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                 March 26, 2006
                               -------------------------------------------------

                                       OR

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

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

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


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

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

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

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


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 a large  accelerated  filer, an
accelerated  filer, or a  non-accelerated  filer. See definition of "accelerated
filer" in Rule 12b-2 of the Exchange Act. (check one):

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


Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Act).

            Yes                       No       X
               -----------              -----------

The number of shares of the registrant's  common stock  outstanding as of
May 1, 2006 was 74,273,957.


                                       1.
<PAGE>


                         APPLEBEE'S INTERNATIONAL, INC.
                                    FORM 10-Q
                       FISCAL QUARTER ENDED MARCH 26, 2006
                                      INDEX


                                                                            Page
PART I     FINANCIAL INFORMATION

Item 1.    Condensed Consolidated Financial Statements:

           Consolidated Balance Sheets as of March 26, 2006
              and December 25, 2005 .....................................      3

           Consolidated Statements of Earnings for the 13 Weeks
              Ended March 26, 2006 and March 27, 2005 ...................      4

           Consolidated Statement of Stockholders' Equity for the
              13 Weeks Ended March 26, 2006 .............................      5

           Consolidated Statements of Cash Flows for the 13 Weeks
              Ended March 26, 2006 and March 27, 2005 ...................      6

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

Item 2.    Management's Discussion and Analysis of
              Financial Condition and Results of Operations..............     20

Item 3.    Quantitative and Qualitative Disclosures About Market Risk....     32

Item 4.    Controls and Procedures.......................................     32


PART II    OTHER INFORMATION

Item 1.    Legal Proceedings.............................................     34

Item 1A.   Risk Factors..................................................     34

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds...     35

Item 6.    Exhibits......................................................     35

Signatures ..............................................................     36

Exhibit Index............................................................     37


                                       2.
<PAGE>


                          PART I. FINANCIAL INFORMATION

Item 1.    Condensed Consolidated Financial Statements
<TABLE>
<CAPTION>
                 APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                      (in thousands, except share amounts)

                                                                                         March 26,        December 25,
                                                                                           2006               2005
                                                                                      --------------     --------------
                                     ASSETS
<S>                                                                                   <C>                <C>
Current assets:
     Cash and cash equivalents...................................................      $   7,451          $   13,040
     Short-term investments, at market value.....................................            287                 286
     Receivables (less allowance of $328 in 2006 and $340 in 2005)...............         37,136              37,857
     Receivables related to captive insurance subsidiary.........................          1,403               1,712
     Inventories.................................................................         15,327              20,373
     Prepaid income taxes........................................................             54               3,488
     Prepaid and other current assets............................................         18,694              13,518
                                                                                      --------------     --------------
        Total current assets.....................................................         80,352              90,274
Property and equipment, net......................................................        607,668             590,593
Goodwill.........................................................................        139,111             138,443
Restricted assets related to captive insurance subsidiary........................         19,115              19,329
Other intangible assets, net.....................................................          7,988               8,050
Other assets, net................................................................         33,896              31,899
                                                                                      --------------     --------------
                                                                                       $ 888,130          $  878,588
                                                                                      ==============     ==============



                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Current portion of long-term debt...........................................      $     278          $      259
     Notes payable...............................................................            --                7,900
     Accounts payable............................................................         49,243              63,445
     Accrued expenses and other current liabilities..............................         80,070             100,995
     Loss reserve and unearned premiums related to captive
        insurance subsidiary.....................................................          8,870              10,235
     Accrued dividends...........................................................            --               14,840
     Accrued income taxes........................................................          4,190                 --
                                                                                      --------------     --------------
        Total current liabilities................................................        142,651             197,674
                                                                                      --------------     --------------
Non-current liabilities:
     Long-term debt, less current portion........................................        207,534             180,208
     Deferred income taxes.......................................................         36,369              37,722
     Other non-current liabilities...............................................         53,041              50,374
                                                                                      --------------     --------------
        Total non-current liabilities............................................        296,944             268,304
                                                                                      --------------     --------------
        Total liabilities........................................................        439,595             465,978
                                                                                      --------------     --------------
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 - 108,503,243 shares......................................          1,085               1,085
     Additional paid-in capital..................................................        242,049             234,988
     Unearned compensation.......................................................            --               (2,614)
     Retained earnings...........................................................        737,428             710,277
                                                                                      --------------     --------------
                                                                                         980,562             943,736
     Treasury stock - 34,041,590 shares in 2006 and 34,304,693 shares
        in 2005, at cost.........................................................       (532,027)           (531,126)
                                                                                      --------------     --------------
        Total stockholders' equity...............................................        448,535             412,610
                                                                                      --------------     --------------
                                                                                       $ 888,130          $  878,588
                                                                                      ==============     ==============
</TABLE>
            See notes to condensed 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
                                                                         --------------------------------
                                                                           March 26,          March 27,
                                                                             2006               2005
                                                                         -------------     --------------
       <S>                                                               <C>               <C>
       Operating revenues:
            Company restaurant sales................................      $  307,899        $   270,458
            Franchise royalties and fees............................          35,935             33,008
            Other franchise income..................................             445              1,065
                                                                         -------------     --------------
               Total operating revenues.............................         344,279            304,531
                                                                         -------------     --------------
       Cost of company restaurant sales:
            Food and beverage.......................................          82,236             71,635
            Labor...................................................         101,031             88,724
            Direct and occupancy....................................          78,946             66,367
            Pre-opening expense.....................................             750              1,167
                                                                         -------------     --------------
               Total cost of company restaurant sales...............         262,963            227,893
                                                                         -------------     --------------
       Cost of other franchise income...............................             766                819
       General and administrative expenses..........................          35,606             26,946
       Amortization of intangible assets............................             204                228
       Impairment and other restaurant closure costs................           1,600                --
       Loss on disposition of property and equipment................             577                297
                                                                         -------------     --------------
       Operating earnings...........................................          42,563             48,348
                                                                         -------------     --------------
       Other income (expense):
            Investment income (loss)................................             745                (41)
            Interest expense........................................          (2,554)              (337)
            Other income............................................             136                435
                                                                         -------------     --------------
               Total other income (expense).........................          (1,673)                57
                                                                         -------------     --------------
       Earnings before income taxes.................................          40,890             48,405
       Income taxes.................................................          13,739             16,748
                                                                         -------------     --------------
       Net earnings.................................................      $   27,151        $    31,657
                                                                         =============     ==============

       Basic net earnings per common share..........................      $     0.37        $      0.39
                                                                         =============     ==============
       Diluted net earnings per common share........................      $     0.36        $      0.38
                                                                         =============     ==============

       Basic weighted average shares outstanding....................          74,147             80,705
                                                                         =============     ==============
       Diluted weighted average shares outstanding..................          75,281             82,375
                                                                         =============     ==============


</TABLE>





            See notes to condensed consolidated financial statements.

                                       4.
<PAGE>
<TABLE>
<CAPTION>

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


                                                     Common Stock     Additional                                           Total
                                                 -------------------   Paid-In     Unearned     Retained    Treasury   Stockholders'
                                                   Shares     Amount   Capital   Compensation   Earnings     Stock        Equity
                                                 ---------- -------- ----------- ------------- --------- ------------- -------------
<S>                                              <C>         <C>      <C>          <C>         <C>         <C>          <C>
Balance, December 25, 2005 ....................     108,503  $ 1,085  $234,988     $  (2,614)   $710,277   $ (531,126)  $  412,610

   Net earnings................................        --        --       --            --        27,151         --         27,151
   Purchases of treasury stock.................        --        --       --            --          --         (5,171)      (5,171)
   Reclassification of unearned compensation
      related to the adoption of Statement of
      Financial Accounting Standards
      No. 123(R) (Note 2)......................        --        --     (2,614)        2,614        --           --           --
   Stock options exercised and related tax
      benefit..................................        --        --      3,531          --          --          3,229        6,760
   Shares issued under employee benefit plans..        --        --        511          --          --            509        1,020
   Nonvested shares awarded under equity
     incentive plans...........................        --        --       (532)         --          --            532         --
   Stock-based compensation expense related
     to employee-based awards..................        --        --      6,165          --          --           --          6,165
                                                  --------- -------- ----------- ------------- --------- ------------- -------------
Balance, March 26, 2006........................     108,503  $ 1,085  $242,049     $    --      $737,428   $ (532,027)  $  448,535
                                                  ========= ======== =========== ============= ========= ============= =============


</TABLE>



            See notes to condensed consolidated financial statements.

