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                  April 1, 2007
                               -------------------------------------------------

                                       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 April
30, 2007 was 74,652,392.


                                       1

<PAGE>


                         APPLEBEE'S INTERNATIONAL, INC.
                                    FORM 10-Q
                       FISCAL QUARTER ENDED APRIL 1, 2007
                                      INDEX


                                                                            Page
PART I     FINANCIAL INFORMATION

Item 1.    Condensed Consolidated Financial Statements:

           Consolidated Balance Sheets as of April 1, 2007
             and December 31, 2006.......................................      3

           Consolidated Statements of Earnings for the 13 Weeks
             Ended April 1, 2007 and March 26, 2006......................      4

           Consolidated Statement of Stockholders' Equity for the
             13 Weeks Ended April 1, 2007................................      5

           Consolidated Statements of Cash Flows for the 13 Weeks
             Ended April 1, 2007 and March 26, 2006......................      6

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

Item 2.    Management's Discussion and Analysis of
             Financial Condition and Results of Operations...............     16

Item 3.    Quantitative and Qualitative Disclosures About Market Risk....     29

Item 4.    Controls and Procedures.......................................     29


PART II    OTHER INFORMATION

Item 1.    Legal Proceedings.............................................     30

Item 1A.   Risk Factors..................................................     30

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds...     31

Item 6.    Exhibits......................................................     31

Signatures ..............................................................     32

Exhibit Index............................................................     33


                                       2

<PAGE>



                         PART I. FINANCIAL INFORMATION

Item 1.    Condensed Consolidated Financial Statements

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

<TABLE>
<CAPTION>
                                                                                         April 1,         December 31,
                                                                                           2007               2006
                                                                                      --------------     -------------
                                     ASSETS
<S>                                                                                   <C>                <C>
Current assets:
     Cash and cash equivalents...................................................      $   15,338         $   22,309
     Short-term investments, at market value.....................................             295                293
     Receivables, less allowance of $903 in 2007 and $917 in 2006................          40,265             48,224
     Inventories.................................................................          11,677             11,524
     Prepaid and other current assets............................................          17,815             15,310
     Assets held for sale........................................................           5,388              7,633
     Current assets related to discontinued operations...........................           9,494              1,798
                                                                                      --------------     -------------
        Total current assets.....................................................         100,272            107,091
Property and equipment, net......................................................         618,812            619,508
Goodwill.........................................................................         138,950            138,950
Restricted assets related to captive insurance subsidiary........................          12,900             13,356
Other intangible assets, net.....................................................           6,280              6,408
Other assets, net................................................................          35,117             34,351
Non-current assets related to discontinued operations............................           3,203             17,590
                                                                                      --------------     -------------
                                                                                       $  915,534         $  937,254
                                                                                      ==============     =============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Current portion of long-term debt...........................................      $      279         $      265
     Accounts payable............................................................          53,270             43,235
     Accrued expenses and other current liabilities..............................          91,974            113,641
     Loss reserve related to captive insurance subsidiary........................           5,714              6,094
     Accrued dividends...........................................................            --               16,299
     Accrued income taxes........................................................          14,034              9,183
     Current liabilities related to discontinued operations......................           1,577               --
                                                                                      --------------     -------------
        Total current liabilities................................................         166,848            188,717
                                                                                      --------------     -------------
Non-current liabilities:
     Long-term debt, less current portion........................................         154,846            174,920
     Deferred income taxes.......................................................          24,329             24,956
     Other non-current liabilities...............................................          62,391             61,837
     Non-current liabilities related to discontinued operations..................           6,362                170
                                                                                      --------------     -------------
        Total non-current liabilities............................................         247,928            261,883
                                                                                      --------------     -------------
        Total liabilities........................................................         414,776            450,600
                                                                                      --------------     -------------
Commitments and contingencies (Note 11)
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..................................................         267,373            265,122
     Retained earnings...........................................................         782,801            774,884
                                                                                      --------------     -------------
                                                                                        1,051,259          1,041,091
     Treasury stock - 33,942,484 shares in 2007 and 34,393,331 shares in 2006,
        at cost..................................................................        (550,501)          (554,437)
                                                                                      --------------     -------------
        Total stockholders' equity...............................................         500,758            486,654
                                                                                      --------------     -------------
                                                                                       $  915,534         $  937,254
                                                                                      ==============     =============
</TABLE>

            See notes to condensed consolidated financial statements.

                                       3

<PAGE>



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

<TABLE>
<CAPTION>

                                                                                 13 Weeks Ended
                                                                         --------------------------------
                                                                            April 1,          March 26,
                                                                              2007              2006
                                                                         -------------     --------------
       <S>                                                               <C>               <C>
       Operating revenues:
            Company restaurant sales................................       $ 300,108         $  302,326
            Franchise royalties and fees............................          37,059             35,935
            Other franchise income..................................             463                445
                                                                         -------------     --------------
               Total operating revenues.............................         337,630            338,706
                                                                         -------------     --------------
       Cost of company restaurant sales:
            Food and beverage.......................................          79,435             80,735
            Labor...................................................         101,748             98,820
            Direct and occupancy....................................          79,878             76,684
            Pre-opening expense.....................................             921                750
                                                                         -------------     --------------
               Total cost of company restaurant sales...............         261,982            256,989
                                                                         -------------     --------------
       Cost of other franchise income...............................             373                766
       General and administrative expenses..........................          32,775             35,606
       Amortization of intangible assets............................             128                204
       Impairment and other restaurant closure costs................           6,636              1,600
       Loss on disposition of property and equipment................             370                577
                                                                         -------------     --------------
       Operating earnings...........................................          35,366             42,964
                                                                         -------------     --------------
       Other income (expense):
            Investment income ......................................             835                745
            Interest expense........................................          (2,606)            (2,554)
            Other income (expense)..................................             (60)               136
                                                                         -------------     --------------
               Total other expense..................................          (1,831)            (1,673)
                                                                         -------------     --------------
       Earnings before income taxes and discontinued operations.....          33,535             41,291
       Income taxes.................................................          11,536             13,874
                                                                         -------------     --------------
       Earnings before discontinued operations......................          21,999             27,417
       Loss from discontinued operations, net of tax................         (12,532)              (266)
                                                                         -------------     --------------
       Net earnings.................................................       $   9,467         $   27,151
                                                                         =============     ==============

       Basic net earnings per common share:
            Earnings before discontinued operations.................       $    0.30         $     0.37
            Loss from discontinued operations, net of tax...........           (0.17)               --
                                                                         -------------     --------------
       Basic net earnings per common share..........................       $    0.13         $     0.37
                                                                         =============     ==============

       Diluted net earnings per common share:
            Earnings before discontinued operations.................       $    0.29         $     0.36
            Loss from discontinued operations, net of tax...........           (0.17)               --
                                                                         -------------     --------------
       Diluted net earnings per common share........................       $    0.13         $     0.36
                                                                         =============     ==============

       Basic weighted average shares outstanding....................          73,953             74,147
                                                                         =============     ==============
       Diluted weighted average shares outstanding..................          75,072             75,281
                                                                         =============     ==============

</TABLE>



            See notes to condensed consolidated financial statements.

                                       4

<PAGE>



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


<TABLE>
<CAPTION>

                                                     Common Stock       Additional                                Total
                                                 ---------------------   Paid-In     Retained      Treasury   Stockholders'
                                                   Shares     Amount     Capital     Earnings       Stock         Equity
                                                 ----------- --------- ------------ ----------- ------------- -------------
<S>                                              <C>         <C>       <C>          <C>          <C>          <C>
Balance, December 31, 2006 ......................   108,503   $ 1,085   $265,122     $774,884    $ (554,437)   $  486,654

   Net earnings..................................      --        --         --          9,467           --          9,467
   Purchases of treasury stock...................      --        --         --            --           (999)         (999)
   Stock options exercised and
     related tax benefit.........................      --        --        1,386          --          1,543         2,929
   Shares issued under employee benefit plans....      --        --          408          --            514           922
   Nonvested shares awarded under equity
     incentive plans.............................      --        --       (2,878)         --          2,878          --
   Stock-based compensation expense related
     to employee-based equity awards.............      --        --        3,335          --            --          3,335
   Cumulative impact of change in accounting
     for uncertainty in income taxes (Note 9)....      --        --         --         (1,550)          --         (1,550)
                                                 ----------- --------- ------------ ----------- ------------- -------------
Balance, April 1, 2007...........................   108,503   $ 1,085   $267,373     $782,801    $ (550,501)   $  500,758
                                                 ===================== ============ =========== ============= =============

</TABLE>




            See notes to condensed consolidated financial statements.

