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

                                    FORM 10-Q


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

For the quarterly period ended                  June 29, 2003
                              --------------------------------------------------

                                       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, Suite 100, Overland Park, Kansas 66207
--------------------------------------------------------------------------------
              (Address of principal executive offices and zip code)

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


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  whether  the  registrant  is an  accelerated  filer (as
defined by Rule 12b-2 of the Act).   Yes  X      No
                                        -----      -----

The number of shares of the registrant's common stock outstanding as of July 24,
2003 was 55,838,740.

                                       1
<PAGE>


                 APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
                                    FORM 10-Q
                       FISCAL QUARTER ENDED JUNE 29, 2003
                                      INDEX

<TABLE>
<CAPTION>

                                                                                                               Page
<S>                <C>                                                                                          <C>
Part I              Financial Information

Item 1.             Consolidated Financial Statements:

                    Consolidated Balance Sheets as of June 29, 2003
                       and December 29, 2002................................................................      3

                    Consolidated Statements of Earnings for the 13 Weeks and 26 Weeks
                       Ended June 29, 2003 and June 30, 2002................................................      4

                    Consolidated Statement of Stockholders' Equity for the
                       26 Weeks Ended June 29, 2003.........................................................      5

                    Consolidated Statements of Cash Flows for the 26 Weeks
                       Ended June 29, 2003 and June 30, 2002 ...............................................      6

                    Notes to Consolidated Financial Statements..............................................      8

Item 2.             Management's Discussion and Analysis of
                       Financial Condition and Results of Operations........................................     14

Item 3.             Quantitative and Qualitative Disclosures About Market Risk..............................     23

Item 4.             Controls and Procedures.................................................................     24


Part II             Other Information

Item 1.             Legal Proceedings.......................................................................     25

Item 4.             Submission of Matters to a Vote of Security Holders.....................................     25

Item 6.             Exhibits and Reports on Form 8-K........................................................     26

Signatures .................................................................................................     27

Exhibit Index...............................................................................................     28


</TABLE>

                                       2
<PAGE>

<TABLE>
<CAPTION>

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


                                                                                             June 29,           December 29,
                                                                                               2003                 2002
                                                                                          ----------------     ---------------

<S>                                                                                        <C>                  <C>
                                       ASSETS
Current assets:
     Cash and cash equivalents........................................................      $     4,535          $    15,169
     Short-term investments, at market value (amortized cost of $478 in 2002).........               26                  503
     Receivables (less allowance for bad debts of $3,955 in 2003 and $4,089 in 2002)..           31,824               26,092
     Receivables related to captive insurance subsidiary..............................            6,162                1,803
     Inventories......................................................................           19,717               11,504
     Prepaid income taxes.............................................................            3,122                5,002
     Prepaid and other current assets.................................................            8,976                9,506
                                                                                          ----------------     ---------------
         Total current assets.........................................................           74,362               69,579
Property and equipment, net...........................................................          397,923              383,002
Goodwill..............................................................................          105,326               88,715
Franchise interest and rights, net....................................................            1,302                1,468
Other assets, net.....................................................................           18,973               23,350
                                                                                          ----------------     ---------------
                                                                                            $   597,886          $   566,114
                                                                                          ================     ===============

                        LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Current portion of long-term debt................................................      $       501          $       377
     Accounts payable.................................................................           30,026               27,479
     Accrued expenses and other current liabilities...................................           74,563               82,204
     Loss reserve and unearned premiums related to captive insurance subsidiary.......           10,013                1,803
     Accrued dividends................................................................             --                  3,323
                                                                                          ----------------     ---------------
         Total current liabilities....................................................          115,103              115,186
                                                                                          ----------------     ---------------
Non-current liabilities:
     Long-term debt - less current portion............................................           34,751               52,186
     Other non-current liabilities....................................................            8,380                6,161
                                                                                          ----------------     ---------------
         Total non-current liabilities................................................           43,131               58,347
                                                                                          ----------------     ---------------
         Total liabilities............................................................          158,234              173,533
                                                                                          ----------------     ---------------
Commitments and contingencies (Note 3)
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 - 72,336,788 shares.....................................................              723                  723
     Additional paid-in capital.......................................................          194,628              187,523
     Retained earnings................................................................          479,408              434,621
     Accumulated other comprehensive income, net of income taxes......................             --                     16
                                                                                          ----------------     ---------------
                                                                                                674,759              622,883
     Treasury stock - 16,579,329 shares in 2003 and 16,948,371 shares in 2002, at
       cost...........................................................................         (235,107)            (230,302)
                                                                                          ----------------     ---------------
         Total stockholders' equity...................................................          439,652              392,581
                                                                                          ----------------     ---------------
                                                                                            $   597,886          $   566,114
                                                                                          ================     ===============
</TABLE>

                 See notes to consolidated financial statements.

                                       3
<PAGE>
<TABLE>
<CAPTION>


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


                                                                  13 Weeks Ended                         26 Weeks Ended
                                                        --------------- -- ----------------    -----------------------------------
                                                           June 29,           June 30,            June 29,            June 30,
                                                             2003               2002                2003                2002
                                                        ---------------    ----------------    ----------------    ---------------
<S>                                                      <C>                <C>                 <C>                 <C>
Revenues:
     Company restaurant sales .......................     $   220,107        $   178,893         $   428,517         $   353,866
     Franchise royalties and fees....................          27,331             25,484              54,494              50,324
     Other franchise income..........................           3,268                463               5,909                 597
                                                        ---------------    ----------------    ----------------    ---------------
         Total operating revenues....................         250,706            204,840             488,920             404,787
                                                        ---------------    ----------------    ----------------    ---------------
Cost of company restaurant sales:
     Food and beverage...............................          57,040             47,073             111,886              94,480
     Labor...........................................          71,804             58,881             140,168             116,338
     Direct and occupancy............................          54,386             44,291             104,947              87,163
     Pre-opening expense.............................             334                305                 555                 640
                                                        ---------------    ----------------    ----------------    ---------------
         Total cost of company restaurant sales......         183,564            150,550             357,556             298,621
                                                        ---------------    ----------------    ----------------    ---------------
Cost of other franchise income.......................           3,173                 93               5,673                 153
General and administrative expenses..................          22,887             19,923              45,507              39,243
Amortization of intangible assets....................              92                 52                 191                 190
Loss on disposition of restaurants and equipment.....             731                727               1,198               1,021
                                                        ---------------    ----------------    ----------------    ---------------
Operating earnings...................................          40,259             33,495              78,795              65,559
                                                        ---------------    ----------------    ----------------    ---------------
Other income (expense):
     Investment income...............................             485                381                 821                 778
     Interest expense................................            (518)              (555)             (1,039)             (1,188)
     Impairment of Chevys note receivable (Note 6)...          (8,803)               --               (8,803)                --
     Other income....................................               1                482                 206                 583
                                                        ---------------    ----------------    ----------------    ---------------
         Total other income (expense)................          (8,835)               308              (8,815)                173
                                                        ---------------    ----------------    ----------------    ---------------
Earnings before income taxes.........................          31,424             33,803              69,980              65,732
Income taxes.........................................          11,239             12,338              25,193              23,992
                                                        ---------------    ----------------    ----------------    ---------------
Net earnings.........................................     $    20,185        $    21,465         $    44,787         $    41,740
                                                        ===============    ================    ================    ===============

