  subsidiary  of W.R.  Grace & Co.  In March  1988,  we  acquired
substantially all the assets of our franchisor.  When we acquired the Applebee's
Division,  it operated 13  restaurants  and had ten  franchisees,  including us,
operating 41 franchise restaurants.

As of December 25, 2005,  there were 1,804 Applebee's  restaurants.  Franchisees
operated 1,318 of these  restaurants and 486 restaurants were company  operated.
The restaurants were located in 49 states and 14 countries outside of the United
States.  During 2005, 144 new  restaurants  were opened,  including 92 franchise
restaurants and 52 company restaurants.

     Our  current  strategy is to focus  solely on the  Applebee's  concept.  We
currently  expect  that the  Applebee's  system  will  encompass  at least 3,000
restaurants  in the United  States as well as the  potential  for at least 1,000
restaurants internationally.




                                       4
<PAGE>
The following table sets forth certain unaudited financial information and other
restaurant data relating to company and franchise restaurants, as reported to us
by franchisees:
<TABLE>
<CAPTION>

                                                                             Fiscal Year Ended
                                                           ------------------------------------------------------
                                                              December 25,       December 26,       December 28,
                                                                 2005               2004               2003
                                                           -----------------  -----------------  ----------------
   <S>                                                     <C>                <C>                <C>
   Number of restaurants:
        Company:
            Beginning of year............................            424                383                357
            Restaurant openings..........................             52                 32                 26
            Restaurant closings..........................             (1)                (1)                (2)
            Restaurants acquired from franchisees........             11                 10                 11
            Restaurants acquired by franchisees..........             --                 --                 (9)
                                                           -----------------  -----------------  ----------------
            End of year..................................            486                424                383
                                                           -----------------  -----------------  ----------------
        Franchise:
            Beginning of year............................          1,247              1,202              1,139
            Restaurant openings..........................             92                 77                 74
            Restaurant closings..........................            (10)               (22)                (9)
            Restaurants acquired from franchisees........            (11)               (10)               (11)
            Restaurants acquired by franchisees..........             --                 --                  9
                                                           -----------------  -----------------  ----------------
            End of year..................................          1,318              1,247              1,202
                                                           -----------------  -----------------  ----------------
        Total:
            Beginning of year............................          1,671              1,585              1,496
            Restaurant openings..........................            144                109                100
            Restaurant closings..........................            (11)               (23)               (11)
                                                           -----------------  -----------------  ----------------
            End of year..................................          1,804              1,671              1,585
                                                           =================  =================  ================

   Weighted average weekly sales per restaurant:
            Company.....................................   $      45,552      $      46,536      $      45,000
            Franchise...................................          48,908             47,613             45,271
            Total.......................................          48,019             47,345             45,205
   Change in comparable restaurant sales:(1)
            Company.....................................          (0.9)%               3.8%               5.2%
            Franchise...................................           2.7 %               5.2%               3.7%
            Total.......................................           1.8 %               4.8%               4.1%
   Total operating revenues (in thousands):
            Company restaurant sales....................   $   1,082,641      $     976,798      $     867,158
            Franchise royalties and fees(2).............         128,813            121,221            109,604
            Other franchise income(3)...................           5,196             13,615             13,147
                                                           -----------------  -----------------  ----------------
            Total.......................................   $   1,216,650      $   1,111,634      $     989,909
                                                           =================  =================  ================

<FN>

(1)  When computing comparable  restaurant sales,  restaurants open for at least
     18 months are compared from period to period.
(2)  Franchise  royalties  are  generally  4%  of  each  franchise  restaurant's
     reported monthly gross sales. Reported franchise sales, in thousands,  were
     $3,223,505, $3,001,287 and $2,725,179 in 2005, 2004 and 2003, respectively.
     Franchise fees typically  range from $30,000 to $35,000 for each restaurant
     opened.
(3)  Other  franchise  income  includes   insurance   premiums  from  franchisee
     participation in our captive insurance program and revenue from information
     technology products and services provided to certain franchisees.
</FN>
</TABLE>



                                       5
<PAGE>
The Applebee's System

Concept.  Each  Applebee's  restaurant is designed as an  attractive,  friendly,
neighborhood establishment featuring  moderately-priced food and beverage items,
table service and a comfortable  atmosphere.  Our  restaurants  appeal to a wide
range of customers  including  young adults,  senior  citizens and families with
young children.

Applebee's  also offers its customers the convenience of carry-out  service.  In
2002,  we initiated a "To Go" program  which  includes  the use of  standardized
state-of-the-art packaging, interior and exterior signage and a focused training
program.  In addition,  the program  features the additional  convenience of our
Carside To Go(TM) initiative in which customers place their orders by telephone,
park in designated  spots at our restaurants and servers deliver their orders to
their vehicles. We completed the implementation of the Carside To Go(TM) service
at all  company-owned  restaurants  where  practicable  in 2003 and  franchisees
completed  implementation in substantially  all of the franchise  restaurants in
early 2005.

We have developed certain specifications for the design of our restaurants.  Our
restaurants are primarily located in free-standing  buildings, end caps of strip
shopping centers,  and shopping center malls. Each of our restaurants  generally
has a bar,  and  many  restaurants  offer  patio  seating.  The  decor  of  each
restaurant  incorporates  artifacts and  memorabilia  such as old movie posters,
musical  instruments and sports equipment.  Restaurants also frequently  display
photographs,  magazine and  newspaper  articles  highlighting  local history and
personalities. These items give each restaurant a unique, neighborhood identity,
which is an important  aspect of the Applebee's  brand. In addition,  we require
that each  restaurant be remodeled every six to seven years to embody the design
elements of the current prototype.

Menu.  Each  restaurant  offers a  diverse  menu of  moderately-priced  food and
beverage items  consisting of traditional  favorites and signature  dishes.  The
restaurants feature a broad selection of entrees, including beef, chicken, pork,
seafood  and  pasta  items  prepared  in a  variety  of  cuisines,  as  well  as
appetizers, salads, sandwiches, specialty drinks and desserts. Substantially all
restaurants offer beer, wine, liquor and premium specialty drinks.  During 2005,
alcoholic  beverages  accounted  for 12.2% of  company-owned  restaurant  sales.
During 2004, we launched a strategic alliance with Weight  Watchers(TM) to offer
Weight  Watchers(TM)  branded menu alternatives to our guests. We currently have
ten Weight Watchers(TM) items on our menu. As part of our exclusive  arrangement
with Weight  Watchers(TM),  we pay a  percentage  royalty on the total sales for
Weight Watchers(TM) menu items sold.

Restaurant Operations.  We and our franchisees operate restaurants in accordance
with operating  standards and  specifications.  These  standards  pertain to the
quality,  preparation  and selection of menu items,  maintenance and handling of
food, maintenance and cleanliness of premises and associate conduct. Our quality
assurance  department is responsible  for  establishing  and monitoring our food
safety  programs.  We develop all standards and  specifications  with input from
franchisees, and they are applied on a system-wide basis.

Training. We have comprehensive  training programs for restaurant associates and
managers.  The training  programs utilize a combination of on-the-job  training,
video,  computer and  print-based  materials.  Program  materials  are routinely
revised to reflect the most recent operational procedures and standards.

Restaurant  associates are provided with a structured  orientation  and five-day
training program upon hire. This training is provided by restaurant trainers who
have  completed  an  extensive  certification  process to become a  trainer.  In
addition,  associates  receive  ongoing  training to further  develop  their job
skills and knowledge.

Restaurant  managers complete a training and orientation  process upon hire. The
program is executed at certified  training  restaurants  located  throughout the


                                       6
<PAGE>
Applebee's  system.  The training program provides skill and knowledge  training
for key operations and management processes.  In addition,  ongoing training and
development  programs  are  offered  for  experienced  managers  in the areas of
leadership and operations management.

Prior to opening a new  restaurant,  a training  program is  provided to all new
hourly associates. The training is conducted by certified,  experienced trainers
from Applebee's  restaurants  located throughout the system. Upon the opening of
the restaurant,  the training team remains for an additional six days to provide
support and coaching to the new associates.

Marketing.  We have  historically  concentrated  our  advertising  and marketing
efforts primarily on food-specific promotions,  Carside To Go(TM) and Applebee's
branded  messaging.   Our  marketing  includes  national,   regional  and  local
expenditures,  utilizing  primarily  television,  radio,  direct  mail and print
media. In 2005, approximately 4.0% of company restaurant sales was allocated for
marketing purposes. This amount includes contributions to the national marketing
pool which develops and funds the specific national promotions, including Weight
Watchers(TM)  and Carside To Go(TM).  We focus the  remainder  of our  marketing
expenditures on local marketing in areas with company owned restaurants.

Information  Technology.  We believe  technology  can  enable us to achieve  our
operational  goals.  Our  in-store  systems  including  point-of-sale  and food,
kitchen and labor management systems are tightly integrated with our above-store
data  warehousing and decision  support  platforms.  This  integration  provides
management  with a timely,  accurate,  and  comprehensive  view of our  business
performance.

Supply Chain.  Maintaining  high food quality and  system-wide  consistency is a
central focus of our supply chain program.  We establish  quality  standards for
products  used in the  restaurants,  and we maintain a limited  list of approved
suppliers and  distributors  from which we and our franchisees  must select.  We
periodically  review  the  quality  of  the  products  served  in  our  domestic
restaurants  in an effort to ensure  compliance  with these  standards.  We have
negotiated  purchasing  agreements  with most of our  approved  suppliers  which
result in volume discounts for us and our franchisees. Additionally, we purchase
and maintain  inventories  of certain  specialty  products to assure  sufficient
supplies for the system.  Due to cultural and  regulatory  differences,  we have
specific requirements for each country in which our franchisees operate.

Quality  Assurance.  We are committed to providing  our customers  with products
that meet or exceed regulatory and industry standards for food safety as well as
our high quality  standards.  Our quality assurance  department  establishes and
monitors our food safety programs in domestic restaurants, including restaurant,
supplier and  distributor  audits,  food safety and  sanitation  monitoring  and
product testing.

Company Restaurants

Company Restaurant Openings and Franchise  Acquisitions.  Our expansion strategy
is to cluster  restaurants  in targeted  markets,  thereby  increasing  consumer
awareness and  convenience,  and enabling us to take  advantage of  operational,
distribution and advertising efficiencies.  Our development experience indicates
that when we open multiple  restaurants  within a particular  market, our market
share increases.

In order to maximize overall system growth,  our expansion strategy through 1992
emphasized franchise  arrangements with experienced,  successful and financially
capable restaurant operators. We continue to expand the Applebee's system across
the United States  through  franchise  operations,  but  beginning in 1992,  our
growth   strategy  also  included   increasing   the  number  of  company  owned
restaurants.  We have tried to  achieve  this goal in two ways.  First,  we have
strategically developed certain company territories. Second, when franchises are
available for purchase under  acceptable  financial  terms, we have  selectively
acquired existing franchise restaurants. Using this strategy, we have opened 370
new company Applebee's  restaurants and acquired 134 franchise  restaurants over


                                       7
<PAGE>
the last 13 years and have expanded from a total of 31 company owned or operated
restaurants  as of December  27, 1992 to a total of 486 as of December 25, 2005.
In  addition,  as part of our  portfolio  management  strategy,  we have sold 35
restaurants to franchisees during this 13-year period.

We opened 52 new company  Applebee's  restaurants in 2005 and anticipate opening
approximately 40 new company Applebee's restaurants in 2006. The following table
shows the areas where our company  restaurants  were  located as of December 25,
2005:

<TABLE>
<CAPTION>
                                                Area
               -----------------------------------------------------------------------
               <S>                                                                                <C>
               New England (includes Maine, Massachusetts, New Hampshire,
                  New York, Rhode Island and Vermont).................................            73
               Minneapolis/St. Paul, Minnesota........................................            67
               Detroit/Southern Michigan..............................................            65
               St. Louis, Missouri/Illinois...........................................            57
               Texas  ................................................................            48
               Virginia...............................................................            47
               Kansas City, Missouri/Kansas...........................................            33
               Washington, D.C. (Maryland, Virginia)..................................            32
               San Diego/Southern California..........................................            21
               Las Vegas/Reno, Nevada.................................................            16
               Central Missouri/Kansas/Arkansas.......................................            12
               Albuquerque, New Mexico................................................             8
               Memphis, Tennessee.....................................................             7
                                                                                      -------------------
                                                                                                 486
                                                                                      ===================
</TABLE>

Restaurant  Operations.  The  staff  for a typical  restaurant  consists  of one
general manager, one kitchen manager, two or three managers and approximately 60
hourly  associates.  All managers of company owned restaurants  receive a salary
and may receive a performance  bonus based on financial  performance,  guest and
associate  retention  measures.  As of December  25,  2005,  we  employed  three
Regional Vice  Presidents of Operations,  13 Directors of Operations and 80 Area
Directors.  The Area  Directors'  duties include regular  restaurant  visits and
inspections  which ensure the ongoing  maintenance  of our standards of quality,
service,   cleanliness,   value,  and  courtesy.  In  addition  to  providing  a
significant  contribution  to revenues and  operating  earnings,  we use company
owned restaurants for many purposes which are integral to the development of the
entire  system,  including  testing of new menu items and  training of franchise
restaurant managers and operating personnel.

The Applebee's Franchise System

Franchise  Territory  and  Restaurant  Openings.  We  currently  have  exclusive
territory  franchise  arrangements  with  76  franchise  groups,   including  29
international  franchisees.  We have  generally  selected  franchisees  that are
experienced  multi-unit  restaurant operators who have operated other restaurant
concepts.  Our franchisees  operate  Applebee's  restaurants in 43 states and 14
countries outside of the United States. We have assigned  development  rights to
the vast  majority of domestic  territories  in all states except Hawaii or have
designated them for company development.

As of December 25, 2005,  there were 1,318  franchise  restaurants.  Franchisees
opened 74  restaurants  in 2003, 77  restaurants  in 2004, and 92 restaurants in
2005.  We anticipate  approximately  80 franchise  restaurant  openings in 2006.
Franchisees may open more or fewer  restaurants  depending upon the availability
of appropriate new sites.


                                       8
<PAGE>
Development  of  Restaurants.  We  make  available  to  franchisees  the  design
specifications for a typical restaurant,  and we retain the right to prohibit or
modify the use of any set of plans. Each franchisee is responsible for selecting
the site for each restaurant  within their territory.  We assist  franchisees in
selecting  appropriate  sites, and any selection made by a franchisee is subject
to our  approval.  We also  conduct a physical  inspection,  review any proposed
lease or purchase agreement and make available demographic and other studies.

Domestic Franchise Arrangements.  Generally, franchise arrangements consist of a
development agreement and separate franchise agreements.  Development agreements
grant the  exclusive  right to develop a number of  restaurants  in a designated
geographical area. The term of a domestic development  agreement is generally 20
years.  The  franchisee  enters  into a  separate  franchise  agreement  for the
operation of each restaurant.  Each agreement has a term of 20 years and permits
renewal for up to an additional 20 years in accordance  with the terms contained
in the then current  franchise  agreement  (including  the then current  royalty
rates and advertising fees) and upon payment of an additional franchise fee.

For each restaurant  developed,  our standard franchise  arrangement requires an
initial  franchisee fee (which  typically  ranges from $30,000 to $35,000) and a
royalty  fee  equal  to 4% of the  restaurant's  monthly  gross  sales.  We have
executed  agreements  with a majority  of our  franchisees  which  maintain  the
existing  royalty rate of 4% and extend the current  franchise  and  development
agreements until January 1, 2020. These revised  agreements  contain  provisions
which allow for the continued  development of the Applebee's concept and support
our long-term  expectation  of at least 3,000  restaurants in the United States.
The terms,  royalties and  advertising  fees under a limited number of franchise
agreements and the franchise fees under older  development  agreements vary from
the currently offered arrangements.

Marketing.  We currently  require  domestic  franchisees to contribute  2.75% of
their gross sales to the national  marketing  pool and to spend at least 1.0% of
their gross sales on local  marketing and  promotional  activities.  Franchisees
also promote the opening of each  restaurant and we reimburse the franchisee for
50% of the out-of-pocket  opening advertising  expenditures,  subject to certain
conditions.  The maximum  amount we will  reimburse  for these  expenditures  is
$2,500.  Under our  franchise  agreements,  we have the ability to increase  the
combined  amount of the  advertising  fee and the amount required to be spent on
local marketing and promotional activities to a maximum of 5% of gross sales.

Training and Support. We provide ongoing advice and assistance to franchisees in
connection with the operation and management of each restaurant through training
sessions,  meetings,  seminars,  on-premises  visits  and by  written  or  other
material.  We  also  assist  franchisees  on  request  with  business  planning,
restaurant development, technology and human resource efforts.

Operations  Quality  Control.  We  continuously   monitor  franchise  restaurant
operations, principally through our full-time franchise Area Directors (30 as of
December 25, 2005) and our  Directors of Franchise  Operations (5 as of December
25,  2005).  Company and  third-party  representatives  make both  scheduled and
unannounced inspections of restaurants to ensure that only approved products are
in use and that our  prescribed  operations  practices and  procedures are being
followed.  During 2005, these  representatives  made an average of two visits to
each of our franchise  restaurants during which they conducted an inspection and
consultation  in the  restaurant.  We have the right to  terminate  a  franchise
agreement  if a  franchisee  does not  operate  and  maintain  a  restaurant  in
accordance with our requirements.

Franchise  Business  Council.  We maintain a Franchise  Business  Council  which
provides us with input about  operations,  marketing,  product  development  and
other  aspects  of  restaurant  operations  for the  purpose  of  improving  the
franchise  system.  As of December  25, 2005,  the  Franchise  Business  Council
consisted of eight  franchisee  representatives  and three members of our senior
management  team.  One  franchisee   representative   is  a  permanent   member.
Franchisees  elect  the  franchisee   representatives  annually.  The  Franchise


                                       9
<PAGE>
Business  Council is also responsible for the appointment of members to advisory
committees related to marketing,  supply chain,  information technology and food
development.

Franchise  Financing.  Although  financing  is the  sole  responsibility  of the
franchisee,  we  make  available  to  franchisees  information  about  financial
institutions  interested in financing the costs of  restaurant  development  for
qualified franchisees.  None of these financial institutions is our affiliate or
agent,  and we have no control  over the terms or  conditions  of any  financing
arrangement offered by these financial institutions.

In 2003,  we  arranged  for a  third-party  lease  financing  company to provide
capital to qualified franchisees for investments in certain sales and technology
initiatives  over a three-year  period ending in September  2006 under  standard
leasing  terms and  conditions.  Under the terms of the  arrangement,  we do not
guarantee any portion of the financing.

In 2003,  we  arranged  for a  third-party  financing  company  to provide up to
$75,000,000  to  qualified  franchisees  for  short-term  loans to fund  remodel
investments, subject to our approval. Under the terms of this financing program,
we  provided  a  limited  guarantee  pool  for the  loans  advanced  during  the
three-year  period ending  December  2006. In the fourth  quarter of 2005,  this
program was  terminated  and we were  released from the  guarantees  that we had
previously provided under this program.

In 2004,  we  arranged  for a  third-party  financing  company  to provide up to
$250,000,000  to  qualified  franchisees  for loans to fund  development  of new
restaurants  through  October 2007,  subject to our approval.  We will provide a
limited  guarantee of 10% of certain loans advanced under this program.  We will
be released  from our guarantee if certain  operating  results are met after the
restaurant has been open for at least two years. As of December 25, 2005,  there
were loans  outstanding to six franchisees for  approximately  $50,400,000 under
this program.

Service Marks

We own the rights to the "Applebee's  Neighborhood  Grill & Bar(R)" service mark
and certain  variations thereof and to other service marks used in our system in
the United States and in various  foreign  countries.  We are aware of names and
marks  similar to our  service  marks used by third  parties in certain  limited
geographical  areas. We intend to protect our service marks by appropriate legal
action where and when necessary.

International Franchising

International  Franchise  Arrangements.  We  continue  to  pursue  international
franchising of the Applebee's  concept under a long-term  strategy of controlled
expansion.  This  strategy  includes  seeking  qualified  franchisees  with  the
resources  to  open  multiple  restaurants  in each  territory  and  those  with
familiarity  with the specific  local  business  environment.  We currently  are
focusing on international  franchising in Canada, Central and South America, the
Mediterranean/Middle  East  and  Mexico.  In  this  regard,  we  currently  have
development  agreements with 29  international  franchisees.  These  franchisees
operated 72  international  restaurants  as of December 25, 2005. The success of
further  international  expansion  will  depend on,  among other  things,  local
acceptance  of the  Applebee's  concept  and our  ability to  attract  qualified
franchisees  and operating  personnel.  We also must comply with the  regulatory
requirements of the local jurisdictions,  and supervise international franchisee
operations effectively.

We work closely with our international  franchisees to develop and implement the
Applebee's system outside the United States,  recognizing  commercial,  cultural


                                       10
<PAGE>
and dietary  diversity.  These local issues  involve the need to be flexible and
pragmatic on all elements of the system,  including menu, restaurant operations,
training,  marketing,  purchasing  and  financing.  Our  strategy of  controlled
expansion  allows us to address  these  issues in a  deliberate  and  systematic
manner.

Employees

As of December 25, 2005,  we employed  approximately  32,260 full and  part-time
associates.  Of those,  approximately 640 were corporate  personnel,  2,050 were
restaurant  managers  or  managers  in  training  and 29,570  were  employed  in
non-management  full and part-time  restaurant  positions.  Of the 640 corporate
associates,  approximately 220 were in management positions and 420 were general
office associates, including part-time associates.

We consider our  associate  relations to be good.  Most  associates,  other than
restaurant  management and corporate personnel,  are paid on an hourly basis. We
believe that we provide working conditions and wages that compare favorably with
those of our competition. We have never experienced a work stoppage due to labor
difficulty,  and our  associates  are not  covered  by a  collective  bargaining
agreement.

Executive and Other Senior Officers of the Registrant

Our executive and other senior officers as of December 25, 2005 are shown below.
<TABLE>
<CAPTION>
    Name                              Age    Position
    <S>                               <C>    <C>
    Lloyd L. Hill.................... 61     Chairman of the Board of Directors and Chief Executive Officer
    David L. Goebel.................. 55     President  and  Chief  Operating  Officer  (Member  of  the  Board  of
                                                Directors effective January 2006)
    Steven K, Lumpkin................ 51     Executive Vice President, Chief Financial Officer and Treasurer, and
                                                Member of the Board of Directors
    John C. Cywinski................. 43     Executive Vice President and Chief Marketing Officer
    Carin L. Stutz................... 49     Executive Vice President of Operations
    Stanley M. Sword................. 44     Executive Vice President and Chief People Officer
    Rohan St. George................. 46     President of International Division
    Philip R. Crimmins............... 54     Senior Vice President of Development
    Michael Czinege.................. 52     Senior Vice President and Chief Information Officer
    Miguel Fernandez................. 51     Senior Vice President of Company Operations
    Kurt Hankins..................... 45     Senior Vice President of Menu Development and Innovation
    David R. Parsley................. 59     Senior Vice President of Supply Chain Management
    Carol A. DiRaimo................. 44     Vice President of Investor Relations
    Beverly O. Elving................ 52     Vice President and Controller
    Rebecca R. Tilden................ 50     Vice President, General Counsel and Secretary
</TABLE>

Lloyd L. Hill was elected a director  in August  1989.  Mr.  Hill was  appointed
Executive  Vice  President  and Chief  Operating  Officer  in January  1994.  In
December 1994, he assumed the role of President in addition to his role as Chief
Operating  Officer.  Effective  January 1, 1997,  Mr.  Hill  assumed the role of
Co-Chief Executive Officer. In January 1998, he assumed the full duties of Chief
Executive  Officer.  In May 2000, Mr. Hill was elected  Chairman of the Board of
Directors. As part of Applebee's succession plan, Mr. Goebel was named President
effective  January 1, 2005.  In January 2006,  the Board of Directors  announced
plans to separate  the  Chairman  and Chief  Executive  Officer  positions,  and
implement Applebee's leadership succession plan. In the summer of 2006, Mr. Hill
anticipates  recommending  to the Board  that Mr.  Goebel  become the next Chief
Executive  Officer.  Following  the role  separation,  Mr. Hill will continue to
serve as Chairman of the Board. Prior to joining Applebee's,  Mr. Hill served as
President  of Kimberly  Quality  Care,  a home  health care and nurse  personnel


                                       11
<PAGE>
staffing  company from December 1989 to December 1993, where he also served as a
director from 1988 to 1993, having joined that organization in 1980.

David L. Goebel was  employed  by  Applebee's  in  February  2001 as Senior Vice
President of Franchise  Operations  and was promoted to Executive Vice President
of  Operations in December  2002.  In January  2004,  Mr. Goebel was promoted to
Chief  Operating  Officer.  In January  2005,  he was also named  President.  In
January  2006,  Mr.  Goebel was named to the Board of  Directors  and he assumed
additional  responsibilities  including serving as principal  executive officer.
Prior to  joining  Applebee's,  Mr.  Goebel  headed a  management  company  that
provided  consulting and strategic  planning services to various businesses from
April 1998 to February 2001. Prior to 1998, he was a franchise principal with an
early  developer  group of the Boston  Market  concept.  Mr.  Goebel's  business
experience also includes positions as Vice President of Business Development for
Rent-a-Center (a subsidiary of Thorn,  EMI) and Vice President of Operations for
Ground Round restaurants.

Steven K. Lumpkin was employed by  Applebee's  in May 1995 as Vice  President of
Administration.  In January  1996,  he was promoted to Senior Vice  President of
Administration.  In  November  1997,  he assumed  the  position  of Senior  Vice
President of Strategic Development and in January 1998 was promoted to Executive
Vice President of Strategic Development.  He was named Chief Development Officer
in March  2001.  In March  2002,  Mr.  Lumpkin  assumed  the  position  of Chief
Financial Officer and Treasurer.  In January 2004, he was appointed to the Board
of  Directors.  Prior to  joining  Applebee's,  Mr.  Lumpkin  was a Senior  Vice
President of a division of the Olsten  Corporation,  Kimberly Quality Care, from
July 1993 until January 1995. From June 1990 until July 1993, Mr. Lumpkin was an
Executive  Vice  President  and a member of the board of  directors  of Kimberly
Quality  Care.  From January 1978 until June 1990,  Mr.  Lumpkin was employed by
Price  Waterhouse  LLP, where he served as a management  consulting  partner and
certified public accountant.

John C.  Cywinski  was  employed  by  Applebee's  in July  2001 as  Senior  Vice
President  and Chief  Marketing  Officer and he was promoted to  Executive  Vice
President  in  January  2004.  Prior to joining  Applebee's,  Mr.  Cywinski  was
employed as Vice  President of Brand Strategy for  McDonald's  Corporation  from
April 1999 to July 2001.  From October 1996 to April 1999,  he was  President of
Buena Vista Pictures  Marketing,  the motion picture division of The Walt Disney
Company.  Prior to The Walt Disney  Company,  Mr. Cywinski was Vice President of
U.S.  Marketing for Burger King Corporation,  where he held various positions of
increasing  responsibility from 1989 to 1996. He started his career with the Leo
Burnett Advertising Agency in 1984.