                                       5

<PAGE>



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

<TABLE>
<CAPTION>

                                                                                      13 Weeks Ended
                                                                              --------------------------------
                                                                                April 1,           March 26,
                                                                                  2007                2006
                                                                              -------------      -------------
 <S>                                                                          <C>                <C>
 CASH FLOWS FROM OPERATING ACTIVITIES:
      Net earnings.......................................................       $   9,467          $  27,151
      Adjustments to reconcile net earnings to net cash provided by
        operating activities:
         Depreciation and amortization...................................          17,010             15,361
         Amortization of intangible assets...............................             128                204
         Stock-based compensation........................................           3,335              6,165
         Other amortization..............................................              83                 45
         Deferred income tax provision (benefit).........................          (4,029)             1,278
         Impairment and other restaurant closure costs...................          25,500              1,600
         Loss on disposition of property and equipment...................             370                577
         Income tax benefit from stock-based compensation................             288              1,005
      Changes in assets and liabilities, exclusive of effect of
        acquisition:
         Receivables.....................................................           7,959              1,027
         Inventories.....................................................            (221)             5,104
         Prepaid and other current assets................................          (2,474)            (7,794)
         Accounts payable................................................          10,840             (9,750)
         Accrued expenses and other current liabilities..................         (22,231)           (21,146)
         Loss reserve and unearned premiums related to
           captive insurance subsidiary..................................            (380)            (1,365)
         Income taxes....................................................           1,557              7,624
         Other non-current liabilities...................................          (2,731)                23
         Other...........................................................             236               (191)
                                                                              -------------      -------------
         NET CASH PROVIDED BY OPERATING ACTIVITIES.......................          44,707             26,918
                                                                              -------------      -------------
 CASH FLOWS FROM INVESTING ACTIVITIES:
      Purchases of property and equipment................................         (20,835)           (30,968)
      Change in restricted assets related to captive
        insurance subsidiary.............................................             456                214
      Acquisition of restaurants.........................................            --               (7,962)
      Proceeds from sale of property and equipment.......................           2,496               --
                                                                              -------------      -------------
         NET CASH USED BY INVESTING ACTIVITIES...........................         (17,883)           (38,716)
                                                                              -------------      -------------
 CASH FLOWS FROM FINANCING ACTIVITIES:
      Purchases of treasury stock........................................            (999)            (5,171)
      Dividends paid.....................................................         (16,299)           (14,840)
      Issuance of common stock upon exercise of stock options............           2,421              5,075
      Shares issued under employee benefit plans.........................             922              1,020
      Excess tax benefits from stock-based compensation..................             220                680
      Net debt proceeds (payments).......................................         (20,060)            19,445
                                                                              -------------      -------------
         NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES................         (33,795)             6,209
                                                                              -------------      -------------
 NET DECREASE IN CASH AND CASH EQUIVALENTS...............................          (6,971)            (5,589)
 CASH AND CASH EQUIVALENTS, beginning of period..........................          22,309             13,040
                                                                              -------------      -------------
 CASH AND CASH EQUIVALENTS, end of period................................       $  15,338          $   7,451
                                                                              =============      =============

</TABLE>

            See notes to condensed consolidated financial statements.

                                       6

<PAGE>



                 APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
               CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
                                   (Unaudited)
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                                           13 Weeks Ended
                                                                                 ------------------------------------
                                                                                     April 1,            March 26,
                                                                                       2007                2006
                                                                                 ----------------    ----------------
<S>                                                                              <C>                 <C>
SUPPLEMENTAL DISCLOSURES OF CASH
     FLOW INFORMATION:
     Cash paid during the 13 week period for:
       Income taxes........................................................         $     3,655         $     3,153
                                                                                 ================    ================
       Interest............................................................         $     2,493         $     2,472
                                                                                 ================    ================
</TABLE>


SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

We issued  nonvested shares with grant date fair values of $7,164,000 for the 13
weeks ended April 1, 2007 and nonvested  shares of  $1,499,000  for the 13 weeks
ended March 26, 2006.

We have  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 a non-cash  decrease in this  balance of  $1,192,000  for the 13 weeks ended
April 1, 2007 and a non-cash increase of $1,059,000 for the 13 weeks ended March
26, 2006.

We  had  property  and  equipment  purchases  accrued  in  accounts  payable  of
approximately  $9,600,000 and $9,900,000 as of April 1, 2007 and March 26, 2006,
respectively.






            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  ("SEC").  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 31, 2006.

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.

References  to  "Applebee's,"  "we,"  "us,"  and  "our"  in  this  document  are
references  to  Applebee's  International,  Inc.  and its  subsidiaries  and any
predecessor companies of Applebee's International, Inc.

As  discussed  in Note 5, we have  presented  the closure of 15  restaurants  as
discontinued  operations in our condensed  consolidated financial statements and
have made certain conforming changes to prior periods.

2.  Stock-Based Compensation

In 2006,  we adopted  the fair value  recognition  provisions  of  Statement  of
Financial Accounting Standards ("SFAS") No. 123(R),  "Share-Based Payment." 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. With
limited  exceptions,  the amount of  compensation  cost is measured based on the
fair value on the grant date of the equity or liability instruments issued.

Stock-based  compensation expense was $3,335,000 and $6,165,000 for the 13 weeks
ended  April 1, 2007  ("2007  quarter")  and the 13 weeks  ended  March 26, 2006
("2006   quarter"),   respectively.   During  the  2007   quarter,   we  granted
approximately  80,000 stock options,  approximately  100,000 stock  appreciation
rights ("SARs") and approximately  290,000 nonvested shares which generally vest
on March 1, 2011.

The nonvested share grants include approximately 50,000 shares issued to certain
officers which are  performance-based.  The valuation for these nonvested shares
is  based  upon  a  Monte  Carlo   simulation   which  better   represents   the
characteristics   of  these   grants.   The   ultimate   number   of  shares  of
performance-based  nonvested  shares,  if any,  that will vest will be dependent
upon our total shareholder return in relation to the total shareholder return of
a select group of restaurant companies over a four-year period.

                                       8

<PAGE>


3.  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,  SARs and other equity-based  compensation  represent
the only dilutive effects on weighted average shares. The table below presents a
reconciliation between basic and diluted weighted average shares outstanding and
the related net earnings per share.  All amounts in the table,  except per share
amounts, are expressed in thousands.

<TABLE>
<CAPTION>
                                                                        2007                    2006
                                                                       Quarter                 Quarter
                                                                ----------------------  ----------------------
<S>                                                             <C>                     <C>
Earnings before discontinued operations........................     $    21,999             $    27,417
Loss from discontinued operations, net of tax..................         (12,532)                   (266)
                                                                ----------------------  ----------------------
Net earnings...................................................     $     9,467             $    27,151
                                                                ======================  ======================

Basic weighted average shares outstanding......................          73,953                  74,147
Dilutive effect of stock options, SARs and other
     equity-based compensation.................................           1,119                   1,134
                                                                ----------------------  ----------------------
Diluted weighted average shares outstanding....................          75,072                  75,281
                                                                ======================  ======================

Basic net earnings per common share............................
   Earnings before discontinued operations.....................     $      0.30             $      0.37
   Loss from discontinued operations, net of tax...............           (0.17)                    --
                                                                ----------------------  ----------------------
Basic net earnings per common share............................     $      0.13             $      0.37
                                                                ======================  ======================

Diluted net earnings per common share..........................
    Earnings before discontinued operations....................     $      0.29             $      0.36
    Loss from discontinued operations, net of tax..............           (0.17)                    --
                                                                ----------------------  ----------------------
Diluted net earnings per common shares.........................     $      0.13             $      0.36
                                                                ======================  ======================
</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  4,500,000  and  5,110,000  of these
options and SARs from our diluted  weighted  average share  computation  for the
2007 quarter and the 2006 quarter, respectively.