Basic net earnings per common share..................     $      0.36        $      0.38         $      0.81         $      0.75
                                                        ===============    ================    ================    ===============
Diluted net earnings per common share................     $      0.35        $      0.37         $      0.79         $      0.73
                                                        ===============    ================    ================    ===============

Basic weighted average shares outstanding............          55,435             55,872              55,354              55,874
                                                        ===============    ================    ================    ===============
Diluted weighted average shares outstanding..........          57,032             57,374              56,869              57,352
                                                        ===============    ================    ================    ===============


                 See notes to consolidated financial statements.
</TABLE>

                                       4
<PAGE>

<TABLE>
<CAPTION>

                 APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                   (Unaudited)
                      (in thousands, except share amounts)




                                                                                       Accumulated
                                          Common Stock         Additional                  Other                       Total
                                   -------------------------    Paid-In      Retained  Comprehensive   Treasury     Stockholders'
                                      Shares       Amount       Capital      Earnings  Income (Loss)    Stock          Equity
                                   ------------ ------------ -------------- ---------- ------------- ------------ -----------------

<S>                                <C>           <C>          <C>          <C>          <C>          <C>           <C>
Balance, December 29, 2002........  72,336,788    $   723      $  187,523   $ 434,621    $     16     $(230,302)    $    392,581

   Comprehensive income:
     Net earnings.................       --           --             --        44,787          --          --             44,787
     Change in unrealized gain on
       short-term investments,
       net of income taxes........       --           --             --           --          (16)         --                (16)
                                   ------------ ------------ -------------- ---------- ------------- ------------ -----------------

   Total comprehensive income.....       --           --             --        44,787         (16)         --             44,771
                                   ------------ ------------ -------------- ---------- ------------- ------------ -----------------

   Purchases of treasury stock....       --           --             --           --           --       (13,282)         (13,282)
   Stock options exercised and
     related tax benefit..........       --           --            5,441         --           --         6,756           12,197
   Shares issued under employee
     stock and 401(k) plans.......       --           --            1,619         --           --         1,152            2,771
   Restricted shares awarded
     under equity incentive plan..       --           --             (540)        --           --           569               29
   Unearned compensation relating
     to restricted shares.........       --           --              539         --           --          --                539
   Repayments of notes receivable
     from officers for stock sales       --           --               46         --           --          --                 46
                                   ------------ ------------ -------------- ---------- ------------- ------------ -----------------

Balance, June 29, 2003............  72,336,788    $   723      $  194,628   $ 479,408    $     --     $(235,107)    $    439,652
                                   ============ ============ ============== ========== ============= ============ =================

</TABLE>

                 See notes to consolidated financial statements.

                                       5
<PAGE>

<TABLE>
<CAPTION>

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


                                                                                                26 Weeks Ended
                                                                                      ------------------------------------
                                                                                          June 29,             June 30,
                                                                                            2003                 2002
                                                                                      ----------------     ---------------
<S>                                                                                    <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net earnings....................................................................   $    44,787          $    41,740
     Adjustments to reconcile net earnings to net cash provided by operating
     activities:
         Depreciation and amortization...............................................        19,943               16,953
         Amortization of intangible assets...........................................           191                  190
         Amortization of deferred financing costs....................................            97                   96
         Deferred income tax provision (benefit).....................................          (734)                 617
         Gain on sale of investments.................................................           (24)                 --
         Loss on disposition of restaurants and equipment............................         1,198                1,021
         Impairment of Chevys note receivable........................................         8,803                  --
         Income tax benefit from exercise of stock options...........................         3,879                1,359
     Changes in assets and liabilities (exclusive of effects of acquisition):
         Receivables.................................................................        (5,377)                (879)
         Receivables related to captive insurance subsidiary.........................        (4,359)                 --
         Inventories.................................................................        (8,019)                (488)
         Prepaid income taxes........................................................         1,880                  --
         Prepaid and other current assets............................................           316                2,016
         Accounts payable............................................................         2,547                3,392
         Accrued expenses and other current liabilities..............................        (6,693)              (8,336)
         Loss reserve and unearned premiums related to captive insurance subsidiary..         8,210                  --
         Accrued income taxes........................................................          --                  5,567
         Other.......................................................................        (1,375)                 544
                                                                                      ----------------     ---------------
         NET CASH PROVIDED BY OPERATING ACTIVITIES...................................        65,270               63,792
                                                                                      ----------------     ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchases of property and equipment.............................................       (28,964)             (29,545)
     Acquisition of restaurants......................................................       (21,557)                 --
     Proceeds from sale of restaurants and equipment.................................            35                    3
     Purchases of short-term investments.............................................          --                   (100)
     Maturities and sales of short-term investments..................................           480                  300
                                                                                      ----------------     ---------------
         NET CASH USED BY INVESTING ACTIVITIES.......................................       (50,006)             (29,342)
                                                                                      ----------------     ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
     Purchases of treasury stock.....................................................       (13,282)              (8,324)
     Dividends paid..................................................................        (3,323)              (3,010)
     Issuance of common stock upon exercise of stock options.........................         8,318                3,630
     Shares sold under employee stock purchase plan..................................         1,418                  984
     Net payments on long-term debt..................................................       (19,029)             (42,000)
                                                                                      ----------------     ---------------
         NET CASH USED BY FINANCING ACTIVITIES.......................................       (25,898)             (48,720)
                                                                                      ----------------     ---------------
NET DECREASE IN CASH AND CASH EQUIVALENTS............................................       (10,634)             (14,270)
CASH AND CASH EQUIVALENTS, beginning of period.......................................        15,169               22,048
                                                                                      ----------------     ---------------
CASH AND CASH EQUIVALENTS, end of period.............................................   $     4,535          $     7,778
                                                                                      ================     ===============

</TABLE>

                 See notes to consolidated financial statements.

                                       6
<PAGE>

<TABLE>
<CAPTION>

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


                                                                                                26 Weeks Ended
                                                                                      ------------------------------------
                                                                                         June 29,             June 30,
                                                                                           2003                 2002
                                                                                      ----------------     ---------------
<S>                                                                                    <C>                  <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
     Cash paid during the 26 week period for:
         Income taxes............................................................       $    20,746          $    13,534
                                                                                      ================     ===============
         Interest................................................................       $       709          $       891
                                                                                      ================     ===============
</TABLE>


SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:

We issued  restricted  common stock of $1,666,000  and $256,000 for the 26 weeks
ended June 29, 2003 and June 30, 2002, respectively.

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

DISCLOSURE OF ACCOUNTING POLICY:

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


                 See notes to consolidated financial statements.