                                       5.
<PAGE>
<TABLE>
<CAPTION>

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


                                                                                            13 Weeks Ended
                                                                                    --------------------------------
                                                                                      March 26,          March 27,
                                                                                        2006               2005
                                                                                    -------------     --------------
       <S>                                                                          <C>               <C>
       CASH FLOWS FROM OPERATING ACTIVITIES:
            Net earnings.......................................................       $  27,151         $   31,657
            Adjustments to reconcile net earnings to net
              cash provided by operating activities:
               Depreciation and amortization...................................          15,361             12,531
               Amortization of intangible assets...............................             204                228
               Stock-based compensation........................................           6,165                496
               Other amortization..............................................              45                 63
               Deferred income tax provision...................................           1,278              1,659
               Impairment and other restaurant closure costs...................           1,600                --
               Loss on disposition of property and equipment...................             577                297
               Income tax benefit from stock-based compensation................           1,005              2,638
            Changes in assets and liabilities (exclusive of effects of
               acquisitions):
               Receivables.....................................................             718             (4,560)
               Receivables related to captive insurance subsidiary.............             309             (1,597)
               Inventories.....................................................           5,104              7,181
               Income taxes....................................................           7,624             12,917
               Prepaid and other current assets................................          (7,794)            (2,050)
               Accounts payable................................................          (9,750)            (8,019)
               Accrued expenses and other current liabilities..................         (21,146)            (5,887)
               Loss reserve and unearned premiums related to captive
                 insurance subsidiary..........................................          (1,365)             3,031
               Other non-current liabilities...................................              23                  6
               Other...........................................................            (191)              (282)
                                                                                    -------------     --------------
               NET CASH PROVIDED BY OPERATING ACTIVITIES.......................          26,918             50,309
                                                                                    -------------     --------------
       CASH FLOWS FROM INVESTING ACTIVITIES:
            Purchases of property and equipment................................         (30,968)           (24,619)
            Restricted assets related to captive insurance subsidiary..........             214               (776)
            Acquisition of restaurants.........................................          (7,962)            (5,742)
                                                                                    -------------     --------------
               NET CASH USED BY INVESTING ACTIVITIES...........................         (38,716)           (31,137)
                                                                                    -------------     --------------
       CASH FLOWS FROM FINANCING ACTIVITIES:
            Purchases of treasury stock........................................          (5,171)           (18,657)
            Dividends paid.....................................................         (14,840)            (4,867)
            Issuance of common stock upon exercise of stock options............           5,075              6,927
            Shares issued under employee benefit plans.........................           1,020              1,027
            Excess tax benefits from stock-based compensation..................             680                --
            Net debt proceeds (payments).......................................          19,445             (8,049)
                                                                                    -------------     --------------
               NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES................           6,209            (23,619)
                                                                                    -------------     --------------
       NET DECREASE IN CASH AND CASH EQUIVALENTS...............................          (5,589)            (4,447)
       CASH AND CASH EQUIVALENTS, beginning of period..........................          13,040             10,642
                                                                                    -------------     --------------
       CASH AND CASH EQUIVALENTS, end of period................................       $   7,451         $    6,195
                                                                                    =============     ==============


</TABLE>
            See notes to condensed consolidated financial statements.

                                       6.
<PAGE>
<TABLE>
<CAPTION>

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


                                                                                           13 Weeks Ended
                                                                                 ------------------------------------
                                                                                     March 26,           March 27,
                                                                                       2006                2005
                                                                                 ----------------    ----------------
<S>                                                                              <C>                 <C>
SUPPLEMENTAL DISCLOSURES OF CASH
     FLOW INFORMATION:
     Cash paid during the 13 week period for:
       Income taxes........................................................         $    3,153          $      626
                                                                                 ================    ================
       Interest............................................................         $    2,472          $      210
                                                                                 ================    ================

</TABLE>

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

We issued nonvested shares (previously  referred to as restricted stock prior to
fiscal 2006) of  $1,499,000  for the 13 weeks ended March 26, 2006 and nonvested
shares, net of forfeitures, of $2,727,000 for the 13 weeks ended March 27, 2005,
respectively.

In 2002,  we entered  into a rabbi trust  agreement to protect the assets of the
nonqualified deferred compensation plan for certain of our associates.  The plan
investments  are  included  in other  assets and the  offsetting  obligation  is
included in other non-current liabilities in our consolidated balance sheets. We
had non-cash increases in these balances of $1,059,000 and $2,257,000 for the 13
weeks ended March 26, 2006 and March 27, 2005, respectively.

We  had  property  and  equipment  purchases  accrued  in  accounts  payable  of
approximately $9,900,000 as of March 26, 2006.



            See notes to condensed consolidated financial statements.

                                       7.
<PAGE>


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

1.       Basis of Presentation

Our condensed  consolidated financial statements included in this Form 10-Q have
been prepared  without audit 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  condensed
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 25, 2005.

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.


2.       Stock-Based Compensation

Our Board of  Directors  has  approved  the  Amended  and  Restated  1995 Equity
Incentive Plan ("1995 Plan") and the 1999 Employee  Incentive Plan ("1999 Plan")
which allow the granting of stock options,  stock appreciation  rights ("SARs"),
nonvested  shares,   performance  units  and  performance   shares  to  eligible
participants.  Grants  of stock  options  and SARs may be  either  incentive  or
nonqualified.  There are 19,900,000 and 2,473,875  shares  authorized  under the
1995  Plan  and the  1999  Plan,  respectively.  As of March  26,  2006,  we had
3,286,440  and 317,097  shares  available for grant under the 1995 Plan and 1999
Plan,  respectively.  We issue  shares  out of our  treasury  for  stock  option
exercises, SARs exercises and nonvested share issuances.

Prior to fiscal 2006, we accounted  for these  stock-based  compensation  awards
under the intrinsic  method of Accounting  Principles  Board ("APB") Opinion No.
25.  Opinion No. 25 required  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 both of our plans were granted with an exercise price equal to the
fair market  value on the date of the grant and,  accordingly,  no  compensation
expense was  recognized  for stock option  awards.  In addition,  we adopted the
disclosure  provisions of Statements of Financial  Accounting Standards ("SFAS")
No. 148,  "Accounting for Stock-Based  Compensation - Transition and Disclosure,
an  amendment  of FASB  Statement  No. 123." The  Statement  required  prominent
disclosures  in financial  statements  regarding  the method of  accounting  for
stock-based employee  compensation and the effect of the method used on reported
results.

Under APB Opinion No. 25, pro forma  expense for  stock-based  compensation  was
calculated using a graded vesting schedule over the explicit vesting period. 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" for the 13 weeks
ended March 27, 2005 (in thousands, except for per share amounts).

                                       8.
<PAGE>

<TABLE>
<CAPTION>


                                                                       March 27,
                                                                         2005
                                                                   ---------------
     <S>                                                           <C>
     Net earnings, as reported...................................    $  31,657

     Add: Stock-based compensation expense included
         in net earnings, net of related taxes...................          282
     Less: Total stock-based employee compensation expense
          determined under fair value-based methods for all
          awards, net of related taxes (1).......................        1,604
                                                                   ---------------

     Pro forma net earnings......................................    $  30,335
                                                                   ===============

     Basic net earnings per common share, as reported............    $    0.39
                                                                   ===============
     Basic net earnings per common share, as adjusted............    $    0.38
                                                                   ===============

     Diluted net earnings per common share, as reported..........    $    0.38
                                                                   ===============
     Diluted net earnings per common share, as adjusted..........    $    0.37
                                                                   ===============
<FN>
    (1) SFAS  No.  123  (revised  2004)  requires  compensation  expense  to  be
        recognized over the requisite service period which is generally from the
        grant date to the earlier of a) the explicit vesting date or b) the date
        on which the employee becomes retirement eligible.  If pro forma expense
        for the 2005 quarter had been derived  using this  approach,  additional
        stock-based  compensation  would have been  $1,278,  net of tax, and pro
        forma net  income  would  have  been  $29,057.  Additionally,  basic and
        diluted pro forma  earnings  per share for the 2005  quarter  would have
        been $0.36 and $0.35, respectively.
</FN>
</TABLE>
The company  adopted  the fair value  recognition  provisions  of  Statement  of
Financial Accounting Standards No. 123(R), "Share-Based Payment" ("SFAS 123(R)")
at the  beginning  of fiscal year 2006.  SFAS 123(R)  requires  all  stock-based
compensation,  including  grants of employee stock options,  to be recognized in
the  statement  of earnings  based on fair  value.  We adopted  this  accounting
treatment using the modified  prospective  transition method;  therefore results
for prior  periods have not been  restated.  SFAS 123(R)  requires  compensation
costs  related to  share-based  payment  transactions  to be  recognized  in the
financial statements.  With limited exceptions,  the amount of compensation cost
will be  measured  based on the fair  value on the grant  date of the  equity or
liability  instruments  issued.  Compensation  cost will be recognized  over the
period that an employee provides service for that award.

Beginning in fiscal 2006, we changed our method of determining the fair value of
stock-based  awards  from the  Black-Scholes  model  to a  binomial  model.  The
binomial  model  considers  a  range  of  assumptions  relative  to  volatility,
risk-free interest rates and employee exercise  behavior,  which more accurately
models actual employee behaviors.  We believe the binomial model provides a fair
value that is more representative of actual and future experience.

Compensation costs related to the first quarter have been recognized for all new
awards  granted in the first  quarter of fiscal 2006 ("2006  quarter") and those
awards  granted  prior to  fiscal  2006  that have yet to reach the end of their
service period.  As required by SFAS 123(R),  we began  recognizing  expense for
employee stock-based  compensation over the shorter of the vesting period or the
period from the date of the grant until the date the employee  becomes  eligible
for  retirement.  We recognize  expense for  stock-based  compensation  over the
graded vesting period. We recognized  stock-based  compensation of approximately
$244,000 in labor and  approximately  $5,921,000  in general and  administrative
expenses in the condensed  consolidated financial statements in the 2006 quarter
and approximately $431,000 in general and administrative  expenses for the first
quarter of fiscal 2005 ("2005 quarter").

                                       9.
<PAGE>

The total income tax benefit recognized in the condensed  consolidated financial
statements  for  the  2006  quarter  and  the  2005  quarter  was  approximately
$2,164,000 and $149,000, respectively. As of March 26, 2006, we had unrecognized
compensation  expense of  $26,900,000 to be recognized  over a weighted  average
period of 3.4 years.