4.  Acquisition

The acquisition discussed below has been accounted for using the purchase method
of accounting and, accordingly,  our condensed consolidated financial statements
reflect the results of operations for the 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.


                                       9
<PAGE>

In January 2006, we completed the acquisition of four Applebee's  restaurants in
the Houston market for approximately  $8,100,000 in cash. The purchase price was
allocated to the fair value of property and equipment of $7,400,000, goodwill of
approximately  $500,000,  reacquired franchise rights of approximately $100,000,
and other net  assets of  approximately  $100,000.  The  proforma  impact on our
results of operations was immaterial.

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.

5.  Restaurant Closures and Impairments

In  March  2007,  we  announced   that  the  Board  of  Directors  had  approved
management's  recommendation to close 24 underperforming  restaurants located in
11 states which we determined  did not have the potential to deliver  acceptable
long-term  returns on invested  capital.  In the 2007  quarter,  we closed 19 of
these 24 restaurants.

We  believe  that four of the closed  restaurants  will have  significant  sales
transfer to other existing restaurant  locations and therefore are not presented
as discontinued operations in our condensed consolidated financial statements as
required  by SFAS  No.  144,  "Accounting  for the  Impairment  or  Disposal  of
Long-Lived  Assets".  The results of  operations,  impairment  charges and lease
obligations  related  to these  four  restaurants  have  been  presented  within
operating  earnings in the  condensed  consolidated  statement of  earnings.  In
addition,  we have included in Impairment and Other Restaurant  Closure Costs in
our condensed consolidated financial statements,  the write-down of the carrying
value of property and equipment and other assets for the five restaurants  which
have yet to be closed.  We anticipate that we will present these  restaurants as
discontinued  operations in the period in which they close.  The estimated costs
to be incurred for these  restaurants still operating will be dependent upon the
outcome of negotiations with the landlords, as well as other factors.

In the 2007 quarter,  we have  presented the results of operations for 15 of the
closed  restaurants  as  discontinued  operations in our condensed  consolidated
financial statements as required by SFAS No. 144. In addition, we have presented
the  impairment   charge  and  lease   obligations  for  these   restaurants  in
discontinued operations.  Company restaurant sales for the restaurants presented
in  discontinued  operations  were $5,243,000 and $5,573,000 in the 2007 quarter
and the 2006 quarter, respectively.

The charges in the 2007 quarter included the following (in thousands):

<TABLE>
<CAPTION>
                                                                 Impairment and
                                                                Other Restaurant        Discontinued
                                                                  Closure Costs          Operations
                                                              --------------------  --------------------
<S>                                                           <C>                   <C>
Write-down of the carrying value of property and
     equipment and other assets.........................          $      4,193          $    10,899
Lease obligation for closed restaurants(1)..............                 2,389                7,729
Other costs.............................................                    54                  236
Loss on operations for discontinued operations..........                  --                    413
Income tax benefit for discontinued operations..........                  --                 (6,745)
                                                              --------------------  --------------------
Total costs.............................................          $      6,636          $    12,532
                                                              ====================  ====================

<FN>
------------------
(1) As of  April  1,  2007,  there  have  been  no  payments  related  to  lease
obligations.
</FN>
</TABLE>

                                       10

<PAGE>


The current and non-current  assets and  liabilities of the 15 restaurants  that
are presented as discontinued  operations in the condensed  consolidated balance
sheet are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                          April 1,              December 31,
                                                                            2007                   2006
                                                                     -------------------   --------------------
<S>                                                                  <C>                   <C>
Current assets:
    Property and equipment, net(1)..............................         $      5,139          $       --
    Other assets, net(1)........................................                  813                  --
    Prepaid income taxes........................................                3,542                 1,798
                                                                     -------------------   --------------------
Current assets related to discontinued operations...............         $      9,494                 1,798
                                                                     ===================   ====================

Non-current assets:
    Deferred income taxes.......................................         $      3,203          $       --
    Property and equipment, net.................................                 --                  16,523
    Other assets, net...........................................                 --                   1,067
                                                                     -------------------   --------------------
Non-current assets related to discontinued operations...........         $      3,203          $     17,590
                                                                     ===================   ====================

Current liabilities:
   Accrued expenses and other current liabilities...............         $      1,577          $       --
                                                                     -------------------   --------------------
Current liabilities related to discontinued operations..........         $      1,577          $       --
                                                                     ===================   ====================

Non-current liabilities:
   Other non-current liabilities................................                6,362          $       --
   Deferred income taxes........................................                 --                     170
                                                                     -------------------   --------------------
Non-current liabilities related to discontinued operations......         $      6,362          $        170
                                                                     ===================   ====================
<FN>
------------------
(1) In the 2007 quarter,  we began to actively market property and equipment and
other assets. Consequently,  we have classified these assets as held for sale as
of April 1, 2007.
</FN>
</TABLE>



In the 2006 quarter,  we recorded  impairment and other restaurant closure costs
of $1,600,000  which consisted of an asset  impairment  charge of  approximately
$900,000  related  to the  write-down  of the  carrying  value of  property  and
equipment and $700,000 related to remaining lease obligations.

In assessing restaurants for impairment, we use current and historical operating
results to estimate future cash flows on a restaurant by restaurant  basis.  The
asset  impairment  charges  for the  2006  quarter  and the  2007  quarter  were
calculated by comparing  the carrying  value of the  restaurants'  assets to the
estimated future cash flow projections.

6.  Assets Held for Sale

We classify  assets as held for sale and cease  amortizing the assets when there
is a plan  for  disposal  of  assets  and  those  assets  meet the held for sale
criteria as defined in SFAS No. 144.  During 2006,  we began to actively  market
our  existing  corporate  headquarters  and a  corporate  aircraft  under a plan
approved  by our Board of  Directors  as well as other  assets  with  immaterial
carrying values. Consequently,  these assets were classified as held for sale as
of December 31, 2006. In February 2007,  the corporate  aircraft was sold and we
recognized an immaterial gain.

                                       11

<PAGE>




7.  Goodwill and Other Intangible Assets

Changes in goodwill are summarized below (in thousands):

<TABLE>
<CAPTION>
                                                                             April 1,          December 31,
                                                                               2007                2006
                                                                         -----------------   -----------------
      <S>                                                                <C>                 <C>
      Carrying amount, beginning of the year...........................     $   138,950         $   138,443
      Goodwill acquired during the period..............................            --                   507
                                                                         -----------------   -----------------
      Carrying amount, end of the period...............................     $   138,950         $   138,950
                                                                         =================   =================
</TABLE>

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

<TABLE>
<CAPTION>
                                                                     April 1, 2007
                                             --------------------------------------------------------------
                                              Gross Carrying          Accumulated            Net Book
                                                  Amount             Amortization              Value
                                             ------------------    ------------------    ------------------
<S>                                          <C>                   <C>                   <C>
Amortized intangible assets:
    Franchise interest and rights.......       $        6,371        $      6,216          $        155
    Lease acquisition costs.............                3,430                 713                 2,717
    Noncompete agreement................                  350                 220                   130
                                             ------------------    ------------------    ------------------

Total...................................       $       10,151        $      7,149          $      3,002
                                             ==================    ==================    ==================
</TABLE>

<TABLE>
<CAPTION>
                                                                   December 31, 2006
                                             --------------------------------------------------------------
                                              Gross Carrying          Accumulated            Net Book
                                                  Amount             Amortization              Value
                                             ------------------    ------------------    ------------------
<S>                                          <C>                   <C>                   <C>
Amortized intangible assets:
    Franchise interest and rights.......       $       6,371        $       6,172          $        199
    Lease acquisition costs.............               3,430                  650                 2,780
    Noncompete agreement................                 350                  199                   151
                                             ------------------    ------------------    ------------------

Total...................................       $      10,151         $      7,021          $      3,130
                                             ==================    ==================    ==================
</TABLE>

We expect annual amortization  expense for amortizable other assets for the next
five fiscal years to range from approximately $200,000 to $500,000.