                                       7
<PAGE>


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

1.  Basis of Presentation

Our  consolidated  financial  statements  included  in this  Form 10-Q have been
prepared without audit (except that the balance sheet information as of December
29, 2002 has been  derived from  consolidated  financial  statements  which were
audited) in accordance  with the rules and  regulations  of the  Securities  and
Exchange  Commission.  Although  certain  information  and footnote  disclosures
normally included in financial statements prepared in accordance with accounting
principles  generally  accepted  in the  United  States  of  America  have  been
condensed or omitted,  we believe that the  disclosures are adequate to make the
information presented not misleading.  The accompanying  consolidated  financial
statements should be read in conjunction with the audited  financial  statements
and notes thereto included in our Annual Report on Form 10-K for the fiscal year
ended December 29, 2002.

We  believe  that  all   adjustments,   consisting  only  of  normal   recurring
adjustments,  necessary  for a fair  presentation  of the results of the interim
periods  presented  have been made.  The results of  operations  for the interim
periods  presented are not necessarily  indicative of the results to be expected
for the full year.

We have made certain reclassifications to the consolidated financial statements
to conform to the 2003 presentation.

2.  Stock-Based Compensation

We have adopted the disclosure  provisions of Statement of Financial  Accounting
Standards  ("SFAS")  No.  148,   "Accounting  for  Stock-Based   Compensation  -
Transition  and  Disclosure,  an  amendment  of FASB  Statement  No.  123."  The
Statement  requires  prominent  disclosures in both annual and interim 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 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).

                                       8
<PAGE>
<TABLE>
<CAPTION>



                                                               13 Weeks Ended                  26 Weeks Ended
                                                       ------------------------------- -------------------------------
                                                           June 29,       June 30,        June 29,        June 30,
                                                             2003           2002            2003            2002
                                                       --------------- --------------- --------------- ---------------

<S>                                                     <C>             <C>             <C>             <C>
Net earnings, as reported............................    $  20,185       $  21,465       $  44,787       $  41,740
Less: Total stock-based employee
    compensation expense determined under
    fair value based methods for all awards,
    net of related taxes.............................        2,106           1,647           4,469           2,646
                                                       --------------- --------------- --------------- ---------------
Pro forma net earnings...............................    $  18,079       $  19,818       $  40,318       $  39,094
                                                       =============== =============== =============== ===============
Basic net earnings per common share,
    as reported......................................    $    0.36       $    0.38       $    0.81       $    0.75
                                                       =============== =============== =============== ===============
Basic net earnings per common share,
    pro forma........................................    $    0.33       $    0.35       $    0.73       $    0.70
                                                       =============== =============== =============== ===============
Diluted net earnings per common share,
    as reported......................................    $    0.35       $    0.37       $    0.79       $    0.73
                                                       =============== =============== =============== ===============
Diluted net earnings per common share,
    pro forma........................................    $    0.32       $    0.35       $    0.71       $    0.68
                                                       =============== =============== =============== ===============
</TABLE>

3.  Commitments and Contingencies

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

While the  resolution of the matters  described  above may have an impact on our
financial results for the period in which they are resolved, 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:  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 June 29, 2003, the aggregate  amount of these
lease payments totaled approximately $23,700,000. These leases expire at various
times throughout the next several years with the final lease agreement  expiring
in 2018.  The  buyers  have  indemnified  us from any  losses  related  to these
guarantees. We have not recorded a liability as of June 29, 2003 or December 29,
2002.

Severance  agreements:  We have severance and employment agreements with certain
officers  providing for severance  payments to be made in the event the employee
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 June 29, 2003,  we would have been  required to make
payments totaling approximately $10,000,000.  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  $5,800,000  if such  officers  had  been
terminated as of June 29, 2003.


                                       9
<PAGE>

4.  Earnings Per Share

We compute  basic  earnings  per share by dividing  income  available  to common
shareholders by the weighted average number of common shares outstanding for the
reporting  period.  Diluted  earnings per 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  earnings per
share.  All amounts in the chart,  except per share  amounts,  are  expressed in
thousands.
<TABLE>
<CAPTION>

                                                               13 Weeks Ended                  26 Weeks Ended
                                                       ------------------------------- -------------------------------
                                                          June 29,        June 30,        June 29,        June 30,
                                                            2003            2002            2003            2002
                                                       --------------- --------------- --------------- ---------------

<S>                                                     <C>             <C>             <C>             <C>
Net earnings.........................................    $  20,185       $  21,465       $  44,787       $  41,740
                                                       =============== =============== =============== ===============

Basic weighted average shares outstanding............       55,435          55,872          55,354          55,874
Dilutive effect of stock options and
  equity-based compensation..........................        1,597           1,502           1,515           1,478
                                                       --------------- --------------- --------------- ---------------
Diluted weighted average shares outstanding..........       57,032          57,374          56,869          57,352
                                                       =============== =============== =============== ===============

Basic net earnings per common share..................    $    0.36       $    0.38       $    0.81       $    0.75
                                                       =============== =============== =============== ===============
Diluted net earnings per common share................    $    0.35       $    0.37       $    0.79       $    0.73
                                                       =============== =============== =============== ===============
</TABLE>

5.  Acquisitions

On November 7, 2002,  we acquired  the  operations  and assets of 21  Applebee's
restaurants  located in the Washington,  D.C. area from a franchisee.  Under the
terms of the purchase agreement and the agreement with the franchisee's  secured
lender,  the  total  purchase  price of the  acquisition  was  $34,250,000.  The
agreement  also  provides  for  additional  consideration  in  July  2004 if the
restaurants  achieve cash flows in excess of  historical  levels.  Our financial
statements reflect the results of operations for these restaurants subsequent to
the date of acquisition. The purchase price of $34,250,000 has been allocated to
the fair value of property and equipment of $25,200,000, goodwill of $10,100,000
and other net current liabilities of $1,050,000.

On March 24,  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. The total cash payment
included $20,800,000 paid at closing,  approximately  $200,000 paid as a deposit
in fiscal 2002 and  approximately  $800,000 paid in the second  quarter of 2003.
Our financial statements reflect the results of operations for these restaurants
subsequent to the date of  acquisition.  The purchase price of  $23,200,000  has
been  allocated  to the fair value of  property  and  equipment  of  $7,900,000,
goodwill of $16,600,000, and other net liabilities of $1,300,000.


                                       10
<PAGE>


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

                                                               13 Weeks Ended                  26 Weeks Ended
                                                       ------------------------------- -------------------------------
                                                          June 29,        June 30,        June 29,        June 30,
                                                            2003            2002            2003            2002
                                                       --------------- --------------- --------------- ---------------

<S>                                                     <C>             <C>             <C>             <C>
Actual company restaurant sales......................    $  18,700       $     --        $  30,700       $     --
                                                       =============== =============== =============== ===============


Pro forma company restaurant sales...................    $  18,700       $  17,100       $  36,700       $  33,800
                                                       =============== =============== =============== ===============
</TABLE>

6.  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.
The note  receivable  balance of  approximately  $8,800,000 and $8,600,000 as of
June 29, 2003 and December 29, 2002,  respectively,  is included in other assets
in our consolidated  balance sheets.  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. Based upon this information, we believe that the note is impaired. We have
fully  reserved the principal and accrued  interest by recording an allowance of
approximately  $8,800,000  as of June 29, 2003. A charge for the  impairment  of
this note is included in our  consolidated  statements  of earnings.  We will no
longer accrue  interest  receivable on this note and will record future interest
income on this note only upon the receipt of any related cash payments.