As required by SFAS  123(R),  unearned  compensation  of  $2,614,000,  which was
previously  reflected as a reduction to stockholders'  equity as of December 25,
2005, was reclassified as a reduction to additional paid-in capital.


Stock Options

Prior to fiscal 2005, we granted  substantially  all of our awards through stock
options once per year.  These stock options  generally vest over three years and
expire ten years from the date of the grant.

In fiscal 2005, we granted  substantially  all of our awards  through  quarterly
stock options grants. Grants issued in the first quarter of each year vest three
years from the date of the grant. Grants issued in subsequent quarters,  vest on
the same date as the first  quarterly stock option grant of that year. In fiscal
2005,  we also granted  certain  employees  stock  options with 25% of the grant
vesting  four  years  from the  grant  date and the  remaining  75% of the grant
vesting five years from the grant date.  Beginning in fiscal 2005, option grants
expire six to seven years from the date of the grant.  In the 2006  quarter,  we
issued grants to certain  employees and members of the board of directors  which
vest either one or three years from the date of the grant.  The outside  members
of the board of directors will continue to receive a grant of options every year
which expire 10 years from the grant date.

Transactions  for stock options relative to both plans for the 2006 quarter were
as follows:



<TABLE>
<CAPTION>

                                                                  1995 Plan
                                     ---------------------------------------------------------------------
                                                                           Weighted
                                                          Weighted         Average
                                                          Average         Remaining
                                         Number of        Exercise       Contractual        Aggregate
                                          Options          Price             Life        Intrinsic Value
                                     ----------------- --------------- --------------- -------------------
<S>                                  <C>               <C>             <C>             <C>
Options outstanding at                                                                    (in thousands)
    December 25, 2005............         7,365,933       $   21.33       6.5 years
       Granted...................           293,010       $   22.58
       Exercised.................          (269,717)      $   14.30                        $    2,689
       Expired...................              --               --
       Forfeited.................           (80,849)      $   25.73
                                     -----------------
Options outstanding at
    March 26, 2006...............         7,308,377       $   21.59       6.4 years        $   28,340
                                     =================
Options exercisable at
     March 26, 2006..............         2,516,400       $   14.57       5.5 years        $   25,324
                                     =================

</TABLE>
                                      10.
<PAGE>

<TABLE>
<CAPTION>

                                                                  1999 Plan
                                     ---------------------------------------------------------------------
                                                                          Weighted
                                                          Weighted         Average
                                                          Average         Remaining
                                         Number of        Exercise       Contractual       Aggregate
                                          Options          Price            Life         Intrinsic Value
                                     ----------------- --------------- --------------- -------------------
<S>                                 <C>                <C>             <C>             <C>
Options outstanding at                                                                    (in thousands)
    December 25, 2005............           664,656       $   13.73        6.0 years
       Granted...................              --               --
       Exercised.................           (93,434)      $   14.08                        $      922
       Expired...................              --               --
       Forfeited.................              --               --
                                     -----------------
Options outstanding at
    March 26, 2006...............           571,222       $   13.67        5.7 years       $    6,193
                                     =================
Options exercisable at
    March 26, 2006...............           559,972       $   13.62        5.7 years       $    6,099
                                     =================
</TABLE>
The aggregate  intrinsic value was calculated  using the difference  between the
current market price and the grant price for only those awards that have a grant
price that is less than the current market price.

We derived the following  weighted-average  assumptions using the binomial model
in the 2006 quarter and the  Black-Scholes  model for the 2005 quarter for stock
options:

<TABLE>
<CAPTION>
                                            March 26,           March 27,
                                              2006                2005
                                         ---------------     ---------------
                                           (Binomial)        (Black-Scholes)
     <S>                                 <C>                 <C>
     Expected term in years                     4.8                 4.4
     Expected stock price volatility           31.3%               33.6%
     Expected dividend yield                    0.9%                0.3%
     Risk-free interest rate                    4.6%                4.2%
     Fair value of options granted            $ 6.93              $ 9.20

</TABLE>
                                      11.
<PAGE>


Stock Appreciation Rights

Beginning in the 2006 quarter, we began granting substantially all of our awards
through  quarterly  SAR  grants  which are  exercisable  in shares of our common
stock.  Grants  issued for the first  quarter of each year vest three years from
the date of the grant.  Grants issued in subsequent  quarters,  vest on the same
date as the first quarterly stock option grant of that year. The SARs granted in
the 2006 quarter expire seven years from the date of the grant.


<TABLE>
<CAPTION>

                                                                  1995 Plan
                                     ---------------------------------------------------------------
                                                                       Weighted
                                                       Weighted         Average
                                                       Average         Remaining
                                        Number of      Exercise       Contractual      Aggregate
                                          SARs          Price            Life       Intrinsic Value
                                     -------------- -------------- ---------------- ----------------
 <S>                                 <C>            <C>            <C>              <C>
 SARs outstanding at                                                                 (in thousands)
      December 25, 2005............         --               --
         Granted(1)................      334,125      $    23.57
         Exercised.................         --               --
         Expired...................         --               --
         Forfeited.................         --               --
                                     --------------
  SARs outstanding at
      March 26, 2006...............      334,125      $    23.57       6.9 years      $   314
                                     ==============
  SARs exercisable at
      March 26, 2006...............         --
                                     ==============
<FN>
(1)  Upon  exercise  of SARs,  employees  will  receive  the number of shares of
     common  stock equal to the  appreciation  in the fair  market  value of the
     number of shares based on the  difference  between the fair market value on
     the  grant  date and the fair  market  value on the date of  exercise.  The
     number of shares of common stock delivered as payment of such  appreciation
     will reduce the shares available for issuance under the 1995 Plan.

</FN>
</TABLE>

We  derived  the  following  weighted-average  assumptions  for SARs  using  the
binomial model in the 2006 quarter:
<TABLE>
<CAPTION>

                                                 March 26,
                                                   2006
                                              ---------------
                                                (Binomial)
     <S>                                      <C>
     Expected term in years                          4.2
     Expected stock price volatility                31.3%
     Expected dividend yield                         0.9%
     Risk-free interest rate                         4.6%
     Fair value of SARs granted                $     6.71

</TABLE>

Assumptions

We  determined  our  assumptions  for stock  options and SAR grants based on the
following methodology:

Expected  term: We have  determined  the expected term based upon the assumption
that all  outstanding  options  will be exercised at the midpoint of the current
holding period and the full contractual term.

                                      12.
<PAGE>

Expected  volatility:  We have  determined  the expected  volatility  based on a
weighted  average of Applebee's  volatility  over the expected term,  historical
volatility of certain peer group restaurant  volatilities and Applebee's implied
volatility.

Expected  dividend yield:  We have determined the expected  dividend yield based
upon our expected dividends as a percentage of our current stock price.

Risk-free  interest rate: We have  determined the risk-free  interest rate using
the U.S.  Treasury  yield  curve in  effect  at the  time of the  grant  for the
expected term of the award.


Nonvested Shares

We grant nonvested shares under our 1995 Plan. Nonvested shares vest either one,
two or three  years  after the date of the grant.  The fair  value of  nonvested
shares  granted is equal to the market  price of the stock at the date of grant.
The weighted average fair value of nonvested shares was $23.34 and $28.05 in the
2006 quarter and the 2005 quarter,  respectively.  Transactions  during the 2006
quarter were as follows (in thousands, except fair values):

<TABLE>
<CAPTION>
                                                                                                 Weighted
                                                                                Number of        Average
                                                                                  Awards        Fair Value
                                                                              --------------- --------------
<S>                                                                           <C>             <C>
Nonvested share awards outstanding as of December 25, 2005.................       257,813      $    26.59
Granted....................................................................        64,235           23.34
Vested.....................................................................       (88,179)          26.03
Forfeited..................................................................          --               --
                                                                              --------------- --------------
Nonvested share awards outstanding as of March 26, 2006....................       233,869      $    25.91
                                                                              =============== ==============
</TABLE>
As of March 26,  2006,  we had  unrecognized  compensation  expense  related  to
nonvested share awards of approximately $2,900,000 which will be recognized over
a weighted average period of 1.8 years.

Employee stock purchase plan

Our Board of Directors  has  authorized  an employee  stock  purchase  plan that
allows  associates  to  purchase  shares of our common  stock at a 15%  discount
through  payroll  deductions.  We record  compensation  for this plan  using the
Black-Scholes  valuation  model in the quarter that the purchase  occurs.  As of
March 26, 2006,  298,935  shares of the 1,850,000  shares which were  authorized
under this plan were available for purchase.


3.       Commitments and Contingencies

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

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

                                      13.
<PAGE>

Lease guarantees and  contingencies:  In connection with the sale of restaurants
to  franchisees  and  other  parties,  we  have,  in  certain  cases,   remained
contingently  liable for the remaining lease payments.  As of March 26, 2006, we
have outstanding  lease guarantees of  approximately  $16,800,000.  These leases
expire at various  times with the final lease  agreement  expiring  in 2018.  In
addition, we or our subsidiaries are contingently liable for various leases that
we have assigned in connection  with the sale of restaurants to franchisees  and
other parties,  in the potential  amount of $13,700,000.  We have not recorded a
liability  related to these contingent lease liabilities as of March 26, 2006 or
December 25, 2005.