Intangible   assets  not  subject  to  amortization  are  summarized  below  (in
thousands):

<TABLE>
<CAPTION>
                                                                      April 1,             December 31,
                                                                        2007                   2006
                                                                ----------------------  --------------------
      <S>                                                       <C>                     <C>
      Carrying amount, beginning of the year..................      $      3,278            $      3,138
      Nonamortizable intangible assets acquired
           during the period..................................              --                       140
                                                                ----------------------  --------------------
      Nonamortizable intangible assets amount,
           end of the period..................................      $      3,278            $      3,278
                                                                ======================  ====================
</TABLE>

                                       12

<PAGE>


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 4).

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.

8.  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. 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. In 2006, we discontinued  writing
insurance  coverage for new or existing  participants.  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 $400,000 as of April 1,
          2007 and December 31, 2006, included in receivables.

     o    Cash  equivalent and other  long-term  investments  restricted for the
          payment of claims of  approximately  $12,200,000 and $12,600,000 as of
          April  1,  2007 and  December  31,  2006,  respectively,  included  in
          restricted assets related to captive insurance subsidiary.

     o    Loss reserve related to captive insurance  subsidiary of approximately
          $11,700,000 and $12,600,000 as of April 1, 2007 and December 31, 2006,
          respectively.  Approximately  $6,000,000  and  $6,500,000 for April 1,
          2007  and  December  31,  2006,  respectively,  is  included  in other
          non-current liabilities.

9.  Accounting for Uncertainty in Income Taxes

On January 1, 2007, we adopted the provisions of Financial  Accounting Standards
Board ("FASB")  Interpretation  ("FIN") No. 48,  "Accounting  for Uncertainty in
Income Taxes". As a result of the implementation of FIN No. 48, we recognized an
increase of $1,550,000 in the liability for unrecognized tax benefits, which was
accounted for as a reduction to our retained earnings balance as of the adoption
date.

We file income tax returns which are  periodically  audited by various  federal,
state and foreign jurisdictions.  With few exceptions,  we are no longer subject
to federal, state and foreign tax examinations for years prior to 2003.

As of April 1,  2007,  we have  approximately  $7,200,000  of  unrecognized  tax
benefits, including approximately $1,800,000 of interest and penalties which are
included in accrued income taxes in the consolidated  balance sheet.  During the
period ended April 1, 2007,  we recognized  approximately  $200,000 in potential
interest and  penalties  associated  with  uncertain tax  positions.  The entire
balance of unrecognized tax benefits, if recognized,  would affect the effective
tax rate.


                                       13

<PAGE>
We do not anticipate  that total  unrecognized  tax benefits will  significantly
change  due to the  settlement  of audits  and the  expiration  of  statutes  of
limitations within 12 months of the report date.

10. Treasury Shares

As of April 1, 2007, we had approximately  33,942,000 shares held in treasury. A
reconciliation  of our treasury  shares for the 2007  quarter is provided  below
(shares in thousands):

<TABLE>
<CAPTION>
                                                                  Treasury
                                                                   Shares
                                                               ---------------
    <S>                                                        <C>
    Balance as of December 31, 2006........................         34,393
    Purchases of treasury stock............................             42
    Stock options exercised................................           (153)
    Shares issued under employee benefit plans.............            (52)
    Nonvested shares awarded under equity incentive
        plans..............................................           (288)
                                                               ---------------
    Balance as of April 1, 2007............................         33,942
                                                               ===============
</TABLE>

11.      Commitments and Contingencies

Litigation,  claims and disputes:  We are subject from time to time to lawsuits,
claims and governmental  inspections or audits arising in the ordinary course of
business.  Some of these  lawsuits  purport  to be  class  actions  and/or  seek
substantial damages. In the opinion of management,  these matters are adequately
covered by insurance,  or, if not so covered, are without merit or are of such a
nature or involve  amounts that would not have a material  adverse impact on our
business or consolidated financial position.

Lease guarantees and  contingencies:  In connection with the sale of restaurants
to  franchisees  and  other  parties,  we  have,  in  certain  cases,   remained
contingently  liable for the remaining lease  payments.  As of April 1, 2007, we
have outstanding lease guarantees of approximately $14,800,000.  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 $11,900,000.  These leases expire at various
times  with the final  lease  agreement  expiring  in 2018.  We did not record a
liability  related to these contingent lease  liabilities as of April 1, 2007 or
December 31, 2006.

Franchisee guarantees:  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 April 1,
2007,  there  were  loans  outstanding  to five  franchisees  for  approximately
$64,000,000  under this  program.  The fair value of our  guarantees  under this
financing  program is  approximately  $128,000  and is recorded  in  non-current
liabilities in our consolidated balance sheet as of April 1, 2007.

Severance  agreements:  We have severance and employment agreements with certain
officers  providing for  severance  payments to be made in the event the officer
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.

                                       14


<PAGE>


If the  severance  payments had been due as of April 1, 2007, we would have been
required to make payments totaling  approximately  $10,700,000.  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  $6,500,000 if such
officers had been terminated as of April 1, 2007.

12. New Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements." This
statement  defines fair value,  establishes  a framework for using fair value to
measure  assets  and  liabilities,  and  expands  disclosures  about  fair value
measurements.  The statement applies whenever other statements require or permit
assets or  liabilities  to be measured at fair value.  SFAS No. 157 is effective
for fiscal years  beginning after November 15, 2007. The impact of this adoption
will not be material to our consolidated financial statements.

In September  2006,  the FASB issued SFAS No. 158,  "Employers'  Accounting  for
Defined Benefit Pension and Other Postretirement Plans." This statement requires
companies to recognize a net liability or asset and an offsetting  adjustment to
accumulated  other  comprehensive  income to report the funded status of defined
benefit pension and other  postretirement  benefit plans. The statement requires
prospective  application,  and the recognition and disclosure  requirements  are
effective  for  companies  with fiscal  years  ending  after  December 15, 2006.
Additionally,  SFAS No.  158  requires  companies  to  measure  plan  assets and
obligations at their year-end  balance sheet date. This requirement is effective
for fiscal years ending after December 15, 2008. The impact of this adoption was
not material to our consolidated  financial  statements and we are in compliance
with the measurement date provisions of this statement as of April 1, 2007.

In February  2007,  the FASB issued  SFAS No.  159,  "The Fair Value  Option for
Financial Assets and Liabilities."  This statement permits entities to choose to
measure many financial instruments and certain other items at fair value. If the
fair value option is elected,  unrealized gains and losses will be recognized in
earnings at each subsequent reporting date. SFAS No. 159 is effective for fiscal
years beginning after November 15, 2007. We are currently  evaluating the impact
of this adoption on our consolidated financial statements.

                                       15

<PAGE>



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

Introductory Note

On February 13,  2007,  we  announced  that our Board of Directors  had formed a
committee  of  independent  directors  to  explore  strategic  alternatives  for
enhancing  shareholder value. On April 26, 2007, we announced that the strategic
process has yielded  several  non-binding  preliminary  proposals to acquire our
company.  The committee and full Board of Directors have approved  entering into
detailed due diligence  discussions with the potential buyers. These discussions
could  ultimately  result in potential  buyers  submitting  definitive,  binding
proposals.   Concurrently,  the  committee  continues  to  evaluate  a  possible
recapitalization  as well as a potential  securitization  of our royalty  income
stream  and  other  assets.  A   securitization   could  be  used  in  either  a
recapitalization  or by a potential  buyer.  There can be no assurance  that any
transaction  will be  pursued,  or if  pursued,  that  it  will be  consummated.
However,  the implementation of certain strategic  alternatives could affect our
current  plans  and  strategies,  and  any  forward-looking  statements  in this
document are qualified by reference to the committee's ongoing analysis.