7.  Goodwill and Other Intangible Assets

Changes in goodwill are summarized below (in thousands):
<TABLE>
<CAPTION>

                                                                 June 29,             December 29,
                                                                   2003                   2002
                                                           ---------------------  -------------------
<S>                                                           <C>                    <C>
Carrying amount, beginning of the year..................       $     88,715           $     78,614
Goodwill acquired during the period.....................             16,611                 10,101
                                                           ---------------------  -------------------
                                                               $    105,326           $     88,715
                                                           =====================  ===================
</TABLE>

Intangible  assets subject to amortization  pursuant to SFAS No. 142,  "Goodwill
and Other Intangible  Assets," consist of franchise  interest and rights and are
summarized below (in thousands):
<TABLE>
<CAPTION>

                                                                 June 29,             December 29,
                                                                   2003                   2002
                                                           ---------------------  -------------------
<S>                                                           <C>                    <C>
Gross carrying amount..................................        $      6,371           $      6,371
Less, accumulated amortization.........................               5,069                  4,903
                                                           ---------------------  -------------------
Net....................................................        $      1,302           $      1,468
                                                           =====================  ===================
</TABLE>

We expect annual  amortization  expense for all  intangible  assets for the next
five fiscal years to range from approximately $280,000 to $380,000.


                                       11
<PAGE>

8.  Captive Insurance Subsidiary

On  September  20,  2002,  we formed  Neighborhood  Insurance,  Inc.,  a 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.   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  were
established based upon third-party  actuarial  estimates of ultimate  settlement
costs for incurred 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. Accordingly,
we do not expect  franchisee  participation in the captive  insurance company to
have an impact on our net earnings.

As of June 29, 2003 we have included approximately $2,000,000 in deferred policy
acquisition  costs  in  prepaid  and  other  current  assets  and  approximately
$1,600,000  of  investments  in other assets in our  consolidated  balance sheet
related to the captive insurance company.

9.  New Accounting Pronouncements

In June 2002, the Financial  Accounting Standards Board ("FASB") issued SFAS No.
146,  "Accounting for Costs Associated with Exit or Disposal  Activities."  This
Statement  requires  that a  liability  for a cost  associated  with  an exit or
disposal activity be recognized only when the liability is incurred and measured
at fair value.  SFAS No. 146 is effective for exit or disposal  activities  that
are initiated  after December 31, 2002.  The initial  adoption of this Statement
did not have a  material  impact  on our  results  of  operations  or  financial
position.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure  Requirements for Guarantees,  including  Indirect  Guarantees of
Indebtedness of Others." Interpretation No. 45 supersedes Interpretation No. 34,
"Disclosure  of Indirect  Guarantees  of  Indebtedness  of Others," and provides
guidance to guarantors on the recognition and disclosure concerning  obligations
under certain guarantees in interim and annual financial statements. The initial
recognition and measurement  provisions of  Interpretation  No. 45 are effective
for guarantees issued or modified after December 31, 2002, and are to be applied
prospectively.   The  disclosure   requirements  were  effective  for  financial
statements  for interim or annual  periods  ending after  December 15, 2002.  We
adopted the initial  recognition  provisions of Interpretation No. 45 in January
of 2003. The initial adoption of  Interpretation  No. 45 did not have a material
impact on our results of operations or financial position.

In December  2002,  the FASB issued SFAS No. 148,  "Accounting  for  Stock-Based
Compensation  - Transition  and  Disclosure."  SFAS No. 148 amends SFAS No. 123,
"Accounting for Stock-Based  Compensation," and provides  alternative methods of
transition  for a voluntary  change to the fair value based method of accounting
for stock-based employee compensation. This Statement also amends the disclosure
requirements  of SFAS No.  123 to  require  prominent  disclosure  in annual and
interim financial statements about the effects of stock-based compensation.  The
transition  guidance  and  annual  disclosure  provisions  of SFAS  No.  148 are
effective for financial statements issued for fiscal years ending after December
15, 2002. The interim disclosure provisions of this Statement were effective for
financial reports containing  financial statements for interim periods beginning
after December 15, 2002. We have adopted the  disclosure  provisions of SFAS No.
148.

                                       12
<PAGE>

In January  2003,  the FASB  issued  Interpretation  No. 46,  "Consolidation  of
Variable   Interest   Entities,   an   Interpretation   of  ARB  No.  51."  This
Interpretation  provides  clarification on the consolidation of certain entities
in which equity  investors do not have sufficient  equity at risk for the entity
to finance its activities without additional subordinated financial support from
other parties. Such entities are defined as variable interest entities ("VIEs").
This Interpretation  requires that VIEs be consolidated by the entity considered
to be the primary  beneficiary of the VIE. The  Interpretation  is effective for
newly created VIEs after  January 31, 2003 and  effective in the second  quarter
2003 for any VIEs  created  prior to February  1, 2003.  We have  evaluated  our
relationships  with  potential   unconsolidated  entities  which  may  meet  the
consolidation requirements of this Interpretation,  and the initial adoption did
not have any impact on our consolidated financial statements.

10. Subsequent Event

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.  We do not expect this  transaction to have a significant  impact on
our net earnings for fiscal 2003, and no significant gain or loss on the sale is
anticipated.  Actual  company  restaurant  sales  included  in our  consolidated
financial statements for these restaurants were approximately $4,300,000 in both
the 13 weeks  ended  June 29,  2003  and  June 30,  2002 and were  approximately
$8,800,000  in both  the 26 weeks  ended  June 29,  2003 and June 30,  2002.  In
connection  with this sale, we closed one  restaurant  in the Atlanta  market in
June 2003.


                                       13
<PAGE>


Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

General

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  include  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  from  franchisee  participation  in  our  captive
insurance company and revenue from information  technology products and services
provided to certain franchisees.

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 company and costs related to information
technology products and services provided to certain franchisees.

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

We operate on a 52 or 53 week fiscal year ending on the last Sunday in December.
Our fiscal  quarters  ended June 29,  2003 and June 30, 2002 each  contained  13
weeks  and are  referred  to  hereafter  as the  "2003  quarter"  and the  "2002
quarter,"  respectively.  Our 26 week  periods  ended June 29, 2003 and June 30,
2002 are referred to hereafter as the "2003  year-to-date  period" and the "2002
year-to-date period," respectively.

On  September  20,  2002,  we formed  Neighborhood  Insurance,  Inc.,  a 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.   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  were
established based upon third-party  actuarial  estimates of ultimate  settlement
costs for incurred 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. Accordingly,
we do not expect  franchisee  participation in the captive  insurance company to
have an impact on our net earnings.

                                       14
<PAGE>

As of June 29, 2003 we have included approximately $2,000,000 in deferred policy
acquisition  costs  in  prepaid  and  other  current  assets  and  approximately
$1,600,000  of  investments  in other assets in our  consolidated  balance sheet
related to the captive insurance company.