Carin L. Stutz was  employed  by  Applebee's  in  November  1999 as Senior  Vice
President of Company Operations.  In January 2005, she was promoted to Executive
Vice  President  of  Operations.  Prior to  joining  Applebee's,  Ms.  Stutz was
Division Vice  President with Wendy's  International  from July 1994 to November
1999. From 1993 to 1994, she was Regional Operations Vice President for Sodexho,
USA.  From 1990 to 1993,  Ms. Stutz was employed by  Nutri/System,  Inc. as Vice
President of Corporate Operations.  Prior to 1990, Ms. Stutz was employed for 12
years with Wendy's International.

Stanley M. Sword was employed by  Applebee's  in August 2005 as  Executive  Vice
President and Chief People Officer.  Prior to joining Applebee's,  Mr. Sword was
employed for seven years as an executive with Cerner  Corporation.  He was hired
in August  1998 as Senior Vice  President  and Chief  People  Officer and became
President of Cerner's  Great Lakes region in August 2003.  Prior to Cerner,  Mr.
Sword spent five years with AT&T including  three years as the Vice President of
Organization Development of NCR Corporation and two years as a client partner in
the  outsourcing  practice of AT&T  Solutions.  Prior to joining AT&T, Mr. Sword
spent ten years with  Accenture  Consulting  in a variety of roles  within their
systems integration practice.


                                       12
<PAGE>
Rohan M. St.  George was employed by Applebee's in November 2004 as President of
the International  Division.  Prior to joining Applebee's,  Mr. St. George was a
managing   director   for  Yum!   Restaurants   International   which   included
responsibility for Puerto Rico, the U.S Virgin Islands and Venezuela.  From 1998
to 2003, he was Vice President of Global  Operations for KFC, Pizza Hut and Taco
Bell.  Prior to 1998,  Mr. St. George had 14 years  operations  experience  with
Pizza Hut and KFC in various management positions.

Philip R. Crimmins was employed by  Applebee's in August 2002 as Vice  President
of Operations Excellence. In September 2003, Mr. Crimmins was promoted to Senior
Vice President of Development.  Prior to joining Applebee's,  he was employed by
Pizza  Hut,  Inc.  for 27 years,  most  recently  as Vice  President  of Service
Strategies.  While at Pizza Hut, Inc., Mr. Crimmins held several other positions
of increasing responsibility,  including senior leadership positions in research
and development, concept development, customer satisfaction, field training, and
restaurant operations.

Mike Czinege was employed by Applebee's  in April 2004 as Senior Vice  President
and Chief  Information  Officer.  Prior to joining  Applebee's,  Mr. Czinege was
Executive Vice President of North American  operations for Celerant  Consulting.
From 1996 to 2004, he was a partner and later Vice President of Cap Gemini Ernst
& Young,  one of the world's  leading  providers of  consulting,  technology and
outsourcing  services.  Mr.  Czinege has nearly  three  decades of industry  and
consulting  experience in manufacturing and supply chain management  operations,
business planning, sales and marketing, and information systems.

Miguel  Fernandez was employed by Applebee's in January 1995 as Area Director in
California  before  becoming  Director of  Operations  in 1996 for Pacific Gold,
Inc.,  an Applebee's  franchisee.  He rejoined  Applebee's in September  1998 as
Regional Vice President of Company Operations. In January 2005, he was appointed
Senior Vice President of Company Operations.  Prior to joining  Applebee's,  Mr.
Fernandez   served  as  Vice  President  of  Operations   for  Ninfa's   Mexican
Restaurants,  Regional Director of Operations for Acapulco  Restaurants and Vice
President of Operations for Casa Vallarta Mexican Restaurants.

Kurt  Hankins was  employed by  Applebee's  in August 2001 as Vice  President of
Research and  Development.  In December 2003, Mr. Hankins was promoted to Senior
Vice President of Menu Development and Innovation.  Prior to joining Applebee's,
he served as Vice  President of Food and Beverage for Darden  Restaurants,  Inc.
from July 1999  through July 2001.  From August 1994 to July 1999,  he served as
Director of Food Research and Development for Darden Restaurants,  Inc. Prior to
his employment with Darden Restaurants,  Inc., he held various positions in food
and beverage research and development within the restaurant industry.

David R.  Parsley  was  employed  by  Applebee's  in April  2000 as Senior  Vice
President of Purchasing and Distribution. In January 2003, Mr. Parsley was named
Senior Vice President of Supply Chain Management.  Prior to joining  Applebee's,
Mr. Parsley held several positions with Prandium,  Inc.,  operator of El Torito,
Chi-Chi's and Koo Koo Roo,  from  November 1996 to April 2000,  most recently as
Senior Vice President of Quality and Supply Chain  Management.  He has also held
purchasing   positions  with  The  Panda   Management   Company,   Carl  Karcher
Enterprises, Proficient Food Company, Inc., and Baxter Healthcare Corporation.

Carol A.  DiRaimo was  employed by  Applebee's  in  November  1993 as  Associate
Director of  Financial  Planning and  Reporting  and was promoted to Director in
1995.  She was named  Director of Treasury  and  Corporate  Analysis in 1998 and
Director of Investor  Relations  and Corporate  Analysis in April 2000.  She was
promoted to  Executive  Director of Investor  Relations in January 2003 and Vice
President of Investor  Relations in February 2004. Prior to joining  Applebee's,
she was employed by  Gilbert/Robinson,  Inc. from May 1989 to November 1993. Ms.
DiRaimo, a certified public accountant,  was also employed by Deloitte Haskins &
Sells for six years.


                                       13
<PAGE>
Beverly  O.  Elving was  employed  by  Applebee's  in June 1998 as  Director  of
Corporate  Accounting.  In  September  2002,  Ms.  Elving was  promoted  to Vice
President of  Accounting.  In February  2005,  she was named Vice  President and
Controller.  Prior to joining  Applebee's,  she was Chief Financial Officer from
1996 to 1998  for  Integrated  Medical  Resources,  a  publicly-held  management
services  company.  From 1990 to 1996,  Ms.  Elving was  employed by the Federal
Deposit Insurance  Corporation as Director of Financial Operations and was later
promoted to Vice President of Financial  Operations & Accounting.  Ms. Elving, a
certified public accountant, was also employed by Arthur Andersen & Co. for five
years.

Rebecca R. Tilden was employed by  Applebee's  in November  2003 and became Vice
President and General Counsel in January 2004. Prior to joining Applebee's,  Ms.
Tilden was an independent  consultant  specializing in corporate  compliance and
ethics  issues.   From  1987  to  2000,  Ms.  Tilden  was  employed  by  Aventis
Pharmaceuticals,  Inc., in various  positions of increasing  responsibility  and
served most recently as Vice President, Assistant General Counsel and Secretary.

Item 1A.      Risk Factors

Our business and operations are subject to a number of risks and  uncertainties.
The factors  listed below are important  factors that could cause actual results
to differ  materially  from our historical  results and from those  projected in
forward-looking statements contained in this report or in other filings with the
SEC.

We  and  our  franchisees  may  not  be  successful  in  operating   restaurants
profitably.

Our financial  success depends on our ability and the ability of our franchisees
to operate  restaurants  profitably.  The  profitability  of our  restaurants is
dependent on a number of factors. The most significant factors are:

    o    the availability of management, restaurant staff and other personnel;
    o    acceptable leasing or financial terms;
    o    the availability of capital to finance growth;
    o    effective national campaigns and local marketing;
    o    effective menu pricing;
    o    appealing menu items;
    o    increases in minimum wage and the impact of other employment laws;
    o    increases in food,  labor and other operating costs related to new menu
         initiatives;
    o    the ability to manage a large number of restaurants in many  geographic
         areas with a standardized operational and marketing approach; and
    o    the extent of competitive intrusion in the market.

In the course of expanding,  we and our franchisees may enter new or more highly
competitive  geographic  regions or local  markets in which we may have  limited
operating  experience.  There can be no assurance of the level of success of our
restaurants  in  these  regions  or  particular  local  markets.   Newly  opened
restaurants  typically operate with below normal profitability and incur certain
additional costs in the process of achieving operational efficiencies during the
first several months of operation.

We  and  our  franchisees  may  not be  successful  in  opening  the  number  of
restaurants anticipated.

Our  continued  growth  depends,  in part, on our ability and the ability of our
franchisees to open additional restaurants. The opening of new restaurants, both


                                       14
<PAGE>
by us and our  franchisees,  depends on a number of  factors,  many of which are
beyond our  control  or the  control of our  franchisees.  The most  significant
factors are:

    o    the cost and availability of suitable restaurant locations;
    o    acceptable leasing or financial terms;
    o    the availability of capital to finance growth;
    o    cost-effective and timely construction of restaurants (construction can
         be delayed due to, among other reasons,  labor  disputes,  local zoning
         and licensing matters, and weather conditions); and
    o    securing required governmental permits and licenses.

Substantial  increases  in capital expenditure costs may adversely impact future
growth.

Our capital expenditures are primarily related to the development or acquisition
of  additional   restaurants,   maintenance   and   refurbishment   of  existing
restaurants,  and expansion of information technology systems,  office space and
other  corporate  infrastructure.  The costs related to restaurant  development,
maintenance and refurbishment  include purchases and leases of land,  buildings,
equipment and repairs and  maintenance.  The labor and material  costs  expended
vary by geographical location and are subject to general price increases.  There
can be no assurance that future capital expenditure costs will not increase.  In
addition,  capital  expenditures  will be  required to  maintain  and  refurbish
restaurants  as  they  age.  There  can be no  assurance  that  we  will  remain
profitable in these  restaurants even after  maintenance and  refurbishment  has
been completed.

Our continued growth is, in part,  dependent upon our ability to find and retain
qualified   franchisees  and  for  those  franchisees  to  operate   restaurants
profitably in compliance with our standards,  build new restaurants and plan for
succession.

Although we have established criteria to evaluate prospective franchisees, there
can be no  assurance  that our  existing  or  future  franchisees  will have the
business  abilities  or  access to  financial  resources  necessary  to open the
required number of restaurants or that they will successfully develop or operate
these  restaurants  in their  franchise  areas in a manner  consistent  with our
standards.

We  intend  to  continue  our  efforts  to  franchise   restaurants  in  certain
international  territories.  The  ability  of  franchisees  to open and  operate
restaurants  outside of the United  States is subject to the same factors as are
applicable to opening domestic  restaurants  described above, as well as factors
related to additional  legal,  regulatory,  cultural  acceptability and building
design issues  involved in  international  locations.  There can be no assurance
that we will be able to attract  qualified  franchisees or that such franchisees
will be able to open and operate restaurants successfully.

Increased competition for locations,  customers and staff could adversely impact
our profitability.

Competition in the casual dining segment of the restaurant  industry is expected
to remain intense with respect to price,  service,  location,  concept,  and the
type and  quality of food.  There is also  intense  competition  for real estate
sites,  qualified  management  personnel,   and  hourly  restaurant  staff.  Our
competitors  include  national,  regional  and  local  chains,  as well as local
owner-operated restaurants.  There are a number of well-established competitors,
some of which  have been in  existence  for a longer  period  than us and may be
better established in the markets where our restaurants are or may be located.

Further  penetrating   existing  mature  markets  could  impact  the  sales  and
profitability of our existing restaurants in those markets.


                                       15
<PAGE>
Part of our  restaurant  development  may  occur  in more  mature  markets.  Our
restaurants  typically  attract customers within a limited trade area. Sales and
profitability of existing  restaurants may be negatively impacted by the opening
of a restaurant within this trade area.

Our profitability could be adversely impacted by economic, demographic and other
changes that impact guest traffic.

Our  business  is  affected  by changes  in  consumer  tastes  and by  national,
regional,  and  local  economic  conditions,   demographic  trends  and  traffic
patterns.  We can also be adversely affected by publicity  resulting from actual
or alleged food quality,  illness,  injury or other health concerns or operating
issues related to restaurant operations or from food suppliers.

The impact of government  regulation may cause us to incur  additional  costs or
liabilities.

Our restaurants are subject to various  international,  federal, state and local
government  regulations,  including  those  related  to the  sale  of  food  and
alcoholic  beverages and labor laws. Failure to obtain or maintain the necessary
licenses,  permits and  approvals,  including  food and liquor  licenses,  could
adversely  affect our  operating  results or delay or result in our  decision to
cancel the opening of new  restaurants.  Local  authorities  may suspend or deny
renewal of our food and liquor  licenses if they determine that our conduct does
not meet applicable standards or if there are changes in regulations in which we
are unable to comply.

We are subject to "dram shop" statutes in some states.  These statutes generally
allow a person  injured  by an  intoxicated  person to recover  damages  from an
establishment  that  wrongfully  served  alcoholic  beverages to the intoxicated
person. A judgment  substantially in excess of our insurance coverage could harm
our financial condition.

Various federal and state labor laws related to employment eligibility,  minimum
wage requirements, overtime pay, meal and rest breaks, and other matters have an
effect on our  operating  costs.  Changes in these  laws,  including  additional
government-imposed  increases in minimum  wages,  overtime  pay,  paid leaves of
absence and mandated  health  benefits,  and  increased  tax  reporting  and tax
payment  requirements  for  associates  who receive  tips, or a reduction in the
number of states that allow tips to be credited toward minimum wage requirements
could harm our operating results.

The federal  Americans with  Disabilities  Act prohibits  discrimination  on the
basis of  disability  in public  accommodations  and  employment.  Although  our
restaurants are designed to be accessible to the disabled,  we could be required
to  make  modifications  to our  restaurants  to  provide  service  to,  or make
reasonable  accommodations for, disabled persons. We are also subject to various
federal  and  state  environmental  regulations  that  could  delay  or  prevent
development of new restaurants in certain locations.

We are also  subject to federal and state laws that  regulate the offer and sale
of franchises and the relationship with our franchise  partners.  These laws and
regulations,  together with  decisions of several  state and federal  courts may
limit our ability to enforce  certain  provisions  of, or alter or terminate our
franchise agreements.

Our  continued  growth may depend,  in part,  on our  acquisition  of franchised
Applebee's restaurants.

There  is no  assurance  that we will  be  able  to find  franchise  restaurants
available for purchase or that we will be able to acquire franchise  restaurants
at favorable  prices. In addition,  if we do successfully  identify and complete
acquisitions in the future, the acquisitions may involve the following risks:


                                       16
<PAGE>
    o    increases in our debt and contingent liabilities;
    o    entering  geographic markets in which we have little or no direct prior
         experience; and
    o    unanticipated or undiscovered legal liabilities or other obligations of
         acquired franchise restaurants.

Even if we are  successful  in  acquiring  franchise  operations,  there  is no
assurance that we will be able to operate the acquired  restaurants  profitably.
The integration of acquired restaurants into our operations may involve a number
of issues, any of which could materially and adversely affect our operations and
financial performance. These issues include:

    o    burdens on our management resources and financial controls;
    o    diversion of corporate  resources and acquisition  integration  issues,
         such as business process and system incapabilities;
    o    potential loss of key personnel of acquired franchise  restaurants; and
    o    potential loss of customer relationships and related revenues.


Our  growth  and  profitability   could  be  impacted  by  the  lack  of  needed
inventories.

Our profitability depends, in part, on our strategies to control food costs. Our
dependence on commodities  subject us to the risk that shortages or interruption
in supply, caused by adverse weather or other conditions, could adversely affect
the  availability,  quality  or cost of  ingredients.  Changes  in the  price of
commodities,   particularly  beef  and  chicken,  could  materially  impact  our
profitability.  We may not be able to react to increased food costs by adjusting
our supply chain  practices or menu pricing  which would  negatively  impact our
operating results.

Our global supply chain may be subject to  interruptions,  dislocation or may be
rendered less effective for a variety of reasons such as:

    o    political unrest;
    o    animal borne disease or illness;
    o    contamination  of growing fields,  water supplies or animal  processing
         facilities;
    o    inadequate storage facilities; and
    o    loss of effective climate controls in storage facilities and processing
         plants.


Our continued growth depends on our successful  adaptation and implementation of
our operating systems.

System-wide  expansion  has and will continue to require the  implementation  of
enhanced  operating  systems.  We regularly evaluate the adequacy of our current
policies,  procedures,  systems and  resources,  including  financial  controls,
information  technology  systems,  field and restaurant  management,  and vendor
capacities  and  relations.  There can be no assurance  that we will  adequately
address all of the changing  demands that our planned  expansion  will impose on
such systems, controls, and resources.


We may acquire one or more additional restaurant concepts.

Operating more than one restaurant concept presents many significant risks that
could, individually or together, have a material adverse effect on our business
and financial results. Our success in acquiring or investing in new concepts is
subject to the following risks:


                                       17
<PAGE>
    o    the  attention  of  our  management  team  may  be  diverted  from  the
         Applebee's system and operations may suffer as a result;
    o    we may be unable to identify suitable opportunities;
    o    we may pay too much for a new  concept  in  relation  to its  long-term
         potential and actual economic return to us; and
    o    we may be required to borrow the funds  needed to make an  acquisition,
         thereby increasing our interest expense and debt level.

In addition, our ability to expand another concept, through our own development
or through franchising, will be subject to risks such as:

    o    we may not be able to find suitable  locations at appropriate  purchase
         prices or lease terms;
    o    we may not be able to attract franchisees;
    o    we may  experience  construction  delays  or cost  overruns  caused  by
         numerous  factors,  such as shortages of materials  and skilled  labor,
         labor  disputes,  weather  interference,  environmental  problems,  and
         construction or zoning problems;

    o    we may  not be  able  to  hire  and  train  experienced  and  dedicated
         operating personnel;
    o    we  may  face  competition  from  other  restaurants,  including  other
         Applebee's; and
    o    the new concept may not be profitable.

A significant increase in litigation could have a material adverse effect on our
results of operations, financial condition and business prospects.

We are sometimes the subject of  complaints or litigation  from guests  alleging
illness, injury or other food quality,  health or operational concerns.  Adverse
publicity  resulting  from  these  allegations  could  harm  the  operation  and
profitability  of our  restaurants,  regardless of whether the  allegations  are
valid,  whether we are liable or whether the claim  involves our  restaurants or
one of our franchisees.

Failure to comply with the various  federal and state labor laws  pertaining  to
minimum  wage,  overtime  pay,  meal and rest  breaks,  unemployment  tax rates,
workers' compensation rates, citizenship or residency requirements,  child labor
requirements and sales taxes, may have a material adverse effect on our business
or operations. Further, employee claims against us based on, among other things,
discrimination,  harassment or wrongful termination may divert our financial and
management resources and adversely affect our operations.


Item 1B. Unresolved Staff Comments

Not applicable.


                                       18
<PAGE>
Item 2. Properties

As of December  25,  2005,  we operated 486 company  restaurants.  Of these,  we
leased the building for 86 sites, owned the building and leased the land for 213
sites,  and  owned the land and  building  for 187  sites.  In  addition,  as of
December 25, 2005, we owned 12 sites for future  development of restaurants  and
had entered into 17 lease agreements for restaurant sites we plan to open during
2006. Our leases generally have an initial term of 10 to 20 years,  with renewal
terms  of 5 to 20  years,  and  provide  for a fixed  rental  plus,  in  certain
instances,  percentage rentals based on gross sales. In addition,  our leases in
many  instances  include  escalation  of rent  payments  during the initial term
and/or during the renewal terms.

Under our  franchise  agreements,  we have  certain  rights to gain control of a
restaurant  site in the  event of  default  under  the  lease  or the  franchise
agreement.

We own an 80,000  square foot  office  building  and lease a 23,000  square foot
office  building  in  Overland  Park,   Kansas,   located  in  the  Kansas  City
metropolitan  area, in which our corporate  offices are  headquartered.  We also
lease office space in certain regions in which we operate restaurants.

In 2005,  we entered  into an  agreement  to purchase  land for a new  corporate
headquarters in Lenexa, Kansas, located in the Kansas City metropolitan area. In
January 2006, we completed the purchase of the land and anticipate relocating to
our new corporate headquarters in the latter half of 2007.



                                       19
<PAGE>
The following table sets forth the 49 states and the 14 countries outside of the
United  States in which  Applebee's  are located  and the number of  restaurants
operating in each state or country as of December 25, 2005:
<TABLE>
<CAPTION>

                                                                 Number of Restaurants
                                                  -----------------------------------------------------
                    State or Country                 Company             Franchise        Total System
            ----------------------------------    --------------      --------------     --------------
            <S>                                   <C>                 <C>                <C>

            Domestic:
            Alabama........................                 --                  26                 26
            Alaska.........................                 --                   2                  2
            Arizona........................                 --                  30                 30
            Arkansas.......................                  1                   7                  8
            California.....................                 22                  80                102
            Colorado.......................                 --                  32                 32
            Connecticut....................                 --                  11                 11
            Delaware.......................                  2                   8                 10
            Florida........................                 --                  96                 96
            Georgia........................                 --                  69                 69
            Idaho..........................                 --                  10                 10
            Illinois.......................                 12                  48                 60
            Indiana........................                  7                  58                 65
            Iowa...........................                 --                  23                 23
            Kansas.........................                 16                  19                 35
            Kentucky.......................                  5                  30                 35
            Louisiana......................                 --                  16                 16
            Maine..........................                 10                  --                 10
            Maryland.......................                 11                  13                 24
            Massachusetts..................                 37                  --                 37
            Michigan.......................                 65                  18                 83
            Minnesota......................                 63                   2                 65
            Mississippi....................                  3                  12                 15
            Missouri.......................                 60                   2                 62
            Montana........................                 --                   7                  7
            Nebraska.......................                 --                  18                 18
            Nevada.........................                 15                  --                 15
            New Hampshire..................                 15                  --                 15
            New Jersey.....................                 --                  43                 43
            New Mexico.....................                  8                  10                 18
            New York.......................                  1                  91                 92
            North Carolina.................                  2                  54                 56
            North Dakota...................                 --                   9                  9
            Ohio...........................                 --                  86                 86
            Oklahoma.......................                 --                  17                 17
            Oregon.........................                 --                  17                 17
            Pennsylvania...................                  1                  58                 59
            Rhode Island...................                  7                  --                  7
            South Carolina.................                 --                  41                 41
            South Dakota...................                 --                   6                  6
            Tennessee......................                  5                  37                 42
            Texas..........................                 48                  37                 85
            Utah...........................                 --                  12                 12
            Vermont........................                  3                  --                  3
            Virginia.......................                 62                   1                 63
            Washington.....................                 --                  33                 33
            West Virginia..................                  1                  13                 14
            Wisconsin......................                  4                  39                 43
            Wyoming........................                 --                   5                  5
                                                  --------------      --------------     --------------
              Total Domestic...............                 486              1,246              1,732
                                                  --------------      --------------     --------------

</TABLE>


                                       20
<PAGE>
<TABLE>
<CAPTION>

                                                                 Number of Restaurants
                                                  -----------------------------------------------------
                    State or Country                 Company             Franchise        Total System
            ----------------------------------    --------------      --------------     --------------
            <S>                                   <C>                 <C>                <C>

            Other countries:
            Bahrain........................                 --                   1                  1
            Brazil.........................                 --                   3                  3
            Canada.........................                 --                  21                 21
            Chile..........................                 --                   1                  1
            Ecuador........................                 --                   1                  1
            Egypt..........................                 --                   1                  1
            Greece.........................                 --                   6                  6
            Honduras.......................                 --                   4                  4
            Jordan.........................                 --                   1                  1
            Kuwait.........................                 --                   2                  2
            Mexico.........................                 --                  25                 25
            Qatar..........................                 --                   2                  2
            Saudi Arabia...................                 --                   3                  3
            United Arab Emirates...........                 --                   1                  1
                                                  --------------      --------------     --------------
                  Total International......                 --                  72                 72
                                                  --------------      --------------     --------------
                  Total System.............                486               1,318              1,804
                                                  ==============      ==============     ==============
</TABLE>

Item 3. Legal Proceedings

We are involved in various  legal  actions which  include,  without  limitation,
employment  law,  wage and hour,  dram shop claims,  personal  injury claims and
other such restaurant  operational matters. In each instance, we believe that we
have  meritorious  defenses  to the  allegations  made  and  we  are  vigorously
defending these claims.

We believe that the ultimate disposition of these matters will not, individually
or in the  aggregate,  have a  material  adverse  effect  upon our  business  or
consolidated financial position.

Item 4. Submission of Matters to a Vote of Security Holders

Not applicable.


                                       21
<PAGE>

                                     PART II

Item 5. Market for Registrant's  Common Equity,  Related Stockholder Matters and
        Issuer Purchases of Equity Securities

1.   Our common  stock  trades on The Nasdaq  Stock  Market(R)  under the symbol
     APPB.

The table below sets forth for the fiscal  quarters  indicated the reported high
and low sale  prices of our  common  stock,  as  reported  on The  Nasdaq  Stock
Market(R).
<TABLE>
<CAPTION>
                                                       2005                             2004
                                          ------------------------------- -------------------------------
                                               High            Low             High            Low
                                          --------------- --------------- --------------- ---------------
                <S>                       <C>             <C>             <C>             <C>
                First Quarter             $    29.19      $    24.69      $    28.04(1)   $    23.80(1)
                Second Quarter            $    28.65      $    24.25      $    28.55(1)   $    23.30
                Third Quarter             $    26.79      $    19.95      $    26.72      $    22.50
                Fourth Quarter            $    23.98      $    19.73      $    26.68      $    22.26
<FN>
(1)The sales prices have been  adjusted to reflect a  three-for-two  stock split
effected as a 50% stock dividend paid on June 15, 2004.
</FN>
</TABLE>

2.   Number of stockholders of record at December 25, 2005: 1,341

3.   We declared an annual  dividend of $0.20 per common  share in October  2005
     for  stockholders of record on December 23, 2005, and the dividend was paid
     on January 23,  2006.  We  declared an annual  dividend of $0.06 per common
     share on December 9, 2004 for  stockholders of record on December 24, 2004,
     and the  dividend was paid on January 21,  2005.

     We presently anticipate continuing the payment of cash dividends which will
     be dependent upon future earnings and cash flows, capital requirements, our
     financial  condition,  returns to  shareholders  and certain other factors.
     There can be no  assurance  in 2006 or future  years as to the amount  that
     will be available for the declaration of dividends, if any.

4.   For  information  on our  equity  compensation  plans,  refer  to Item  12,
     "Security Ownership of Certain Beneficial Owners and Management and Related
     Stockholder Matters."