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,  revenue growth,  restaurant margins,  commodity
costs,  general and administrative  expenses,  capital  expenditures,  return on
invested  capital 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 and generate positive operating
cash  flows  and  return  on  invested  capital,  the  impact  of  economic  and
demographic  factors on consumer spending,  maintaining and growing the value of
the  Applebee's  brand,  the impact of intense  competition in the casual dining
segment  of the  restaurant  industry,  the  impact  of future  leverage  on our
operations,  the  failure  to open the  restaurants  anticipated,  the impact of
increases in capital  expenditure  costs on future  development,  our ability to
attract and retain qualified franchisees,  and the impact of further penetration
of  restaurants  in existing  markets.  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 2006  Annual  Report on Form
10-K. We disclaim any obligation to update forward-looking statements.


                                       16
<PAGE>



General

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

<TABLE>
<CAPTION>

                                                                              Number
          Fiscal Year                       Fiscal Year End                  of Weeks
--------------------------------       --------------------------        -----------------
<S>                                       <C>                                  <C>
             2006                          December 31, 2006                    53
             2007                          December 30, 2007                    52
             2008                          December 28, 2008                    52
</TABLE>
<TABLE>
<CAPTION>

            Fiscal                                                            Number
            Period                         Fiscal Period End                 of Weeks
--------------------------------       --------------------------        -----------------
<S>                                        <C>                                <C>
         2006 Quarter                       March 26, 2006                      13
         2007 Quarter                        April 1, 2007                      13
</TABLE>

Our operating revenues are generated from two primary sources:

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

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 are $35,000 for each restaurant opened.

Other franchise income includes revenue from information technology products and
services provided to certain franchisees.

Certain expenses relate only to company-owned 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 and costs related to the
resolution  of claims  arising  from  franchisee  participation  in our  captive
insurance program.

Other  expenses   relate  to  both   company-owned   restaurants  and  franchise
operations.

All  references  to company  comparable  sales,  average  weekly sales and guest
traffic in all periods  contained  herein include the  restaurants  presented in
discontinued operations unless noted otherwise.


                                       17

<PAGE>




Overview

Applebee's  International,  Inc. and our  subsidiaries  develop,  franchise  and
operate casual dining restaurants under the name "Applebee's  Neighborhood Grill
& Bar(R),"  which is the largest  casual  dining  concept in the world with over
1,900  system-wide  restaurants  open as of April 1, 2007(1).  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. 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 ultimately  encompass at least 3,000 restaurants in the United States,
     as well as the potential for at least 1,000 restaurants internationally. In
     the 2007  quarter,  we and our  franchisees  opened  7 and 13  restaurants,
     respectively.

o    Comparable  restaurant  sales - a  year-over-year  comparison  of sales for
     restaurants open at least 18 months. Changes in comparable restaurant sales
     are driven by changes in the average  guest check  and/or  changes in guest
     traffic.  Average guest check changes result from menu price changes and/or
     changes  in menu mix.  During  the 2007  quarter,  the impact of menu price
     increases on company  restaurants was approximately  2.8%.  Although we may
     have  changes 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  improving
     operations  and  enhancing  our menu with new food and  beverage  offerings
     including  the  implementation  of  programs  such  as our new  lunch  menu
     initiated in February 2007. In the 2007 quarter,  company  comparable sales
     decreased  4.5%,   while  domestic   franchise  and  domestic   system-wide
     comparable  sales  decreased  3.9% and 4.0%,  respectively.  We believe our
     sales and traffic have been negatively impacted by multiple factors.  Lower
     income  households,  which  represent a significant  portion of our guests,
     have been impacted by higher energy costs and interest  rates.  The bar and
     grill category of the restaurant  industry has been negatively  impacted by
     increased trade-down to quick-service restaurants.  In addition, the supply
     growth of units opened in the category in 2006 and 2005 has outpaced demand
     contributing to weaker sales trends.

o    Company  restaurant  margins  -  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 are  susceptible to  fluctuations  in commodity  costs,
     labor costs and other operating costs such as utilities. Company restaurant
     margins were 12.7%,  and 15.0% in the 2007 quarter and in the 2006 quarter,
     respectively.

o    General and administrative  expenses - general and administrative  expenses
     expressed  as  a  percentage  of  total  operating  revenues.  General  and
     administrative  expenses  were 9.7%,  and 10.5% in the 2007 quarter and the
     2006 quarter,  respectively.  Stock-based  compensation included in general
     and administrative  expenses was 1.0%, and 1.7% in the 2007 quarter and the
     2006 quarter, respectively.


------------------
(1) Source: Nation's Restaurant News, "Special Report: Top 100," June 26, 2006.


                                       18
<PAGE>

o    Return on invested capital - net earnings expressed as a percent of average
     invested capital. We believe this is an important indicator as it allows us
     to evaluate our ability to create value for our shareholders.


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.  Actual results may differ from these
estimates,  and such  differences may be material to our condensed  consolidated
financial statements.  We believe that the following 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 may  periodically  purchase and  maintain  inventories  of certain  specialty
products to ensure  sufficient  supplies to the system,  to ensure continuity of
supply, or 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:  We account for stock-based compensation in accordance
with  Statement  of  Financial   Accounting   Standards   ("SFAS")  No.  123(R),
"Share-Based Payment". 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 and other restaurant closure costs: 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.


                                       19
<PAGE>

We  continually   evaluate  our  restaurant   portfolio  and  may  determine  to
periodically close restaurants.  At the time of each restaurant  closing, we are
required to record  expenses  and  liabilities  for the fair value of  remaining
lease payments less any potential  sublease income. The amounts recorded require
several  estimates in determining  the fair value.  The actual amounts  expensed
after settlement with our landlords may be materially different from the amounts
recorded.

Income taxes: We record  valuation  allowances  against our deferred tax assets,
when necessary,  in accordance with 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. In 2006, we recorded accruals when we determined
it was probable that we had an exposure in a matter relating to an audit.

In  July  2006,  the  Financial   Accounting  Standards  Board  ("FASB")  issued
Interpretation  ("FIN") No. 48,  "Accounting  for  Uncertainty  in Income Taxes"
which  became  effective  for us beginning  in 2007.  FIN No. 48  addresses  the
determination  of how tax  benefits  claimed or  expected to be claimed on a tax
return should be recorded in the financial statements. Under FIN No. 48, we must
recognize  the tax benefit  from an uncertain  tax  position  only if it is more
likely than not that the tax position  will be sustained on  examination  by the
taxing authorities, based on the technical merits of the position. Our estimates
of the tax benefit from  uncertain tax positions may change in the future due to
new developments in each matter.

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

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

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

Acquisition

The acquisition discussed below has been accounted for using the purchase method
of accounting and, accordingly,  our condensed consolidated financial statements
reflect the results of operations for the 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.


                                       20
<PAGE>

In January 2006, we completed the acquisition of four Applebee's  restaurants in
the Houston market for approximately  $8,100,000 in cash. The purchase price was
allocated to the fair value of property and equipment of $7,400,000, goodwill of
approximately  $500,000,  reacquired franchise rights of approximately $100,000,
and other net  assets of  approximately  $100,000.  The  proforma  impact on our
results of operations was immaterial.

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.

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. 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. In 2006, we discontinued  writing
insurance  coverage for new or existing  participants.  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 $400,000 as of April 1, 2007
     and December 31, 2006, included in receivables.

o    Cash equivalent and other long-term investments  restricted for the payment
     of claims of approximately  $12,200,000 and $12,600,000 as of April 1, 2007
     and December 31, 2006, respectively,  included in restricted assets related
     to captive insurance subsidiary.

o    Loss  reserve  related to captive  insurance  subsidiary  of  approximately
     $11,700,000  and  $12,600,000  as of April 1, 2007 and  December  31, 2006,
     respectively. Approximately $6,000,000 and $6,500,000 for April 1, 2007 and
     December  31,  2006,   respectively,   is  included  in  other  non-current
     liabilities.