In 2004,  we  arranged  for a  third-party  financing  company  to provide up to
$250,000,000  to  qualified  franchisees  for loans to fund  development  of new
restaurants  through  October 2007,  subject to our approval.  We will provide a
limited  guarantee of 10% of certain loans advanced under this program.  We will
be released  from our guarantee if certain  operating  results are met after the
restaurant  has been open for at least two years.  As of March 26,  2006,  there
were loans  outstanding to six franchisees for  approximately  $56,500,000 under
this program.  The fair value of our guarantees under this financing  program is
approximately  $110,000  and  is  recorded  in  non-current  liabilities  in our
consolidated balance sheet as of March 26, 2006.

Severance  agreements:  We have severance and employment agreements with certain
officers  providing for severance payments to be made in the event the associate
resigns  or is  terminated  not  related to a change in  control,  some of which
require  payments to be made only if we enforce certain terms in the agreements.
If the severance  payments had been due as of March 26, 2006, we would have been
required to make payments totaling  approximately  $12,000,000.  In addition, we
have severance and  employment  agreements  with certain  officers which contain
severance  provisions related to a change in control.  The agreements define the
circumstances which will constitute a change in control.  Those provisions would
have required additional aggregate payments of approximately  $6,100,000 if such
officers had been terminated as of March 26, 2006.

4.       Net Earnings Per Share

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


                                      14.
<PAGE>

<TABLE>
<CAPTION>

                                                                           13 Weeks Ended
                                                                --------------------------------
                                                                   March 26,         March 27,
                                                                     2006              2005
                                                                ---------------  ---------------
      <S>                                                       <C>              <C>
      Net earnings............................................    $  27,151        $   31,657
                                                                ===============  ===============

      Basic weighted average shares outstanding...............       74,147            80,705
      Dilutive effect of stock options and
           equity-based compensation..........................        1,134             1,670
                                                                ---------------  ---------------
      Diluted weighted average shares outstanding.............       75,281            82,375
                                                                ===============  ===============

      Basic net earnings per common share.....................    $    0.37        $     0.39
                                                                ===============  ===============
      Diluted net earnings per common share...................    $    0.36        $     0.38
                                                                ===============  ===============
</TABLE>
We excluded stock options and SARs with exercise prices greater than the average
market price of our common stock for the applicable periods from the computation
of  diluted  weighted  average  shares   outstanding  as  the  effect  would  be
anti-dilutive.  We excluded approximately 5,110,000 and 167,000 of these options
and SARs  from our  diluted  weighted  average  share  computation  for the 2006
quarter and 2005 quarter, respectively.

5.       Acquisitions

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

In January 2006, we completed the acquisition of four Applebee's  restaurants in
the Houston market for approximately  $8,200,000 in cash. The purchase price was
allocated to the fair value of property and equipment of $7,400,000, goodwill of
approximately  $600,000,  reacquired franchise rights of approximately $100,000,
and  other  net  assets  of  approximately  $100,000.  In  connection  with this
acquisition, we paid approximately $8,000,000 in the 2006 quarter.

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

The following table is comprised of actual company  restaurant sales for the two
restaurant  acquisitions above, which are included in our condensed consolidated
financial statements for each period presented,  and proforma company restaurant
sales  assuming the  acquisitions  occurred at the  beginning  of the  preceding
fiscal year for each acquisition (in thousands):

                                      15.
<PAGE>
<TABLE>
<CAPTION>
                                                                        13 Weeks Ended
                                                             -------------------------------------
                                                                  March 26,          March 27,
                                                                    2006               2005
                                                             ------------------ ------------------
     <S>                                                     <C>                <C>
     Actual company restaurant sales
       for acquired restaurants...........................     $     1,500        $      --
                                                             ================== ==================
     Pro forma company restaurant sales
       for acquired restaurants...........................     $     2,200        $     8,200
                                                             ================== ==================
</TABLE>
In April 2005, we completed the acquisition of eight  Applebee's  restaurants in
the  Memphis  market,  which  were  closed in 2004 by a former  franchisee,  for
approximately  $8,800,000  payable in cash. In connection with this acquisition,
we paid  approximately  $800,000 in 2004 and  $8,000,000  in 2005.  The purchase
price of $8,800,000 was allocated to the fair value of property and equipment of
approximately  $8,200,000  and  goodwill  of  approximately  $600,000.  We  have
remodeled and opened seven restaurants and the remaining  restaurant was sold to
a third party.

6.       Goodwill and Other Intangible Assets

Changes in goodwill are summarized below (in thousands):
<TABLE>
<CAPTION>
                                                                   March 26,       December 25,
                                                                     2006              2005
                                                             ------------------ ------------------
      <S>                                                    <C>                <C>
      Carrying amount, beginning of the year..............     $    138,443      $     116,344
      Goodwill acquired during the period.................              668             22,099
                                                             ------------------ ------------------
      Goodwill amount, end of the period..................     $    139,111      $     138,443
                                                             ================== ==================
</TABLE>

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

                                                                        March 26, 2006
                                                  -----------------------------------------------------------
                                                    Gross Carrying        Accumulated           Net Book
                                                       Amount             Amortization            Value
                                                  ------------------    ----------------    -----------------
     <S>                                          <C>                   <C>                 <C>
     Amortized intangible assets:
         Franchise interest and rights.......       $      6,371          $      5,965        $        406
         Lease acquisition costs.............              4,939                   854               4,085
         Noncompete agreement................                350                   131                 219
                                                  ------------------    ----------------    -----------------
     Total...................................       $     11,660          $      6,950        $      4,710
                                                  ==================    ================    =================
</TABLE>


                                      16.
<PAGE>

<TABLE>
<CAPTION>


                                                                      December 25, 2005
                                                  -----------------------------------------------------------
                                                   Gross Carrying         Accumulated           Net Book
                                                       Amount            Amortization            Value
                                                  ------------------    ----------------    -----------------
     <S>                                          <C>                   <C>                 <C>
     Amortized intangible assets:
         Franchise interest and rights.......       $      6,371          $      5,896        $        475
         Lease acquisition costs.............              4,939                   743               4,196
         Noncompete agreement................                350                   109                 241
                                                  ------------------    ----------------    -----------------
     Total...................................       $     11,660          $      6,748        $      4,912
                                                  ==================    ================    =================
</TABLE>

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

Intangible   assets  not  subject  to  amortization  are  summarized  below  (in
thousands):
<TABLE>
<CAPTION>
                                                                  March 26,        December 25,
                                                                    2006               2005
                                                             ------------------ ------------------
      <S>                                                       <C>             <C>
      Carrying amount, beginning of the year..............     $     3,138         $     2,793
      Nonamortizable intangible assets acquired
           during the period..............................             140                 345
                                                             ------------------ ------------------
      Nonamortizable intangible assets amount,
           end of the period..............................     $     3,278         $     3,138
                                                             ================== ==================
</TABLE>

In connection  with our  acquisition of four  Applebee's  restaurants in Houston
from a  franchisee  in January  2006,  we  recorded  approximately  $100,000  of
reacquired franchise rights (Note 5).

In connection  with our  acquisition  of 12 Applebee's  restaurants in Missouri,
Kansas and Arkansas  from a franchisee  in May 2005,  we recorded  approximately
$300,000 of reacquired franchise rights.

The amount  allocated to reacquired  franchise  rights is based upon the initial
franchise fees received from these  franchisees.  This  intangible  asset has an
indefinite  life  and,  accordingly,  will  not  be  amortized  but  tested  for
impairment at least annually.

7.       Captive Insurance Subsidiary

In 2002, we formed  Neighborhood  Insurance,  Inc., a Vermont  corporation and a
wholly-owned captive insurance  subsidiary to provide Applebee's  International,
Inc. and qualified  franchisees with workers' compensation and general liability
insurance.  In 2005,  we reduced the types of insurance  coverage  plans offered
which  resulted  in  fewer  franchisee  participants  in our  captive  insurance
program.  Through 2005, Applebee's  International,  Inc. and covered franchisees
made 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  settlement  costs for  incurred and
anticipated claims and administrative fees. Franchisee premiums were included in
other franchise  income ratably over the policy year and the related  offsetting
expenses  were  included  in  cost  of  other  franchise  income.  In  2006,  we
discontinued  writing any new coverage.  Franchise  premium  adjustments will be
included in other franchise income when audited.

                                      17.
<PAGE>

Cost of other  franchise  income  includes  costs  related to the  resolution of
claims arising from franchisee  participation in our captive insurance  program.
We do not expect  franchisee  participation in the captive  insurance company to
have a material  impact on our net earnings.  Our  consolidated  balance  sheets
include the following balances related to the captive insurance subsidiary:


     o    Franchise   premium   receivables  of  approximately   $1,400,000  and
          $1,700,000  as of March 26, 2006 and December 25, 2005,  respectively,
          included in receivables related to captive insurance subsidiary.
     o    Cash  equivalent and other  long-term  investments  restricted for the
          payment of claims of  approximately  $18,400,000 and $18,600,000 as of
          March 26,  2006 and  December  25,  2005,  respectively,  included  in
          restricted assets related to captive insurance subsidiary.
     o    Loss  reserve  and  unearned  premiums  related to  captive  insurance
          subsidiary of  approximately  $19,200,000  and $20,700,000 as of March
          26,  2006  and   December  25,   2005,   respectively.   Approximately
          $10,500,000  for both March 26, 2006 and December 25, 2005 is included
          in other non-current liabilities.
     o    Other miscellaneous items, net, of approximately $600,000 and $400,000
          as of March 26, 2006 and December 25, 2005, respectively,  included in
          several line items in the consolidated balance sheets.