                                       22
<PAGE>
5.   Issuer Purchases of Equity Securities

During fiscal year 2005, we repurchased  8,288,093 shares of our common stock at
an average price of $23.66 for an aggregate cost of approximately  $196,100,000.
The table  below sets forth  purchases  of our  common  stock  during the fourth
quarter of fiscal 2005:

<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------------------------
                                                 Purchases of Equity Securities(1)
-----------------------------------------------------------------------------------------------------------------------------------
                                           (a)              (b)                  (c)                             (d)
----------------------------------- ------------------ ------------- --------------------------- ----------------------------------
                                    Total Number of     Average      Total Number of Shares      Maximum Dollar Value of Shares
                                    Shares Purchased    Price Paid   Purchased as Part of        that May Yet Be Purchased Under
                                                        Per Share    Publicly Announced Plans    the Plans or Programs
              Period                                                 or Programs                          (in thousands)
----------------------------------- ------------------ ------------- --------------------------- ----------------------------------
<S>                                 <C>                <C>           <C>                         <C>
September 26, 2005 through
October 23, 2005                          1,056,150       $21.19             1,056,150                       $181,792
----------------------------------- ------------------ ------------- --------------------------- ----------------------------------
October 24, 2005 through November
20, 2005                                  1,146,243       $22.49             1,146,243                       $156,018
----------------------------------- ------------------ ------------- --------------------------- ----------------------------------
November 21, 2005 through
December 25, 2005                         1,168,100       $23.16             1,168,100                       $128,967
----------------------------------- ------------------ ------------- --------------------------- ----------------------------------
              Total                       3,370,493                          3,370,493
=================================== ================== ============= =========================== ==================================

<FN>
(1)  In October 2004, our Board of Directors authorized  additional  repurchases
     of  our  common  stock  of  up  to  $150,000,000  beginning  in  2005.  The
     authorization  limit was met in October 2005. In October 2005, our Board of
     Directors  authorized  additional  repurchases of our common stock of up to
     $175,000,000, subject to market conditions.
</FN>
</TABLE>


                                       23
<PAGE>
Item 6. Selected Financial Data

The  following  table sets forth for the  periods  and the dates  indicated  our
selected financial data. All periods presented contained 52 weeks. The following
should be read in conjunction  with the  Consolidated  Financial  Statements and
Notes thereto and "Management's  Discussion and Analysis of Financial  Condition
and Results of Operations" appearing elsewhere in this Form 10-K.

<TABLE>
<CAPTION>
                                                                          Fiscal Year Ended
                                           --------------------------------------------------------------------------------
                                             December 25,    December 26,    December 28,    December 29,    December 30,
                                                 2005            2004            2003            2002            2001(1)
                                           --------------- --------------- --------------- --------------- ----------------
                                                              (in thousands, except per share amounts)
<S>                                        <C>             <C>             <C>             <C>             <C>
STATEMENT OF EARNINGS DATA:
Company restaurant sales.................   $  1,082,641    $    976,798    $    867,158    $    724,616    $    651,119
Franchise royalties and fees.............        128,813         121,221         109,604         102,180          93,225
Other franchise income...................          5,196          13,615          13,147           2,688            --
                                           --------------- --------------- --------------- --------------- ----------------
     Total operating revenues............   $  1,216,650      $1,111,634    $    989,909    $    829,484    $    744,344
                                           =============== =============== =============== =============== ================

Operating earnings.......................   $    157,637    $    165,280    $    152,677    $    126,590    $    110,681
Net earnings.............................   $    101,802    $    110,865    $     94,349    $     80,527    $     63,298
Basic net earnings per share.............   $       1.29    $       1.36    $       1.14    $       0.97    $       0.76
Diluted net earnings per share...........   $       1.27    $       1.33    $       1.10    $       0.94    $       0.74
Dividends declared per share.............   $       0.20    $       0.06    $       0.05    $       0.04    $       0.04
Basic weighted average shares
   outstanding...........................         78,650          81,528          82,944          83,407          83,268
Diluted weighted average shares
   outstanding...........................         80,010          83,600          85,409          85,382          85,316

BALANCE SHEET DATA
     (AT END OF FISCAL YEAR):
Total assets.............................   $    878,588    $    754,431    $    651,078    $    573,647    $    506,036
Long-term debt, including
  current portion, and notes payable.....   $    188,367    $     35,694    $     20,862    $     52,563    $     74,568
Stockholders' equity.....................   $    412,610    $    496,727    $    453,143    $    385,201    $    320,303

<FN>

(1)  Beginning in 2002, we ceased  amortization  of goodwill in accordance  with
     Statement of Financial  Accounting  Standards No. 142,  "Goodwill and Other
     Intangibles".
</FN>


</TABLE>


                                       24
<PAGE>
Item 7. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations


Forward-Looking Statements

The  statements  contained  in the  "Management's  Discussion  and  Analysis  of
Financial  Condition and Results of  Operations"  section  regarding  restaurant
development,  comparable sales,  Carside To Go(TM),  revenue growth,  restaurant
margin,   commodity  costs,   general  and  administrative   expenses,   capital
expenditures, return on equity and financial commitments are forward-looking and
based on current  expectations.  There are several risks and uncertainties  that
could cause actual  results to differ  materially  from those  described.  These
risks  include  but are not  limited  to our  ability  and  the  ability  of our
franchisees to open and operate additional restaurants  profitably,  the ability
of our franchisees to obtain financing, the continued growth of our franchisees,
our ability to attract and retain qualified  franchisees,  the impact of intense
competition in the casual dining segment of the restaurant industry,  the impact
of economic factors on consumer spending,  and our ability to control restaurant
operating  costs which are  impacted by market  changes,  minimum wage and other
employment laws, food costs and inflation. For a more detailed discussion of the
principal  factors that could cause actual  results to be materially  different,
you should read our risk  factors in Item 1A of this Form 10-K.  We disclaim any
obligation to update forward-looking statements.

General

We operate on a 52 or 53 week fiscal year ending on the last Sunday in December.
Our fiscal years are as follows:
<TABLE>
<CAPTION>
                                 Fiscal Year                     Number
   Fiscal Year                     Ending                       of Weeks
------------------        --------------------------        -----------------
      <S>                 <C>                               <C>
      2003                December 28, 2003                        52
      2004                December 26, 2004                        52
      2005                December 25, 2005                        52
      2006                December 31, 2006                        53
</TABLE>

Our revenues are generated from three primary sources:

    o    Company restaurant sales (food and beverage sales)
    o    Franchise royalties and fees
    o    Other franchise income

Beverage  sales  consist of sales of alcoholic  beverages,  while  non-alcoholic
beverages  are included in food sales.  Franchise  royalties are generally 4% of
each franchise  restaurant's monthly gross sales. Franchise fees typically range
from  $30,000 to $35,000 for each  restaurant  opened.  Other  franchise  income
includes  insurance  premiums for the current year and premium audit adjustments
for prior years from franchisee  participation in our captive  insurance program
and revenue  from  information  technology  products  and  services  provided to
certain  franchisees.  In 2005, we reduced the types of insurance coverage plans
offered which resulted in fewer franchisee participants in our captive insurance
program.  This  reduction  resulted in a total  decrease in  franchise  premiums
recognized   throughout  2005  in  other  franchise   income  of   approximately
$8,600,000. In the fourth quarter of 2005, we decided to discontinue writing any
new coverage.  We will still operate the captive insurance subsidiary to resolve
any claims that were incurred under this program from 2002 through 2005.


                                       25
<PAGE>
Certain expenses relate only to company operated restaurants. These include:

    o    Food and beverage costs
    o    Labor costs
    o    Direct and occupancy costs
    o    Pre-opening expenses

Cost of  other  franchise  income  includes  the  costs  related  to  franchisee
participation in our captive  insurance program and costs related to information
technology  products and services provided to certain  franchisees.  In 2005, we
reduced the types of insurance  coverage  plans offered which  resulted in fewer
franchisee  participants  in  our  captive  insurance  program.  This  reduction
resulted in a total decrease in expense  recognized  throughout  2005 in cost of
other franchise  income of  approximately  $8,100,000.  In the fourth quarter of
2005, we decided to discontinue writing any new coverage.  We will still operate
the captive insurance  subsidiary to resolve any claims that were incurred under
this program from 2002 through 2005.

Other expenses,  such as general and administrative  and amortization  expenses,
relate to both company operated restaurants and franchise operations.

Overview

Applebee's  International,  Inc. and our  subsidiaries  develop,  franchise  and
operate casual dining restaurants under the name "Applebee's  Neighborhood Grill
& Bar," which is the largest  casual dining concept in the world with over 1,800
system-wide  restaurants open as of December 25, 2005. The casual dining segment
of the restaurant industry is highly competitive and there are many factors that
affect our  profitability.  Our industry is  susceptible  to changes in economic
conditions,  trends in lifestyles,  fluctuating  costs,  government  regulation,
availability  of  resources  and  consumer  perceptions.   When  evaluating  and
assessing our financial performance, we believe there are five key factors:

    o    Development  - the  number of new  company  and  franchise  restaurants
         opened during the period.  As the largest  casual dining concept in the
         world,  Applebee's  has a unique  opportunity  to  leverage  our brand,
         system  size and scale to optimize  our future  growth.  Our  expansion
         strategy has been to cluster  restaurants in targeted markets,  thereby
         increasing consumer awareness and convenience,  and enabling us to take
         advantage of operational, distribution and advertising efficiencies. We
         currently  expect that the  Applebee's  system will  encompass at least
         3,000 restaurants in the United States, as well as the potential for at
         least  1,000   restaurants   internationally.   In  2005,  we  and  our
         franchisees opened 52 and 92 restaurants,  respectively.  Together,  we
         have opened at least 100 restaurants system-wide each year for the past
         13 fiscal years. In 2006, we currently expect to open approximately 120
         restaurants  system-wide,  comprised of approximately 40 company and 80
         franchise restaurants. Development costs increased approximately 10% in
         2005 as compared to 2004.  Further  increases are expected in 2006 as a
         result  of  increased  demand  for  material  and  labor  due to recent
         catastrophic  hurricanes.  We  are  evaluating  the  impact  of  rising
         development costs on the pipeline of future openings.

    o    Comparable restaurant sales - a year-over-year  comparison of sales for
         restaurants  open at  least  18  months.  Our  revenues  are  generated
         primarily from company restaurant sales,  franchise  royalties and fees
         and  other  franchise  income.   Increases  in  company  and  franchise
         comparable  restaurant  sales  will  result  in  increases  in  company
         restaurant  sales and franchise  fees and royalties.  In 2005,  company
         comparable   sales  decreased  0.9%  while  franchise  and  system-wide
         comparable sales increased 2.7% and 1.8%, respectively.  We have had 30
         consecutive quarters of positive  system-wide  comparable sales growth.
         We currently expect  system-wide  comparable sales for 2006 to increase
         by 2.0% to 3.0%.  Comparable  restaurant  sales increases are driven by
         increases in the average guest check and/or increases in guest traffic.


                                       26
<PAGE>
         Average guest check increases result from menu price increases and/or a
         change in menu mix. Although we may have increases in our average guest
         check from period to period,  our main focus has been increasing  guest
         traffic  as we  view  this  component  to be  more  indicative  of  the
         long-term health of the Applebee's brand. We are constantly  seeking to
         increase guest traffic by focusing on operations and improving our menu
         with new food  offerings  and the  implementation  of programs  such as
         Carside  to Go(TM)  and  Weight  Watchers(TM).  In 2005,  we  conducted
         comprehensive   consumer   research   which   resulted  in  a  plan  to
         substantially  improve  the  quality  and  flavor  profile  of our food
         offerings over the next two years.  These menu improvements will impact
         all sections of our menu.

    o    Company  restaurant  margin - company  restaurant  sales, less food and
         beverage,  labor, direct and occupancy restaurant costs and pre-opening
         expenses,  expressed  as a  percentage  of  company  restaurant  sales.
         Company  restaurant  margins were 13.4%,  15.6% and 16.0% in 2005, 2004
         and 2003,  respectively.  We currently  expect 2006 company  restaurant
         margins,  which will be dependent on comparable  sales  performance  at
         company restaurants,  to be similar to 2005 results. Company restaurant
         margins are susceptible to fluctuations in commodity costs, labor costs
         and other  operating  costs such as utilities.  We attempt to negotiate
         contracts  for the  majority of our food  products in order to mitigate
         the impact of rising  commodity costs. In 2006, we currently expect net
         commodity  costs to  decrease  by  approximately  2.0%,  including  the
         negative impact of fuel surcharges.  In addition, we are uncertain what
         impact the improved menu offerings will have on our food costs,  and we
         may take  additional  menu price  increases to offset this  impact.  We
         expect  labor  costs to continue  to be  negatively  impacted by health
         insurance  costs and the impact of wage rate  increases.  In  addition,
         higher energy costs, including utilities, fuel surcharges and packaging
         costs,  will have a  negative  impact on  company  restaurant  margins,
         particularly in the first quarter of 2006.

    o    General  and  administrative  expenses  -  general  and  administrative
         expense expressed as a percentage of total operating revenues.  General
         and administrative  expenses were 9.0%, 9.4% and 9.6% in 2005, 2004 and
         2003,  respectively.  In 2006, general and administrative expenses as a
         percent of total  revenues are currently  expected to be in the high 8%
         range, excluding the impact of stock-based compensation expense.

    o    Return on equity - net  earnings  expressed  as a  percent  of  average
         stockholders'  equity. We believe this is an important  indicator as it
         allows us to evaluate our ability to create value for our shareholders.
         We have  exceeded  our stated goal of at least 20% return on equity for
         the past seven years and we are a leader in the casual dining  industry
         in this category.

Application of Critical Accounting Estimates

Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations  is based  upon our  consolidated  financial  statements,  which were
prepared in accordance  with  accounting  principles  generally  accepted in the
United  States of America.  These  principles  require us to make  estimates and
assumptions  that  affect the  reported  amounts in the  consolidated  financial
statements  and notes thereto.  Actual results may differ from these  estimates,
and such differences may be material to our consolidated  financial  statements.
We  believe  that  the  following  significant  accounting  policies  involve  a
significant degree of judgment or complexity.

Inventory  valuation:  We state  inventories  at the  lower of cost,  using  the
first-in,  first-out  method,  or market.  Market is  determined  based upon our
estimates of the net realizable value.

We purchase and maintain  inventories  of certain  specialty  products to ensure
sufficient supplies to the system, to ensure continuity of supply and to control
food costs. We review and make quality control inspections of our inventories to
determine  obsolescence on an ongoing basis. These reviews require management to


                                       27
<PAGE>
make certain estimates and judgments  regarding projected usage which may change
in the future and may require us to record an inventory impairment.

Property and equipment: We report property and equipment at historical cost less
accumulated  depreciation.  Depreciation is provided on the straight-line method
over the  estimated  useful  lives of the  assets.  Leasehold  improvements  are
amortized over the lesser of the lease term or the estimated  useful life of the
related  asset.  The useful  lives of the  assets  are based  upon  management's
expectations.  We  periodically  review the assets for changes in  circumstances
which may impact their useful lives. If there are changes in circumstances  that
revise  an  asset's  useful  life,  we  will  adjust  the  depreciation  expense
accordingly for that asset in future periods.

Impairment of long-lived assets: We periodically  review restaurant property and
equipment  for  impairment  on a  restaurant-by-restaurant  basis using  certain
market and restaurant  operating  indicators  including historical cash flows as
well as current  estimates  of future cash flows  and/or  appraisals.  We review
other  long-lived  assets at least  annually  and when  events or  circumstances
indicate  that the  carrying  value of the  asset  may not be  recoverable.  The
recoverability  is assessed in most instances by comparing the carrying value to
its  undiscounted  cash  flows.  This  assessment  process  requires  the use of
estimates and assumptions regarding future cash flows and estimated useful lives
which are subject to a  significant  degree of  judgment.  If these  assumptions
change in the future, we may be required to record impairment  charges for these
assets.

Income taxes: We record  valuation  allowances  against our deferred tax assets,
when necessary,  in accordance with Statement of Financial  Accounting Standards
No. 109,  "Accounting  for Income Taxes."  Realization of deferred tax assets is
dependent on future taxable earnings and is therefore  uncertain.  We assess the
likelihood that our deferred tax assets in each of the jurisdictions in which we
operate will be recovered from future taxable income. Deferred tax assets do not
include future tax benefits that we deem likely not to be realized.

We are  periodically  audited by foreign and domestic tax  authorities  for both
income and sales and use  taxes.  We record  accruals  when we  determine  it is
probable that we have an exposure in a matter relating to an audit. The accruals
may change in the future due to new developments in each matter.

Legal and  insurance  reserves:  We are  periodically  involved in various legal
actions.  We are required to assess the probability of any adverse  judgments as
well as the potential range of loss. We determine the required  accruals after a
review of the facts of each legal action.

We use estimates in the determination of the appropriate liabilities for general
liability,  workers' compensation and health insurance.  The estimated liability
is  established  based upon  historical  claims data and  third-party  actuarial
estimates of  settlement  costs for incurred  claims.  Unanticipated  changes in
these factors may require us to revise our estimates.

We periodically reassess our assumptions and judgments and make adjustments when
significant  facts  and  circumstances  dictate.  A change  in any of the  above
estimates could impact our  consolidated  statements of earnings and the related
asset or liability recorded in our consolidated balance sheets would be adjusted
accordingly.  Historically,  actual results have not been  materially  different
than the estimates that are described above.


                                       28
<PAGE>
Acquisitions

All of our  acquisitions  discussed  below  have  been  accounted  for using the
purchase  method of accounting  and,  accordingly,  our  consolidated  financial
statements reflect the results of operations for each acquisition  subsequent to
the date of  acquisition.  The  assets  acquired  and  liabilities  assumed  are
recorded at  estimates  of fair value as  determined  by  management  based upon
information available.  We finalize the allocation of purchase price to the fair
value of assets  acquired and  liabilities  assumed  when we obtain  information
sufficient to complete the allocation, but in each case, no longer than one year
after the acquisition date.

In  March  2003,  we  acquired  the  operations  and  assets  of  11  Applebee's
restaurants located in Illinois,  Indiana, Kentucky and Missouri for $21,800,000
in cash and  $1,400,000  in  assumed  debt.  The  total  cash  payment  included
$20,800,000  paid at closing,  approximately  $200,000 paid as a deposit in 2002
and approximately $800,000 paid in the second quarter of 2003.

In April 2004, we completed the  acquisition  of the operations and assets of 10
Applebee's   restaurants   located  in  Southern  California  for  approximately
$13,800,000  in cash.  The  purchase  price was  allocated  to the fair value of
property and  equipment of  $2,500,000,  goodwill of  $10,800,000  and other net
assets of approximately $500,000.

In May 2005,  we completed  the  acquisition  of 12  Applebee's  restaurants  in
Missouri, Kansas and Arkansas, which included one restaurant under construction,
for  approximately  $39,500,000 in cash. The purchase price was allocated to the
fair value of property and equipment of  $17,500,000,  goodwill of  $21,500,000,
reacquired  franchise rights of  approximately  $300,000 and other net assets of
approximately $200,000.

The  following  table is comprised of actual  company  restaurant  sales for the
three  restaurant  acquisitions  above which are  included  in our  consolidated
financial  statements for each period presented and pro forma company restaurant
sales  assuming the  acquisitions  occurred at the  beginning  of the  preceding
fiscal year for each acquisition (in thousands):
<TABLE>
<CAPTION>
                                                            2005            2004            2003
                                                       --------------- --------------- ---------------
<S>                                                    <C>             <C>             <C>
Actual company restaurant sales
    for acquired restaurants.........................    $  17,000       $  17,600       $  19,000
                                                       =============== =============== ===============

Pro forma company restaurant sales
    for acquired restaurants.........................    $  28,500       $  52,600       $  47,000
                                                       =============== =============== ===============
</TABLE>

In April 2005, we finalized the acquisition of eight  Applebee's  restaurants in
the  Memphis  market  that  were  closed  in 2004  by a  former  franchisee  for
approximately  $8,800,000  payable in cash. In connection with this acquisition,
we paid  approximately  $800,000 in 2004 and  $8,000,000  in 2005.  The purchase
price of $8,800,000 was allocated to the fair value of property and equipment of
approximately  $8,200,000 and goodwill of approximately $600,000. As of December
25, 2005,  we have  remodeled  and opened seven  restaurants  and the  remaining
restaurant was sold to a third party.

Disposition

On July 20, 2003,  we completed  the sale of eight  company  restaurants  in the
Atlanta,   Georgia  market  to  an  affiliate  of  an  existing  franchisee  for
$8,000,000.  In  connection  with the sale of these  restaurants,  we closed one
restaurant in the Atlanta market in June 2003.  This  transaction did not have a
significant impact on our net earnings for 2003. Actual company restaurant sales
included in our consolidated  financial statements for the nine restaurants were
approximately $10,300,000 for 2003.


                                       29
<PAGE>
Captive Insurance Subsidiary

In 2002, we formed  Neighborhood  Insurance,  Inc., a Vermont  corporation and a
wholly-owned captive insurance  subsidiary to provide Applebee's  International,
Inc. and qualified  franchisees with workers' compensation and general liability
insurance.  Applebee's International,  Inc. and covered franchisees make premium
payments to the captive  insurance  company which pays  administrative  fees and
insurance claims, subject to individual and aggregate maximum claim limits under
the captive insurance company's reinsurance policies. Franchisee premium amounts
billed by the captive  insurance  company are established based upon third-party
actuarial  estimates of settlement costs for incurred and anticipated claims and
administrative  fees.  The franchisee  premiums are included in other  franchise
income  ratably  over the policy  year.  The  related  offsetting  expenses  are
included  in  cost  of  other  franchise  income.  We do not  expect  franchisee
participation in the captive  insurance company to have a material impact on our
net earnings.  In 2005, we reduced the types of insurance coverage plans offered
which  resulted  in  fewer  franchisee  participants  in our  captive  insurance
program.  In the fourth quarter of 2005, we decided to  discontinue  writing any
new coverage.  We will still operate the captive insurance subsidiary to resolve
any claims that were  incurred  under this program from 2002 through  2005.  Our
consolidated  balance  sheets  include  the  following  balances  related to the
captive insurance subsidiary:

    o    Franchise   premium   receivables  of   approximately   $1,700,000  and
         $1,900,000 as of December 25, 2005 and December 26, 2004, respectively,
         included in receivables related to captive insurance subsidiary.
    o    Cash  equivalent  and other  long-term  investments  restricted for the
         payment of claims of  approximately  $18,600,000  and $16,700,000 as of
         December  25, 2005 and December  26,  2004,  respectively,  included in
         restricted assets related to captive insurance subsidiary.
    o    Loss  reserve  and  unearned  premiums  related  to  captive  insurance
         subsidiary of approximately  $20,700,000 and $19,600,000 as of December
         25, 2005 and December 26, 2004, respectively. Approximately $10,500,000
         and  $7,500,000  as  of  December  25,  2005  and  December  26,  2004,
         respectively, is included in other non-current liabilities.
    o    Other   miscellaneous   items,  net,  of  approximately   $400,000  and
         $1,000,000 as of December 25, 2005 and December 26, 2004, respectively,
         included in several line items in the consolidated balance sheets.


                                       30
<PAGE>
Results of Operations

The  following  table  contains   information   derived  from  our  consolidated
statements of earnings  expressed as a percentage of total  operating  revenues,
except where otherwise noted. Percentages may not add due to rounding.

<TABLE>
<CAPTION>
                                                                           Fiscal Year Ended
                                                            -----------------------------------------------
                                                               December 25,    December 26,    December 28,
                                                                  2005             2004           2003
                                                            ---------------- --------------- --------------
  <S>                                                       <C>              <C>             <C>
  Revenues:
       Company restaurant sales.........................           89.0%           87.9%            87.6%
       Franchise royalties and fees.....................           10.6            10.9             11.1
       Other franchise income...........................            0.4             1.2              1.3
                                                            ---------------- --------------- --------------
          Total operating revenues......................          100.0%          100.0%           100.0%
                                                            ================ =============== ==============
  Cost of sales (as a percentage of company restaurant sales):
       Food and beverage................................           26.5%           26.5%            26.0%
       Labor............................................           33.1            32.5             32.7
       Direct and occupancy.............................           26.6            25.1             25.1
       Pre-opening expense..............................            0.4             0.3              0.2
                                                            ---------------- --------------- --------------
          Total cost of sales...........................           86.6%           84.4%            84.0%
                                                            ================ =============== ==============
  Cost of other franchise income (as a percentage of
     other franchise income)............................           94.1%          105.8%            96.6%
  General and administrative expenses...................            9.0             9.4              9.6
  Amortization of intangible assets.....................            0.1             0.1               --
  Impairment of long-lived assets.......................            0.3              --               --
  Loss on disposition of restaurants and equipment......            0.2             0.2              0.1
                                                            ---------------- --------------- --------------
  Operating earnings....................................           13.0            14.9             15.4
                                                            ---------------- --------------- --------------
  Other income (expense):
       Investment income................................            0.1             0.1              0.2
       Interest expense.................................           (0.4)           (0.1)            (0.2)
       Impairment of Chevys note receivable.............             --              --             (0.9)
       Other income.....................................            0.1             0.3              0.4
                                                            ---------------- --------------- --------------
          Total other income (expense)..................           (0.1)            0.3             (0.5)
                                                            ---------------- --------------- --------------
  Earnings before income taxes and cumulative effect of
       change in accounting principle...................           12.9            15.2             14.9
  Income taxes..........................................            4.5             5.2              5.4
                                                            ---------------- --------------- --------------
  Earnings before cumulative effect of change in
       accounting principle.............................            8.4            10.0              9.5
  Cumulative effect of change in accounting principle,
       net of tax.......................................             --              --               --
                                                            ---------------- --------------- --------------
  Net earnings..........................................            8.4%           10.0%             9.5%
                                                            ================ =============== ==============

</TABLE>


                                       31
<PAGE>
Fiscal Year Ended December 25, 2005 Compared With Fiscal Year Ended December 26,
2004

Company Restaurant Sales. Total company restaurant sales increased  $105,843,000
(11%)  from  $976,798,000  in 2004 to  $1,082,641,000  in 2005.  The  percentage
increase in total company  restaurant sales was due to an increase in the number
of restaurant  weeks open of  approximately  13% which was partially offset by a
decline in average weekly sales of 2.1%.

Comparable  restaurant sales at company  restaurants  decreased by 0.9% in 2005.
Weighted average weekly sales at company restaurants decreased 2.1% from $46,536
in 2004 to $45,552 in 2005. These decreases were due, in part, to a reduction in
guest  traffic  in 2005 as  compared  to 2004 due to the  launch  of our  Weight
Watchers(TM)  menu  system-wide in May 2004. In addition,  we  experienced  more
significant guest count declines in Kansas City, Minnesota and New England where
approximately 40% of our company  restaurants are located,  which was consistent
with industry  trends in these markets.  Weighted  average weekly sales declined
more than  comparable  sales due to weaker  new  restaurant  opening  volumes in
Kansas City,  Minnesota,  New England,  St. Louis and Virginia.  These decreases
were partially  offset by an increase in the average guest check  resulting from
menu price  increases  of  approximately  2.5% in 2005 and our Carside To Go(TM)
initiative.  Carside  To  Go(TM)  sales  mix  increased  from  9.3%  of  company
restaurant sales in 2004 to 10.0% of company restaurant sales in 2005.