                                       21
<PAGE>

Results of Operations

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

                                                                 2007           2006
                                                                Quarter        Quarter
                                                             -------------  ------------
<S>                                                          <C>            <C>
Operating revenues:
     Company restaurant sales..............................       88.9%          89.3%
     Franchise royalties and fees..........................       11.0           10.6
     Other franchise income................................        0.1            0.1
                                                             -------------  ------------
        Total operating revenues...........................      100.0%         100.0%
                                                             =============  ============
Cost of sales (as a percentage of company restaurant sales):
     Food and beverage.....................................       26.5%          26.7%
     Labor.................................................       33.9           32.7
     Direct and occupancy..................................       26.6           25.4
     Pre-opening expense...................................        0.3            0.2
                                                             -------------  ------------
        Total cost of sales................................       87.3%          85.0%
                                                             =============  ============

Cost of other franchise income (as a percentage of
     other franchise income)...............................       80.6%         172.1%
General and administrative expenses........................        9.7           10.5
Amortization of intangible assets..........................         --            0.1
Impairment and other restaurant closure costs..............        2.0            0.5
Loss on disposition of property and equipment..............        0.1            0.2
                                                             -------------  ------------
Operating earnings.........................................       10.5           12.7
                                                             -------------  ------------
Other income (expense):
     Investment income.....................................        0.2            0.2
     Interest expense......................................       (0.8)          (0.8)
     Other income .........................................         --             --
                                                             -------------  ------------
        Total other expense................................       (0.5)          (0.5)
                                                             -------------  ------------
Earnings before income taxes and discontinued
     operations............................................        9.9           12.2
Income taxes...............................................        3.4            4.1
                                                             -------------  ------------
Earnings before discontinued operations....................        6.5            8.1
Loss on discontinued operations, net of tax................       (3.7)          (0.1)
                                                             -------------  ------------
Net earnings...............................................        2.8%           8.0%
                                                             =============  ============

</TABLE>



                                       22
<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>

                                                                                 2007                   2006
                                                                                Quarter                Quarter
                                                                          -------------------    -------------------
   <S>                                                                    <C>                    <C>
   Number of restaurants:
        Company:
            Beginning of period........................................            521                    486
            Restaurant openings........................................              7                      9
            Restaurant closings........................................            (19)                    (2)
            Restaurants acquired from franchisees......................             --                      4
                                                                          -------------------    -------------------
            End of period..............................................            509                    497
                                                                          -------------------    -------------------
        Franchise:
            Beginning of period........................................          1,409                  1,318
            Restaurant openings........................................             13                     20
            Restaurant closings........................................             (1)                    (2)
            Restaurants acquired by franchisor.........................             --                     (4)
                                                                          -------------------    -------------------
            End of period..............................................          1,421                  1,332
                                                                          -------------------    -------------------
        Total:
            Beginning of period........................................          1,930                  1,804
            Restaurant openings........................................             20                     29
            Restaurant closings........................................            (20)                    (4)
                                                                          -------------------    -------------------
            End of period..............................................          1,930                  1,829
                                                                          ===================    ===================
   Weighted average weekly sales per restaurant:
            Company(1).................................................      $  44,852              $  48,087
            Domestic franchise.........................................      $  50,864              $  53,622
            Domestic total.............................................      $  49,159              $  52,055
   Change in comparable restaurant sales:(2)
            Company(3).................................................         (4.5)%                   1.2%
            Domestic franchise.........................................         (3.9)%                   3.1%
            Domestic total.............................................         (4.0)%                   2.6%
   Total operating revenues (in thousands):
            Company restaurant sales(4)................................      $ 300,108              $ 302,326
            Franchise royalties and fees(5)............................         37,059                 35,935
            Other franchise income(6)..................................            463                    445
                                                                          -------------------    -------------------
            Total......................................................      $ 337,630              $ 338,706
                                                                          ===================    ===================


<FN>
------------
(1) Includes  restaurants  presented as discontinued  operations.  Excluding the
restaurants presented as discontinued  operations,  company average weekly sales
were $45,382 and $48,699 in the 2007 quarter and the 2006 quarter, respectively.
(2) When computing comparable restaurant sales, restaurants open for at least 18
months are compared from period to period.
(3) Includes  restaurants  presented as discontinued  operations.  Excluding the
restaurants presented as discontinued operations,  company comparable restaurant
sales  were  (4.5)%  and  1.3%  in  the  2007  quarter  and  the  2006  quarter,
respectively.
(4) Excludes restaurants presented as discontinued  operations.  Sales for these
restaurants,  in  thousands,  were $5,243 and $5,573 in the 2007 quarter and the
2006 quarter.
(5) Franchise royalties are generally 4% of each franchise restaurant's reported
monthly gross sales.  Reported  unaudited  franchise  sales, in thousands,  were
$917,308 and $904,644 in the 2007  quarter and the 2006  quarter,  respectively.
Franchise fees typically are $35,000 for each restaurant opened.
(6) Other franchise income includes revenue from information technology products
and services provided to certain franchisees.
</FN>


</TABLE>

                                       23
<PAGE>



2007 Quarter Compared With 2006 Quarter

Company Restaurant Sales.  Total company  restaurant sales decreased  $2,218,000
(1%) from  $302,326,000 in the 2006 quarter to $300,108,000 in the 2007 quarter.
The percentage  decrease in total company  restaurant sales was due to a decline
in average weekly sales of 6.7% which was partially offset by an increase in the
number of restaurant weeks open of approximately 6%.

Comparable restaurant sales at company restaurants decreased by 4.5% in the 2007
quarter.  Weighted  average weekly sales at company  restaurants  decreased 6.7%
from $48,087 in the 2006 quarter to $44,852 in the 2007 quarter. The decrease in
average  weekly sales was due to a decline in guest  traffic in the 2007 quarter
of 5.4% as well as the underperformance of restaurants open less than 18 months.
We took a price increase of approximately 1.4% in January 2007.

Franchise Royalties and Fees.  Franchise royalties and fees increased $1,124,000
(3%) from $35,935,000 in the 2006 quarter to $37,059,000 in the 2007 quarter due
primarily to the increased number of franchise  restaurants operating during the
2007  quarter as  compared  to the 2006  quarter.  Domestic  franchise  weighted
average weekly sales and comparable  restaurant  sales  decreased 5.1% and 3.9%,
respectively.

Cost of Company  Restaurant  Sales. Food and beverage costs decreased from 26.7%
in the  2006  quarter  to 26.5% in the 2007  quarter.  Food and  beverage  costs
decreased  in the 2007  quarter  due to the  impact of menu price  increases  of
approximately  2.8%,  which were partially offset by 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 a late-night value strategy.  We currently
expect net commodity costs to increase by approximately 1% in 2007.

Labor  costs  increased  from  32.7%  in the 2006  quarter  to 33.9% in the 2007
quarter due primarily to higher restaurant  management  salaries and hourly wage
rates  including  the impact of state  minimum wage rate  increases,  which were
partially  offset by lower  restaurant  management  incentive  compensation.  We
currently expect labor costs to be negatively impacted by recently enacted state
hourly minimum wage increases in 2007.

Direct and occupancy  costs increased from 25.4% in the 2006 quarter to 26.6% in
the 2007 quarter due  primarily to higher  utilities  and lower sales volumes at
company restaurants which resulted in unfavorable year-over-year comparisons for
depreciation  and rent, as a percentage of sales,  due to their relatively fixed
nature. These increases were partially offset by favorable impact of a change in
accounting  convention for smallwares that was implemented in the second quarter
of 2006.

Cost of  Other  Franchise  Income.  Cost of  other  franchise  income  decreased
$393,000 (51%) from $766,000 in the 2006 quarter to $373,000 in the 2007 quarter
due primarily to an expense of $500,000 recorded for estimated  insurance losses
from franchise participants in our captive insurance company.

General  and  Administrative  Expenses.   General  and  administrative  expenses
decreased  from  10.5%  in the 2006  quarter  to 9.7% in the  2007  quarter  due
primarily to lower stock-based  compensation.  The decrease was partially offset
by expenses  related to the exploration of strategic  alternatives for enhancing
shareholder value.