Application of Critical Accounting Policies

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 the consolidated  financial  statements.
We believe that the following  significant  accounting policies involve a higher
degree of  judgement or  complexity  (see Note 2 of our  Consolidated  Financial
Statements in our Annual Report on Form 10-K for the fiscal year ended  December
29, 2002 for a complete discussion of our significant accounting policies).

Franchise revenues: Franchise revenues consist of franchise royalties, franchise
fees and other franchise income. We recognize  royalties on a franchisee's sales
in the period in which the sales occur. We also receive a franchise fee for each
restaurant  that a franchisee  opens.  Franchise fees are deferred until we have
performed substantially all of our related obligations as franchisor,  typically
when the restaurant opens.  Other franchise income includes  insurance  premiums
from franchisee  participation in our captive insurance company and revenue from
information technology products and services provided to certain franchisees.

Property  and   equipment:   Property  and  equipment  are   depreciated   on  a
straight-line  basis over the estimated  useful lives of the assets.  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.

Impairment of long-lived  assets: We periodically  review property and equipment
for  impairment  using  historical  cash flows as well as current  estimates  of
future cash flows and/or appraisals. This assessment process requires the use of
estimates  and  assumptions  which  are  subject  to  a  significant  degree  of
judgement.  In addition,  we periodically  assess the recoverability of goodwill
and other intangible assets, which requires us to make assumptions regarding the
future cash flows and other  factors to determine  the fair value of the assets.
If  these  assumptions  change  in the  future,  we may be  required  to  record
impairment charges for these assets.

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.

Employee  incentive  compensation  plans:  We have  various  long-term  employee
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.

                                       15
<PAGE>

Receivables:   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.

We periodically  reassess our  assumptions  and judgements 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 the consolidated balance sheets would be adjusted
accordingly.  Historically,  actual results have not been  materially  different
than the estimates that are described above.

Acquisitions

On November 7, 2002,  we acquired  the  operations  and assets of 21  Applebee's
restaurants  located in the Washington,  D.C. area from a franchisee.  Under the
terms of the purchase agreement and the agreement with the franchisee's  secured
lender,  the  total  purchase  price of the  acquisition  was  $34,250,000.  The
agreement  also  provides  for  additional  consideration  in  July  2004 if the
restaurants  achieve cash flows in excess of  historical  levels.  Our financial
statements reflect the results of operations for these restaurants subsequent to
the date of acquisition.

On March 24,  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. The total cash payment
included $20,800,000 paid at closing,  approximately  $200,000 paid as a deposit
in fiscal 2002 and  approximately  $800,000 paid in the second  quarter of 2003.
Our financial statements reflect the results of operations for these restaurants
subsequent to the date of acquisition.

The following table is comprised of actual company  restaurant sales included in
our  consolidated  financial  statements for each period presented and pro forma
company restaurant sales assuming the acquisitions  occurred at the beginning of
each respective period (in thousands):

<TABLE>
<CAPTION>

                                                               13 Weeks Ended                  26 Weeks Ended
                                                       ------------------------------- -------------------------------
                                                          June 29,        June 30,        June 29,        June 30,
                                                            2003            2002            2003            2002
                                                       --------------- --------------- --------------- ---------------

<S>                                                     <C>             <C>             <C>             <C>
Actual company restaurant sales......................    $  18,700       $     --        $  30,700       $     --
                                                       =============== =============== =============== ===============

Pro forma company restaurant sales...................    $  18,700       $  17,100       $  36,700       $  33,800
                                                       =============== =============== =============== ===============
</TABLE>


                                       16
<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>

                                                                     13 Weeks Ended            26 Weeks Ended
                                                                ------------------------- --------------------------
                                                                 June 29,     June 30,      June 29,     June 30,
                                                                   2003         2002          2003         2002
                                                                ------------ ------------  ------------ ------------
<S>                                                               <C>          <C>           <C>          <C>
Revenues:
     Company restaurant sales................................       87.8%        87.3%         87.6%        87.4%
     Franchise royalties and fees............................       10.9         12.4          11.1         12.4
     Other franchise income..................................        1.3          0.2           1.2          0.1
                                                                ------------ ------------  ------------ ------------
        Total operating revenues.............................      100.0%       100.0%        100.0%       100.0%
                                                                ============ ============  ============ ============
Cost of sales (as a percentage of company restaurant sales):
     Food and beverage.......................................       25.9%        26.3%         26.1%        26.7%
     Labor...................................................       32.6         32.9          32.7         32.9
     Direct and occupancy....................................       24.7         24.8          24.5         24.6
     Pre-opening expense.....................................        0.2          0.2           0.1          0.2
                                                                ------------ ------------  ------------ ------------
        Total cost of sales..................................       83.4%        84.2%         83.4%        84.4%
                                                                ============ ============  ============ ============
Cost of other franchise income (as a percentage of other
     franchise income).......................................       97.1%        20.1%         96.0%        25.6%
General and administrative expenses..........................        9.1          9.7           9.3          9.7
Amortization of intangible assets............................        --           --            --           --
Loss on disposition of restaurants and equipment.............        0.3          0.4           0.2          0.3
                                                                ------------ ------------  ------------ ------------
Operating earnings...........................................       16.1         16.4          16.1         16.2
                                                                ------------ ------------  ------------ ------------
Other income (expense):
     Investment income.......................................        0.2          0.2           0.2          0.2
     Interest expense........................................       (0.2)        (0.3)         (0.2)        (0.3)
     Impairment of Chevys note receivable....................       (3.5)         --           (1.8)         --
     Other income............................................        --           0.2           --           0.1
                                                                ------------ ------------  ------------ ------------
        Total other income (expense).........................       (3.5)         0.2          (1.8)         --
                                                                ------------ ------------  ------------ ------------
Earnings before income taxes.................................       12.5         16.5          14.3         16.2
Income taxes.................................................        4.5          6.0           5.2          5.9
                                                                ------------ ------------  ------------ ------------
Net earnings.................................................        8.1%        10.5%          9.2%        10.3%
                                                                ============ ============  ============ ============

</TABLE>

                                       17
<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>

                                                               13 Weeks Ended                     26 Weeks Ended
                                                       -------------------------------     -------------------------------
                                                         June 29,          June 30,           June 29,          June 30,
                                                           2003              2002               2003              2002
                                                       -------------     -------------     --------------    --------------
<S>                                                    <C>               <C>               <C>                <C>
Number of restaurants:
     Company:
         Beginning of period.......................           371               314                 357               310
         Restaurant openings.......................             4                 4                   7                 8
         Restaurants closed........................            (2)               --                  (2)               --
         Restaurants acquired from franchisee......            --                --                  11                --
                                                       -------------     -------------     --------------    --------------
         End of period.............................           373               318                 373               318
                                                       -------------     -------------     --------------    --------------
     Franchise:
         Beginning of period.......................         1,142             1,090               1,139             1,082
         Restaurant openings.......................            13                15                  29                24
         Restaurants closed........................            --                (2)                 (2)               (3)
         Restaurants acquired from franchisee......            --                --                 (11)               --
                                                       -------------     -------------     --------------    --------------
         End of period.............................         1,155             1,103               1,155             1,103
                                                       -------------     -------------     --------------    --------------
     Total:
         Beginning of period.......................         1,513             1,404               1,496             1,392
         Restaurant openings.......................            17                19                  36                32
         Restaurants closed........................            (2)               (2)                 (4)               (3)
                                                       -------------     -------------     --------------    --------------
         End of period.............................         1,528             1,421               1,528             1,421
                                                       =============     =============     ==============    ==============