8.       Impairment and Other Restaurant Closure Costs

During our  preparation  of the 2006 quarter  condensed  consolidated  financial
statements,  we recorded an asset impairment  charge of  approximately  $900,000
consisting of the write-down of the carrying value of the property and equipment
of two restaurants that are not performing as expected.  This impairment  charge
has been  included  in our  consolidated  statements  of  earnings  for the 2006
quarter. We use current and historical operating results to estimate future cash
flows on a restaurant  by  restaurant  basis.  The asset  impairment  charge was
calculated by comparing  the carrying  value of the  restaurants'  assets to the
estimated future cash flow projections.  We continue to operate the restaurants,
although  we may close  one or both of the  underperforming  restaurants  in the
future.

In the 2006 quarter, we closed two restaurants and recorded $700,000 relating to
remaining  lease  obligations.  The expense was included in impairment and other
restaurant closure costs in the consolidated statement of earnings.

                                      18.
<PAGE>



9.       Treasury Shares

As of March 26, 2006, we had approximately 34,042,000 shares held in treasury. A
reconciliation  of our treasury  shares for the 2006  quarter is provided  below
(shares in thousands):

<TABLE>
<CAPTION>
                                                                   Treasury
                                                                    Shares
                                                               ---------------
    <S>                                                        <C>
    Balance as of December 25, 2005........................         34,305
    Purchases of treasury stock............................            218
    Stock options exercised................................           (360)
    Shares issued under employee benefit plans.............            (57)
    Nonvested shares awarded under equity incentive
        plans..............................................            (64)
                                                               ---------------
    Balance as of March 26, 2006...........................         34,042
                                                               ===============
</TABLE>

10.      New Accounting Pronouncement

In March 2006, the Emerging  Issues Task Force ("EITF")  issued EITF Issue 06-3,
"How  Sales  Taxes   Collected  From  Customers  and  Remitted  to  Governmental
Authorities  Should Be  Presented  in the Income  Statement."  A  consensus  was
reached that entities may adopt a policy of presenting sales taxes in the income
statement on either a gross or net basis.  If taxes are  significant,  an entity
should  disclose its policy of  presenting  taxes and the amounts of taxes.  The
guidance is effective for periods  beginning after December 15, 2006. We present
company  sales net of sales  taxes.  This  Issue  will not impact the method for
recording these sales taxes in our consolidated financial statements.



                                      19.
<PAGE>



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

Forward-Looking Statements

The  statements  contained  in  the  Management's  Discussion  and  Analysis  of
Financial  Condition  and Results of  Operations  section  regarding  restaurant
development,  comparable sales,  Carside To Go(TM),  revenue growth,  restaurant
margin,   commodity  costs,   general  and  administrative   expenses,   capital
expenditures, return on equity and financial commitments are forward-looking and
based on current  expectations.  There are several risks and uncertainties  that
could cause actual  results to differ  materially  from those  described.  These
risks  include,  but are not  limited  to, our  ability  and the  ability of our
franchisees to open and operate additional restaurants  profitably,  the ability
of our franchisees to obtain financing, the continued growth of our franchisees,
our ability to attract and retain qualified  franchisees,  the impact of intense
competition in the casual dining segment of the restaurant industry,  the impact
of economic factors on consumer  spending and our ability to control  restaurant
operating  costs which are  impacted by market  changes,  minimum wage and other
employment laws, food costs and inflation. For a more detailed discussion of the
principal  factors that could cause actual  results to be materially  different,
you should read our risk  factors in Item 1A of our 2005  Annual  Report on Form
10-K. We disclaim any obligation to update forward-looking statements.

General

We operate on a 52 or 53 week fiscal year ending on the last Sunday in December.
Our fiscal years and fiscal quarters are as follows:
<TABLE>
<CAPTION>

                                                                      Number
        Fiscal Year                 Fiscal Year End                  of Weeks
     -------------------       --------------------------        -----------------
     <S>                       <C>                               <C>
            2005                 December 25, 2005                      52
            2006                 December 31, 2006                      53
            2007                 December 30, 2007                      52
     <CAPTION>
                                                                      Number
        Fiscal Quarter            Fiscal Quarter End                 of Weeks
     -------------------       --------------------------        -----------------
     <S>                       <C>                               <C>
        2005 Quarter             March 27, 2005                         13
        2006 Quarter             March 26, 2006                         13
</TABLE>

Our revenues are generated from three primary sources:

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

Beverage  sales  consist of sales of alcoholic  beverages,  while  non-alcoholic
beverages  are included in food sales.  Franchise  royalties are generally 4% of
each franchise  restaurant's monthly gross sales. Franchise fees typically range
from  $30,000 to $35,000 for each  restaurant  opened.  Other  franchise  income
includes revenue from information  technology  products and services provided to
certain  franchisees.  In 2005, other franchise  income also included  insurance
premiums for the current year and premium audit adjustments for prior years from
franchisee   participation  in  our  captive  insurance  program.

                                      20.
<PAGE>

In 2006, we discontinued writing any new coverage. Franchise premium adjustments
will be included in other franchise income when audited.

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 costs related to information  technology
products and services  provided to certain  franchisees.  In 2005, cost of other
franchise  income included the costs related to franchisee  participation in our
captive  insurance  program.  In fiscal 2006,  we  discontinued  writing any new
coverage.  Cost of other  franchise  income will  include  costs  related to the
resolution  of claims  arising  from  franchisee  participation  in our  captive
insurance program.

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

Overview

Applebee's  International,  Inc. and our  subsidiaries  develop,  franchise  and
operate casual dining restaurants under the name "Applebee's  Neighborhood Grill
& Bar," which is the largest  casual dining concept in the world with over 1,800
system-wide  restaurants open as of March 26, 2006. The casual dining segment of
the restaurant  industry is highly  competitive  and there are many factors that
affect our  profitability.  Our industry is  susceptible  to changes in economic
conditions,  trends in lifestyles,  fluctuating  costs,  government  regulation,
availability  of  resources,  and  consumer  perceptions.  When  evaluating  and
assessing our financial performance, we believe there are five key factors:

o    Development  - the number of new company and franchise  restaurants  opened
     during the  period.  As the  largest  casual  dining  concept in the world,
     Applebee's has a unique opportunity to leverage our brand,  system size and
     scale to optimize our future  growth.  Our  expansion  strategy has been to
     cluster  restaurants  in  targeted  markets,  thereby  increasing  consumer
     awareness  and   convenience,   and  enabling  us  to  take   advantage  of
     operational, distribution and advertising efficiencies. We currently expect
     that the Applebee's system will encompass at least 3,000 restaurants in the
     United  States,  as well as the  potential  for at least 1,000  restaurants
     internationally.  In the 2006 quarter,  we and our franchisees opened 9 and
     20  restaurants,  respectively.  Together,  we have  opened  at  least  100
     restaurants system-wide each year for the past 13 fiscal years. In 2006, we
     currently  expect  to  open  approximately  120  restaurants   system-wide,
     comprised  of  approximately  40  company  and  80  franchise  restaurants.
     Development costs, which include construction costs, fixtures and equipment
     and land costs, increased by approximately 10% in 2005 as compared to 2004.
     Further  increases are expected in 2006 as a result of increased demand for
     material and labor due to recent  catastrophic  hurricanes and higher costs
     of natural  resources  necessary for the production  materials such as iron
     and steel. We are evaluating the impact of rising  development costs on the
     pipeline of future openings.

o    Comparable  restaurant  sales - a  year-over-year  comparison  of sales for
     restaurants open at least 18 months.  Our revenues are generated  primarily
     from company  restaurant  sales,  franchise  royalties and fees,  and other
     franchise income.

                                      21.
<PAGE>
    Increases in company and franchise  comparable  restaurant sales will result
    in increases in company  restaurant  sales and franchise fees and royalties.
    In the 2006 quarter,  company comparable sales increased 1.2% while domestic
    franchise and domestic system-wide comparable sales increased 3.1% and 2.6%,
    respectively.  We have had 31 consecutive  quarters of positive  system-wide
    comparable sales growth.  We currently expect  system-wide  comparable sales
    for 2006 to increase by 2.0% to 3.0%.  Comparable restaurant sales increases
    are driven by increases in the average guest check and/or increases in guest
    traffic.  Average  guest check  increases  result from menu price  increases
    and/or a change in menu mix.  Although we may have  increases in our average
    guest check from period to period,  our main focus has been increasing guest
    traffic as we view this  component to be more  indicative  of the  long-term
    health of the Applebee's brand. We are constantly  seeking to increase guest
    traffic by focusing on  operations  and improving our menu with new food and
    beverage  offerings  and the  implementation  of programs such as Carside To
    Go(TM) and Weight Watchers(TM). In 2005, we conducted comprehensive consumer
    research which resulted in a plan to  substantially  improve the quality and
    flavor profile of our food and beverage  offerings.  These menu improvements
    will impact all sections of our menu.

o    Company  restaurant  margin  -  company  restaurant  sales,  less  food and
     beverage,  labor,  direct and occupancy  restaurant  costs and  pre-opening
     expenses,  expressed as a percentage of company  restaurant sales.  Company
     restaurant  margins  were 14.6% and 15.7% in the 2006  quarter and the 2005
     quarter,   respectively.   We  currently  expect  full  year  2006  company
     restaurant margins, which will be dependent on comparable sales performance
     at company  restaurants,  to be similar to full year 2005 results.  Company
     restaurant  margins are  susceptible to  fluctuations  in commodity  costs,
     labor  costs and other  operating  costs such as  utilities.  We attempt to
     negotiate  contracts  for the  majority  of our food  products  in order to
     mitigate the impact of rising commodity costs. In 2006, we currently expect
     net  commodity  costs to  decrease by  approximately  2.0%,  including  the
     negative  impact  of  fuel  surcharges.  In  addition,  the  improved  menu
     offerings  may increase  food costs,  as these items may have a higher food
     cost, as a percentage of sales,  as compared to other menu  offerings..  We
     may take additional  menu price increases to offset this impact.  We expect
     labor costs to continue to be negatively impacted by health insurance costs
     and the impact of wage rate  increases.  In addition,  higher energy costs,
     including  utilities,  fuel  surcharges  and packaging  costs,  will have a
     negative impact on company restaurant margins.

o    General and administrative  expenses - general and  administrative  expense
     expressed  as  a  percentage  of  total  operating  revenues.  General  and
     administrative  expenses were 10.3% and 8.8% in the 2006 and 2005 quarters,
     respectively.  General and  administrative  expenses,  as a  percentage  of
     operating  revenues,  for  2006 are  expected  to be in the  low-to-mid  10
     percent range, including the impact of stock-based compensation.