Franchise Royalties and Fees.  Franchise royalties and fees increased $7,592,000
(6%) from  $121,221,000  in 2004 to  $128,813,000  in 2005 due  primarily to the
increased number of franchise  restaurants  operating during 2005 as compared to
2004 and increases in comparable  franchise  restaurant sales.  Weighted average
weekly sales and franchise comparable restaurant sales each increased by 2.7% in
2005. These increases were due primarily to the implementation of the Carside To
Go(TM) program which was completed in early 2005.

Other Franchise Income.  Other franchise income decreased  $8,419,000 (62%) from
$13,615,000  in 2004 to  $5,196,000  in 2005 due  primarily to fewer  franchisee
participants in our captive  insurance  program  resulting from the reduction of
the types of insurance  coverage plans offered.  Franchise premiums are included
in other franchise income ratably over the policy year.

Cost of Company  Restaurant  Sales.  Food and beverage  costs were 26.5% in both
2004 and 2005.  Food and beverage  costs were  favorably  impacted by menu price
increases of 2.5% in 2005, which were offset by higher commodity costs and lower
order  incidences of both alcoholic and  non-alcoholic  beverages,  which have a
lower cost of sales. In addition,  2004 was unfavorably  impacted by the company
portion of the June 2004 impairment of approximately  $500,000 for excess riblet
inventories which no longer met our quality standards.

Labor costs  increased from 32.5% in 2004 to 33.1% in 2005. The increase in 2005
was due  primarily  to higher  management  and hourly  costs due to lower  sales
volumes,  higher wage rates,  payroll taxes and group insurance costs which were
partially  offset  by  lower  management  incentive  compensation  and  workers'
compensation expense.

Direct and occupancy costs increased from 25.1% in 2004 to 26.6% in 2005. Direct
and  occupancy  costs were  unfavorably  impacted  due  primarily to lower sales
volumes at company  restaurants  which  resulted in  unfavorable  year over year
comparisons for depreciation,  rent and property tax expenses as a percentage of
sales,  due to their  relatively  fixed nature,  as well as higher utilities and
packaging costs.

Cost of  Other  Franchise  Income.  Cost of  other  franchise  income  decreased
$9,509,000  (66%) from  $14,401,000 in 2004 to $4,892,000 in 2005. This decrease
was due  primarily to fewer  franchisee  participants  in our captive  insurance


                                       32
<PAGE>
program  resulting  from the reduction of the types of insurance  coverage plans
offered and the franchisee  portion of the June 2004 impairment of approximately
$1,600,000  for  excess  riblet  inventories  which no  longer  met our  quality
standards.

General  and  Administrative  Expenses.   General  and  administrative  expenses
decreased  from  9.4% in 2004 to 9.0% in 2005 as a result of the  absorption  of
general and administrative  expenses over a larger revenue base, lower incentive
compensation  expense and a reduction in costs  associated  with compliance with
Section 404 of the Sarbanes-Oxley  Act. These decreases were partially offset by
higher  compensation  expense  due  to  higher  management  training  costs  and
increased  regional  operations  management  staffing  relating to the increased
number of company restaurant openings as compared to 2004.

Impairment of Long-lived Assets. In 2005, we recorded an asset impairment charge
of $3,900,000 consisting of a $2,600,000 write-down of the carrying value of the
property and equipment of four  restaurants  and a $1,300,000  write-down of one
other long-lived asset (see Note 7 of the consolidated financial statements).

Interest  Expense.  Interest  expense  increased  from  $1,626,000  in  2004  to
$4,365,000  in 2005 due  primarily  to  increased  borrowings  under our  credit
facility  used to  acquire  12  restaurants  in May  2005  and to  fund  capital
expenditures and repurchases of our common stock.

Other  Income.  Other income  decreased  $1,795,000  from  $3,557,000 in 2004 to
$1,762,000  in 2005.  In 2004,  we  recorded  several  significant  items  which
resulted in higher other income for that year.  These items  consisted of income
of $1,600,000 for the resolution of certain  previously  disclosed  long-running
international  franchise disputes and $600,000 of income for final consideration
related to the sale of 12 restaurants in Philadelphia in 1999.

Income Taxes.  The effective income tax rate, as a percentage of earnings before
income taxes,  increased  from 34.2% in 2004 to 34.9% in 2005 due to an increase
in state and local income taxes.

Fiscal Year Ended December 26, 2004 Compared With Fiscal Year Ended December 28,
2003

Company Restaurant Sales. Total company restaurant sales increased  $109,640,000
(13%) from  $867,158,000  in 2003 to $976,798,000  in 2004.  Company  restaurant
openings  and   increases   in  weighted   average   weekly  sales   contributed
approximately  8%  and  3%,  respectively,  of the  increase  in  total  company
restaurant  sales  in 2004.  The  acquisitions  of 10  restaurants  in  Southern
California in April 2004 and 11 restaurants in Illinois,  Indiana, Kentucky, and
Missouri  in late March 2003  contributed  approximately  3% of the  increase in
company  restaurant sales.  These increases were offset by 1% due to the sale of
eight restaurants in the Atlanta, Georgia market in July 2003.

Comparable  restaurant sales at company  restaurants  increased by 3.8% in 2004.
Weighted average weekly sales at company restaurants increased 3.4% from $45,000
in 2003 to $46,536 in 2004.  These  increases were due primarily to increases in
guest traffic and in the average guest check resulting from menu price increases
of approximately  1.7% in 2004. In addition,  a portion of the increase resulted
from the implementation of our Carside To Go(TM)  initiative.  Carside To Go(TM)
sales mix increased from 7.1% in 2003 to 9.3% in 2004.

Franchise Royalties and Fees. Franchise royalties and fees increased $11,617,000
(11%) from  $109,604,000  in 2003 to  $121,221,000  in 2004 due primarily to the
increased number of franchise  restaurants  operating during 2004 as compared to
2003 and increases in comparable  franchise  restaurant sales.  Weighted average
weekly sales and franchise comparable restaurant sales each increased by 5.2% in
2004.


                                       33
<PAGE>
Other Franchise  Income.  Other franchise  income  increased  $468,000 (4%) from
$13,147,000 in 2003 to $13,615,000 in 2004 due primarily to revenues  recognized
for   information   technology   products  and  services   provided  to  certain
franchisees.

Cost of Company  Restaurant  Sales. Food and beverage costs increased from 26.0%
in 2003 to 26.5% in 2004. This increase was due to higher  commodity costs which
impacted our cost of company  restaurant sales by approximately  0.9% and higher
food costs related to our menu promotions. This increase was partially offset by
the impact of menu price increases,  operational improvements resulting from our
supply chain management initiatives and better food cost control.

Labor costs decreased from 32.7% in 2003 to 32.5% in 2004. In 2004,  labor costs
were  unfavorably  impacted by higher  management  and hourly  labor wage rates,
higher workers'  compensation and group insurance costs and higher costs related
to the  addition  of  dedicated  Carside To Go(TM)  hourly  labor at most of our
restaurants beginning in the second half of 2003. These increases were offset by
lower management incentive compensation and higher sales volumes which favorably
impacted management costs.

Direct  and  occupancy  costs  were  25.1% in both  2003 and  2004.  Direct  and
occupancy  costs were  favorably  impacted  by higher  sales  volumes at company
restaurants which were offset by higher packaging costs as a result of increased
To Go(TM) sales volumes and higher credit card usage fees.

Cost of  Other  Franchise  Income.  Cost of  other  franchise  income  increased
$1,704,000  (13%) from  $12,697,000 in 2003 to $14,401,000 in 2004 due primarily
to  the  franchisee  portion  of  the  inventory   impairment  of  approximately
$1,600,000 (see Note 6 to the consolidated financial statements).

General  and  Administrative  Expenses.   General  and  administrative  expenses
decreased  from  9.6% in 2003 to 9.4% in 2004 as a result of the  absorption  of
general  and  administrative  expenses  over a larger  revenue  base  and  lower
incentive   compensation.   This  decrease  was   partially   offset  by  higher
depreciation expense related to our new information systems, higher compensation
expense due to staffing levels and costs associated with compliance with Section
404 of the Sarbanes-Oxley Act.

Other  Income.  Other  income  decreased  $165,000  from  $3,722,000  in 2003 to
$3,557,000 in 2004. Significant items causing fluctuations between 2004 and 2003
are as  follows:  In 2004,  we  recorded  $1,600,000  in  resolution  of certain
previously disclosed long-running international franchise disputes. In addition,
we recorded $600,000 of income for final consideration related to the sale of 12
restaurants in Philadelphia in 1999. In 2003, we recognized $1,600,000 of income
related to  collection  from a previous  financing  agreement.  In addition,  we
recorded $1,200,000 of income for additional  consideration  related to the sale
of 12 restaurants in Philadelphia in 1999.

Impairment of Chevys Note Receivable. In June 2003, Chevys announced the sale of
the majority of its  restaurants.  Subsequent to the  announcement,  we received
Chevys'  audited  financial  statements  for the fiscal year ended  December 31,
2002.  During 2003,  we fully  impaired the  principal  and accrued  interest of
approximately  $8,800,000.  In  October  2003,  Chevys  Inc.  filed a  voluntary
petition to reorganize under Chapter 11 of the U.S. Bankruptcy Code. In December
2004, the U.S. Bankruptcy Court approved Chevys' reorganization plan.

Income Taxes.  The effective income tax rate, as a percentage of earnings before
income taxes,  decreased  from 36.0% in 2003 to 34.2% in 2004 due to a reduction
in state and local income taxes.

Liquidity and Capital Resources

Our primary  sources of liquidity are cash provided by operations and borrowings
under our credit  facility.  Our need for  capital  resources  historically  has


                                       34
<PAGE>
resulted from the construction and acquisition of restaurants, the repurchase of
our common stock and investment in information  technology systems. In the past,
we have obtained capital through our ongoing operations and debt financing. Cash
flows from our ongoing operations  primarily include cash generated from company
and franchise operations,  management of credit from trade suppliers,  decisions
to enter into restaurant operating leases and cash received from the exercise of
employee stock options. In addition,  we have assumed debt or issued new debt in
connection with certain mergers and acquisitions. The following table presents a
summary of our cash flows for the last three fiscal years (in thousands):

<TABLE>
<CAPTION>
                                                                2005              2004              2003
                                                          ----------------  ----------------  ----------------
      <S>                                                 <C>               <C>               <C>

      Net cash provided by operating activities..........   $   221,203       $   190,605       $   175,889

      Net cash used by investing activities..............      (187,718)         (134,055)         (105,174)

      Net cash used by financing activities..............       (31,087)          (63,775)          (68,017)
                                                          ----------------  ----------------  ----------------
      Net increase (decrease) in cash
         and cash equivalents............................   $     2,398       $    (7,225)      $     2,698
                                                          ================  ================  ================
</TABLE>

Capital  expenditures,  excluding franchise  acquisitions,  were $139,396,000 in
2005, $104,620,000 in 2004 and $82,562,000 in 2003. In 2006, we currently expect
to  open  approximately  40  company  restaurants,   and  capital  expenditures,
excluding franchise  acquisitions,  are expected to be between  $140,000,000 and
$150,000,000.

Future  capital  expenditures  will  primarily  be for  the  development  of new
restaurants,  refurbishment and capital replacement for existing restaurants and
the  enhancement  of  information  systems.  Because  we expect to  continue  to
purchase  a portion  of our  restaurant  sites,  the  amount  of actual  capital
expenditures  will be dependent  upon,  among other  things,  the  proportion of
leased versus owned  properties.  If we construct more or fewer restaurants than
we  currently  anticipate  or  acquire  additional   restaurants,   our  capital
requirements will increase or decrease  accordingly.  In addition,  we expect to
incur costs  associated with the purchase of land and other  construction  costs
for our new corporate headquarters in 2006.

We completed the  acquisition of four franchise  restaurants in the Houston area
in January 2006 for approximately $8,200,000 in cash.

In May 2005,  we completed  the  acquisition  of 12  Applebee's  restaurants  in
Missouri, Kansas and Arkansas, which included one restaurant under construction,
for approximately $39,500,000 in cash.

In April 2005, we finalized the acquisition of eight  Applebee's  restaurants in
the  Memphis  market  that  were  closed  in 2004  by a  former  franchisee  for
approximately  $8,800,000  payable in cash. In connection with this acquisition,
we paid approximately $800,000 in 2004 and $8,000,000 in 2005.

In April 2004, we completed the  acquisition  of the operations and assets of 10
Applebee's   restaurants   located  in  Southern  California  for  approximately
$13,800,000 in cash.

In July 2003, we completed the sale of eight company restaurants in the Atlanta,
Georgia  market to an affiliate of an existing  franchisee  for  $8,000,000.  In
connection with the sale of these  restaurants,  we closed one restaurant in the
Atlanta market in June 2003.

In  March  2003,  we  acquired  the  operations  and  assets  of  11  Applebee's
restaurants located in Illinois,  Indiana, Kentucky and Missouri for $21,800,000
in cash and $1,400,000 in assumed debt from a franchisee.


                                       35
<PAGE>
In December  2004, we completed the  refinancing of our  $150,000,000  unsecured
revolving  credit  facility.  The  new  bank  credit  agreement  provided  for a
$150,000,000 five-year unsecured revolving credit facility, of which $40,000,000
may be used for the  issuance of letters of credit.  The  facility is subject to
various  covenants  and  restrictions  which,  among other  things,  require the
maintenance  of  stipulated   fixed  charge,   leverage  and   indebtedness   to
capitalization  ratios, as defined. There is no limit on cash dividends provided
that the  declaration  and payment of such  dividend does not cause a default of
any other covenant contained in the agreement.  The facility is subject to other
standard terms,  conditions,  covenants, and fees. In September 2005, we entered
into an amendment to our credit  facility which  increased the revolving  credit
commitment  available from  $150,000,000  to  $200,000,000.  In October 2005, we
entered  into a second  amendment to our credit  facility  which  increased  the
revolving  credit  commitment  available from  $200,000,000 to $250,000,000  and
provided for an additional  $75,000,000 of revolving credit upon satisfaction of
the  conditions  set forth in the credit  facility.  As of December 25, 2005, we
were in compliance with the covenants  contained in our credit agreement.  As of
December 25, 2005, we had borrowings of $182,900,000,  standby letters of credit
of $9,400,000  outstanding  and  approximately  $57,700,000  available under our
revolving  credit facility.  During 2006, we expect to fund operations,  capital
expansion,  any  repurchases  of common stock and the payment of dividends  from
cash flows from operations and borrowings under our revolving credit facility.

In October 2004, our Board of Directors authorized additional repurchases of our
common  stock of up to  $150,000,000  beginning  in 2005 which was  completed in
October  2005. In October  2005,  our Board of Directors  approved an additional
$175,000,000  authorization  to repurchase  our common stock,  subject to market
conditions.  During 2005, we repurchased 8,288,093 shares of our common stock at
an average price of $23.66 for an aggregate cost of approximately  $196,100,000.
As of December 25, 2005, we had  $128,967,000  remaining  under our October 2005
repurchase authorization.

In October 2005, the Board of Directors declared an annual dividend of $0.20 per
share  payable  to  shareholders  of  record  on  December  23,  2005.  We  paid
approximately $14,800,000 in January 2006 related to this dividend.

As of December 25, 2005,  our liquid assets  totaled  $13,326,000.  These assets
consisted  of cash  and  cash  equivalents  in the  amount  of  $13,040,000  and
short-term  investments in the amount of $286,000.  The working  capital deficit
increased  from  $51,041,000  as of  December  26,  2004 to  $107,400,000  as of
December 25, 2005.  This increase was due primarily to checks  written in excess
of a bank balance which  subsequently  was funded  through our credit  facility,
increases in accrued  dividends and gift cards sold and decreases in inventories
and  cash  and  cash  equivalents  due  to  repurchases  of  our  common  stock,
acquisition of restaurants and capital expenditures in 2005.

We believe that our liquid assets and cash generated from  operations,  combined
with borrowings  available under our credit  facility,  will provide  sufficient
funds for capital expenditures,  repurchases of our common stock, the payment of
dividends and other such operating activities for the foreseeable future.


                                       36
<PAGE>
The following table shows our debt amortization  schedule,  future capital lease
commitments (including principal and interest payments),  future operating lease
commitments  (see  operating  leases  in Note 12 to the  consolidated  financial
statements)  and  future  purchase  obligations  as of  December  25,  2005  (in
thousands):

<TABLE>
<CAPTION>
                                                                          Payments due by period
                                                   ---------------------------------------------------------------------
                    Certain                                        Less than 1       1-3           3-5      More than 5
            Contractual Obligations                    Total          year          Years         Years        years
-------------------------------------------------  ------------- ------------- ------------- ------------ -------------
<S>                                                <C>           <C>           <C>           <C>          <C>
Long-term Debt (excluding capital lease
    obligations) and Notes Payable(1)...........   $   184,313    $     8,021   $       120   $   175,099  $     1,073
Capital Lease Obligations.......................         8,331            794         1,673         1,791        4,073
Operating Leases (2)............................       377,607         26,684        53,868        53,033      244,022
Purchase Obligations - Company(3)...............       150,011        125,106        16,718         8,187          --
Purchase Obligations - Franchise(4).............       269,044        220,486        26,356        22,202          --

<FN>
(1) The amounts for long-term debt are primarily  borrowings under our revolving
credit facility and exclude interest payments which are variable in nature.

(2) The amounts for operating  leases  include  option  periods where failure to
exercise such options would result in an economic  penalty such that the renewal
appears reasonably assured.

(3) The amounts for company purchase  obligations  include  commitments for land
for a new corporate headquarters,  food items, energy,  supplies,  severance and
employment agreements, and other miscellaneous commitments.

(4) The amounts for franchise purchase  obligations include commitments for food
items and supplies made by Applebee's  International,  Inc. for our franchisees.
Applebee's  International,  Inc.  contracts  with  certain  suppliers  to ensure
competitive   pricing.   These  amounts  will  only  be  payable  by  Applebee's
International,  Inc. if our franchisees do not meet certain minimum  contractual
requirements.
</FN>
</TABLE>

Other Contractual Obligations

In connection with the sale of restaurants to franchisees and other parties,  we
have, in certain cases,  remained  contingently  liable for the remaining  lease
payments.  As of December 25, 2005,  we have  outstanding  lease  guarantees  of
approximately  $17,200,000.  These leases expire at various times with the final
lease  agreement  expiring in 2018.  In  addition,  we or our  subsidiaries  are
contingently  liable for various leases that we have assigned in connection with
the sale of  restaurants  to  franchisees  and other  parties,  in the potential
amount  of  $14,100,000.  We have not  recorded  a  liability  related  to these
contingent lease liabilities as of December 25, 2005 or December 26, 2004.

We have severance and employment  agreements with certain officers providing for
severance  payments  to be  made  in  the  event  the  associate  resigns  or is
terminated   related  to  a  change  in  control.   The  agreements  define  the
circumstances  which  will  constitute  a change in  control.  If the  severance
payments had been due as of December 25,  2005,  we would have been  required to
make payments totaling approximately $13,300,000. In addition, we have severance
and  employment   agreements  with  certain  officers  which  contain  severance
provisions  not  related to a change in  control.  Those  provisions  would have
required  aggregate  payments of  approximately  $6,200,000 if such officers had
been terminated as of December 25, 2005.

In 2003,  we  arranged  for a  third-party  financing  company  to provide up to
$75,000,000  to  qualified  franchisees  for  short-term  loans to fund  remodel
investments, subject to our approval. Under the terms of this financing program,
we  provided  a  limited  guarantee  pool  for the  loans  advanced  during  the
three-year  period ending  December  2006. In the fourth  quarter of 2005,  this
program was  terminated  and we were  released from the  guarantees  that we had
previously provided under this program.

In 2004,  we  arranged  for a  third-party  financing  company  to provide up to
$250,000,000  to  qualified  franchisees  for loans to fund  development  of new
restaurants  through  October 2007,  subject to our approval.  We will provide a
limited  guarantee of 10% of certain loans advanced under this program.  We will
be released  from our guarantee if certain  operating  results are met after the
restaurant has been open for at least two years. As of December 25, 2005,  there
were loans  outstanding to six franchisees for  approximately  $50,400,000 under
this program.  The fair value of our guarantees under this financing  program is
approximately  $100,000  and  is  recorded  in  non-current  liabilities  in our
consolidated balance sheet as of December 25, 2005.


                                       37
<PAGE>
New Accounting Pronouncements

In October 2005, the Financial  Accounting  Standards Board ("FASB") issued FASB
Staff Position  ("FSP") 13-1,  "Accounting  for Rental Costs  Incurred  during a
Construction  Period." The guidance  requires  the rental costs  recognized  for
ground or building operating leases during the construction period be recognized
as rental  expense.  The guidance  permits  either  retroactive  or  prospective
treatment for periods  beginning after December 15, 2005. We will  prospectively
change our policy  from  capitalization  to  expensing  beginning  in 2006.  The
adoption  of this FSP will  result  in an  expected  increase  of  approximately
$25,000 in preopening  expenses  recognized for every new restaurant  opened but
will not have a material effect on our consolidated financial statements.

In May  2005,  the FASB  issued  Statement  of  Financial  Accounting  Standards
("SFAS") No. 154, "Accounting Changes and Error Corrections - Replacement of APB
Opinion No. 20 and FASB  Statement  No. 3." SFAS No. 154 requires  retrospective
application  to prior  periods'  financial  statements for changes in accounting
principle,  unless it is impracticable  to determine either the  period-specific
effects or the  cumulative  effect of the change.  SFAS No. 154 is effective for
accounting  changes and  corrections  of errors made in fiscal  years  beginning
after December 15, 2005.

In March 2005,  the FASB  issued FASB  Interpretation  No. 47,  "Accounting  for
Conditional Asset Retirement Obligations," ("FIN 47"). FIN 47 clarifies the term
"conditional"  as  used  in SFAS  No.  143,  "Accounting  for  Asset  Retirement
Obligations."  This  Interpretation  refers to a legal  obligation to perform an
asset retirement activity even if the timing and/or settlement is conditional on
a  future  event  that  may or may  not be  within  the  control  of an  entity.
Accordingly,  the entity  must  record a  liability  for the  conditional  asset
retirement  obligation  if the fair value of the  obligation  can be  reasonably
estimated.  FIN 47 is effective for fiscal years ending after December 15, 2005.
We have entered into certain  leases which may require us to return the property
to the  landlord  in its  original  condition.  We recorded an expense for these
leases of  $400,000 in our 2005  consolidated  financial  statements,  including
$50,000 in direct and occupancy  costs  related to 2005 and $350,000  ($225,000,
net of income taxes) for years prior to 2005 as a cumulative  effect of a change
in accounting principle as required by FIN 47.

In December  2004,  the FASB issued SFAS No. 123  (revised  2004),  "Share-based
Payment,"   which   replaces   SFAS  No.  123,   "Accounting   for   Stock-Based
Compensation,"  and supersedes  Accounting  Principles Board ("APB") Opinion No.
25,  "Accounting  for Stock Issued to  Employees."  SFAS No. 123 (revised  2004)
requires  compensation costs related to share-based  payment  transactions to be
recognized in the financial statements.  With limited exceptions,  the amount of
compensation  cost will be measured based on the fair value on the grant date of
the equity or liability instruments issued. Compensation cost will be recognized
over the period that an employee provides service for that award, resulting in a
decrease in our net earnings. We will adopt the provisions of this Statement, as
amended, using the modified prospective method beginning in 2006. We expect that
the adoption of this  Standard  will  decrease our 2006 diluted net earnings per
common share by approximately $0.17.


Item 7A. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk from fluctuations in interest rates and changes in
commodity  prices.  Our revolving  credit  facility bears interest at either the
bank's prime rate or LIBOR plus 0.625%,  at our option. As of December 25, 2005,
the total amount of debt subject to interest rate  fluctuations was $182,900,000
which was outstanding on our revolving credit facility.  A 1% change in interest
rates would result in an increase or decrease in interest  expense of $1,829,000
per year. We may from time to time enter into  interest rate swap  agreements to
manage the  impact of  interest  rate  changes on our  earnings.  A  substantial
portion of the food  products  and  utilities  we purchase  are subject to price
volatility  due to factors  that are  outside of our  control  such as  weather,
seasonality and fuel costs. As part of our strategy to moderate this volatility,
we have entered into fixed price purchase commitments.


                                       38
<PAGE>
Item 8. Financial Statements and Supplementary Data

See the Index to Consolidated Financial Statements on Page F-1.

Item 9.  Changes  in  and  Disagreements  with  Accountants  on  Accounting  and
         Financial Disclosure

Not applicable.

Item 9A. Controls and Procedures

As of December 25, 2005, we have evaluated the  effectiveness  of the design and
operation of our disclosure  controls and procedures,  under the supervision and
with the  participation of the principal  executive  officer and Chief Financial
Officer  ("CFO").  Based  on this  evaluation,  our  management,  including  the
principal  executive officer and CFO, concluded that our disclosure controls and
procedures are effective.

During  our most  recent  fiscal  quarter,  there  have been no  changes  in our
internal  control over financial  reporting  that occurred that have  materially
affected or are reasonably likely to materially affect our internal control over
financial reporting.

Management's Report on Internal Control over Financial Reporting

The management of Applebee's International, Inc. is responsible for establishing
and maintaining adequate internal control over financial  reporting,  as defined
in Exchange  Act Rule  13a-15(f).  Our internal  control  system was designed to
provide reasonable  assurance to the company's management and board of directors
regarding  the  preparation  and  fair   presentation  of  published   financial
statements in accordance with generally accepted accounting principles.

Management  recognizes that there are inherent  limitations in the effectiveness
of any system of internal  control,  and  accordingly,  even effective  internal
control  can  provide  only  reasonable  assurance  with  respect  to  financial
statement  preparation  and fair  presentation.  Further,  because of changes in
conditions, the effectiveness of internal control may vary over time.

Under the supervision and with the  participation  of our management,  including
our principal  executive  officer and CFO, we assessed the  effectiveness of the
company's internal control over financial  reporting as of December 25, 2005. In
making this  assessment,  we used the  criteria  set forth by the  Committee  of
Sponsoring    Organizations    of   the   Treadway    Commission   in   Internal
Control--Integrated  Framework.  Based upon our assessment, we conclude that, as
of December 25, 2005, the Company's internal control over financial reporting is
effective, in all material respects,  based upon those criteria.

Our independent registered public accounting firm, Deloitte & Touche LLP, issued
an  attestation  report  dated  March  8,  2006  on  our  assessment  and on the
effectiveness of the company's internal control over financial reporting,  which
is included herein.


                                       39
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Applebee's International, Inc. and Subsidiaries
Overland Park, KS

We  have  audited   management's   assessment,   included  in  the  accompanying
Management's  Report  on  Internal  Control  Over  Financial   Reporting,   that
Applebee's  International,  Inc. and  subsidiaries  (the  "Company")  maintained
effective  internal  control over  financial  reporting as of December 25, 2005,
based on criteria established in Internal  Control--Integrated  Framework issued
by the Committee of Sponsoring  Organizations  of the Treadway  Commission.  The
Company's  management is responsible for maintaining  effective internal control
over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express an opinion on
management's  assessment  and an opinion on the  effectiveness  of the Company's
internal  control over financial  reporting based on our audit.