Weighted average weekly sales per restaurant:
     Company.......................................     $  45,402         $  43,558         $    45,041       $    43,398
     Franchise.....................................     $  45,940         $  44,566         $    45,682       $    44,328
     Total.........................................     $  45,807         $  44,340         $    45,526       $    44,120
Change in comparable restaurant sales: (1)
     Company.......................................          5.1%              1.4%                4.9%              1.5%
     Franchise.....................................          3.2%              3.7%                3.0%              3.9%
     Total.........................................          3.6%              3.2%                3.5%              3.3%
Total system sales (in thousands)..................     $ 904,238         $ 812,707         $ 1,788,960       $ 1,607,772


</TABLE>










--------
(1) When computing comparable restaurant sales, restaurants open for at least 18
    months are compared from period to period.




                                       18

<PAGE>



Company Restaurant Sales.  Total company restaurant sales increased  $41,214,000
(23%) from  $178,893,000 in the 2002 quarter to $220,107,000 in the 2003 quarter
and  increased  $74,651,000  (21%) from  $353,866,000  in the 2002  year-to-date
period to  $428,517,000  in the 2003  year-to-date  period.  Company  restaurant
openings  contributed   approximately  8%  of  the  increase  in  total  company
restaurant sales in both the 2003 quarter and the 2003 year-to-date  period. The
remaining  increase in both periods was due to the  acquisition  of 21 franchise
restaurants in the Washington,  D.C. area in November 2002 and 11 restaurants in
Illinois,  Indiana,  Kentucky,  and  Missouri  in  late  March  2003  as well as
increases in weighted average weekly sales.

Comparable restaurant sales at company restaurants increased by 5.1% and 4.9% in
the  2003  quarter  and the 2003  year-to-date  period,  respectively.  Weighted
average weekly sales at company  restaurants  increased 4.2% from $43,558 in the
2002 quarter to $45,402 in the 2003 quarter and  increased  3.8% from $43,398 in
the 2002 year-to-date period to $45,041 in the 2003 year-to-date  period.  These
increases  were due  primarily to increases in guest  traffic and in the average
guest check resulting from our food  promotions.  In addition,  a portion of the
increase resulted from the implementation of our To Go initiative and menu price
increases of  approximately  1.5% in fiscal 2003. To Go sales mix increased from
4.6% of  company  restaurant  sales  in the  2002  quarter  to  6.8% of  company
restaurant sales in the 2003 quarter.

Franchise Royalties and Fees. Overall franchise income increased $1,847,000 (7%)
from  $25,484,000  in the 2002  quarter to  $27,331,000  in the 2003 quarter and
increased  $4,170,000 (8%) from $50,324,000 in the 2002  year-to-date  period to
$54,494,000 in the 2003 year-to-date  period. These increases were due primarily
to the  increased  number of  franchise  restaurants  operating  during the 2003
quarter and 2003  year-to-date  period and  increases in  comparable  restaurant
sales.  Weighted average weekly sales at franchise restaurants increased 3.1% in
both the 2003 quarter and 2003 year-to-date period, respectively,  and franchise
comparable restaurant sales increased 3.2% and 3.0% in the 2003 quarter and 2003
year-to-date period, respectively.

Other Franchise  Income.  Other franchise  income increased from $463,000 in the
2002 quarter to $3,268,000  in the 2003 quarter and  increased  from $597,000 in
the 2002 year-to-date  period to $5,909,000 in the 2003 year-to-date  period due
primarily to revenues recognized related to the franchise premium amounts billed
by the captive insurance  company which was formed in September 2002.  Franchise
premiums are included in other franchise income ratably over the policy year.

Cost of Company  Restaurant  Sales. Food and beverage costs decreased from 26.3%
in the 2002 quarter to 25.9% in the 2003 quarter and decreased from 26.7% in the
2002 year-to-date period to 26.1% in the 2003 year-to-date period. The decreases
in both the 2003  quarter  and 2003  year-to-date  period were due to menu price
increases  and  operational   improvements   resulting  from  our  supply  chain
management  initiatives.  The decrease in the 2003 year-to-date  period was also
due to lower beef usage related to our menu promotions.

Labor  costs  decreased  from  32.9%  in both  the  2002  quarter  and the  2002
year-to-date  period  to  32.6%  in the  2003  quarter  and  32.7%  in the  2003
year-to-date  period.  These  decreases  were due to lower hourly and management
costs due to higher sales volumes at company restaurants,  lower staffing levels
and lower incentive  compensation which were partially offset by higher workers'
compensation costs.

                                       19
<PAGE>

Direct and occupancy costs decreased from 24.8% in the 2002 quarter and 24.6% in
the 2002 year-to-date  period to 24.7% in the 2003 quarter and 24.5% in the 2003
year-to-date period. Higher sales volumes at company restaurants during the 2003
quarter and the 2003 year-to-date period resulted in lower depreciation expense,
as a percentage of sales, due to its relatively fixed nature.  Decreases in both
periods were partially  offset by higher  packaging  costs relating to our To Go
initiative. Advertising costs, as a percentage of sales, were higher in the 2003
quarter but lower in the 2003 year-to-date  period due to the timing of our menu
promotions.

Cost of Other Franchise  Income.  Cost of other franchise  income increased from
$93,000 in the 2002 quarter to $3,173,000 in the 2003 quarter and increased from
$153,000 in the 2002 year-to-date  period to $5,673,000 in the 2003 year-to-date
due  primarily to the costs  related to the  operation of our captive  insurance
company, which was formed in September 2002.

General  and  Administrative  Expenses.   General  and  administrative  expenses
decreased from 9.7% in both the 2002 quarter and the 2002 year-to-date period to
9.1% in the 2003 quarter and 9.3% in the 2003 year-to-date  period.  General and
administrative   expenses   were  lower  in  both  the  2003  quarter  and  2003
year-to-date period due to the absorption of general and administrative expenses
over a larger  revenue  base and a reduction in bad debt  expense.  Decreases in
both periods were partially offset by higher depreciation expense related to our
new information systems and increased compensation due to staffing levels.

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. Based upon this information, we believe that the note is impaired. We have
fully  reserved the principal and accrued  interest by recording an allowance of
approximately $8,800,000 as of June 29, 2003.

Income Taxes.  The effective income tax rate, as a percentage of earnings before
income  taxes,   decreased  from  36.5%  in  both  the  2002  quarter  and  2002
year-to-date  period  to  35.8%  in the  2003  quarter  and  36.0%  in the  2003
year-to-date  period due to a reduction  in state and local income taxes and the
discontinuation of goodwill amortization required under SFAS No. 142.