Impairment and Other Restaurant  Closure Costs. In March 2007, we announced that
the Board of Directors  had  approved  management's  recommendation  to close 24
underperforming  restaurants  located in 11 states which we  determined  did not
have the potential to deliver acceptable  long-term returns on invested capital.
In the 2007 quarter,  we closed 19 of these 24  restaurants.  The impairment and
lease obligation charges related to four restaurants that have significant sales
transfers to other existing  restaurants  have been presented  within  operating
earnings in the condensed  consolidated  statement of earnings.  In addition, we
recorded a write-down of the carrying  value of property and equipment and other
assets for the five restaurants  which have yet to be closed.  The total charges
in the 2007 quarter  included a write-down of the carrying value of property and
equipment and other assets of approximately $4,200,000 and lease obligations for
closed restaurants of $2,400,000.

                                       24
<PAGE>

In the 2006 quarter,  we recorded  impairment and other restaurant closure costs
of approximately  $900,000 consisting of the write-down of the carrying value of
the  property and  equipment  of two  restaurants  that were not  performing  as
expected.  In addition,  we closed two  restaurants  and  recognized  expense of
$700,000 relating to remaining lease obligations.

Income Taxes.  The effective income tax rate, as a percentage of earnings before
income  taxes,  increased  from  33.6% in the 2006  quarter to 34.4% in the 2007
quarter due to the impact of discontinued operations.

Earnings  before  Discontinued  Operations.  Net  earnings  before  discontinued
operations  decreased  $5,418,000  (20%) from $27,417,000 in the 2006 quarter to
$21,999,000 in the 2007 quarter due primarily to impairment and other restaurant
closure costs of approximately  $6,600,000  incurred in the 2007 quarter related
to the decision to close 24 restaurants.

Discontinued  Operations,  net of tax.  The loss  from  discontinued  operations
increased  $12,266,000  from a loss of $266,000 in the 2006 quarter to a loss of
$12,532,000  in the 2007 quarter due to the  write-down of the carrying value of
property and  equipment  and other assets of  approximately  $10,900,000,  lease
obligations for closed  restaurants and other costs of approximately  $8,000,000
and loss from restaurant  operations of  approximately  $400,000  (approximately
$12,500,000  net of tax for all  items) which  are related to the 15 restaurants
presented as discontinued operations.

Net Earnings.  Net earnings decreased  $17,684,000 (65%) from $27,151,000 in the
2006 quarter to  $9,467,000  in the 2007 quarter due  primarily to  discontinued
operations of  approximately  $12,500,000,  net of tax and  impairment and other
restaurant  closure costs of  approximately  $6,600,000  incurred related to the
decision to close 24 restaurants.

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, refurbishment and
capital replacement for existing restaurants, the repurchase of our common stock
and investment in information  technology systems. We obtain capital through our
ongoing operations and debt financing.

Cash  flows  from  our  operating  activities  primarily  include  the net  cash
generated  from company and franchise  operations  and management of credit from
trade  suppliers.  Cash flows provided or used by investing  activities  include
capital  expenditures for restaurant  construction,  refurbishment,  information
technology,  acquisitions of franchise restaurants,  sale-leaseback transactions
and asset sales.  Cash flows  provided or used by financing  activities  include
borrowings and repayments of debt, repurchases of our common stock, dividends to
shareholders  and the cash received from the exercise of employee stock options.
The  following  table  presents a summary of our cash flows for the 2007 quarter
and the 2006 quarter (in thousands):


                                       25
<PAGE>

<TABLE>
<CAPTION>

                                                          2007                2006
                                                         Quarter             Quarter
                                                    ------------------- ------------------

<S>                                                 <C>                 <C>
Net cash provided by operating activities..........   $    44,707         $    26,918
Net cash used by investing activities..............       (17,883)            (38,716)
Net cash provided (used) by financing
   activities......................................       (33,795)              6,209
                                                    ------------------- ------------------

Net decrease in cash and cash equivalents..........   $    (6,971)        $    (5,589)
                                                    =================== ==================
</TABLE>

Capital expenditures were $20,835,000 in the 2007 quarter and $30,968,000 in the
2006 quarter.

Excluding costs related to the  construction of our new corporate  headquarters,
capital  expenditures are expected to be between  $70,000,000 and $80,000,000 in
2007 and will primarily be for the development of new restaurants, refurbishment
and  capital  replacement  for  existing  restaurants  and  the  enhancement  of
information systems. Costs for the new corporate headquarters are expected to be
approximately  $30,000,000  in 2007.  We intend to enter  into a  sale-leaseback
transaction  with  respect  to the  new  headquarters  upon  its  completion  or
thereafter,  depending  upon  market  conditions.  We  currently  expect to open
between 10 and 15 company restaurants in 2007. We expect to continue to purchase
a portion  of our  restaurant  sites;  however  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 January 2006, we completed the acquisition of four Applebee's  restaurants in
the Houston area for approximately $8,100,000 in cash.

In December 2006, we entered into a five-year  revolving  credit  facility.  The
terms of the  bank  credit  agreement  provide  for  $400,000,000  in  unsecured
revolving credit as well as an additional  $200,000,000 of revolving credit upon
satisfaction of the conditions set forth in the credit facility. The facility is
subject to various covenants and restrictions which, among other things, require
the  maintenance  of stipulated  fixed charge and leverage  ratios,  as defined.
There is no limit on cash  dividends or repurchases of our common stock provided
the  declaration  and payment of such  dividend or  repurchase of stock 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. As of April
1,  2007,  we were in  compliance  with the  covenants  contained  in our credit
agreement.  We had  borrowings  of  $150,000,000,  standby  letters of credit of
approximately  $20,800,000 outstanding and approximately  $229,200,000 available
under our revolving credit facility as of April 1, 2007.

In November 2006, with  approximately  $100,000,000 of a previous  authorization
remaining,  our Board of  Directors  authorized  additional  repurchases  of our
common stock of up to $150,000,000, subject to market conditions, for a total of
approximately  $250,000,000 in authorized repurchases.  During the 2007 quarter,
we  repurchased  42,000 shares of our common stock at an average price of $23.93
for an aggregate cost of approximately  $1,000,000.  As of April 1, 2007, we had
approximately $239,400,000 remaining under our repurchase authorizations.

In December  2006, the Board of Directors  declared an annual  dividend of $0.22
per share  payable to  shareholders  of record on  December  22,  2006.  We paid
approximately $16,300,000 in January 2007 related to this dividend.

                                       26
<PAGE>

As of April 1,  2007,  our  liquid  assets  totaled  $15,633,000.  These  assets
consisted  of cash  and  cash  equivalents  in the  amount  of  $15,338,000  and
short-term  investments in the amount of $295,000.  The working  capital deficit
decreased from $81,626,000 as of December 31, 2006 to $66,576,000 as of April 1,
2007.  This decrease  resulted  primarily  from a  combination  of factors which
included decreases in receivables and accrued dividends, an increase in accounts
payable,  payments  on  debt,  the  reclassification  of  certain  property  and
equipment  to assets  held for sale,  and  higher  redemption  of gift  cards as
compared to the sales of gift cards.

We believe that our liquid assets and cash generated from  operations,  combined
with  available   borrowings,   will  provide  sufficient  funds  for  operating
activities,  capital expenditures,  currently approved repurchases of our common
stock  and the  payment  of  dividends  for at  least  the  next 12  months  and
thereafter 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 April 1, 2007 (in thousands):
<TABLE>
<CAPTION>

                                                                          Payments due by period
                                                   ----------------------------------------------------------------------
                        Certain                                    Less than 1       1-3           3-5      More than 5
                Contractual Obligations(1)             Total          year          years         years        years
      -------------------------------------------- -------------  ------------- ------------- ------------ -------------
      <S>                                          <C>            <C>           <C>           <C>          <C>
      Long-term Debt (excluding capital
         lease obligations) (2)..................   $ 151,250       $     63      $     93      $ 150,110    $     984
      Capital Lease Obligations..................       7,335            829         1,746          1,799        2,961
      Operating Leases (3).......................     409,113         30,237        59,654         58,385      260,837
      Purchase Obligations - Company(4)..........     220,966        173,587        18,708         28,671         --
      Purchase Obligations - Franchise(5)........     511,082        378,811        52,227         80,044         --

<FN>
------------------
(1) This amount excludes  approximately  $7,200,000 of unrecognized tax benefits
due to the uncertainty related to the timing of any payments.
(2) The amounts for long-term debt are primarily  borrowings under our revolving
credit facility and exclude interest payments which are variable in nature.
(3) 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.
(4) The amounts for company purchase  obligations  include  commitments for food
items,  energy,  supplies,  and other  miscellaneous  commitments.
(5) The amounts for franchise purchase  obligations include commitments for food
items and  supplies  made by us for our  franchisees.  We contract  with certain
suppliers to ensure competitive  pricing.  These amounts will only be payable by
us 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  April  1,  2007,  we  have  outstanding  lease  guarantees  of
approximately $14,800,000.  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
$11,900,000. These leases expire at various times with the final lease agreement
expiring  in 2018.  We did not record a  liability  related to these  contingent
lease liabilities as of April 1, 2007 or December 31, 2006.