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


Application of Critical Accounting Policies

Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations is based upon our condensed 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  condensed  consolidated
financial  statements  and notes  thereto.

                                      22.
<PAGE>

Actual  results may differ from these  estimates,  and such  differences  may be
material to our condensed consolidated financial statements. We believe that the
following  significant  accounting  policies  involve  a  significant  degree of
judgment or complexity.

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

We purchase and maintain  inventories  of certain  specialty  products to ensure
sufficient  supplies  to the  system,  to ensure  continuity  of supply,  and to
control  food  costs.  We review and make  quality  control  inspections  of our
inventories to determine obsolescence on an ongoing basis. These reviews require
management to make certain  estimates and judgments  regarding  projected  usage
which may  change  in the  future  and may  require  us to  record an  inventory
impairment.

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

Stock-based  compensation:   Beginning  in  2006,  we  account  for  stock-based
compensation in accordance with SFAS No. 123(R). As required by SFAS No. 123(R),
stock-based  compensation  is estimated  for equity  awards at fair value at the
grant date. We determine the fair value of equity awards using a binomial model.
The binomial model requires various highly judgmental  assumptions including the
expected life,  stock price  volatility  and the forfeiture  rate. If any of the
assumptions  used in the model change  significantly,  stock-based  compensation
expense may differ  materially  in the future from that  recorded in the current
period.

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

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

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

                                      23.
<PAGE>

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

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

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

Acquisitions

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

In January 2006, we completed the acquisition of four Applebee's  restaurants in
the Houston market for approximately  $8,200,000 in cash. The purchase price was
allocated to the fair value of property and equipment of $7,400,000, goodwill of
approximately  $600,000,  reacquired franchise rights of approximately $100,000,
and  other  net  assets  of  approximately  $100,000.  In  connection  with this
acquisition, we paid approximately $8,000,000 in the 2006 quarter.

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


                                      24.
<PAGE>


The following table is comprised of actual company  restaurant sales for the two
restaurant  acquisitions above, which are included in our condensed consolidated
financial statements for each period presented, and pro forma company restaurant
sales  assuming the  acquisitions  occurred at the  beginning  of the  preceding
fiscal year for each acquisition (in thousands):
<TABLE>
<CAPTION>
                                                                        13 Weeks Ended
                                                             -------------------------------------
                                                                  March 26,          March 27,
                                                                    2006               2005
                                                             ------------------ ------------------
     <S>                                                     <C>                <C>
     Actual company restaurant sales
       for acquired restaurants...........................     $     1,500        $      --
                                                             ================== ==================
     Pro forma company restaurant sales
       for acquired restaurants...........................     $     2,200        $     8,200
                                                             ================== ==================
</TABLE>

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

Captive Insurance Subsidiary

In 2002, we formed  Neighborhood  Insurance,  Inc., a Vermont  corporation and a
wholly-owned captive insurance  subsidiary to provide Applebee's  International,
Inc. and qualified  franchisees with workers' compensation and general liability
insurance.  In 2005,  we reduced the types of insurance  coverage  plans offered
which  resulted  in  fewer  franchisee  participants  in our  captive  insurance
program.  Through 2005, Applebee's  International,  Inc. and covered franchisees
made 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  settlement  costs for  incurred and
anticipated claims and administrative fees. Franchisee premiums were included in
other franchise  income ratably over the policy year and the related  offsetting
expenses  were  included  in  cost  of  other  franchise  income.  In  2006,  we
discontinued  writing any new coverage.  Franchise  premium  adjustments will be
included in other franchise income when audited.  Cost of other franchise income
includes  costs  related to the  resolution  of claims  arising from  franchisee
participation  in our captive  insurance  program.  We do not expect  franchisee
participation in the captive  insurance company to have a material impact on our
net earnings.  Our  consolidated  balance sheets include the following  balances
related to the captive insurance subsidiary:


     o    Franchise   premium   receivables  of  approximately   $1,400,000  and
          $1,700,000  as of March 26, 2006 and December 25, 2005,  respectively,
          included in receivables related to captive insurance subsidiary.
     o    Cash  equivalent and other  long-term  investments  restricted for the
          payment of claims of  approximately  $18,400,000 and $18,600,000 as of
          March 26,  2006 and  December  25,  2005,  respectively,  included  in
          restricted assets related to captive insurance subsidiary.
     o    Loss  reserve  and  unearned  premiums  related to  captive  insurance
          subsidiary of  approximately  $19,200,000  and $20,700,000 as of March
          26,  2006  and   December  25,   2005,   respectively.   Approximately
          $10,500,000  for both March 26, 2006 and December 25, 2005 is included
          in other non-current liabilities.

                                      25.
<PAGE>
     o    Other miscellaneous items, net, of approximately $600,000 and $400,000
          as of March 26, 2006 and December 25, 2005, respectively,  included in
          several line items in the consolidated balance sheets.

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
                                                                           -------------------------------------
                                                                               March 26,           March 27,
                                                                                 2006                2005
                                                                           ----------------    -----------------
        <S>                                                                <C>                 <C>
        Operating revenues:
             Company restaurant sales....................................         89.4%               88.8%
             Franchise royalties and fees................................         10.4                10.8
             Other franchise income......................................          0.1                 0.3
                                                                           ----------------    -----------------
                Total operating revenues.................................        100.0%              100.0%
                                                                           ================    =================
        Cost of sales (as a percentage of company restaurant sales):
             Food and beverage...........................................         26.7%               26.5%
             Labor.......................................................         32.8                32.8
             Direct and occupancy........................................         25.6                24.5
             Pre-opening expense.........................................          0.2                 0.4
                                                                           ----------------    -----------------
                Total cost of sales......................................         85.4%               84.3%
                                                                           ================    =================

        Cost of other franchise income (as a percentage of other
             franchise income)...........................................        172.1%               76.9%
        General and administrative expenses..............................         10.3                 8.8
        Amortization of intangible assets................................          0.1                 0.1
        Impairment and other restaurant closure costs....................          0.5                  --
        Loss on disposition of property and equipment....................          0.2                 0.1
                                                                           ----------------    -----------------
        Operating earnings...............................................         12.4                15.9
                                                                           ----------------    -----------------
        Other income (expense):
             Investment income (loss)....................................          0.2                  --
             Interest expense............................................         (0.7)               (0.1)
             Other income................................................           --                 0.1
                                                                           ----------------    -----------------
                Total other income (expense).............................         (0.5)                 --
                                                                           ----------------    -----------------
        Earnings before income taxes.....................................         11.9                15.9
        Income taxes.....................................................          4.0                 5.5
                                                                           ----------------    -----------------
        Net earnings.....................................................          7.9%               10.4%
                                                                           ================    =================
</TABLE>

                                      26.
<PAGE>


The  following  table  sets  forth  certain  financial   information  and  other
restaurant data relating to company and franchise restaurants, as reported to us
by franchisees:
<TABLE>
<CAPTION>
                                                                                      13 Weeks Ended
                                                                           -------------------------------------
                                                                               March 26,           March 27,
                                                                                 2006                2005
                                                                           ----------------    -----------------
   <S>                                                                     <C>                    <C>
   Number of restaurants:
        Company:
            Beginning of period..........................................          486                  424
            Restaurant openings..........................................            9                   13
            Restaurant closings..........................................           (2)                  --
            Restaurants acquired from franchisees........................            4                   --
                                                                           ----------------    -----------------
            End of period................................................          497                  437
                                                                           ----------------    -----------------
        Franchise:
            Beginning of period..........................................        1,318                1,247
            Restaurant openings..........................................           20                   13
            Restaurant closings..........................................           (2)                  (3)
            Restaurants acquired from franchisees........................           (4)                  --
                                                                           ----------------    -----------------
            End of period................................................        1,332                1,257
                                                                           ----------------    -----------------
        Total:
            Beginning of period..........................................        1,804                1,671
            Restaurant openings..........................................           29                   26
            Restaurant closings..........................................           (4)                  (3)
                                                                           ----------------    -----------------
            End of period................................................        1,829                1,694
                                                                           ================    =================
   Weighted average weekly sales per restaurant:
            Company......................................................    $  48,087           $   48,193
            Domestic franchise...........................................    $  53,622           $   51,973
            Domestic total...............................................    $  52,055           $   50,969
   Change in comparable restaurant sales:(1)
            Company......................................................         1.2%                 0.3%
            Domestic franchise...........................................         3.1%                 4.8%
            Domestic total...............................................         2.6%                 3.7%
   Total operating revenues (in thousands):
            Company restaurant sales.....................................    $ 307,899           $  270,458
            Franchise royalties and fees(2)..............................       35,935               33,008
            Other franchise income(3)....................................          445                1,065
                                                                           ----------------    -----------------
            Total........................................................    $ 344,279           $  304,531
                                                                           ================    =================
<FN>

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

        (2) Franchise royalties are generally 4% of each franchise  restaurant's
            reported  monthly gross sales.  Reported  franchise sales (including
            international restaurants), in thousands, were $904,644 and $832,997
            in the 2006 quarter and the 2005  quarter,  respectively.  Franchise
            fees  typically  range from  $30,000 to $35,000 for each  restaurant
            opened.