Liquidity and Capital Resources

Our need for  capital  historically  has  resulted  from  the  construction  and
acquisition of restaurants, investment in information technology systems and the
repurchase of our common shares.  In the past, we have obtained  capital through
public stock offerings,  debt financing, and our ongoing operations.  Cash flows
from our ongoing  operations  include cash  generated from company and franchise
operations,  credit from trade  suppliers,  real  estate  lease  financing,  and
landlord contributions to leasehold  improvements.  We have also used our common
stock as consideration in the acquisition of restaurants.  In addition,  we have
assumed  debt or  issued  new  debt  in  connection  with  certain  mergers  and
acquisitions.

Capital  expenditures  were  $64,874,000  in  fiscal  year 2002  (excluding  the
acquisition of 21 restaurants) and $28,964,000 in the 2003  year-to-date  period
(excluding  the  acquisition  of 11  restaurants).  We currently  expect to open
approximately  25  company  restaurants,   and  capital  expenditures  excluding
acquisitions  are expected to be between  $70,000,000  and  $80,000,000 in 2003.
These  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  sites,  the  amount  of  actual  capital  expenditures  will be
dependent  upon,  among other  things,  the  proportion  of leased  versus owned
properties.  In  addition,  if  we  open  more  restaurants  than  we  currently
anticipate or acquire  additional  restaurants,  our capital  requirements  will
increase accordingly.

                                       20
<PAGE>


On November 7, 2002,  we acquired  the  operations  and assets of 21  Applebee's
restaurants  located in the Washington,  D.C. area from a franchisee.  Under the
terms of the purchase agreement and the agreement with the franchisee's  secured
lender,  the  total  purchase  price of the  acquisition  was  $34,250,000.  The
agreement  also  provides  for  additional  consideration  in  July  2004 if the
restaurants  achieve cash flows in excess of  historical  levels.  Our financial
statements reflect the results of operations for these restaurants subsequent to
the date of acquisition.

On March 24,  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. The total cash payment
included $20,800,000 paid at closing,  approximately  $200,000 paid as a deposit
in fiscal 2002 and  approximately  $800,000 paid in the second  quarter of 2003.
Our financial statements reflect the results of operations for these restaurants
subsequent to the date of acquisition.

Our bank credit  agreement  provides  for a  $150,000,000  three-year  unsecured
revolving credit facility,  of which $25,000,000 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,  and limit
additional indebtedness and capital expenditures in excess of specified amounts.
Cash dividends are limited to $10,000,000  annually.  The facility is subject to
standard  other terms,  conditions,  covenants,  and fees.  We are  currently in
compliance with the covenants contained in our credit agreement.  As of June 29,
2003,  we had  borrowings  of  $29,000,000  and  standby  letters  of  credit of
$11,939,000 outstanding under our revolving credit facility.

In May 2002,  our Board of Directors  authorized  an  additional  repurchase  of
$75,000,000 of our common stock through May 2005.  During the 2003  year-to-date
period,  we  repurchased  545,000  shares at an  average  cost of $24.37  for an
aggregate cost of $13,300,000. As of June 29, 2003, we had $56,200,000 remaining
under the 2002 authorization.

As of June  29,  2003,  our  liquid  assets  totaled  $4,561,000.  These  assets
consisted  of  cash  and  cash  equivalents  in the  amount  of  $4,535,000  and
short-term  investments in the amount of $26,000.  The working  capital  deficit
decreased from $45,607,000 as of December 29, 2002 to $40,741,000 as of June 29,
2003. This decrease was due primarily to the redemption of gift  certificates in
the 2003 year-to-date  period sold in 2002 and an increase in inventory and were
partially  offset  by  decreases  in  cash  and  cash  equivalents  due  to  the
acquisition  of 11  restaurants  in Illinois,  Indiana,  Kentucky and  Missouri,
repurchases of our common stock and the repayment of debt.

We believe that our liquid assets and cash generated from  operations,  combined
with borrowings  available under our credit facilities,  will provide sufficient
funds for our  operating,  capital and other  requirements  for the  foreseeable
future.


                                       21
<PAGE>


The following  table shows our debt  amortization  schedule,  our future capital
lease  commitments  (including  principal and interest  payments) and our future
operating lease commitments as of June 29, 2003 (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).....................     $     31,024   $       441   $    29,236   $       153  $      1,194
Capital Lease Obligations................     $     10,186   $       729   $     1,534   $     1,644  $      6,279
Operating Leases.........................     $    215,630   $    18,550   $    34,642   $    33,274  $    129,164

</TABLE>

In addition,  we have outstanding lease guarantees of approximately  $23,700,000
as of June 29, 2003 (see Note 3 to our Consolidated Financial Statements).

Inflation

Substantial  increases in costs and expenses could impact our operating  results
to the extent such increases cannot be passed along to customers. In particular,
increases  in  food,  supplies,  labor  and  operating  expenses  could  have  a
significant  impact on our operating  results.  We do not believe that inflation
has materially affected our operating results during the past three years.

A majority of our  employees  are paid hourly rates related to federal and state
minimum  wage laws and  various  laws that allow for  credits to that wage.  The
Federal  government  continues  to consider  an  increase  in the minimum  wage.
Several  state  governments  have  increased  the  minimum  wage and other state
governments are also considering an increased minimum wage. In the past, we have
been able to pass along cost  increases to  customers  through food and beverage
price  increases,  and  we  will  attempt  to do so in  the  future.  We  cannot
guarantee,  however,  that all future cost  increases  can be  reflected  in our
prices or that increased  prices will be absorbed by customers  without at least
somewhat diminishing customer spending in our restaurants.

New Accounting Pronouncements

In June 2002,  the FASB issued SFAS No. 146,  "Accounting  for Costs  Associated
with Exit or Disposal  Activities." This Statement requires that a liability for
a cost associated with an exit or disposal  activity be recognized only when the
liability is incurred and measured at fair value.  SFAS No. 146 is effective for
exit or disposal  activities  that are initiated  after  December 31, 2002.  The
initial adoption of this Statement did not have a material impact on our results
of operations or financial position.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure  Requirements for Guarantees,  including  Indirect  Guarantees of
Indebtedness of Others." Interpretation No. 45 supersedes Interpretation No. 34,
"Disclosure  of Indirect  Guarantees  of  Indebtedness  of Others," and provides
guidance to guarantors on the recognition and disclosure concerning  obligations
under certain guarantees in interim and annual financial statements. The initial
recognition and measurement  provisions of  Interpretation  No. 45 are effective
for guarantees issued or modified after December 31, 2002, and are to be applied
prospectively.   The  disclosure   requirements  were  effective  for  financial
statements  for interim or annual  periods  ending after  December 15, 2002.  We
adopted the initial  recognition  provisions of Interpretation No. 45 in January
of 2003. The initial adoption of  Interpretation  No. 45 did not have a material
impact on our results of operations or financial position.

                                       22
<PAGE>

In December  2002,  the FASB issued SFAS No. 148,  "Accounting  for  Stock-Based
Compensation  - Transition  and  Disclosure."  SFAS No. 148 amends SFAS No. 123,
"Accounting for Stock-Based  Compensation," and provides  alternative methods of
transition  for a voluntary  change to the fair value based method of accounting
for stock-based employee compensation. This Statement also amends the disclosure
requirements  of SFAS No.  123 to  require  prominent  disclosure  in annual and
interim financial statements about the effects of stock-based compensation.  The
transition  guidance  and  annual  disclosure  provisions  of SFAS  No.  148 are
effective for financial statements issued for fiscal years ending after December
15, 2002. The interim disclosure provisions of this Statement were effective for
financial reports containing  financial statements for interim periods beginning
after December 15, 2002. We have adopted the  disclosure  provisions of SFAS No.
148.