We conducted  our audit in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain  reasonable  assurance  about whether  effective
internal  control  over  financial  reporting  was  maintained  in all  material
respects. Our audit included obtaining an understanding of internal control over
financial reporting,  evaluating management's assessment, testing and evaluating
the design and operating  effectiveness of internal control, and performing such
other  procedures as we considered  necessary in the  circumstances.  We believe
that our audit  provides  a  reasonable  basis  for our  opinions.

A company's internal control over financial  reporting is a process designed by,
or under the  supervision  of, the company's  principal  executive and principal
financial officers, or persons performing similar functions, and effected by the
company's  board of  directors,  management,  and  other  personnel  to  provide
reasonable  assurance  regarding the reliability of financial  reporting and the
preparation  of financial  statements for external  purposes in accordance  with
generally  accepted  accounting  principles. A company's  internal  control over
financial  reporting  includes those policies and procedures that (1) pertain to
the  maintenance  of records that, in reasonable  detail,  accurately and fairly
reflect the  transactions  and  dispositions  of the assets of the company;  (2)
provide  reasonable  assurance  that  transactions  are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting  principles,  and that receipts and  expenditures  of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of  unauthorized  acquisition,  use, or  disposition  of the company's
assets that could have a material effect on the financial statements.

Because  of  the  inherent   limitations  of  internal  control  over  financial
reporting,  including  the  possibility  of  collusion  or  improper  management
override of controls,  material  misstatements  due to error or fraud may not be
prevented or detected on a timely basis. Also,  projections of any evaluation of
the  effectiveness  of the internal  control over financial  reporting to future
periods are subject to the risk that the controls may become inadequate  because
of changes in conditions,  or that the degree of compliance with the policies or
procedures may deteriorate.

In our opinion,  management's  assessment that the Company maintained  effective
internal  control over  financial  reporting as of December 25, 2005,  is fairly
stated, in all material respects,  based on the criteria established in Internal
Control--Integrated   Framework   issued   by  the   Committee   of   Sponsoring
Organizations  of the  Treadway  Commission.  Also in our  opinion,  the Company
maintained, in all material respects,  effective internal control over financial


                                       40
<PAGE>
reporting as of December 25, 2005, based on the criteria established in Internal
Control--Integrated   Framework   issued   by  the   Committee   of   Sponsoring
Organizations of the Treadway  Commission.

We have also  audited,  in accordance  with the standards of the Public  Company
Accounting   Oversight  Board  (United  States),   the  consolidated   financial
statements as of and for the year ended December 25, 2005 of the Company and our
report dated March 8, 2006 expressed an unqualified  opinion on those  financial
statements.

DELOITTE & TOUCHE LLP

Kansas City, Missouri
March 8, 2006


Item 9B. Other Information

Not applicable.


                                       41
<PAGE>

                                    PART III

Item 10. Directors and Executive Officers of the Registrant

If you would like information about our executive officers,  you should read the
section entitled "Executive and Other Senior Officers of the Registrant" in Part
I of this report. You should read the information under the caption "Information
About the Board of  Directors  and  Executive  and Other  Senior  Officers"  for
information  on our  Board of  Directors  and  audit  committee  of the Board of
Directors  and  the  caption  "Section  16(a)  Beneficial   Ownership  Reporting
Compliance"  for information  regarding our Section 16(a)  reporting  compliance
located in the Proxy Statement for the Annual Meeting of Stockholders to be held
on or about May 11, 2006. We  incorporate  that  information in this document by
reference.

Our Board of  Directors  has  adopted a Code of Conduct for all  associates  and
directors.   A  copy  of  this   document  is   available   on  our  website  at
www.applebees.com,  free of charge under the Investors section.  We will satisfy
any disclosure  requirements  under Item 5.05 on Form 8-K regarding an amendment
to, or waiver from,  any  provision  of the Code with  respect to our  principal
executive officer, principal financial officer, principal accounting officer and
persons  performing similar functions by disclosing the nature of such amendment
or waiver on our website or in a report on Form 8-K.

Our Board of Directors has determined  that Mr. Eric L. Hansen,  a member of the
audit committee and an independent  director,  is an audit  committee  financial
expert, as defined under 401(h) of Regulation S-K.

Item 11. Executive Compensation

If you would like information about our executive compensation,  you should read
the information  under the caption  "Executive  Compensation"  and  "Information
About the Board of Directors  and  Executive  and Other Senior  Officers" in the
Proxy  Statement for the Annual Meeting of  Stockholders  to be held on or about
May 11, 2006. We incorporate that information in this document by reference.

Item 12. Security  Ownership of Certain  Beneficial  Owners and  Management and
         Related Stockholder Matters

If you  would  like  information  about the stock  owned by our  management  and
certain large stockholders and information about our equity  compensation plans,
you should read the information  under the caption "Stock Ownership of Officers,
Directors and Major Stockholders" and "Equity  Compensation Plan Information" in
the Proxy  Statement  for the Annual  Meeting of  Stockholders  to be held on or
about  May 11,  2006.  We  incorporate  that  information  in this  document  by
reference.

Item 13. Certain Relationships and Related Transactions

If you would like information about certain transactions which we have completed
or  certain  relationships  which we have  entered  into,  you  should  read the
information under the caption "Certain  Transactions" in the Proxy Statement for
the  Annual  Meeting of  Stockholders  to be held on or about May 11,  2006.  We
incorporate that information in this document by reference.

Item 14. Principal Accounting Fees and Services

If you would like information  about fees paid to our auditors,  you should read
the  information  under the caption "Fees and Services of Deloitte & Touche LLP"


                                       42
<PAGE>
in the Proxy  Statement for the Annual Meeting of  Stockholders to be held on or
about  May 11,  2006.  We  incorporate  that  information  in this  document  by
reference.


                                       43
<PAGE>

                                     PART IV

Item 15. Exhibits, Financial Statement Schedules

(a)      List of documents filed as part of this report:

         1. Financial Statements:

            The  financial  statements  are listed in the  accompanying  "Index
            to Consolidated Financial Statements" on Page F-1.

         2. Financial Statement Schedules:

            None.

         3. Exhibits:

            The exhibits filed with or incorporated by reference in this report
            are listed on the Exhibit Index beginning on page E-1.


                                       44
<PAGE>

                                   SIGNATURES


Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                         APPLEBEE'S INTERNATIONAL, INC.


Date:       March 9, 2006                 By: /s/   David L. Goebel
           ---------------                   -----------------------------------
                                             David L. Goebel
                                             Director, President and
                                             Chief Operating Officer
                                            (principal executive officer)


                                POWER OF ATTORNEY

KNOWN TO ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Lloyd L. Hill and Rebecca R. Tilden,  and each of
them,  his true and  lawful  attorney-in-fact  and  agent,  with  full  power of
substitution  and  resubstitution,  for him and in his name, place and stead, in
any and all  capacities,  to sign any  amendments to this Form 10-K, and to file
the same,  with exhibits  thereto and other  documents in connection  therewith,
with the Securities and Exchange Commission, hereby ratifying and confirming all
that said attorney-in-fact or his substitute or substitutes,  may do or cause to
be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  registrant and
in the capacities and on the dates indicated.


By:  /s/   David L. Goebel                        Date: March 9, 2006
     -----------------------------------                --------------------
     David L. Goebel
     Director, President and
     Chief Operating Officer
     (principal executive officer)

By:  /s/   Steven K. Lumpkin                      Date: March 9, 2006
     -----------------------------------                --------------------
     Steven K. Lumpkin
     Director, Executive Vice President, Chief
     Financial Officer and Treasurer
     (principal financial officer)

By:  /s/   Beverly O. Elving                      Date: March 9, 2006
     -----------------------------------                --------------------
     Beverly O. Elving
     Vice President and Controller
     (principal accounting officer)

By:  /s/   Lloyd L. Hill                          Date: March 9, 2006
     -----------------------------------                --------------------
     Lloyd L. Hill
     Director, Chairman of the Board and Chief
     Executive Officer


                                       45
<PAGE>



By:  /s/   Erline Belton                          Date: March 9, 2006
     -----------------------------------                --------------------
     Erline Belton
     Director


By:  /s/   Gina Boswell                           Date: March 9, 2006
     -----------------------------------                --------------------
     Gina Boswell
     Director


By:  /s/   Douglas R. Conant                      Date: March 9, 2006
     -----------------------------------                --------------------
     Douglas R. Conant
     Director


By:  /s/   D. Patrick Curran                      Date: March 9, 2006
     -----------------------------------                --------------------
     D. Patrick Curran
     Director


By:  /s/   Eric L. Hansen                         Date: March 9, 2006
     -----------------------------------                --------------------
     Eric L. Hansen
     Director


By:  /s/   Jack P. Helms                          Date: March 9, 2006
     -----------------------------------                --------------------
     Jack P. Helms
     Director


By:  /s/   Burton M. Sack                         Date: March 9, 2006
     -----------------------------------                --------------------
     Burton M. Sack
     Director


By:  /s/   Michael A. Volkema                     Date: March 9, 2006
     -----------------------------------                --------------------
     Michael A. Volkema
     Director




                                       46
<PAGE>

                 APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                                                Page
<S>                                                                                                             <C>

Report of Independent Registered Public Accounting Firm.....................................................    F-2

Consolidated Balance Sheets as of December 25, 2005 and December 26, 2004 ..................................    F-3

Consolidated Statements of Earnings for the Fiscal Years Ended December 25, 2005,
December 26, 2004 and December 28, 2003.....................................................................    F-4

Consolidated Statements of Stockholders' Equity for the Fiscal Years Ended December 25, 2005,
December 26, 2004 and December 28, 2003.....................................................................    F-5

Consolidated Statements of Cash Flows for the Fiscal Years Ended December 25, 2005,
December 26, 2004 and December 28, 2003.....................................................................    F-6

Notes to Consolidated Financial Statements..................................................................    F-8

</TABLE>


                                      F-1
<PAGE>

            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Applebee's International, Inc. and Subsidiaries
Overland Park, Kansas

We have  audited the  accompanying  consolidated  balance  sheets of  Applebee's
International, Inc. and subsidiaries (the "Company") as of December 25, 2005 and
December  26,  2004,  and  the  related  consolidated  statements  of  earnings,
stockholders'  equity,  and cash flows for each of the three fiscal years in the
period  ended   December  25,  2005.   These   financial   statements   are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion,  such consolidated  financial  statements present fairly, in all
material respects, the financial position of the Company as of December 25, 2005
and December 26, 2004,  and the results of its operations and its cash flows for
each of the three  fiscal  years in the  period  ended  December  25,  2005,  in
conformity with accounting principles generally accepted in the United States of
America.

We have also  audited,  in accordance  with the standards of the Public  Company
Accounting  Oversight Board (United States),  the effectiveness of the Company's
internal control over financial  reporting as of December 25, 2005, based on the
criteria  established in Internal  Control--Integrated  Framework  issued by the
Committee of Sponsoring  Organizations of the Treadway Commission and our report
dated March 8, 2006 expressed an unqualified opinion on management's  assessment
of the effectiveness of the Company's internal control over financial  reporting
and an  unqualified  opinion  on the  effectiveness  of the  Company's  internal
control over financial reporting.

DELOITTE & TOUCHE LLP

Kansas City, Missouri
March 8, 2006



                                      F-2
<PAGE>
<TABLE>
<CAPTION>

                 APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                      (in thousands, except share amounts)

                                                                                       December 25,       December 26,
                                                                                           2005                2004
                                                                                      --------------     -------------
                                     ASSETS
<S>                                                                                   <C>                <C>
Current assets:
     Cash and cash equivalents...................................................      $   13,040          $  10,642
     Short-term investments, at market value.....................................             286                282
     Receivables, net of allowance...............................................          37,857             39,152
     Receivables related to captive insurance subsidiary.........................           1,712              2,566
     Inventories.................................................................          20,373             35,936
     Prepaid income taxes........................................................           3,488                --
     Prepaid and other current assets............................................          13,518             12,079
                                                                                      --------------     -------------
        Total current assets.....................................................          90,274            100,657
Property and equipment, net......................................................         590,593            486,548
Goodwill.........................................................................         138,443            116,344
Restricted assets related to captive insurance subsidiary........................          19,329             17,386
Other intangible assets, net.....................................................           8,050              8,524
Other assets, net................................................................          31,899             24,972
                                                                                      --------------     -------------
                                                                                       $  878,588          $ 754,431
                                                                                      ==============     =============


                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Current portion of long-term debt...........................................      $      259          $     222
     Notes payable...............................................................           7,900                --
     Accounts payable............................................................          63,445             42,830
     Accrued expenses and other current liabilities..............................         100,995             89,064
     Loss reserve and unearned premiums related to captive insurance subsidiary..          10,235             12,137
     Accrued dividends...........................................................          14,840              4,867
     Accrued income taxes........................................................             --               2,578
                                                                                      --------------     -------------
        Total current liabilities................................................         197,674            151,698
                                                                                      --------------     -------------
Non-current liabilities:
     Long-term debt - less current portion.......................................         180,208             35,472
     Deferred income taxes.......................................................          37,722             28,995
     Other non-current liabilities...............................................          50,374             41,539
                                                                                      --------------     -------------
        Total non-current liabilities............................................         268,304            106,006
                                                                                      --------------     -------------
        Total liabilities........................................................         465,978            257,704
                                                                                      --------------     -------------
Commitments and contingencies (Notes 12, 13 and 18)
     Stockholders' equity:
     Preferred stock - par value $0.01 per share: authorized - 1,000,000 shares;
        no shares issued.........................................................             --                 --
     Common stock - par value $0.01 per share:  authorized - 125,000,000 shares;
        issued - 108,503,243 shares..............................................           1,085              1,085
     Additional paid-in capital..................................................         234,988            220,897
     Unearned compensation.......................................................          (2,614)            (1,924)
     Retained earnings...........................................................         710,277            623,315
                                                                                      --------------     -------------
                                                                                          943,736            843,373
     Treasury stock - 34,304,693 shares in 2005 and 27,375,044 shares in 2004,
        at cost..................................................................        (531,126)          (346,646)
                                                                                      --------------     -------------
        Total stockholders' equity...............................................         412,610            496,727
                                                                                      --------------     -------------
                                                                                       $  878,588          $ 754,431
                                                                                      ==============     =============
</TABLE>


                 See notes to consolidated financial statements.


                                      F-3
<PAGE>
<TABLE>
<CAPTION>

                 APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF EARNINGS
                    (in thousands, except per share amounts)


                                                                                  Fiscal Year Ended
                                                                  --------------------------------------------------
                                                                   December 25,       December 26,      December 28,
                                                                       2005               2004              2003
                                                                  --------------     -------------     -------------
<S>                                                               <C>                <C>               <C>
Revenues:
     Company restaurant sales................................      $ 1,082,641        $  976,798        $  867,158
     Franchise royalties and fees............................          128,813           121,221           109,604
     Other franchise income..................................            5,196            13,615            13,147
                                                                  --------------     -------------     -------------
        Total operating revenues.............................        1,216,650         1,111,634           989,909
                                                                  --------------     -------------     -------------
Cost of company restaurant sales:
     Food and beverage.......................................          286,522           259,134           225,346
     Labor...................................................          358,563           317,659           283,762
     Direct and occupancy....................................          287,656           244,707           217,393
     Pre-opening expense.....................................            4,767             3,025             2,020
                                                                  --------------     -------------     -------------
        Total cost of company restaurant sales...............          937,508           824,525           728,521
                                                                  --------------     -------------     -------------
Cost of other franchise income...............................            4,892            14,401            12,697
General and administrative expenses..........................          109,768           104,810            94,951
Amortization of intangible assets............................              878               663               364
Impairment of long-lived assets..............................            3,900               --                --
Loss on disposition of restaurants and equipment.............            2,067             1,955               699
                                                                  --------------     -------------     -------------
Operating earnings...........................................          157,637           165,280           152,677
                                                                  --------------     -------------     -------------
Other income (expense):
     Investment income.......................................            1,695             1,284             1,554
     Interest expense........................................           (4,365)           (1,626)           (1,733)
     Impairment of Chevys note receivable (Note 5)...........              --                --             (8,803)
     Other income............................................            1,762             3,557             3,722
                                                                  --------------     -------------     -------------
        Total other income (expense).........................             (908)            3,215            (5,260)
                                                                  --------------     -------------     -------------
Earnings before income taxes and cumulative effect of
   change in accounting principle............................          156,729           168,495           147,417
Income taxes.................................................           54,702            57,630            53,068
                                                                  --------------     -------------     -------------
Earnings before cumulative effect of change in accounting
   principle.................................................          102,027           110,865            94,349
Cumulative effect of change in accounting principle,
   net of tax................................................             (225)              --                --
                                                                  --------------     -------------     -------------
Net earnings.................................................      $   101,802        $  110,865        $   94,349
                                                                  ==============     =============     =============
Basic net earnings per common share..........................
     Basic earnings before cumulative effect of change in
        accounting principle.................................      $      1.30        $     1.36        $     1.14
     Cumulative effect of change in accounting principle, net
        of tax...............................................              --                --                --
                                                                  --------------     -------------     -------------
Basic net earnings per common share..........................      $      1.29        $     1.36        $     1.14
                                                                  ==============     =============     =============
Diluted net earnings per common share........................
     Diluted earnings before cumulative effect of change in
        accounting principle.................................      $      1.28        $     1.33        $     1.10
     Cumulative effect of change in accounting principle, net
        of tax...............................................              --                --                --
                                                                  --------------     -------------     -------------
Diluted net earnings per common share........................      $      1.27        $     1.33        $     1.10
                                                                  ==============     =============     =============
Basic weighted average shares outstanding....................           78,650            81,528            82,944
                                                                  ==============     =============     =============
Diluted weighted average shares outstanding..................           80,010            83,600            85,409
                                                                  ==============     =============     =============


</TABLE>

                 See notes to consolidated financial statements.


                                      F-4
<PAGE>

<TABLE>
<CAPTION>
                 APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                    (in thousands, except per share amounts)
                                                                                                Accumulated
                                                Common Stock  Additional                          Other                    Total
                                               --------------  Paid-In    Unearned    Retained Comprehensive Treasury  Stockholders'
                                               Shares  Amount  Capital  Compensation  Earnings    Income      Stock       Equity
                                               ------- ------ --------- ------------ ---------- ----------- ---------- -------------
<S>                                            <C>     <C>    <C>       <C>          <C>        <C>         <C>        <C>
Balance, December 29, 2002.................... 108,503 $1,085 $ 188,122 $    (599)   $ 426,879  $      16   $(230,302) $   385,201

Comprehensive income:
   Net earnings...............................    --     --        --        --         94,349       --          --         94,349
   Change in unrealized gain on short-term
     investments, net of income taxes.........    --     --        --        --           --          (16)       --            (16)
                                               ------- ------ --------- ------------ ---------- ----------- ---------- -------------
Total comprehensive income....................    --     --        --        --         94,349        (16)       --         94,333
                                               ------- ------ --------- ------------ ---------- ----------- ---------- -------------
   Purchases of treasury stock................    --     --        --        --           --         --       (49,757)     (49,757)
   Dividends declared on common stock, $0.05
     per share................................    --     --        --        --         (3,863)      --          --         (3,863)
   Stock options exercised and related tax
      benefit.................................    --     --       9,884      --           --         --        11,898       21,782
   Shares issued under employee benefit plans.    --     --       2,554      --           --         --         1,732        4,286
   Restricted shares awarded under equity
      incentive plan, net of forfeitures......    --     --       1,292    (1,789)        --         --           548           51
   Amortization of unearned compensation
      relating to restricted shares...........    --     --        --       1,011         --         --          --          1,011
   Net repayments of notes receivable from
      officers for stock sales................    --     --          99      --           --         --          --             99
                                               ------- ------ --------- ------------ ---------- ----------- ---------- -------------
   Balance, December 28, 2003................. 108,503  1,085   201,951    (1,377)     517,365       --      (265,881)     453,143

   Net earnings...............................    --     --        --        --        110,865       --          --        110,865
   Purchases of treasury stock................    --     --        --        --           --         --       (99,723)     (99,723)
   Dividends declared on common stock, $0.06
      per share...............................    --     --        --        --         (4,867)      --          --         (4,867)
   Stock options exercised and related tax
      benefit.................................    --     --      13,756      --           --         --        16,200       29,956
   Shares issued under employee benefit plans.    --     --       3,747      --           --         --         2,232        5,979
   Restricted shares awarded under equity
     incentive plans, net of forfeitures......    --     --       1,443    (1,969)        --         --          526          --
   Amortization of unearned compensation
      relating to restricted shares...........    --     --        --       1,422         --         --          --          1,422
   Dividends paid for fractional shares.......    --     --        --        --            (48)      --          --            (48)
                                               ------- ------ --------- ------------ ---------- ----------- ---------- -------------
Balance, December 26, 2004.................... 108,503  1,085   220,897    (1,924)     623,315       --      (346,646)     496,727

   Net earnings...............................    --     --        --        --        101,802       --          --        101,802
   Purchases of treasury stock................    --     --        --        --           --         --      (196,066)    (196,066)
   Dividends declared on common stock, $0.20
     per share................................    --     --        --        --        (14,840)      --          --        (14,840)
   Stock options exercised and related tax
      benefit.................................    --     --       9,274      --           --         --         9,080       18,354
   Shares issued under employee benefit plans.    --     --       2,586      --           --         --         1,816        4,402
   Restricted shares awarded under equity
      incentive plans, net of forfeitures.....    --     --       2,231    (2,921)        --         --           690         --
   Amortization of unearned compensation
      relating to restricted shares...........    --     --        --       2,231         --         --          --          2,231
                                               ------- ------ --------- ------------ ---------- ----------- ---------- -------------
Balance, December 25, 2005.................... 108,503 $1,085 $ 234,988 $  (2,614)   $ 710,277  $    --     $(531,126) $   412,610
                                               ======= ====== ========= ============ ========== =========== ========== =============
</TABLE>

                 See notes to consolidated financial statements.


                                      F-5
<PAGE>

<TABLE>
<CAPTION>
                 APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)

                                                                                    Fiscal Year Ended
                                                                       ----------------------------------------------
                                                                       December 25,    December 26,    December 28,
                                                                           2005            2004            2003
                                                                       --------------  --------------  --------------
<S>                                                                    <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net earnings..................................................     $ 101,802       $ 110,865       $  94,349
     Adjustments to reconcile net earnings to net cash
        provided by operating activities:
        Cumulative effect of change in accounting principle, net of
           tax.....................................................           225            --              --
        Depreciation and amortization..............................        54,580          46,051          41,082
        Amortization of intangible assets..........................           878             663             364
        Amortization of unearned compensation......................         2,231           1,422           1,011
        Other amortization.........................................           246             309             195
        Inventory impairment.......................................          --             2,000            --
        Deferred income tax provision..............................         9,871          25,313           2,436
        Impairment of long-lived assets............................         3,900            --              --
        Gain on sale of investments................................          --              --               (24)
        Loss on disposition of restaurants and equipment...........         2,067           1,955             699
        Impairment of Chevys note receivable.......................          --              --             8,803
        Income tax benefit from exercise of stock options..........         5,370          10,459           7,606
     Changes in assets and liabilities (exclusive of effects of
        acquisitions or dispositions):
        Receivables................................................         1,371          (7,218)         (5,733)
        Receivables related to captive insurance subsidiary........           154          (2,116)          1,353
        Inventories................................................        15,753         (16,925)         (9,139)
        Income taxes...............................................        (5,941)          8,378            (798)
        Prepaid and other current assets...........................        (2,583)           (665)          1,063
        Accounts payable...........................................        18,757           5,197          10,233
        Accrued expenses and other current liabilities.............        11,842          (3,542)         14,057
        Loss reserve and unearned premiums related to captive
           insurance subsidiary....................................        (1,202)          6,880           3,454
        Other non-current liabilities..............................         4,866           2,702           4,965
        Other......................................................        (2,984)         (1,123)            (87)
                                                                       --------------  --------------  --------------
        NET CASH PROVIDED BY OPERATING ACTIVITIES..................       221,203         190,605         175,889
                                                                       --------------  --------------  --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchases of property and equipment...........................      (139,396)       (104,620)        (82,562)
     Restricted assets related to captive insurance subsidiary.....        (1,943)         (6,623)        (10,763)
     Acquisition of restaurants....................................       (47,616)        (13,817)        (21,557)
     Lease acquisition costs.......................................          --            (4,875)           --
     Acquisition of other intangible asset.........................          --            (2,809)           --
     Proceeds from sale of restaurants and equipment...............         1,237              66           9,228
     Maturities and sales of short-term investments................          --              (253)            480
     Other investing activities....................................          --            (1,124)           --
                                                                       --------------  --------------  --------------
        NET CASH USED BY INVESTING ACTIVITIES......................      (187,718)       (134,055)       (105,174)
                                                                       --------------  --------------  --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
     Purchases of treasury stock...................................      (196,066)        (99,723)        (49,757)
     Dividends paid................................................        (4,867)         (3,911)         (3,323)
     Issuance of common stock upon exercise of stock options.......        12,984          19,497          14,176
     Shares issued under employee benefit plans....................         4,402           5,979           4,286
     Net debt proceeds (payments)..................................       152,673          14,832         (33,399)
     Deferred financing costs relating to
        issuance of long-term debt.................................          (213)           (449)           --
                                                                       --------------  --------------  --------------
        NET CASH USED BY FINANCING ACTIVITIES......................       (31,087)        (63,775)        (68,017)
                                                                       --------------  --------------  --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...............         2,398          (7,225)          2,698
CASH AND CASH EQUIVALENTS, beginning of period.....................        10,642          17,867          15,169
                                                                       --------------  --------------  --------------
CASH AND CASH EQUIVALENTS, end of period...........................     $  13,040       $  10,642       $  17,867
                                                                       ==============  ==============  ==============
</TABLE>



                 See notes to consolidated financial statements.


                                       F-6
<PAGE>

                 APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
               CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                               Fiscal Year Ended
                                                             ------------------------------------------------------
                                                               December 25,      December 26,       December 28,
                                                                   2005              2004               2003
                                                             ----------------- -----------------  -----------------
<S>                                                          <C>               <C>                <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
     Cash paid during the year for:
       Income taxes....................................         $     45,402      $     12,428       $     45,557
                                                             ================= =================  =================
       Interest........................................         $      3,340      $      1,056       $      1,079
                                                             ================= =================  =================
</TABLE>

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:

We issued  restricted  common stock, net of forfeitures,  of $2,921,000 in 2005,
$1,945,000 in 2004, and $1,842,000 in 2003.

In 2002,  we entered  into a rabbi trust  agreement to protect the assets of the
nonqualified deferred compensation plan for certain of our associates.  The plan
investments  are  included  in other  assets and the  offsetting  obligation  is
included in other non-current liabilities in our consolidated balance sheets. We
had  non-cash  increases  in  these  balances  of  $3,940,000,  $3,881,000,  and
$3,448,000 in 2005, 2004 and 2003, respectively.