        (3) Other franchise income includes revenue from information  technology
            products and services provided to certain franchisees.  In addition,
            the  2005  period  includes   insurance   premiums  from  franchisee
            participation in our captive insurance program.
</FN>
</TABLE>

                                      27.
<PAGE>


2006 Quarter Compared With 2005 Quarter

Company Restaurant Sales.  Total company restaurant sales increased  $37,441,000
(14%) from $270,458,000 in the 2005 quarter to $307,899,000 in the 2006 quarter.
The percentage increase in total company restaurant sales was due to an increase
in the number of restaurant weeks open of approximately 14%, which was partially
offset by a decline in average weekly sales of 0.2%.

Comparable restaurant sales at company restaurants increased by 1.2% in the 2006
quarter.  Weighted  average weekly sales at company  restaurants  decreased 0.2%
from $48,193 in the 2005 quarter to $48,087 in the 2006 quarter. The decrease in
average weekly sales was due to a reduction in guest traffic in 2006 as compared
to 2005. We experienced more significant  guest count declines in Virginia,  New
England and Michigan  where  approximately  40% of our company  restaurants  are
located. Weighted average weekly sales declined while comparable sales increased
due to weaker new restaurant  opening volumes primarily in St. Louis,  Virginia,
Minnesota and New England.  These decreases were partially offset by an increase
in the average guest check resulting from menu price increases of  approximately
2.5% in 2005.

Franchise Royalties and Fees.  Franchise royalties and fees increased $2,927,000
(9%) from $33,008,000 in the 2005 quarter to $35,935,000 in the 2006 quarter due
primarily to the increased number of franchise  restaurants operating during the
2006  quarter as compared  to the 2005  quarter,  and  increases  in  franchisee
comparable  restaurant sales.  Domestic  franchise weighted average weekly sales
and comparable restaurant sales increased 3.2% and 3.1%, respectively.

Other Franchise  Income.  Other franchise income  decreased  $620,000 (58%) from
$1,065,000  in the 2005 quarter to $445,000 in the 2006 quarter due primarily to
the  decision  to  discontinue  writing new  coverage  in our captive  insurance
program.  In 2005,  franchisee  premiums were included in other franchise income
ratably over the policy year.

Cost of Company  Restaurant  Sales. Food and beverage costs increased from 26.5%
in the  2005  quarter  to 26.7% in the 2006  quarter.  Food and  beverage  costs
increased  in the 2006  quarter  due to a shift in menu mix,  higher  food costs
related  to our menu  promotions  and  higher  alcoholic  beverage  costs,  as a
percentage of sales,  related to our late-night value strategy.  These increases
were partially offset by menu price increases of 2.5%.

Labor  costs were 32.8% in both the 2005  quarter  and the 2006  quarter.  Labor
costs were unfavorably  impacted by higher hourly wage rates,  payroll taxes and
group  insurance,  which were  partially  offset by lower  management  incentive
compensation and workers' compensation expense.

Direct and occupancy  costs increased from 24.5% in the 2005 quarter to 25.6% in
the  2006  quarter  due   primarily   to  higher   utilities   and   unfavorable
year-over-year  comparisons for  depreciation,  as a percentage of sales, due to
their relatively fixed nature, and packaging costs.

Pre-Opening  Expenses.  Pre-opening  expenses  decreased  from  0.4% in the 2005
quarter to 0.2% in the 2006 quarter due  primarily  to the number of  restaurant
openings in the 2006 quarter versus the 2005 quarter.

Cost of Other Franchise Income. Cost of other franchise income decreased $53,000
(6%) from  $819,000 in the 2005  quarter to $766,000 in the 2006  quarter due to
the  decision  to  discontinue  writing new  coverage  in our captive  insurance
program, which was partially offset by $500,000 recorded for estimated insurance
losses from franchise participants.

                                      28.
<PAGE>

General  and  Administrative  Expenses.   General  and  administrative  expenses
increased  from  8.8% in the 2005  quarter  to 10.3%  in the  2006  quarter  due
primarily to an increase in stock-based compensation related to adoption of SFAS
123(R),  a shift in the timing of our annual general manager meeting to the 2006
quarter, and higher compensation expense due to staffing levels. These increases
were partially offset by the absorption of general and administrative costs over
a larger revenue base.

Impairment and Other Restaurant Closure Costs. In the 2006 quarter,  we recorded
an  asset  impairment  charge  of  approximately   $900,000  consisting  of  the
write-down  of  the  carrying  value  of  the  property  and  equipment  of  two
restaurants  that are not  performing  as expected.  In addition,  we closed two
restaurants  and  recognized  expense of $700,000  relating to  remaining  lease
obligations.

Investment Income (Loss).  Investment income increased from a loss of $41,000 in
the 2005 quarter to income of $745,000 in the 2006 quarter due to an increase in
the return on investments in our nonqualified deferred compensation plan.

Interest  Expense.  Interest expense increased from $337,000 in the 2005 quarter
to  $2,554,000 in the 2006 quarter due  primarily to higher  interest  rates and
increased  borrowings used for acquisitions,  capital expenditure  funding,  and
repurchases of our common stock.

Income Taxes.  The effective income tax rate, as a percentage of earnings before
income  taxes,  decreased  from  34.6% in the 2005  quarter to 33.6% in the 2006
quarter due to higher  hourly  employment  tax credits and the  resolution  of a
state tax matter.

Liquidity and Capital Resources

Our primary  sources of liquidity are cash provided by operations and borrowings
under our credit  facility.  Our need for  capital  resources  historically  has
resulted from the construction and acquisition of restaurants, the repurchase of
our common stock, and investment in information technology systems. In the past,
we have obtained capital through our ongoing operations and debt financing. Cash
flows from our ongoing operations  primarily include cash generated from company
and franchise operations,  management of credit from trade suppliers,  decisions
to enter into restaurant  operating leases,  and cash received from the exercise
of employee stock options. In addition,  we have assumed debt or issued new debt
in  connection  with  certain  mergers and  acquisitions.  The  following  table
presents  a  summary  of our cash  flows  for the 2006  and  2005  quarters  (in
thousands):
<TABLE>
<CAPTION>
                                                            2006 Quarter       2005 Quarter
                                                         ------------------ ------------------
      <S>                                                <C>                  <C>
      Net cash provided by operating activities........    $    26,918        $    50,309
      Net cash used by investing activities............        (38,716)           (31,137)
      Net cash provided (used) by financing
         activities....................................          6,209            (23,619)
                                                         ------------------ ------------------
      Net decrease in cash and cash equivalents........    $    (5,589)       $    (4,447)
                                                         ================== ==================
</TABLE>
                                      29.
<PAGE>

Capital expenditures were $24,619,000 in the 2005 quarter and $30,968,000 in the
2006 quarter.  In 2006,  we currently  expect to open  approximately  40 company
restaurants,  and capital expenditures,  excluding franchise  acquisitions,  are
expected to be between $140,000,000 and $150,000,000.

Future  capital  expenditures  will  primarily  be for  the  development  of new
restaurants, refurbishment and capital replacement for existing restaurants, and
the  enhancement  of  information  systems.  Because  we expect to  continue  to
purchase  a portion  of our  restaurant  sites,  the  amount  of actual  capital
expenditures  will be dependent  upon,  among other  things,  the  proportion of
leased versus owned  properties.  If we construct more or fewer restaurants than
we  currently  anticipate,  or  acquire  additional  restaurants,   our  capital
requirements will increase or decrease  accordingly.  In addition,  we expect to
incur approximately $20 million in costs associated with the construction of our
new corporate headquarters in 2006.

In January  2006,  we completed  the  acquisition  of land for our new corporate
headquarters for approximately $4,500,000 in cash.

In January 2006, we completed the acquisition of four Applebee's  restaurants in
the Houston area for  approximately  $8,200,000 in cash. In connection with this
acquisition, we paid approximately $8,000,000 in the 2006 quarter.