In January  2003,  the FASB  issued  Interpretation  No. 46,  "Consolidation  of
Variable   Interest   Entities,   an   Interpretation   of  ARB  No.  51."  This
Interpretation  provides  clarification on the consolidation of certain entities
in which equity  investors do not have sufficient  equity at risk for the entity
to finance its activities without additional subordinated financial support from
other parties. Such entities are defined as variable interest entities ("VIEs").
This Interpretation  requires that VIEs be consolidated by the entity considered
to be the primary  beneficiary of the VIE. The  Interpretation  is effective for
newly created VIEs after  January 31, 2003 and  effective in the second  quarter
2003 for any VIEs  created  prior to February  1, 2003.  We have  evaluated  our
relationships  with  potential   unconsolidated  entities  which  may  meet  the
consolidation  requirements  of this  Interpretation,  and we do not believe the
adoption will have a material impact on our consolidated financial statements.

Forward-Looking Statements

The  statements  contained  in the  "Management's  Discussion  and  Analysis  of
Financial  Condition and Results of  Operations"  section  regarding  restaurant
development,  capital expenditures 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,  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 current report on Form
8-K which we filed with the Securities  and Exchange  Commission on February 12,
2003. We disclaim any obligation to update forward-looking statements.

Item 3.       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 1.0%,  at our option.  As of June 29, 2003,  the
total amount of debt subject to interest rate fluctuations was $29,000,000 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 $290,000  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.  Many of the food
products we purchase  are subject to price  volatility  due to factors  that are
outside of our control such as weather and seasonality.  As part of our strategy
to  moderate  this  volatility,  we  have  entered  into  fixed  price  purchase
commitments.

                                       23
<PAGE>

Item 4.       Controls and Procedures

As of the end of the  period  covered  by this  report,  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  Chief
Executive  Officer ("CEO") and Chief Financial  Officer  ("CFO").  Based on this
evaluation,  our  management,  including  the CEO and  CFO,  concluded  that our
disclosure   controls  and  procedures  were  effective.   There  have  been  no
significant  changes in our  internal  controls or in other  factors  that could
significantly   affect  internal  controls  subsequent  to  the  date  of  their
evaluation.



                                       24
<PAGE>


                           PART II. OTHER INFORMATION

Item 1.     Legal Proceedings

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

While the  resolution of the matters  described  above may have an impact on our
financial results for the period in which they are resolved, 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

Our annual meeting of  stockholders  was held on May 8, 2003.  The  stockholders
voted on the following matters:

         Proposal I.    Elect  Douglas  R.  Conant  and  D.  Patrick  Curran  as
                        directors to serve three-year terms expiring in 2006.

         Proposal II.   Approve an  amendment  to the  Applebee's International,
                        Inc. 1995 Equity Incentive Plan.

         Proposal III.  Approve an amendment  to the  Applebee's  International,
                        Inc. Certificate of Incorporation.

         Proposal IV.   Ratify Deloitte & Touche LLP as our independent auditors
                        for the 2003 fiscal year.

         Proposal V.    Act on a Shareholder  Proposal to  require us to issue a
                        report relating to genetically engineered ingredients.

The results of the voting were as follows:
<TABLE>
<CAPTION>

                                 Affirmative             Negative                                         Broker
        Proposal                    Votes                  Votes                 Abstentions            Non-Votes
--------------------------     ----------------     --------------------     --------------------    -----------------
<S>                             <C>                     <C>                        <C>                 <C>
       I (Conant)                49,924,641                1,552,887                  --                     --
       I (Curran)                37,393,989               14,083,539                  --                     --
           II                    34,979,717               16,294,398                   77,672             125,741
           III                   11,662,859               32,767,059                   73,208           7,014,402
           IV                    32,892,023               18,425,756                   34,008             125,741
            V                     2,740,750               40,200,587                1,521,783           7,014,408

Proposals  I,  II and IV  received  the  required  affirmative  votes  and  were
affirmatively  adopted by the Stockholders.  Proposals III and V did not receive
the required affirmative votes.

</TABLE>

                                       25
<PAGE>

Item 6.     Exhibits and Reports on Form 8-K

            (a)   The  Exhibits  listed on the  accompanying  Exhibit  Index are
                  filed as part of this report.

            (b)   We furnished a report on Form 8-K on April 3, 2003  announcing
                  our   presentation   at   the   SunTrust   Robinson   Humphrey
                  Institutional Investor Conference.

                  We filed a report on Form 8-K on April 8, 2003 announcing  the
                  sale  of  eight   restaurants  in  the  Atlanta  market  to  a
                  franchisee.

                  We furnished a report on Form 8-K on April 24, 2003 announcing
                  the webcast of our first quarter earnings conference call over
                  the Internet.

                  We furnished a report  on  Form 8-K  on May 1, 2003  reporting
                  first quarter diluted earnings per share.

                  We filed a report on Form 8-K on  May 22, 2003 announcing  the
                  establishment of a  plan to  manage the  exercise and  sale of
                  certain  stock options  by our  Chairman and  Chief  Executive
                  Officer.

                  We  filed a report  on Form 8-K  on May 28, 2003 reporting May
                  comparable sales.

                  We furnished a  report on  Form 8-K on May 29, 2003 announcing
                  our   presentation  at  the  Goldman  Sachs  Lodging,  Gaming,
                  Restaurants, and Leisure Conference.

                  We furnished  a report on Form 8-K on  June 6, 2003 announcing
                  our presentation at two Investment Conferences in June.


                                       26
<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.
                                     (Registrant)



Date:  July 30, 2003               By:  /s/    Lloyd L. Hill
     --------------------               ----------------------------------------
                                        Lloyd L. Hill
                                        Chairman and Chief Executive Officer
                                        (principal executive officer)

Date:  July 30, 2003               By:  /s/    Steven K. Lumpkin
     --------------------               ----------------------------------------
                                        Steven K. Lumpkin
                                        Executive Vice President and
                                        Chief Financial Officer
                                        (principal financial officer)

Date:  July 30, 2003               By:  /s/    Beverly O. Elving
     --------------------               ----------------------------------------
                                        Beverly O. Elving
                                        Vice President, Accounting
                                        (principal accounting officer)




                                       27
<PAGE>


                         APPLEBEE'S INTERNATIONAL, INC.
                                  EXHIBIT INDEX


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

      99.1    Certification of  Chairman and Chief Executive Officer Pursuant to
              SEC Rule 13a-14

      99.2    Certification  of Chief  Financial Officer  Pursuant to  SEC  Rule
              13a-14

      99.3    Certification  of Chairman  and Chief Executive  Officer and Chief
              Financial  Officer Pursuant  to 18 U.S.C. Section 1350







                                       28