We made matching contributions in shares of our common stock to a profit sharing
plan and trust  established  in accordance  with Section  401(k) of the Internal
Revenue Code of  $1,308,000  in 2004 and  $1,044,000  in 2003. In 2005, we began
matching contributions in cash.

On March 24, 2003, we assumed a loan of  approximately  $1,400,000 in connection
with the acquisition of 11 restaurants.

We  had  property  and  equipment  purchases  accrued  in  accounts  payable  of
approximately $11,100,000 as of December 25, 2005.


                 See notes to consolidated financial statements.


                                      F-7
<PAGE>

                 APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   Organization

Applebee's  International,  Inc. and our  subsidiaries  develop,  franchise  and
operate casual dining restaurants under the name "Applebee's  Neighborhood Grill
& Bar." As of  December  25,  2005,  there  were 1,804  Applebee's  restaurants.
Franchisees operated 1,318 of these restaurants and 486 restaurants were company
operated.  These  restaurants were located in 49 states and 14 countries outside
of the United States.

On  September  20, 2002,  we formed  Neighborhood  Insurance,  Inc., a regulated
Vermont  corporation  and a  wholly-owned  subsidiary,  as a  captive  insurance
company.  Neighborhood  Insurance,  Inc. was  established to provide  Applebee's
International,  Inc. and qualified  franchisees  with workers'  compensation and
general liability insurance (see Note 14).

2.   Summary of Significant Accounting Policies

Principles of consolidation:  The consolidated  financial statements include our
accounts and the accounts of our wholly-owned  subsidiaries.  We have eliminated
all intercompany profits, transactions and balances.

Fiscal year:  Our fiscal year ends on the last Sunday of the calendar  year. The
fiscal years ended  December 25, 2005,  December 26, 2004, and December 28, 2003
each  contained  52 weeks.  These  fiscal years will be referred to hereafter as
2005, 2004 and 2003, respectively.

Cash and cash equivalents:  We consider all money market investment  instruments
to be cash and cash equivalents.  Periodically,  we have outstanding checks that
are  written  in excess of the cash  balances  at our bank  which  create a book
overdraft  and are  recorded as a liability.  As of December  25,  2005,  we had
checks written in excess of a bank balance of $13,430,000  which was included in
accounts payable in the accompanying  consolidated  balance sheets. This balance
was subsequently funded through our credit facility in 2006.

Financial  instruments:  Our financial  instruments  as of December 25, 2005 and
December 26, 2004 consist of cash equivalents,  short-term investments, accounts
receivable,  notes  payable and  long-term  debt,  excluding  capitalized  lease
obligations.  The carrying amount of cash  equivalents  and accounts  receivable
(including receivables related to the captive insurance subsidiary) approximates
fair value  because of the short  maturity  of those  instruments.  We based the
carrying amount of short-term  investments on quoted market prices. We based the
fair value of our long-term debt,  excluding  capitalized lease obligations,  on
quotations made on similar issues. The fair value of these financial instruments
approximates the carrying amounts reported in the consolidated balance sheets.

Investments:  We have  certificates  of deposit that are included in  short-term
investments and auction rate  securities that are included in restricted  assets
related to the captive insurance  subsidiary in our consolidated balance sheets.
We have classified all investments as available-for-sale.  Due to the short time
period between reset dates of the interest rates,  there are no unrealized gains
or  losses  associated  with  the  auction  rate  securities.   The  contractual
maturities of the auction rate securities range from 2030 to 2033.

Inventories:  We state  inventories  at the lower of cost,  using the  first-in,
first-out method, or market.  When necessary,  we record inventory  reserves for
obsolescence  and shrinkage  based upon inventory  turnover  trends,  historical
experience and the specific identification method.

Property and equipment: We report property and equipment at historical cost less
accumulated  depreciation.  Depreciation is provided on a  straight-line  method
over the  estimated  useful  lives of the  assets.  Leasehold  improvements  are


                                      F-8
<PAGE>
amortized  over the lesser of the lease  term,  as defined in  operating  leases
below, or the estimated  useful life of the related asset. The general ranges of
original depreciable lives are as follows:

    o    Buildings                      20 years
    o    Leasehold improvements         15-20 years
    o    Furniture and equipment        2-7 years

We  record  capitalized  interest  in  connection  with the  development  of new
restaurants and amortize it over the estimated useful life of the related asset.
We capitalized  $462,000 in interest costs during 2005, $189,000 during 2004 and
$264,000 during 2003.

Software   costs:   Costs  incurred  in  connection   with  the  development  of
internal-use  software are  capitalized  and amortized over the expected  useful
life of the asset.

Goodwill:  Goodwill  represents the excess of cost over fair market value of net
assets we have acquired.  Goodwill is not subject to amortization  but is tested
for impairment annually or more frequently if events or changes in circumstances
indicate  that the asset might be impaired.  Statement  of Financial  Accounting
Standards ("SFAS") No. 142,  "Goodwill and Other Intangible  Assets," requires a
two-step  process for testing  impairment of goodwill.  First, the fair value of
the  reporting  unit is compared to its carrying  value to determine  whether an
indication of impairment  exists.  If an impairment is indicated,  then the fair
value of the reporting  unit's  goodwill is determined by allocating  the unit's
fair value to its assets and liabilities (including any unrecognized  intangible
assets) as if the reporting  unit had been  acquired in a business  combination.
The amount of impairment  for goodwill is measured as the excess of its carrying
value over its implied fair value.  We define the reporting  unit as all company
restaurants.

Impairment of long-lived assets: We review our restaurant property and equipment
for impairment  quarterly on a  restaurant-by-restaurant  basis using historical
cash flows as well as current estimates of future cash flows and/or appraisals.

We review other  non-amortizing  long-lived  assets  annually and when events or
circumstances  indicate  that  the  carrying  value  of  the  asset  may  not be
recoverable.  The  recoverability is assessed in most instances by comparing the
carrying value to its undiscounted cash flows.

Gift cards:  We record a liability  in the period in which a gift card is issued
and proceeds are received. As gift cards are redeemed, this liability is reduced
and revenue is  recognized.  We  recognize  gift card  slippage  income when the
likelihood of the redemption of the card becomes remote.

Use of estimates:  The  preparation of financial  statements in conformity  with
accounting  principles  generally  accepted  in the  United  States  of  America
requires  management to make estimates and assumptions.  These estimates,  which
are frequently made in consultation with certain third-party advisors,  include,
but are not  limited to,  estimates  for legal  actions  and general  liability,
workers'  compensation  and  health  insurance,  long-term  incentives,  and the
collectibility of receivables.

We are  periodically  involved in various  legal  actions  arising in the normal
course of  business.  We are required to assess the  probability  of any adverse
judgments as well as the  potential  range of loss.  We  determine  the required
accruals after a review of the facts of each legal action.

The estimated liability for general liability,  workers' compensation and health
insurance  is  established  based upon  historical  claims data and  third-party
actuarial  estimates of  settlement  costs for incurred  claims.  We  recognized
expense of  $27,557,000  in 2005,  $25,116,000  in 2004 and  $20,136,000 in 2003
related to these types of insurance in our  consolidated  financial  statements.
Unanticipated changes in these factors may require us to revise our estimates.


                                       F-9
<PAGE>
We have various long-term associate  incentive  compensation plans which require
us to make estimates to determine our liability based upon projected performance
of plan criteria.  If actual  performance  against the criteria differs from our
estimates  in  the  future,   we  will  be  required  to  adjust  our  liability
accordingly.

We  continually  assess the  collectibility  of our  franchise  receivables.  We
establish  our  allowance  for bad debts  based on  several  factors,  including
historical  collection  experience,  the current economic  environment and other
specific  information  available to us at the time.  The allowance for bad debts
may  change in the  future  due to  changes  in the  factors  above or other new
developments.

Estimates  and  assumptions  used by management  affect the reported  amounts of
assets and liabilities,  the disclosure of contingent  assets and liabilities at
the date of the financial  statements,  and the reported amounts of revenues and
expenses  during the reporting  period.  Actual  results could differ from those
estimates.

Franchise  royalties and fees: We recognize royalties on a franchisee's sales in
the period in which the sales are reported to have  occurred.  We also receive a
franchise fee for each  restaurant that a franchisee  opens.  The recognition of
franchise  fees is deferred  until we have  performed  substantially  all of our
related  obligations  as  franchisor,   typically  when  the  restaurant  opens.
Franchise  fees,  included in franchise  royalties and fees in the  consolidated
statements of earnings,  totaled  $3,358,000  for 2005,  $3,096,000 for 2004 and
$2,769,000 for 2003.

Other franchise income:  Other franchise income includes insurance premiums from
franchisee  participation  in our captive  insurance  program  and revenue  from
information  technology  products and services provided to certain  franchisees.
Income  from  franchisee   premiums  and  information   technology  services  is
recognized  ratably over the related  contract  period.  Income from information
technology  products  is  recognized  when the  products  are  installed  at the
restaurant.

Advertising costs: We recognize  company-owned  restaurant  contributions to the
national marketing pool in the period the contribution  accrues. We expense most
local advertising  costs for company-owned  restaurants as we incur them, but we
expense the production costs of advertising the first time the advertising takes
place. Advertising expense related to company-owned  restaurants was $51,969,000
for 2005, $46,324,000 for 2004 and $41,597,000 for 2003.

Operating  leases:  We account for our  restaurant  and office  space  leases in
accordance  with SFAS No.13,  "Accounting  for  Leases" and other  authoritative
guidance.  We  recognize  rent  expense  for our  operating  leases,  which have
escalating rentals over the term of the lease, on a straight-line basis over the
initial term and those option  periods  where  failure to exercise  such options
would  result in an economic  penalty such that the renewal  appears  reasonably
assured. In addition, the lease term is deemed to commence on the date we become
legally  obligated for rent payments.  In 2005, we capitalized the straight-line
rent amounts during the construction  period of leased  properties.  In 2006, we
changed our policy to expense  the  straight-line  rent during the  construction
period (see new accounting pronouncements below).  Straight-line rent subsequent
to the construction  period and prior to the restaurant opening is recognized as
expense.  We use a  consistent  lease  term  when  calculating  depreciation  of
leasehold improvements,  determining  straight-line rent expense and determining
classification  of our leases as either  operating or capital.  Contingent rents
are generally  amounts due as a result of sales in excess of amounts  stipulated
in certain restaurant leases and are included in rent expense as they accrue.

Certain of our lease  agreements  contain tenant  improvement  allowances,  rent
holidays,  lease  premiums,  rent  escalation  clauses  and/or  contingent  rent
provisions. For purposes of recognizing incentives,  premiums, rent holidays and
minimum rental expenses on a  straight-line  basis over the terms of the leases,
we use the date of initial possession to begin amortization,  which is generally
when we enter the property and begin to make  improvements in preparation of its
intended use.


                                      F-10
<PAGE>
For tenant improvement allowances, we record a deferred rent liability in either
other current  liabilities or other non-current  liabilities on the consolidated
balance  sheet and amortize  the  deferred  rent over the term of the lease as a
reduction  to direct  and  occupancy  costs in the  consolidated  statements  of
earnings.

Pre-opening expense: We expense direct training and other costs,  including rent
expense subsequent to the construction  period but prior to restaurant  opening,
related to opening new or relocated  restaurants as they are incurred,  which is
typically in the month of opening.

Income taxes: We use the asset and liability method to determine deferred income
taxes.  Deferred tax assets and  liabilities  are computed based upon future tax
consequences   associated  with  differences  between  the  financial  statement
carrying amount and the tax bases of assets and liabilities.

Stock-based compensation:  We have adopted the disclosure provisions of SFAS No.
148,  "Accounting for Stock-Based  Compensation - Transition and Disclosure,  an
amendment  of  FASB  Statement  No.  123."  The  Statement   requires  prominent
disclosures  in financial  statements  regarding  the method of  accounting  for
stock-based employee  compensation and the effect of the method used on reported
results.  We account for  stock-based  compensation  awards under the  intrinsic
method of Accounting  Principles  Board ("APB")  Opinion No. 25.  Opinion No. 25
requires compensation cost to be recognized based on the excess, if any, between
the  quoted  market  price of the stock at the date of grant  and the  amount an
employee  must pay to acquire the stock.  All options  awarded  under all of our
plans are granted  with an exercise  price equal to the fair market value on the
date of the grant.  The following  table presents the effect on our net earnings
and earnings per share had we adopted the fair value  method of  accounting  for
stock-based  compensation  under  SFAS  No.  123,  "Accounting  for  Stock-Based
Compensation" (in thousands, except for per share amounts).

<TABLE>
<CAPTION>

                                                               2005              2004              2003
                                                          ----------------  ----------------  ----------------
       <S>                                                 <C>               <C>               <C>
      Net earnings, as reported..........................   $    101,802      $    110,865      $     94,349
      Add:  Stock-based compensation expense
          included in net earnings,
          net of related taxes...........................          1,409               638             2,354
      Less:  Total stock-based employee
          compensation expense determined under
          fair value based methods for all awards,
          net of related taxes...........................          8,536             8,555             9,752
                                                          ----------------  ----------------  ----------------

      Pro forma net earnings.............................   $     94,675      $    102,948      $     86,951
                                                          ================  ================  ================

      Basic net earnings per common share,
          as reported....................................   $       1.29      $       1.36      $       1.14
                                                          ================  ================  ================
      Basic net earnings per common share,
          pro forma......................................   $       1.20      $       1.26      $       1.05
                                                          ================  ================  ================

      Diluted net earnings per common share,
          as reported....................................   $       1.27      $       1.33      $       1.10
                                                          ================  ================  ================
      Diluted net earnings per common share,
          pro forma......................................   $       1.18      $       1.23      $       1.02
                                                          ================  ================  ================
</TABLE>

The  weighted  average  fair value at date of grant for options  granted  during
2005, 2004 and 2003 was $8.43, $9.84 and $7.11 per share,  respectively,  which,
for the  purposes  of this  disclosure,  is  assumed  to be  amortized  over the
respective  vesting period of the grants. The fair value of each option grant is
estimated on the date of grant using the Black-Scholes model to value our option
grants. We calculated the following  weighted average  assumptions for grants in
2005,  2004 and  2003:  dividend  yield of 0.7%,  0.3% and  0.3%,  respectively;


                                       F-11
<PAGE>

expected volatility of 32.3%, 41.6% and 44.9%, respectively;  risk-free interest
rate of 3.9%,  2.7% and 2.8%,  respectively;  and expected lives of 5.1, 4.8 and
4.9 years, respectively.

In December 2004, the Financial  Accounting Standards Board ("FASB") issued SFAS
No. 123 (revised  2004),  "Share-based  Payment,"  which  replaces SFAS No. 123,
"Accounting  for Stock-Based  Compensation,"  and supersedes APB Opinion No. 25,
"Accounting for Stock Issued to Employees." SFAS No. 123 (revised 2004) requires
compensation costs related to share-based payment  transactions to be recognized
in the financial statements. With limited exceptions, the amount of compensation
cost will be measured based on the fair value on the grant date of the equity or
liability  instruments  issued.  Compensation  cost will be recognized  over the
period that an employee provides service for that award, resulting in a decrease
in our net earnings. We will adopt the provisions of this Statement, as amended,
using  the  modified  prospective  method  in 2006.  Compensation  cost  will be
recognized  for all awards that have been granted  prior to 2006 but have yet to
reach the end of their service  period and all new awards  granted  beginning in
2006. The amount of expense to be recognized  over the remaining  service period
as of December  25, 2005 is  $28,120,000.  As required by the SFAS 123  (revised
2004),  we will  begin  expensing  employee  stock-based  compensation  over the
shorter of the vesting  period or the period from the date of grant up until the
date the employee becomes eligible for retirement.

Net  earnings  per share:  We compute  basic net  earnings  per common  share by
dividing income available to common  shareholders by the weighted average number
of common shares outstanding for the reporting period.  Diluted net earnings per
common share  reflects  the  potential  dilution  that could occur if holders of
options or other  contracts to issue common stock  exercised or converted  their
holdings  into  common  stock.   Outstanding   stock  options  and  equity-based
compensation represent the only dilutive effects on weighted average shares. The
chart below presents a reconciliation between basic and diluted weighted average
shares  outstanding  and the related net earnings per share.  All amounts in the
chart, except per share amounts, are expressed in thousands.
<TABLE>
<CAPTION>

                                                               2005              2004              2003
                                                          ----------------  ----------------  ----------------
      <S>                                                 <C>               <C>               <C>
      Net earnings.......................................   $    101,802      $    110,865      $     94,349
                                                          ================  ================  ================

      Basic weighted average shares outstanding..........         78,650            81,528            82,944
      Dilutive effect of stock options and
          equity-based compensation......................          1,360             2,072             2,465
                                                          ----------------  ----------------  ----------------
      Diluted weighted average shares outstanding........         80,010            83,600            85,409
                                                          ================  ================  ================

      Basic net earnings per common share................   $       1.29      $       1.36      $       1.14
                                                          ================  ================  ================
      Diluted net earnings per common share..............   $       1.27      $       1.33      $       1.10
                                                          ================  ================  ================
</TABLE>

We excluded  stock options with exercise  prices greater than the average market
price of our common stock for the  applicable  periods from the  computation  of
diluted   weighted   average   shares   outstanding   as  the  effect  would  be
anti-dilutive.  We excluded  approximately  2,796,000,  1,459,000  and 56,000 of
these options from our diluted weighted average share computation for 2005, 2004
and 2003, respectively.

Cash  flows:  For  purposes of the  consolidated  statements  of cash flows,  we
consider all highly liquid  investments  purchased with an original  maturity of
three months or less to be cash equivalents.

New  accounting  pronouncements:  In October  2005,  the FASB  issued FASB Staff
Position   ("FSP")  13-1,   "Accounting  for  Rental  Costs  Incurred  during  a
Construction  Period." The guidance  requires  the rental costs  recognized  for
ground or building operating leases during the construction period be recognized
as rental  expense.  The guidance  permits  either  retroactive  or  prospective
treatment for periods  beginning after December 15, 2005. We will  prospectively
change our policy from capitalization to expensing beginning in fiscal 2006. The
adoption  of this FSP will  result  in an  expected  increase  of  approximately


                                      F-12
<PAGE>
$25,000 in preopening  expenses  recognized for every new restaurant  opened but
will not have a material effect on our consolidated financial statements.

In May  2005,  the FASB  issued  SFAS No.  154,  "Accounting  Changes  and Error
Corrections- A Replacement of APB Opinion No. 20 and FASB Statement No. 3." SFAS
No.  154  requires   retrospective   application  to  prior  periods'  financial
statements for changes in accounting  principle,  unless it is  impracticable to
determine  either the  period-specific  effects or the cumulative  effect of the
change.  SFAS No. 154 is effective for  accounting  changes and  corrections  of
errors made in fiscal years beginning after December 15, 2005.

In March 2005,  the FASB  issued FASB  Interpretation  No. 47,  "Accounting  for
Conditional Asset Retirement Obligations," ("FIN 47"). FIN 47 clarifies the term
"conditional"  as  used  in SFAS  No.  143,  "Accounting  for  Asset  Retirement
Obligations."  This  Interpretation  refers to a legal  obligation to perform an
asset retirement activity even if the timing and/or settlement is conditional on
a  future  event  that  may or may  not be  within  the  control  of an  entity.
Accordingly,  the entity  must  record a  liability  for the  conditional  asset
retirement  obligation  if the fair value of the  obligation  can be  reasonably
estimated.  FIN 47 is effective for fiscal years ending after December 15, 2005.
We have entered into certain  leases which may require us to return the property
to the  landlord  in its  original  condition.  We recorded an expense for these
leases of  $400,000 in our 2005  consolidated  financial  statements,  including
$50,000 in direct and occupancy  costs  related to 2005 and $350,000  ($225,000,
net of income taxes) for years prior to 2005 as a cumulative  effect of a change
in accounting principle as required by FIN 47.

In December  2004,  the FASB issued SFAS No. 123  (revised  2004),  "Share-based
Payment,"   which   replaces   SFAS  No.  123,   "Accounting   for   Stock-Based
Compensation,"  and supersedes APB Opinion No. 25,  "Accounting for Stock Issued
to Employees." SFAS No. 123 (revised 2004) requires  compensation  costs related
to  share-based   payment   transactions  to  be  recognized  in  the  financial
statements.  With limited  exceptions,  the amount of compensation  cost will be
measured  based on the fair value on the grant  date of the equity or  liability
instruments issued. Compensation cost will be recognized over the period that an
employee  provides  service for that award,  resulting  in a decrease in our net
earnings. We will adopt the provisions of this Statement,  as amended, using the
modified  prospective  method in 2006.  Compensation cost will be recognized for
all awards that have been granted prior to 2006 but have yet to reach the end of
their service period and all new awards granted beginning in 2006. The amount of
expense to be recognized  over the remaining  service  period as of December 25,
2005 is  $28,120,000.  As required by the SFAS 123 (revised 2004), we will begin
expensing  employee  stock-based  compensation  over the  shorter of the vesting
period  or the  period  from the date of  grant up until  the date the  employee
becomes  eligible for  retirement.  We expect that the adoption of this Standard
will  decrease our 2006  diluted net earnings per common share by  approximately
$0.17.

3.   Acquisitions

All of our  acquisitions  discussed  below  have  been  accounted  for using the
purchase  method of accounting  and,  accordingly,  our  consolidated  financial
statements reflect the results of operations for each acquisition  subsequent to
the date of  acquisition.  The  assets  acquired  and  liabilities  assumed  are
recorded at  estimates  of fair value as  determined  by  management  based upon
information available.  We finalize the allocation of purchase price to the fair
value of assets  acquired and  liabilities  assumed  when we obtain  information
sufficient to complete the allocation, but in each case, no longer than one year
after the acquisition date.

In  March  2003,  we  acquired  the  operations  and  assets  of  11  Applebee's
restaurants located in Illinois,  Indiana, Kentucky and Missouri for $21,800,000
in cash and  $1,400,000  in  assumed  debt.  The  total  cash  payment  included
$20,800,000  paid at closing,  approximately  $200,000 paid as a deposit in 2002
and approximately $800,000 paid in the second quarter of 2003.

In April 2004, we completed our  acquisition  of the operations and assets of 10
Applebee's   restaurants   located  in  Southern  California  for  approximately
$13,800,000  in cash.  The  purchase  price was  allocated  to the fair value of
property and  equipment of  $2,500,000,  goodwill of  $10,800,000  and other net
assets of approximately $500,000.


                                      F-13
<PAGE>
In May 2005,  we completed  the  acquisition  of 12  Applebee's  restaurants  in
Missouri, Kansas and Arkansas, which included one restaurant under construction,
for  approximately  $39,500,000 in cash. The purchase price was allocated to the
fair value of property and equipment of  $17,500,000,  goodwill of  $21,500,000,
reacquired  franchise rights of  approximately  $300,000 and other net assets of
approximately $200,000.

The  following  table is comprised of actual  company  restaurant  sales for the
three  restaurant  acquisitions  above which are  included  in our  consolidated
financial  statements for each period presented and pro forma company restaurant
sales  assuming the  acquisitions  occurred at the  beginning  of the  preceding
fiscal year for each acquisition (in thousands):
<TABLE>
<CAPTION>

                                                            2005            2004            2003
                                                       --------------- --------------- ---------------
<S>                                                    <C>             <C>             <C>

Actual company restaurant sales
    for acquired restaurants.........................    $  17,000       $  17,600       $  19,000
                                                       =============== =============== ===============

Pro forma company restaurant sales
    for acquired restaurants.........................    $  28,500       $  52,600       $  47,000
                                                       =============== =============== ===============

</TABLE>


In April 2005, we finalized the acquisition of eight  Applebee's  restaurants in
the  Memphis  market  that  were  closed  in 2004  by a  former  franchisee  for
approximately  $8,800,000  payable in cash. In connection with this acquisition,
we paid  approximately  $800,000 in 2004 and  $8,000,000  in 2005.  The purchase
price of $8,800,000 was allocated to the fair value of property and equipment of
approximately  $8,200,000 and goodwill of approximately $600,000. As of December
25, 2005,  we have  remodeled  and opened seven  restaurants  and the  remaining
restaurant was sold to a third party.

4.   Disposition

On July 20, 2003,  we completed  the sale of eight  company  restaurants  in the
Atlanta,   Georgia  market  to  an  affiliate  of  an  existing  franchisee  for
$8,000,000.  In  connection  with the sale of these  restaurants,  we closed one
restaurant in the Atlanta market in June 2003.  This  transaction did not have a
significant impact on our net earnings for 2003. Actual company restaurant sales
included in our consolidated  financial statements for the nine restaurants were
approximately $10,300,000 for 2003.

5.   Impairment of Chevys Note Receivable

In 1999, we received a $6,000,000,  8% subordinated  note in connection with the
sale of the Rio Bravo concept to Chevys Holdings,  Inc.  ("Chevys") due in 2009.
In June 2003,  Chevys  announced  the sale of the  majority of its  restaurants.
Subsequent to the announcement, we received Chevys' audited financial statements
for the fiscal year ended December 31, 2002.  During 2003, we fully impaired the
principal and interest of approximately  $8,800,000. A charge for the impairment
of this note is included in our consolidated statements of earnings for 2003. In
October 2003, Chevys Inc. filed a voluntary petition to reorganize under Chapter
11 of the U.S.  Bankruptcy  Code. In December  2004, the U.S.  Bankruptcy  Court
approved Chevys' reorganization plan.

6.   Inventory Impairment

In 2004, we determined that we had excess  inventories of riblets that no longer
met our quality standards.  Accordingly,  we recorded an inventory impairment of
$2,000,000  ($1,300,000,  net of income taxes) in our consolidated statements of
earnings for 2004. The portion of the riblet inventory impairment related to the
company's  historical usage of  approximately  $400,000 was recorded in food and
beverage cost and the portion related to the  franchisee's  historical  usage of
approximately  $1,600,000 was recorded in cost of other franchise  income in the
consolidated statements of earnings.


                                      F-14
<PAGE>
7.   Impairment of Long-lived Assets

In 2005, we recorded an asset impairment charge of $3,900,000  ($2,500,000,  net
of income taxes) consisting of a $2,600,000  write-down of the carrying value of
the property and  equipment of three  restaurants  that were not  performing  as
expected  and one  restaurant  that was closed and  relocated  and a  $1,300,000
write-down  of one other  long-lived  asset.  This  impairment  charge  has been
included  in our  consolidated  statements  of  earnings  for  2005.  The  asset
impairment  charge was  calculated by comparing the carrying value of the assets
to the  estimated  future  cash  flow  projections.  We have  since  closed  one
restaurant   in  January  2006  and  continue  to  operate  the   remaining  two
restaurants,  although  we may  close  one or  both of the  remaining  operating
underperforming restaurants in the future.