                                       27
<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 April 1, 2007, there were
loans outstanding to five franchisees for  approximately  $64,000,000 under this
program.  The fair  value of our  guarantees  under  this  financing  program is
approximately  $128,000  and  is  recorded  in  non-current  liabilities  in our
consolidated balance sheet as of April 1, 2007.

We have severance and employment  agreements with certain officers providing for
severance  payments to be made in the event the officer 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 April 1, 2007,  we would have been  required to make payments
totaling  approximately   $10,700,000.   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  $6,500,000 if such officers had
been terminated as of April 1, 2007.

New Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements." This
statement  defines fair value,  establishes  a framework for using fair value to
measure  assets  and  liabilities,  and  expands  disclosures  about  fair value
measurements.  The statement applies whenever other statements require or permit
assets or  liabilities  to be measured at fair value.  SFAS No. 157 is effective
for fiscal years  beginning after November 15, 2007. The impact of this adoption
will not be material to our consolidated financial statements.

In September  2006,  the FASB issued SFAS No. 158,  "Employers'  Accounting  for
Defined Benefit Pension and Other Postretirement Plans." This statement requires
companies to recognize a net liability or asset and an offsetting  adjustment to
accumulated  other  comprehensive  income to report the funded status of defined
benefit pension and other  postretirement  benefit plans. The statement requires
prospective  application,  and the recognition and disclosure  requirements  are
effective  for  companies  with fiscal  years  ending  after  December 15, 2006.
Additionally,  SFAS No.  158  requires  companies  to  measure  plan  assets and
obligations at their year-end  balance sheet date. This requirement is effective
for fiscal years ending after December 15, 2008. The impact of this adoption was
not material to our consolidated  financial  statements and we are in compliance
with the measurement date provisions of this statement as of April 1, 2007.

In February  2007,  the FASB issued  SFAS No.  159,  "The Fair Value  Option for
Financial Assets and Liabilities."  This statement permits entities to choose to
measure many financial instruments and certain other items at fair value. If the
fair value option is elected,  unrealized gains and losses will be recognized in
earnings at each subsequent reporting date. SFAS No. 159 is effective for fiscal
years beginning after November 15, 2007. We are currently  evaluating the impact
of this adoption on our consolidated financial statements.



                                       28
<PAGE>




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 0.45%,  at our option.  As of April 1, 2007, the
total amount of debt subject to interest  rate  fluctuations  was  $150,000,000,
which was outstanding on our revolving credit facility.  A 1% change in interest
rates  would  result  in  an  increase  or  decrease  in  interest   expense  of
approximately  $1,500,000 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 April 1,  2007,  we have  evaluated  the  effectiveness  of the design and
operation of our disclosure  controls and procedures,  under the supervision and
with  the  participation  of the  Chief  Executive  Officer  ("CEO")  and  Chief
Financial Officer ("CFO"). Based on this evaluation,  our management,  including
the CEO and CFO,  concluded  that our  disclosure  controls and  procedures  are
effective.

During the 2007 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.




                                       29
<PAGE>



                           PART II. OTHER INFORMATION

Item 1.       Legal Proceedings

We  are  subject  from  time  to  time  to  lawsuits,  claims  and  governmental
inspections or audits arising in the ordinary course of business.  Some of these
lawsuits  purport to be class actions and/or seek  substantial  damages.  In the
opinion of management,  these matters are adequately covered by insurance, or if
not so  covered,  are without  merit or are of such a nature or involve  amounts
that would not have a material  adverse  impact on 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 2006 Annual Report on Form 10-K.



                                       30
<PAGE>




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

(c) Issuer Purchases of Equity Securities.
<TABLE>
<CAPTION>

-------------------------------------------------------------------------------------------------------------------
                                         Purchases of Equity Securities(1)
-------------------------------------------------------------------------------------------------------------------
                                        (a)           (b)                (c)                        (d)
---------------------------------- -------------- ----------- ------------------------- ---------------------------
                                                                                          Maximum Dollar Value of
                                                    Average     Total Number of Shares     Shares that May Yet Be
                                    Total Number     Price       Purchased as Part of    Purchased Under the Plans
                                     of Shares      Paid Per      Publicly Announced            or Programs
             Period                  Purchased       Share        Plans or Programs            (in thousands)
---------------------------------- -------------- ----------- ------------------------- ---------------------------
<S>                                <C>            <C>         <C>                       <C>
January 1, 2007 through
January 28, 2007                       41,763       $23.93              41,763                   $239,446
---------------------------------- -------------- ----------- ------------------------- ---------------------------
January 29, 2007 through
February 25, 2007                         --          --                  --                     $239,446
---------------------------------- -------------- ----------- ------------------------- ---------------------------
February 26, 2007 through
April 1, 2007                             --          --                  --                     $239,446
---------------------------------- -------------- ----------- ------------------------- ---------------------------
              Total                    41,763                           41,763
================================== ============== =========== ========================= ===========================

<FN>
------------------
(1)  In  November  2006,  with   approximately   $100,000,000  of  the  previous
authorization   remaining,   our  Board  of  Directors   authorized   additional
repurchases  of our  common  stock  of up to  $150,000,000,  subject  to  market
conditions, for a total of approximately $250,000,000 in authorized repurchases.
</FN>
</TABLE>

Item 6.       Exhibits

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




                                       31
<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)
<TABLE>
<CAPTION>



<S>                                    <C>
Date:    May 2, 2007                    By:  /s/    David L. Goebel
     ----------------------                -------------------------------------
                                           David L. Goebel
                                           Director, President and Chief Executive Officer
                                           (principal executive officer)

Date:    May 2, 2007                    By:  /s/    Steven K. Lumpkin
     ----------------------                -------------------------------------
                                           Steven K. Lumpkin
                                           Director, Executive Vice President,
                                           Chief Financial and Strategy Officer
                                           (principal financial officer)

Date:    May 2, 2007                    By:  /s/    Beverly O. Elving
     ----------------------                -------------------------------------
                                           Beverly O. Elving
                                           Vice President and Controller
                                           (principal accounting officer)

</TABLE>



                                       32
<PAGE>



                         APPLEBEE'S INTERNATIONAL, INC.
                                  EXHIBIT INDEX


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

     3.1       Amended  and Restated  Bylaws of  Applebee's  International, Inc.
               dated April 26, 2007, as amended.

    10.1       Revised  Personal Use of  Corporate Aircraft Policy (incorporated
               by reference to  Exhibit 10.1  of the Registrant's Form 8-K filed
               on March 20, 2007).

    10.2       Form  of  Performance  Vested  Restricted  Stock  Award Agreement
               (incorporated by reference  to Exhibit 10.2 of  the  Registrant's
               Form 8-K filed on March 20, 2007).

    10.3       Settlement  Agreement  among  Applebee's  International, Inc. and
               Breeden Capital Management  LLC and its  affiliated  funds  dated
               April 25, 2007 (incorporated by  reference to Exhibit 10.1 of the
               Registrant's Form 8-K filed on April 30, 2007).

    10.4       Sixth Amendment to the Employee Stock Purchase Plan.

    31.1       Certification  of Chief  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.



                                       33