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

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

In December  2004, we completed the  refinancing of our  $150,000,000  unsecured
revolving  credit  facility.  The  new  bank  credit  agreement  provided  for a
$150,000,000 five-year unsecured revolving credit facility, of which $40,000,000
may be used for the  issuance of letters of credit.  The  facility is subject to
various  covenants  and  restrictions  which,  among other  things,  require the
maintenance  of  stipulated   fixed  charge,   leverage  and   indebtedness   to
capitalization  ratios, as defined. There is no limit on cash dividends provided
that the  declaration  and payment of such  dividend does not cause a default of
any other covenant contained in the agreement.  The facility is subject to other
standard  terms,  conditions,  covenants and fees. In September 2005, we entered
into an amendment to our credit  facility which  increased the revolving  credit
commitment  available from  $150,000,000  to  $200,000,000.  In October 2005, we
entered  into a second  amendment to our credit  facility  which  increased  the
revolving  credit  commitment  available from  $200,000,000 to $250,000,000  and
provided for an additional  $75,000,000 of revolving credit upon satisfaction of
the conditions set forth in the credit  facility.  As of March 26, 2006, we were
in compliance with the covenants contained in our credit agreement.  As of March
26,  2006,  we had  borrowings  of  $202,400,000,  standby  letters of credit of
$16,400,000  outstanding  and  approximately  $31,200,000  available  under  our
revolving  credit facility.  During 2006, we expect to fund operations,  capital
expansion,  any  repurchases  of common stock and the payment of dividends  from
cash flows from operations and borrowings under our revolving credit facility.

In October 2005, our Board of Directors approved a $175,000,000 authorization to
repurchase  our  common  stock,  subject to market  conditions.  During the 2006
quarter,  we repurchased  218,000 shares of our common stock at an average price
of $23.70 for an aggregate  cost of  $5,171,000.  As of March 26,  2006,  we had
$123,796,000 remaining under our repurchase authorization.

                                      30.
<PAGE>

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

As of March 26,  2006,  our  liquid  assets  totaled  $7,738,000.  These  assets
consisted  of  cash  and  cash  equivalents  in the  amount  of  $7,451,000  and
short-term  investments in the amount of $287,000.  The working  capital deficit
decreased from  $107,400,000  as of December 25, 2005 to $62,299,000 as of March
26, 2006. This decrease was due primarily to the redemption of gift cards in the
2006 quarter sold in 2005 and a decrease in accounts payable.

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

The following table shows our debt amortization  schedule,  future capital lease
commitments (including principal and interest payments),  future operating lease
commitments and future purchase obligations as of March 26, 2006 (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) (1).................  $  203,788     $      129    $       99    $  202,501   $     1,059
      Capital Lease Obligations...................       8,136            801         1,687         1,806         3,842
      Operating Leases (2)........................     385,735         27,459        55,427        54,377       248,472
      Purchase Obligations - Company(3)...........     209,566         79,574       119,846        10,146          --
      Purchase Obligations - Franchise(4).........     479,116        130,683       321,241        27,192          --

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

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

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

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

Other Contractual Obligations

In connection with the sale of restaurants to franchisees and other parties,  we
have, in certain cases,  remained  contingently  liable for the remaining  lease
payments.  As of  March  26,  2006,  we have  outstanding  lease  guarantees  of
approximately  $16,800,000.  These leases expire at various times with the final
lease  agreement  expiring in 2018.  In  addition,  we or our  subsidiaries  are
contingently  liable for various leases that we have assigned in connection with
the sale of  restaurants  to  franchisees  and other  parties,  in the potential
amount  of  $13,700,000.  We have not  recorded  a  liability  related  to these
contingent lease liabilities as of March 26, 2006 or December 25, 2005.

                                      31.
<PAGE>

In 2004,  we  arranged  for a  third-party  financing  company  to provide up to
$250,000,000  to  qualified  franchisees  for loans to fund  development  of new
restaurants  through  October 2007,  subject to our approval.  We will provide a
limited  guarantee of 10% of certain loans advanced under this program.  We will
be released  from our guarantee if certain  operating  results are met after the
restaurant  has been open for at least two years.  As of March 26,  2006,  there
were loans  outstanding to six franchisees for  approximately  $56,500,000 under
this program.  The fair value of our guarantees under this financing  program is
approximately  $110,000  and  is  recorded  in  non-current  liabilities  in our
consolidated balance sheet as of March 26, 2006.

We have severance and employment  agreements with certain officers providing for
severance  payments  to be  made  in  the  event  the  associate  resigns  or is
terminated not related to a change in control, some of which require payments to
be made only if we enforce  certain  terms in the  agreements.  If the severance
payments had been due as of March 26, 2006,  we would have been required to make
payments totaling approximately $12,000,000.  In addition, we have severance and
employment  agreements with certain officers which contain severance  provisions
related to a change in control.  The agreements define the  circumstances  which
will  constitute  a change in  control.  Those  provisions  would have  required
additional  aggregate payments of approximately  $6,100,000 if such officers had
been terminated as of March 26, 2006.

New Accounting Pronouncement

In March 2006, the Emerging  Issues Task Force ("EITF")  issued EITF Issue 06-3,
"How  Sales  Taxes   Collected  From  Customers  and  Remitted  to  Governmental
Authorities  Should Be  Presented  in the Income  Statement."  A  consensus  was
reached that entities may adopt a policy of presenting sales taxes in the income
statement on either a gross or net basis.  If taxes are  significant,  an entity
should disclose its policy of presenting taxes and the amounts of taxes that are
recognized  on a gross basis.  The guidance is effective  for periods  beginning
after  December 15, 2006. . We present  company  sales net of sales taxes.  This
Issue  will not  impact  the  method  for  recording  these  sales  taxes in our
consolidated financial 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 0.625%, at our option. As of March 26, 2006, the
total amount of debt subject to interest  rate  fluctuations  was  $202,400,000,
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 $2,024,000
per year. We may from time to time enter into  interest rate swap  agreements to
manage the  impact of  interest  rate  changes on our  earnings.  A  substantial
portion of the food  products  and  utilities  we purchase  are subject to price
volatility  due to factors  that are  outside of our  control  such as  weather,
seasonality and fuel costs. As part of our strategy to moderate this volatility,
we have entered into fixed price purchase commitments.

Item 4.    Controls and Procedures

As of March 26, 2006,  we have  evaluated  the  effectiveness  of the design and
operation of our disclosure  controls and procedures,  under the supervision and
with the  participation of the principal  executive  officer and Chief Financial
Officer  ("CFO").  Based  on this  evaluation,  our  management,  including  the
principal  executive officer and CFO, concluded that our disclosure controls and
procedures are effective.

                                      32.
<PAGE>
During the 2006 quarter, there have been no changes in our internal control over
financial  reporting  that  occurred  that  have  materially  affected,  or  are
reasonably  likely to materially  affect,  our internal  control over  financial
reporting.


                                      33.
<PAGE>


                           PART II. OTHER INFORMATION

Item 1.    Legal Proceedings

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

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

Item 1A.   Risk Factors

There have been no material  changes in our risk factors from those disclosed in
our 2005 Annual Report on Form 10-K.

                                      34.
<PAGE>



Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds
<TABLE>
<CAPTION>
(c) Issuer Purchases of Equity Securities.

     ------------------------------------------------------------------------------------------------------------
                                     Purchases of Equity Securities(1)
     ------------------------------------------------------------------------------------------------------------
                                       (a)          (b)               (c)                         (d)
     ---------------------------- -------------- ---------- ------------------------- ---------------------------
                                                                                        Maximum Dollar Value of
                                     Total        Average     Total Number of Shares     Shares that May Yet Be
                                     Number        Price       Purchased as Part of     Purchased Under the Plans
                                    of Shares     Paid Per   Publicly Announced Plans      Plans or Programs
               Period               Purchased      Share            or Programs              (in thousands)
     ---------------------------- -------------- ---------- ------------------------- ---------------------------
     <S>                          <C>            <C>        <C>                       <C>
     December 26, 2005
     through January 22, 2006           --            --                --                    $   128,967
     ---------------------------- -------------- ---------- ------------------------- ---------------------------
     January 23, 2006
     through February 19, 2006         4,070(2)   $ 24.56               --                    $   128,967
     ---------------------------- -------------- ---------- ------------------------- ---------------------------
     February 20, 2006
     through March 26, 2006          218,200      $ 23.70            218,200                  $   123,796
     ---------------------------- -------------- ---------- ------------------------- ---------------------------
                Total                222,270                         218,200
     ============================ ============== ========== ========================= ===========================

<FN>
        (1) In  October  2005,  our  Board of  Directors  authorized  additional
            repurchases  of our common stock of up to  $175,000,000,  subject to
            market conditions.

        (2) Shares  received as partial  payment for shares  issued  under stock
            option plans.
</FN>
</TABLE>

Item 6.    Exhibits

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



                                      35.
<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:    May 3, 2006                   By:  /s/    David L. Goebel
     ---------------------                --------------------------------------
                                          David L. Goebel
                                          Director, President and
                                          Chief Operating Officer
                                          (principal executive officer)

Date:    May 3, 2006                   By:  /s/    Steven K. Lumpkin
     ---------------------                --------------------------------------
                                          Steven K. Lumpkin
                                          Director, Executive Vice President,
                                          Chief Financial Officer and Treasurer
                                          (principal financial officer)

Date:    May 3, 2006                   By:  /s/    Beverly O. Elving
     ---------------------                --------------------------------------
                                          Beverly O. Elving
                                          Vice President and Controller
                                          (principal accounting officer)




                                      36.
<PAGE>


                         APPLEBEE'S INTERNATIONAL, INC.
                                  EXHIBIT INDEX


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


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

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

    10.3      Form of  Stock  Appreciation  Rights  Agreement  (incorporated  by
              reference  to the  Registrant's  Form 8-K  filed on  February  22,
              2006).

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

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

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








                                      37.