8.   Receivables

Receivables are comprised of the following (in thousands):

<TABLE>
<CAPTION>
                                                                           December 25,        December 26,
                                                                               2005                2004
                                                                         -----------------   -----------------
      <S>                                                                <C>                 <C>
      Franchise royalty, advertising and trade receivables.............     $     26,356        $     28,924
      Credit card receivables..........................................            8,853               6,509
      Franchise fee receivables........................................              742                 252
      Other............................................................            2,246               3,884
                                                                         -----------------   -----------------
                                                                                  38,197              39,569
      Less allowance for bad debts.....................................              340                 417
                                                                         -----------------   -----------------
                                                                            $     37,857        $     39,152
                                                                         =================   =================
</TABLE>


The bad debt provision was $99,000 for 2003. We did not have a provision for bad
debts for 2005 or 2004. We had write-offs against the allowance for bad debts of
$77,000 during 2005, $627,000 during 2004 and $71,000 during 2003.

9.   Prepaid and Other Current Assets

Prepaid and other current assets are comprised of the following (in thousands):
<TABLE>
<CAPTION>
                                                                           December 25,        December 26,
                                                                               2005                2004
                                                                         -----------------   -----------------
      <S>                                                                <C>                 <C>
      Deferred income taxes............................................     $      6,338        $      7,482
      Other............................................................            7,180               4,597
                                                                         -----------------   -----------------
                                                                            $     13,518        $     12,079
                                                                         =================   =================

</TABLE>


                                      F-15
<PAGE>
10.  Goodwill and Other Intangible Assets

In 2005 and 2004,  we completed  the annual  goodwill  impairment  test required
under the provisions of SFAS No. 142, "Goodwill and Other Intangible Assets." We
determined that no impairment existed and as a result, no impairment losses were
recorded in 2005 or 2004.

The changes in goodwill are summarized below (in thousands):
<TABLE>
<CAPTION>
                                                                           December 25,        December 26,
                                                                               2005                2004
                                                                         -----------------   -----------------
      <S>                                                                <C>                 <C>
      Carrying amount, beginning of the year...........................     $   116,344         $   105,326
      Goodwill acquired................................................          22,099              11,018
                                                                         -----------------   -----------------
      Carrying amount, end of the year.................................     $   138,443         $   116,344
                                                                         =================   =================
</TABLE>

Amortizable  other intangible  assets consist of franchise  interest and rights,
lease acquisition costs and a noncompete agreement.

Franchise  interest and rights represent the allocation of the purchase price of
our 1988  acquisition of the Applebee's  concept to the  restaurants we acquired
and the franchise agreements that we assumed based on an independent  valuation.
We amortize the allocated  costs over the estimated  life of the  restaurants or
the franchise agreements on a straight-line basis ranging from 7 to 20 years.

Franchise  interest  and rights are being  amortized  over the next one to three
years,  lease  acquisition costs are being amortized over the next 7 to 19 years
and the noncompete agreement is being amortized over the next three years.

We expect annual  amortization  expense for amortizable  other intangible assets
for the next five fiscal years to range from approximately $400,000 to $800,000.

Intangible  assets subject to amortization  pursuant to SFAS No. 142,  "Goodwill
and Other Intangible Assets," are summarized below (in thousands):
<TABLE>
<CAPTION>
                                                                 December 25, 2005
                                             -----------------------------------------------------------
                                              Gross Carrying         Accumulated           Net Book
                                                  Amount            Amortization            Value
                                             ------------------    ----------------    -----------------
<S>                                          <C>                   <C>                 <C>
Amortized intangible assets:
    Franchise interest and rights.......       $       6,371        $       5,896        $         475
    Lease acquisition costs.............               4,939                  743                4,196
    Noncompete agreement................                 350                  109                  241
                                             ------------------    ----------------    -----------------
Total...................................       $      11,660         $      6,748        $       4,912
                                             ==================    ================    =================
</TABLE>


                                      F-16
<PAGE>

<TABLE>
<CAPTION>

                                                                 December 26, 2004
                                             -----------------------------------------------------------
                                              Gross Carrying         Accumulated           Net Book
                                                  Amount            Amortization            Value
                                             ------------------    ----------------    -----------------
<S>                                          <C>                   <C>                 <C>

Amortized intangible assets:
    Franchise interest and rights.......       $       6,371        $       5,565        $         806
    Lease acquisition costs.............               4,875                  294                4,581
    Noncompete agreement................                 350                   22                  328
                                             ------------------    ----------------    -----------------
Total...................................       $      11,596         $      5,881        $       5,715
                                             ==================    ================    =================
</TABLE>

In  connection  with  our  acquisition  of  12  Applebee's  restaurants  from  a
franchisee  in May  2005,  we  recorded  approximately  $300,000  of  reacquired
franchise rights.  The amount allocated to reacquired  franchise rights is based
upon the franchise fees received from this franchisee. This intangible asset has
an  indefinite  life and  accordingly,  will not be  amortized  but  tested  for
impairment at least annually.

In 2004, we acquired the exclusive  right to operate  Applebee's  restaurants in
the Memphis,  Tennessee market from a former  franchisee group for approximately
$2,800,000.  This intangible asset has an indefinite life and accordingly,  will
not be amortized but tested for impairment at least annually. In connection with
this acquisition,  we entered into an expanded 4-year noncompete  agreement with
the former  franchise  principals  which is being amortized over the life of the
agreement.

In 2004,  we acquired six  restaurant  leases which were  formerly  Ground Round
restaurants for approximately $4,900,000 in cash.

11.  Other Assets

Other assets are comprised of the following (in thousands):

<TABLE>
<CAPTION>
                                                                           December 25,        December 26,
                                                                               2005                2004
                                                                         -----------------   -----------------
<S>                                                                      <C>                 <C>
      Nonqualified deferred compensation plan
        investments  (Note 20).........................................     $     14,493        $      9,754
      Liquor licenses..................................................            6,541               5,891
      Minority investment in unaffiliated company, at cost.............            2,250               2,250
      Notes receivable, net............................................            1,478               1,024
      Deferred financing costs, net....................................              664                 577
      Other............................................................            6,473               5,476
                                                                         -----------------   -----------------
                                                                            $     31,899        $     24,972
                                                                         =================   =================
</TABLE>


                                      F-17
<PAGE>
12.  Property and Equipment

Property and equipment, net, is comprised of the following (in thousands):

<TABLE>
<CAPTION>

                                                                           December 25,       December 26,
                                                                               2005               2004
                                                                         -----------------  ------------------
<S>                                                                      <C>                <C>
      Land.............................................................     $    97,476        $    83,399
      Buildings and leasehold improvements.............................         482,074            398,323
      Furniture and equipment..........................................         263,526            217,451
      Construction in progress.........................................          25,755             24,601
                                                                         -----------------  ------------------
                                                                                868,831            723,774
      Less accumulated depreciation and capitalized
         lease amortization............................................         278,238            237,226
                                                                         -----------------  ------------------
                                                                            $   590,593        $   486,548
                                                                         =================  ==================
</TABLE>

We have  recorded  capitalized  leases of  $4,055,000  at December  25, 2005 and
December 26, 2004 which are included in buildings and leasehold improvements. We
had accumulated amortization of such property of $2,025,000 at December 25, 2005
and  $1,847,000  at December 26, 2004.  These  capitalized  leases relate to the
buildings on certain restaurant  properties.  The land portion of the restaurant
property leases is accounted for as an operating lease.

We had  depreciation  and capitalized  lease  amortization  expense  relating to
property and  equipment  of  $54,580,000  for 2005,  $46,051,000  for 2004,  and
$41,082,000  for 2003. Of these  amounts,  capitalized  lease  amortization  was
$240,000 during 2005 and $239,000 for each of 2004 and 2003.

We lease certain of our restaurants. The leases generally provide for payment of
minimum annual rent, real estate taxes,  insurance and maintenance  and, in some
cases,  contingent  rent  (calculated  as a  percentage  of  sales) in excess of
minimum rent.  Total rental expense for all operating leases is comprised of the
following (in thousands):
<TABLE>
<CAPTION>
                                                           2005                2004                2003
                                                     ------------------  ------------------  -----------------
      <S>                                            <C>                 <C>                 <C>
      Minimum rent.................................    $       23,929      $       20,416      $       17,274
      Contingent rent..............................             1,389               1,254               1,297
                                                     ------------------  ------------------  -----------------
                                                       $       25,318      $       21,670      $       18,571
                                                     ==================  ==================  =================
</TABLE>

The present value of  capitalized  lease  payments and the future  minimum lease
payments under noncancelable  operating leases over the lease term as defined in
Note 2  (including  leases  executed  for sites to be  developed  in 2006) as of
December 25, 2005 are as follows (in thousands):
<TABLE>
<CAPTION>
                                                                            Capitalized         Operating
                                                                              Leases             Leases
                                                                         ------------------ ------------------
      <S>                                                                <C>                <C>
      2006.............................................................     $        794       $     26,684
      2007.............................................................              822             26,911
      2008.............................................................              851             26,957
      2009.............................................................              880             26,746
      2010.............................................................              911             26,287
      Thereafter.......................................................            4,073            244,022
                                                                         ------------------ ------------------
      Total minimum lease payments.....................................            8,331       $    377,607
                                                                                            ==================
      Less amounts representing interest...............................            4,277
                                                                         ------------------
      Present value of minimum lease payments..........................     $      4,054
                                                                         ==================
</TABLE>


                                      F-18
<PAGE>
13.  Notes Payable and Long-Term Debt

Our debt,  which  includes  both notes  payable and  long-term  debt,  including
capitalized lease obligations, is comprised of the following (in thousands):

<TABLE>
<CAPTION>

                                                                           December 25,      December 26,
                                                                               2005              2004
                                                                         ----------------- -------------------
     <S>                                                                 <C>               <C>

     Notes  payable;  interest  at federal  funds rate plus  0.625% at
         December 25, 2005............................................      $     7,900       $       --
     Unsecured revolving credit facility; interest at LIBOR
         plus 0.625% or prime rate at December 25, 2005,
         and LIBOR plus 0.5% or prime rate at
         December 26, 2004; due December 2009.........................          175,000            30,000
     Capitalized lease obligations (Note 12)..........................            4,054             4,148
     Other............................................................            1,413             1,546
                                                                         ----------------- -------------------
     Total notes payable and long-term debt...........................          188,367            35,694
     Less notes payable and current portion of long-term debt.........            8,159               222
                                                                         ----------------- -------------------
     Long-term debt - less current portion............................      $   180,208       $    35,472
                                                                         ================= ===================
</TABLE>

In December  2004, we completed the  refinancing of our  $150,000,000  unsecured
revolving  credit  facility.  The  new  bank  credit  agreement  provided  for a
$150,000,000 five-year unsecured revolving credit facility, of which $40,000,000
may be used for the  issuance of letters of credit.  The  facility is subject to
various  covenants  and  restrictions  which,  among other  things,  require the
maintenance  of  stipulated   fixed  charge,   leverage  and   indebtedness   to
capitalization  ratios, as defined. There is no limit on cash dividends provided
that the  declaration  and payment of such  dividend does not cause a default of
any other covenant contained in the agreement.  The facility is subject to other
standard terms, conditions, covenants, and fees.

In September  2005,  we entered into an amendment to our credit  facility  which
increased  the  revolving  credit  commitment  available  from  $150,000,000  to
$200,000,000.  In October 2005, we entered into a second amendment to our credit
facility  which  increased  the  revolving  credit  commitment   available  from
$200,000,000  to  $250,000,000  and provided for an  additional  $75,000,000  of
revolving  credit upon  satisfaction  of the  conditions set forth in the credit
facility.

As of December 25, 2005,  we are in compliance  with the covenants  contained in
our  credit   agreement.   As  of  December  25,  2005,  we  had  borrowings  of
$182,900,000,  which includes $7,900,000 in an overnight notes payable,  letters
of credit of $9,400,000  outstanding  and  approximately  $57,700,000  available
under our revolving credit facility.

Maturities of notes  payable and long-term  debt,  including  capitalized  lease
obligations, ending during the years indicated, are as follows (in thousands):
<TABLE>
     <S>                                                                                       <C>
     2006.................................................................................       $     8,159
     2007.................................................................................               265
     2008.................................................................................               292
     2009.................................................................................           175,368
     2010.................................................................................               459
     Thereafter...........................................................................             3,824
                                                                                               ----------------
                                                                                                 $   188,367
                                                                                               ================
</TABLE>


                                      F-19
<PAGE>
14.  Captive Insurance Subsidiary

In 2002, we formed  Neighborhood  Insurance,  Inc., a Vermont  corporation and a
wholly-owned captive insurance  subsidiary to provide Applebee's  International,
Inc. and qualified  franchisees with workers' compensation and general liability
insurance.  Applebee's International,  Inc. and covered franchisees make premium
payments to the captive  insurance  company which pays  administrative  fees and
insurance claims, subject to individual and aggregate maximum claim limits under
the captive insurance company's reinsurance policies. Franchisee premium amounts
billed by the captive  insurance  company are established based upon third-party
actuarial  estimates of settlement costs for incurred and anticipated claims and
administrative  fees.  The franchisee  premiums are included in other  franchise
income  ratably  over the policy  year.  The  related  offsetting  expenses  are
included  in  cost  of  other  franchise  income.  We do not  expect  franchisee
participation in the captive  insurance company to have a material impact on our
net earnings.  In 2005, we reduced the types of insurance coverage plans offered
which  resulted  in  fewer  franchisee  participants  in our  captive  insurance
program.  In the fourth quarter of 2005, we decided to  discontinue  writing any
new coverage.  We will still operate the captive insurance subsidiary to resolve
any claims that were  incurred  under this program from 2002 through  2005.  Our
consolidated  balance  sheets  include  the  following  balances  related to the
captive insurance subsidiary:

    o    Franchise   premium   receivables  of   approximately   $1,700,000  and
         $1,900,000 as of December 25, 2005 and December 26, 2004, respectively,
         included in receivables related to captive insurance subsidiary.
    o    Cash  equivalent  and other  long-term  investments  restricted for the
         payment of claims of  approximately  $18,600,000  and $16,700,000 as of
         December  25, 2005 and December  26,  2004,  respectively,  included in
         restricted assets related to captive insurance subsidiary.
    o    Loss  reserve  and  unearned  premiums  related  to  captive  insurance
         subsidiary of approximately  $20,700,000 and $19,600,000 as of December
         25, 2005 and December 26, 2004, respectively. Approximately $10,500,000
         and  $7,500,000  as  of  December  25,  2005  and  December  26,  2004,
         respectively, is included in other non-current liabilities.
    o    Other   miscellaneous   items,  net,  of  approximately   $400,000  and
         $1,000,000 as of December 25, 2005 and December 26, 2004, respectively,
         included in several line items in the consolidated balance sheets.

Our activity in the loss and loss adjustment reserve,  which includes Applebee's
International,  Inc. and participating  franchisees,  is summarized in the table
below (in thousands):
<TABLE>
<CAPTION>

                                                                           December 25,       December 26,
                                                                               2005               2004
                                                                         ----------------- -------------------
     <S>                                                                 <C>               <C>
     Total balance, beginning of the year.............................      $    18,801       $    11,007
     Incurred related to:
        Current year..................................................            7,141             8,660
        Prior year....................................................            2,406             6,687
                                                                         ----------------- -------------------
          Total.......................................................            9,547            15,347
                                                                         ----------------- -------------------
     Paid related to:
        Current year..................................................            1,546             2,296
        Prior year....................................................            6,324             5,257
                                                                         ----------------- -------------------
          Total paid..................................................            7,870             7,553
                                                                         ----------------- -------------------
     Total balance, end of the year...................................           20,478            18,801
     Less current portion.............................................            9,976            11,378
                                                                         ----------------- -------------------
     Long-term portion (Note 16)......................................      $    10,502       $     7,423
                                                                         ================= ===================
</TABLE>


                                      F-20
<PAGE>
Loss  reserve  estimates  are  established  based  upon  third-party   actuarial
estimates of ultimate  settlement  costs for  incurred  claims  (which  includes
claims  incurred but not reported) using data currently  available.  The reserve
estimates are  regularly  analyzed and adjusted  when  necessary.  Unanticipated
changes in the data used to  determine  the reserve may require us to revise our
estimates.

Deferred policy  acquisition costs include premium taxes,  fronting fees and net
commissions   and  are  deferred  and  amortized   over  our  fiscal  year  and,
accordingly,  we did not  have  any  deferred  policy  acquisition  costs  as of
December 25, 2005 or December 26, 2004. We had acquisition  expenses  payable of
$259,000 as of December  25, 2005 and $759,000 as of December 26, 2004 that were
included in the current portion of loss reserve and unearned premiums related to
captive insurance subsidiary in the consolidated balance sheets.

15.  Accrued Expenses and Other Current Liabilities

Accrued  expenses and other current  liabilities  are comprised of the following
(in thousands):

<TABLE>
<CAPTION>
                                                                           December 25,        December 26,
                                                                               2005                2004
                                                                         ------------------  -----------------
      <S>                                                                <C>                 <C>
      Compensation and related taxes....................................    $     35,488        $     34,061
      Gift cards........................................................          39,162              30,295
      Sales and use taxes...............................................           6,798               5,942
      Insurance.........................................................           5,327               5,210
      Rent..............................................................           1,571               2,007
      Other.............................................................          12,649              11,549
                                                                         ------------------  -----------------
                                                                            $    100,995        $     89,064
                                                                         ==================  =================
</TABLE>

16.  Other Non-Current Liabilities

Other non-current liabilities are comprised of the following (in thousands):
<TABLE>
<CAPTION>

                                                                           December 25,        December 26,
                                                                               2005                2004
                                                                         ------------------  -----------------
      <S>                                                                <C>                 <C>
      Rent..............................................................    $     18,655        $     15,642
      Nonqualified deferred compensation plan
        liabilities  (Note 20)..........................................          14,493               9,754
      Loss and loss adjustment reserve related to
        captive insurance subsidiary....................................          10,502               7,423
      Compensation......................................................           3,033               5,013
      Other.............................................................           3,691               3,707
                                                                         ------------------  -----------------
                                                                            $     50,374        $     41,539
                                                                         ==================  =================
</TABLE>


                                      F-21
<PAGE>
17.  Income Taxes

We, along with our subsidiaries,  file a consolidated federal income tax return.
The income tax provision consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                                    2005             2004             2003
                                                               ---------------  ---------------  ---------------
    <S>                                                        <C>              <C>              <C>
    Current provision:
        Federal............................................     $   40,198       $   30,171       $   45,526
        State and local....................................          4,633            2,146            5,106
    Deferred provision:
        Federal............................................          9,248           23,625            2,276
        State and local....................................            623            1,688              160
                                                               ---------------  ---------------  ---------------
    Income taxes before cumulative effect of change
        in accounting principle............................         54,702           57,630           53,068
    Income taxes related to the cumulative effect of
        change in accounting principle.....................           (125)            --                --
                                                               ---------------  ---------------  ---------------
    Total income taxes.....................................     $   54,577       $   57,630       $   53,068
                                                               ===============  ===============  ===============
</TABLE>

The deferred income tax provision is comprised of the following (in thousands):
<TABLE>
<CAPTION>
                                                                    2005             2004            2003
                                                               ---------------  --------------- ----------------
    <S>                                                        <C>              <C>             <C>
    Depreciation and amortization..........................     $   11,627       $   24,278      $    5,595
    Other..................................................         (1,756)           1,035          (3,159)
                                                               ---------------  --------------- ----------------
    Net change in deferred income taxes....................     $    9,871       $   25,313      $    2,436
                                                               ===============  =============== ================
</TABLE>

A  reconciliation  between  the  income  tax  provision  and  the  expected  tax
determined by applying the statutory federal income tax rates to earnings before
income taxes follows (in thousands):
<TABLE>
<CAPTION>
                                                                    2005             2004            2003
                                                               ---------------  --------------- ----------------
    <S>                                                        <C>              <C>             <C>
    Federal income tax at statutory rates..................     $   54,851       $   58,973      $   51,597
    Increase (decrease) to income tax expense:
        State and local income taxes, net of
           federal benefit.................................          3,764            3,083           3,479
        Employment related tax credits, net................         (4,502)          (3,894)         (3,216)
        Other..............................................            589             (532)          1,208
                                                               ---------------  --------------- ----------------
    Income taxes before cumulative effect of change
        in accounting principle............................         54,702           57,630          53,068
    Income taxes related to the cumulative effect of
        change in accounting principle.....................           (125)            --              --
                                                               ---------------  ---------------  ---------------
    Total income taxes.....................................     $   54,577       $   57,630       $  53,068
                                                               ===============  ===============  ===============
</TABLE>


                                      F-22
<PAGE>
The net current  deferred  income tax asset  amounts are included in prepaid and
other  current  assets and the net  non-current  deferred  income tax  liability
amounts  are  included  in other  non-current  liabilities  in the  accompanying
consolidated  balance sheets. The significant  components of deferred income tax
assets and  liabilities  and the related  balance sheet  classifications  are as
follows (in thousands):

<TABLE>
<CAPTION>

                                                                           December 25,          December 26,
                                                                               2005                  2004
                                                                         -----------------     -----------------
    <S>                                                                  <C>                   <C>
    Classified as current:
        Accrued expenses............................................        $     3,879          $     3,694
        Allowance for bad debts.....................................                128                  156
        Other, net..................................................              2,331                3,632
                                                                         -----------------     -----------------
        Net deferred income tax asset...............................        $     6,338          $     7,482
                                                                         =================     =================


    Classified as non-current:
        Depreciation and amortization...............................        $   (47,067)         $   (35,481)
        Franchise deposits..........................................                446                  565
        Other, net..................................................              8,899                5,921
                                                                         -----------------     -----------------
        Net deferred income tax liability...........................        $   (37,722)         $   (28,995)
                                                                         =================     =================
</TABLE>

In  2004,  we  implemented  new  tax  planning   strategies   that   accelerated
depreciation on restaurant  assets which resulted in an increase in our deferred
income tax liability.

18.  Commitments and Contingencies

Litigation,  claims and disputes: We are involved in various legal actions which
include,  without  limitation,  employment law, wage and hour, dram shop claims,
personal injury claims and other such restaurant  operational  matters.  In each
instance,  we believe that we have meritorious  defenses to the allegations made
and we are vigorously defending these claims.

We believe that the ultimate disposition of these matters will not, individually
or in the  aggregate,  have a  material  adverse  effect  upon our  business  or
consolidated financial position.

Lease guarantees and  contingencies:  In connection with the sale of restaurants
to  franchisees  and  other  parties,  we  have,  in  certain  cases,   remained
contingently  liable for the remaining lease payments.  As of December 25, 2005,
we have outstanding lease guarantees of approximately $17,200,000.  These leases
expire at various  times with the final lease  agreement  expiring  in 2018.  In
addition, we or our subsidiaries are contingently liable for various leases that
we have assigned in connection  with the sale of restaurants to franchisees  and
other parties,  in the potential  amount of $14,100,000.  We have not recorded a
liability  related to these contingent lease liabilities as of December 25, 2005
or December 26, 2004.

Franchisee guarantees:  In 2003, we arranged for a third-party financing company
to provide up to $75,000,000 to qualified  franchisees  for short-term  loans to
fund  remodel  investments,  subject  to our  approval.  Under the terms of this
financing  program,  we provided a limited guarantee pool for the loans advanced
during the  three-year  period ending  December  2006. In the fourth  quarter of
2005,  this program was terminated and we were released from the guarantees that
we had previously provided under this program.

In 2004,  we  arranged  for a  third-party  financing  company  to provide up to
$250,000,000  to  qualified  franchisees  for loans to fund  development  of new
restaurants  through  October 2007,  subject to our approval.  We will provide a
limited  guarantee of 10% of certain loans advanced under this program.  We will
be released  from our guarantee if certain  operating  results are met after the


                                      F-23
<PAGE>
restaurant has been open for at least two years. As of December 25, 2005,  there
were loans  outstanding to six franchisees for  approximately  $50,400,000 under
this program.  The fair value of our guarantees under this financing  program is
approximately  $100,000  and  is  recorded  in  non-current  liabilities  in our
consolidated balance sheet as of December 25, 2005.

Severance  agreements:  We have severance and employment agreements with certain
officers  providing for severance payments to be made in the event the associate
resigns or is terminated  related to a change in control.  The agreements define
the  circumstances  which will constitute a change in control.  If the severance
payments had been due as of December 25,  2005,  we would have been  required to
make payments totaling approximately $13,300,000. In addition, we have severance
and  employment   agreements  with  certain  officers  which  contain  severance
provisions  not  related to a change in  control.  Those  provisions  would have
required  aggregate  payments of  approximately  $6,200,000 if such officers had
been terminated as of December 25, 2005.

19.  Stockholders' Equity

In October 2004,  our Board of Directors  authorized  repurchases  of our common
stock of up to  $150,000,000  beginning in 2005. In October  2005,  our Board of
Directors  approved an additional  $175,000,000  to repurchase our common stock,
subject to market  conditions.  During 2005, we repurchased  8,288,093 shares of
our  common  stock  at an  average  price of  $23.66  for an  aggregate  cost of
approximately  $196,100,000.  As of December 25, 2005, we had completed the 2004
stock repurchase  authorization  and had  approximately  $129,000,000  remaining
under the 2005 repurchase authorization.

A  reconciliation  of our  treasury  shares for the past three  fiscal  years is
provided below (shares in thousands):

<TABLE>
<CAPTION>

                                                                       Treasury
                                                                        Shares
                                                                    ---------------
<S>                                                                 <C>
Balance as of December 29, 2002..............................            25,423
Purchases of treasury stock..................................             2,519
Stock options exercised......................................            (1,847)
Shares issued under employee benefit plans...................              (276)
Restricted shares awarded under equity incentive plans.......              (103)
                                                                    ---------------
Balance as of December 28, 2003..............................            25,716
Purchases of treasury stock..................................             3,994
Stock options exercised......................................            (1,982)
Shares issued under employee benefit plans...................              (275)
Restricted shares awarded under equity incentive plans.......               (78)
                                                                    ---------------
Balance as of December 26, 2004..............................            27,375
Purchases of treasury stock..................................             8,288
Stock options exercised......................................            (1,045)
Shares issued under employee benefit plans...................              (209)
Restricted shares awarded under equity incentive plans.......              (104)
                                                                    ---------------
Balance as of December 25, 2005..............................            34,305
                                                                    ===============
</TABLE>

20.  Employee Benefit Plans

Employee  stock option plans:  At the 1995 Annual Meeting of  Stockholders,  the
1995 Equity  Incentive  Plan (the "1995 Plan") was  approved.  The 1995 Plan was
re-approved at the 2005 Annual Meeting of Stockholders. The 1995 Plan allows the
committee to grant stock options,  stock appreciation  rights,  restricted stock
awards,  performance  unit awards and  performance  share awards  (collectively,
"Awards") to eligible  participants.  The 1995 Plan  authorizes the committee to
issue up to 19,900,000  shares.  Options granted under the 1995 Plan during 1995


                                      F-24
<PAGE>
have a term of five to ten years and are generally  exercisable three years from
date of grant. Options granted under the 1995 Plan during 1996 through 1998 have
a term of ten years and are generally 50%  exercisable  three years from date of
grant,  25% exercisable  four years from date of grant, and 25% exercisable five
years  from date of grant.  Options  granted  under  the 1995 Plan  during  1999
through 2004 have a term of ten years and are  generally  exercisable  at either
one, two, three or five years from the date of grant.  Options granted under the
1995 Plan during 2005 have a term of seven years and are  generally  exercisable
between  two and five years from the date of grant.  Subject to the terms of the
1995 Plan, the committee has the sole  discretion to determine the associates to
whom it  grants  Awards,  the size and  types of the  Awards  and the  terms and
conditions of the Awards.

During 1999,  our Board of Directors  approved the 1999 Employee  Incentive Plan
(the  "1999  Plan")  which  allows the  committee  to grant  nonqualified  stock
options,  stock  appreciation  rights,  restricted stock,  performance units and
performance  shares  to  eligible  participants.  The 1999 Plan  authorizes  the
committee to issue up to 2,473,875  shares.  Options granted under the 1999 Plan
have a term of ten years and are generally  exercisable  one, two or three years
from the date of grant.  In 2003,  we ceased  granting  options under this plan.
Under both plans, the option price for both qualified and  nonqualified  options
cannot be less than the fair  market  value of our common  stock on the date the
committee grants the options.

Both plans permit the committee to grant performance shares.  Performance shares
represent rights to receive our common stock,  cash or any combination  thereof,
based  upon  certain  performance  criteria.  In 2002,  the  committee  approved
performance  share  plans with a  three-year  performance  period.  We  recorded
compensation  expense of $2,667,000 in 2003 related to these grants. In 2004, we
reversed $447,000 of compensation expense previously  recognized due to the 2004
performance versus our three-year performance criteria. We recorded compensation
expense of $65,000 in 2005 related to these grants.  These amounts were based on
the market price of our common stock at the end of each fiscal year. Performance
shares are no longer used by the committee.

We account for both plans in accordance  with APB Opinion No. 25 which  requires
us to  recognize  compensation  cost based on the  excess,  if any,  between the
quoted market price of the stock at the date of grant and the amount an employee
must pay to  acquire  the  stock.  Under  this  method,  we have  recognized  no
compensation  cost for stock option  awards,  except for  performance  shares as
described above.


                                      F-25
<PAGE>
Transactions relative to both plans are as follows:

<TABLE>
<CAPTION>


                                              1999 Plan                     1995 Plan
                                     ----------------------------- -----------------------------
                                                      Weighted                       Weighted
                                                       Average                        Average
                                       Number of      Exercise        Number of      Exercise
                                        Options         Price          Options         Price
                                     -------------- -------------- ---------------- ------------
  <S>                                <C>            <C>            <C>              <C>
  Options outstanding at
      December 29, 2002............    2,144,978        $11.93         5,587,272        $10.41
         Granted...................      134,250        $16.25         1,446,765        $17.36
         Exercised.................     (306,151)       $ 8.51        (1,507,872)       $ 8.11
         Canceled..................     (197,980)       $12.69           (39,117)       $15.33
                                     --------------                ----------------
  Options outstanding at
      December 28, 2003............    1,775,097        $12.77         5,487,048        $12.84
         Granted...................         --             --          1,596,944        $25.82
         Exercised.................     (572,048)       $10.46        (1,445,331)       $10.09
         Canceled..................      (73,439)       $14.81          (570,853)       $14.91
                                     --------------                ----------------
  Options outstanding at
      December 26, 2004............    1,129,610        $13.80         5,067,808        $17.48
         Granted...................         --                         3,277,725        $25.69
         Exercised.................     (418,813)       $13.67          (638,163)       $11.89
         Canceled..................      (46,141)       $16.02          (341,437)       $23.80
                                     --------------                ----------------
  Options outstanding at
      December 25, 2005............      664,656        $13.73         7,365,933        $21.33
                                     ==============                ================
  Options available for grant at
      December 25, 2005............      363,238                       3,552,836
                                     ==============                ================
</TABLE>

The number of options exercisable for each plan are summarized below:

<TABLE>
<CAPTION>

                                               1999 Plan                     1995 Plan
                                     ----------------------------- -----------------------------
                                                      Weighted                       Weighted
                                                       Average                        Average
                                        Options       Exercise         Options       Exercise
                                      Exercisable       Price        Exercisable       Price
                                     -------------- -------------- ---------------- ------------
      <S>                            <C>            <C>            <C>              <C>
      December 28, 2003...........     146,829         $ 8.56        1,590,897         $ 9.36

      December 26, 2004...........     403,863         $10.95        1,572,468         $10.70

      December 25, 2005...........     556,656         $13.24        1,919,347         $13.33

</TABLE>


                                      F-26
<PAGE>


The  following  table  summarizes  information  relating to  fixed-priced  stock
options outstanding for both plans at December 25, 2005:
<TABLE>
<CAPTION>

                                                  Options Outstanding                       Options Exercisable
                                    ------------------------------------------------  --------------------------------
                                                        Weighted
                                                        Average         Weighted
                                                       Remaining         Average                          Weighted
                                        Number        Contractual       Exercise          Number          Average
        Range of Exercise Prices      Outstanding          Life            Price        Exercisable     Exercise Price
       ---------------------------  ---------------  ---------------  --------------  ---------------  ---------------
        1995 Plan:
<S>      <C>         <C>            <C>              <C>              <C>             <C>              <C>
         $   6.18    to $   6.19          13,197        2.5 years         $   6.19          13,197         $   6.19
         $   7.42    to $   7.45          81,515        2.0 years         $   7.43          81,515         $   7.43
         $   8.20    to $   8.97         435,605        2.7 years         $   8.46         435,605         $   8.46
         $   9.81    to $   9.94         249,187        5.1 years         $   9.83         249,187         $   9.83
         $  13.46    to $  14.72         764,914        5.9 years         $  14.54         764,914         $  14.54
         $  15.60    to $  16.35         960,065        7.0 years         $  16.25         201,644         $  16.23
         $  16.97    to $  21.94         592,759        6.8 years         $  20.99          11,625         $  18.44
         $  22.79    to $  28.40       3,996,264        7.1 years         $  25.83         161,660         $  25.69
         $  28.91    to $  28.91         272,427        6.2 years         $  28.91            --                --
                                    ---------------                                   ---------------
         $   6.18    to $  28.91       7,365,933        6.5 years         $  21.33       1,919,347         $  13.33
                                    ===============                                   ===============

        1999 Plan:
         $   7.24    to $   8.45          46,011        4.0 years         $   8.12          46,011         $   8.12
         $   9.81    to $  10.65         145,225        5.2 years         $   9.86         145,225         $   9.86
         $  12.82    to $  17.60         473,420        6.4 years         $  15.46         365,420         $  15.22
                                    ---------------                                   ---------------
         $   7.24    to $  17.60         664,656        6.0 years         $  13.73         556,656         $  13.24
                                    ===============                                   ===============
</TABLE>

1989 Plan: During 1989, our Board of Directors  approved the 1989 Employee Stock
Option Plan (the "1989 Plan").  The 1989 Plan was  terminated  and replaced with
the 1995 Plan at the 1995 Annual  Meeting of  Stockholders.  We had exercises of
6,262 and 78,900 in 2004 and 2003, respectively, related to the 1989 Plan. There
are no options outstanding as of December 25, 2005 under the 1989 Plan.

Restricted  stock awards:  During 2005,  2004, and 2003,  the committee  granted
restricted  stock awards to certain  officers and key  associates.  These awards
vest over a one to three-year period. We recorded unearned  compensation for the
market value of the stock at the date of grant,  and we have presented this as a
reduction  to  stockholders'  equity in the  accompanying  consolidated  balance
sheets.  We are  amortizing  unearned  compensation  ratably to expense over the
vesting period.  Accordingly,  we recognized compensation expense of $2,231,000,
$1,422,000 and $1,011,000 in 2005, 2004, and 2003, respectively.

Nonqualified  deferred compensation plan: In 2002, we entered into a rabbi trust
agreement to protect the assets of the nonqualified  deferred  compensation plan
for certain of our associates.  Each participant's account is comprised of their
contribution, our matching contribution and each participant's share of earnings
or losses in the plan. In accordance  with Emerging Issues Task Force No. 97-14,
"Accounting for Deferred  Compensation  Arrangements Where Amounts Are Held in a
Rabbi Trust and  Invested,"  the accounts of the rabbi trust are reported in our
consolidated  financial  statements.  As of December  25, 2005 and  December 26,
2004, our  consolidated  balance sheets include the  investments in other assets
and the offsetting obligation is included in other non-current liabilities.  The
deferred compensation plan investments are considered trading securities and are
reported at fair value with the realized and unrealized holding gains and losses
related  to these  investments  recorded  in  other  income  and the  offsetting
compensation expense recorded in general and administrative expenses.

Employee retirement plans: During 1992, we established a profit sharing plan and
trust in accordance  with Section  401(k) of the Internal  Revenue Code. We make
matching  contributions of 50% of associate  contributions not to exceed 4.0% of


                                      F-27
<PAGE>
an associate's compensation in any year. Through 2004, we made our contributions
in shares of our common stock.  Beginning in 2005, we make our  contributions in
cash. Our  contributions  vest at the rate of 20% after the  associate's  second
year of  service,  60% after  three  years of  service,  80% after four years of
service  and 100% after five years of service.  Contributions  under these plans
were $2,509,000 in 2005, $2,158,000 in 2004 and $1,755,000 in 2003.

Employee  stock  purchase  plan:  During 1996, we  established an employee stock
purchase plan in accordance  with Section 423 of the Internal  Revenue Code. The
plan was approved at the 1997 Annual  Meeting of  Stockholders.  The plan allows
associates  to purchase  shares of our common  stock at a 15%  discount  through
payroll deductions.  The Board has authorized  1,350,000 common shares under the
plan.  Associates  purchased 208,780 shares under this plan during 2005, 196,220
shares during 2004 and 196,576 shares during 2003.

21.  Related Party Transactions

As of December 28, 2003, we had a loan  outstanding  with an interest rate of 5%
to an officer  for moving  related  assistance  in the amount of  $310,000.  The
remaining  principal  of  $210,000,  as well as  accrued  interest,  was paid in
September 2004.

22.  Subsequent Event

We completed the  acquisition of four franchise  restaurants in the Houston area
in January 2006 for approximately $8,200,000 in cash.


                                      F-28
<PAGE>
23.  Quarterly Results of Operations (Unaudited)

The  following  presents  the  unaudited   consolidated   quarterly  results  of
operations  for 2005 and  2004.  All  amounts,  except  per share  amounts,  are
expressed in thousands.

<TABLE>
<CAPTION>

                                                                     Fiscal Quarter Ended
                                                    ------------------------------------------------------
                                                     March 27,     June 26,    September 25,  December 25,
                                                        2005         2005          2005          2005
                                                    -----------  ------------  ------------  -------------
<S>                                                 <C>          <C>           <C>           <C>
Revenues:
     Company restaurant sales..................      $270,458     $272,703      $272,673      $ 266,807
     Franchise royalties and fees..............        33,008       32,493        31,589         31,723
     Other franchise income....................         1,065        1,424         1,064          1,643
                                                    -----------  ------------  ------------  -------------
        Total operating revenues...............       304,531      306,620       305,326        300,173
                                                    -----------  ------------  ------------  -------------
Cost of company restaurant sales:
     Food and beverage.........................        71,635       72,565        71,555         70,767
     Labor.....................................        88,724       90,115        90,231         89,493
     Direct and occupancy......................        66,367       71,038        74,706         75,545
     Pre-opening expense.......................         1,167        1,268         1,089          1,243
                                                    -----------  ------------  ------------  -------------
        Total cost of company
           restaurant sales.....................      227,893      234,986       237,581        237,048
                                                    -----------  ------------  ------------  -------------
Cost of other franchise income.................           819        1,229           790          2,054
General and administrative expenses............        26,946       27,980        26,329         28,513
Amortization of intangible assets..............           228          226           204            220
Impairment of long-lived assets................          --           --           3,900           --
Loss on disposition of restaurants
   and equipment...............................          297          564           480            726
                                                    -----------  ------------  ------------  -------------
Operating earnings.............................        48,348       41,635        36,042         31,612
                                                    -----------  ------------  ------------  -------------
Other income (expense):
     Investment income.........................           (41)         449           568            719
     Interest expense..........................          (337)        (634)       (1,232)        (2,162)
     Other income..............................           435          584           593            150
                                                    -----------  ------------  ------------  -------------
        Total other income (expense)...........            57          399           (71)        (1,293)
                                                    -----------  ------------  ------------  -------------
Earnings before income taxes and
   cumulative effect of change in
   accounting principle........................        48,405       42,034        35,971         30,319
Income taxes...................................        16,748       14,544        13,836          9,574(1)
                                                    -----------  ------------  ------------  -------------
Earnings before cumulative effect of change in         31,657       27,490        22,135         20,745
   accounting principle........................
Cumulative effect of change in accounting
   principle...................................          --           --            --             (225)
                                                    -----------  ------------  ------------  -------------
Net earnings...................................      $ 31,657     $ 27,490      $ 22,135      $  20,520
                                                    ===========  ============  ============  =============

Basic net earnings per common share:
Basic earnings before cumulative effect of
   change in   accounting principle............      $   0.39     $   0.34      $   0.28      $    0.27
Cumulative effect of change in accounting
   principle, net of tax ......................          --           --            --             --
                                                    -----------  ------------  ------------  -------------
Basic net earnings per common share............      $   0.39     $   0.34      $   0.28      $    0.27
                                                    ===========  ============  ============  =============
Diluted net earnings per common share:
Diluted earnings before cumulative effect of
   change in accounting principle..............      $   0.38     $   0.34      $   0.28      $    0.27
Cumulative effect of change in accounting
   principle, net of tax ......................          --           --            --             --
                                                    -----------  ------------  ------------  -------------
Diluted net earnings per common share..........      $   0.38     $   0.34      $   0.28      $    0.27
                                                    ===========  ============  ============  =============

Basic weighted average shares outstanding......        80,705       79,897        78,485         75,525
                                                    ===========  ============  ============  =============
Diluted weighted average shares outstanding....        82,375       81,360        79,691         76,542
                                                    ===========  ============  ============  =============
<FN>

(1)  Fourth  quarter 2005 net earnings  reflect a decrease in income tax expense
     of $1.1 million due to the resolution of a state income tax matter.
</FN>
</TABLE>


                                      F-29
<PAGE>
<TABLE>
<CAPTION>

                                                                     Fiscal Quarter Ended
                                                   -------------------------------------------------------
                                                     March 28,     June 27,    September 26,  December 26,
                                                       2004          2004          2004           2004
                                                   ------------ ------------- -------------- -------------
<S>                                                <C>          <C>           <C>            <C>
Revenues:
     Company restaurant sales..................     $ 243,560    $ 247,769     $ 247,173      $ 238,296
     Franchise royalties and fees..............        30,715       30,722        30,048         29,736
     Other franchise income....................         3,115        3,399         3,913          3,188
                                                   ------------ ------------- --------------  ------------
        Total operating revenues...............       277,390      281,890       281,134        271,220
                                                   ------------ ------------- --------------  ------------
Cost of company restaurant sales:
     Food and beverage.........................        63,515       66,647        65,115         63,857
     Labor.....................................        79,655       80,683        79,195         78,126
     Direct and occupancy......................        59,342       60,513        61,914         62,938
     Pre-opening expense.......................           567          425         1,020          1,013
                                                   ------------ ------------- --------------  ------------
        Total cost of company
          restaurant sales.....................       203,079      208,268       207,244        205,934
                                                   ------------ ------------- --------------  ------------
Cost of other franchise income.................         2,937        5,035         3,521          2,908
General and administrative expenses............        25,422       24,960        26,752         27,676
Amortization of intangible assets..............            86          158           199            220
Loss on disposition of restaurants and
     equipment.................................           495          584           441            435
                                                   ------------ ------------- --------------  ------------
Operating earnings.............................        45,371       42,885        42,977         34,047
                                                   ------------ ------------- --------------  ------------
Other income (expense):
     Investment income.........................           223           18           325            718
     Interest expense..........................          (344)        (416)         (379)          (487)
     Other income..............................           461          562           754          1,780
                                                   ------------ ------------- --------------  ------------
        Total other income.....................           340          164           700          2,011
                                                   ------------ ------------- --------------  ------------
Earnings before income taxes...................        45,711       43,049        43,677         36,058
Income taxes...................................        15,975       14,919        15,080         11,656
                                                   ------------ ------------- --------------  ------------
Net earnings...................................     $  29,736    $  28,130     $  28,597       $ 24,402
                                                   ============ ============= ==============  ============

Basic net earnings per common share............     $    0.36      $  0.34     $    0.35       $   0.30
                                                   ============ ============= ==============  ============
Diluted net earnings per common share..........     $    0.35      $  0.33     $    0.34       $   0.30
                                                   ============ ============= ==============  ============

Basic weighted average shares outstanding......        81,986       81,781        81,511         80,835
                                                   ============  ============= ==============  ===========
Diluted weighted average shares outstanding....        84,628       84,098        83,503         82,518
                                                   ============  ============= ==============  ===========
</TABLE>


                                      F-30
<PAGE>




                         APPLEBEE'S INTERNATIONAL, INC.
                                  EXHIBIT INDEX

   Exhibit
    Number                   Description of Exhibit
---------------  ---------------------------------------------------------------

       3.1       Certificate  of  Incorporation,  as amended,  of the Registrant
                 (incorporated  by reference to Exhibit 3.1 of the  Registrant's
                 Annual  Report on Form 10-K for the fiscal year ended  December
                 31, 1995).

       3.2       Restated and Amended By-laws of the Registrant (incorporated by
                 reference to Exhibit 3.2 of the  Registrant's  Annual Report on
                 Form 10-K for the fiscal year ended December 26, 2004).

       4.1       Certificate of the Voting Powers, Designations, Preferences and
                 Relative  Participating,  Optional and Other Special Rights and
                 Qualifications of Series A Participating  Cumulative  Preferred
                 Stock  of  Applebee's  International,   Inc.  (incorporated  by
                 reference to Exhibit 4.2 of the  Registrant's  Annual Report on
                 Form 10-K for the fiscal year ended December 25, 1994).

       10.1      Form of Applebee's Development Agreement.

       10.2      Form of Applebee's Franchise Agreement.

       10.3      Schedule of Applebee's  Development and Franchise Agreements as
                 of December 25, 2005.

       10.4      Revolving  Credit  Agreement  dated  as of  December  3,  2004,
                 Amendment  No. 1 dated  September  14, 2005 and Amendment No. 2
                 dated  October 26, 2005  (incorporated  by reference to Exhibit
                 10.1 of the  Registrant's  Form 8-K filed on  December 7, 2004,
                 Form 8-K  filed on  September  15,  2005 and Form 8-K  filed on
                 October 27, 2005).

                 Management Contracts and Compensatory Plans or Arrangements


       10.5      Amended and Restated 1995 Equity  Incentive Plan  (incorporated
                 by  reference  to Exhibit  10.3 of the  Registrant's  Quarterly
                 Report  on Form  10-Q for the  fiscal  quarter  ended  June 26,
                 2005).

       10.6      Employee  Stock  Purchase  Plan,  as amended  (incorporated  by
                 reference to Exhibit 10.4 of the Registrant's  Quarterly Report
                 on Form 10-Q for the fiscal quarter ended June 26, 2005.

       10.7      1999 Management and Executive  Incentive Plan  (incorporated by
                 reference to Exhibit 10.13 of the Registrant's Annual Report on
                 Form 10-K for the fiscal year ended December 26, 1999).

       10.8      Nonqualified   Deferred   Compensation  Plan  (incorporated  by
                 reference to Exhibit 10.12 of the Registrant's Annual Report on
                 Form 10-K for the fiscal year ended December 29, 2002).

       10.9      1999  Employee  Incentive  Plan,  as amended  (incorporated  by
                 reference to Exhibit 10.14 of the Registrant's Annual Report on
                 Form 10-K for the fiscal year ended December 26, 1999).


                                       E-1
<PAGE>



  Exhibit
   Number                    Description of Exhibit
---------------  ---------------------------------------------------------------

       10.10     2001 Senior Executive Bonus Plan  (incorporated by reference to
                 Exhibit  10.12 of the  Registrant's  Annual Report on Form 10-K
                 for the fiscal year ended December 30, 2001).

       10.11     Employment  Agreement,  dated  January 27, 1994,  with Lloyd L.
                 Hill   (incorporated  by  reference  to  Exhibit  10.4  of  the
                 Registrant's  Quarterly  Report  on Form  10-Q  for the  fiscal
                 quarter ended March 27, 1994).

       10.12     Severance and Noncompetition Agreement, dated January 27, 1994,
                 with Lloyd L. Hill  (incorporated  by reference to Exhibit 10.5
                 of the  Registrant's  Quarterly  Report  on Form  10-Q  for the
                 fiscal quarter ended March 27, 1994).

       10.13     Employment Agreement dated as of January 9, 2006 by and between
                 the Company and Steven K. Lumpkin (incorporated by reference to
                 the Registrant's Form 8-K filed on January 9, 2006).

       10.14     Previous Form of Change in Control  Agreement  (incorporated by
                 reference to Exhibit 10.23 of the Registrant's Annual Report on
                 Form 10-K for the fiscal  year  ended  December  27,  1998) and
                 schedule of parties thereto.

       10.15     Previous Form of Change in Control  Agreement  (incorporated by
                 reference to Exhibit 10.2 of the Registrant's  Quarterly Report
                 on Form 10-Q for the  fiscal  quarter  ended  July 1, 2001) and
                 schedule of parties thereto.

       10.16     Current  Form of Change in  Control  and  Noncompete  Agreement
                 (incorporated  by reference to Exhibit 10.4 of the Registrant's
                 Quarterly  Report on Form  10-Q for the  fiscal  quarter  ended
                 September 26, 2004) and schedule of parties thereto.

       10.17     Form   of   Officer   Nonqualified   Stock   Option   Agreement
                 (incorporated  by reference to Exhibit 10.1 of the Registrant's
                 Form 8-K filed on December 15, 2004).

       10.18     Form of Officer Incentive Stock Option Agreement  (incorporated
                 by reference to Exhibit 10.2 of the Registrant's Form 8-K filed
                 on December 15, 2004).

       10.19     Form of Officer Restricted Stock Award Agreement  (incorporated
                 by reference to Exhibit 10.3 of the Registrant's Form 8-K filed
                 on December 15, 2004).

       10.20     Form of Officer  Restricted  Stock Award  Agreement  for shares
                 subject   to   the   Company's   stock   ownership   guidelines
                 (incorporated  by reference to Exhibit 10.4 of the Registrant's
                 Form 8-K filed on December 15, 2004).

       10.21     Form of  Nonqualified  Stock Option  Agreement for  Nonemployee
                 Directors  (incorporated  by  reference  to Exhibit 10.5 of the
                 Registrant's Form 8-K filed on December 15, 2004).

       10.22     Form  of  Restricted  Stock  Award  for  Nonemployee  Directors
                 (incorporated  by reference to Exhibit 10.6 of the Registrant's
                 Form 8-K filed on December 15, 2004).

       10.23     Executive  Nonqualified  Stock Purchase Plan  (incorporated  by
                 reference to Exhibit 10.2 of the Registrant's  Quarterly Report
                 on Form 10-Q for the fiscal quarter ended June 27, 2004).


                                       E-2
<PAGE>



   Exhibit
    Number                   Description of Exhibit
--------------- ----------------------------------------------------------------

       10.24     Form  of  Indemnification   Agreement  with  all  Officers  and
                 Directors  (incorporated  by  reference  to Exhibit 10.3 of the
                 Registrant's  Quarterly  Report  on Form  10-Q  for the  fiscal
                 quarter ended June 27, 2004) and schedule of parties thereto.

       10.25     Executive   Retirement   Plan,  as  amended   (incorporated  by
                 reference to Exhibit 10.1 of the Registrant's  Quarterly Report
                 on Form 10-Q for the fiscal  quarter  ended  March 28, 2004 and
                 Exhibit 10.5 of the Registrant's  Quarterly Report on Form 10-Q
                 for the fiscal quarter ended June 26, 2005).

       10.27     Executive  Health Plan  (incorporated  by  reference to Exhibit
                 10.2 of the Registrant's  Quarterly Report on Form 10-Q for the
                 fiscal quarter ended March 28, 2004).

       10.28     Senior Executive Officer Employment Arrangements.

       10.29     Director Compensation Policy.

       10.30     Stock  Ownership  Guidelines   (incorporated  by  reference  to
                 Exhibit 10.2 of the  Registrant's  Form 8-K filed on January 7,
                 2005).

       10.31     FlexPerx Program  (incorporated by reference to Exhibit 10.1 of
                 the Registrant's Form 8-K filed on January 7, 2005).

       10.32     Form of Stock  Appreciation  Rights Agreement  (incorporated by
                 reference to Form 8-K filed on February 22, 2006).

       10.33     CEO  Use  of  the  Company  Airplane  Policy  (incorporated  by
                 reference to Exhibit 10.6 of the Registrant's  Quarterly Report
                 on Form 10-Q for the fiscal quarter ended June 26, 2005).

       10.34     Personal   Use  of   Corporate   Aircraft   for   Senior   Team
                 (incorporated  by reference to Exhibit 10.7 of the Registrant's
                 Quarterly Report on Form 10-Q for the fiscal quarter ended June
                 26, 2005).

       10.35     Asset  Purchase  Agreement  with The Ozark Apples,  Inc.  dated
                 April 8, 2005 (incorporated by reference to Exhibit 10.2 of the
                 Registrant's  Quarterly  Report  on Form  10-Q  for the  fiscal
                 quarter ended June 26, 2005).

       10.36     Memorandum  of   Understanding,   dated  October  5,  2002  and
                 Amendment   1  dated  July  1,  2005,   with  Louis  A.  Kaucic
                 (incorporated   by  reference  to  the  Exhibit  10.14  of  the
                 Registrant's  Annual  Report on Form 10-K for the  fiscal  year
                 ended  December 28, 2003 and Exhibit  10.1 to the  Registrant's
                 Quarterly Report on Form 10-Q for the fiscal quarter ended June
                 26, 2005).

       10.37     Employment Agreement dated as of January 9, 2006 by and between
                 the Company and David L. Goebel  (incorporated  by reference to
                 the Registrant's Form 8-K filed on January 9, 2006).

       10.38     Employment Agreement dated as of January 9, 2006 by and between
                 the Company and Steven K. Lumpkin (incorporated by reference to
                 the Registrant's Form 8-K filed on January 9, 2006).


                                       E-3
<PAGE>



   Exhibit
    Number                   Description of Exhibit
--------------- ----------------------------------------------------------------

       21        Subsidiaries of Applebee's International, Inc.

       23.1      Consent of Deloitte & Touche LLP.

       24        Power of Attorney (see page 45 of the Form 10-K).

       31.1      Certification  of Principal  Executive  Officer Pursuant to SEC
                 Rule 13a-14(a).

       31.2      Certification  of Chief Financial  Officer Pursuant to SEC Rule
                 13a-14(a).

       32        Certification Pursuant to Section 906 of the Sarbanes-Oxley Act
                 of 2002.

                                       E-4
<PAGE>