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

                                    FORM 10-Q

(Mark One)

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

For the quarterly period ended                  June 25, 2006
                               -------------------------------------------------

                                       OR

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

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

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


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

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

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

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


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

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

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

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


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

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

The number of shares of the registrant's common stock outstanding as of July 24,
2006 was 74,427,928.


                                       1.

<PAGE>



                         APPLEBEE'S INTERNATIONAL, INC.
                                    FORM 10-Q
                       FISCAL QUARTER ENDED JUNE 25, 2006
                                      INDEX


                                                                            Page
PART I      FINANCIAL INFORMATION

Item 1.     Condensed Consolidated Financial Statements:

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

            Consolidated Statements of Earnings for the 13 Weeks
              and 26 Weeks Ended June 25, 2006 and June 26, 2005 ........      4

            Consolidated Statement of Stockholders' Equity for the
              26 Weeks Ended June 25, 2006 ..............................      5

            Consolidated Statements of Cash Flows for the 26 Weeks
              Ended June 25, 2006 and June 26, 2005......................      6

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

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

Item 3.     Quantitative and Qualitative Disclosures About Market Risk...     33

Item 4.     Controls and Procedures......................................     33


PART II     OTHER INFORMATION

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

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

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

Item 4.     Submission of Matters to a Vote of Security Holders..........     36

Item 6.     Exhibits.....................................................     36

Signatures ..............................................................     37

Exhibit Index............................................................     38

                                       2.

<PAGE>



                          PART I. FINANCIAL INFORMATION

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

                                                                                         June 25,         December 25,
                                                                                           2006               2005
                                                                                      --------------     -------------

                                     ASSETS
<S>                                                                                   <C>                <C>
Current assets:
     Cash and cash equivalents...................................................      $    6,896         $   13,040
     Short-term investments, at market value.....................................             289                286
     Receivables (less allowance of $325 in 2006 and $340 in 2005)...............          37,706             37,857
     Receivables related to captive insurance subsidiary.........................             503              1,712
     Inventories.................................................................          12,525             20,373
     Prepaid income taxes........................................................              55              3,488
     Prepaid and other current assets............................................          18,339             13,518
                                                                                      --------------     -------------
        Total current assets.....................................................          76,313             90,274
Property and equipment, net......................................................         619,638            590,593
Goodwill.........................................................................         139,111            138,443
Restricted assets related to captive insurance subsidiary........................          17,267             19,329
Other intangible assets, net.....................................................           6,713              8,050
Other assets, net................................................................          33,712             31,899
                                                                                      --------------     -------------
                                                                                       $  892,754         $  878,588
                                                                                      ==============     =============


                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Current portion of long-term debt...........................................      $      283         $      259
     Notes payable...............................................................           4,400              7,900
     Accounts payable............................................................          41,773             63,445
     Accrued expenses and other current liabilities..............................          83,661            100,995
     Loss reserve related to captive insurance subsidiary........................           7,103             10,235
     Accrued dividends...........................................................            --               14,840
     Accrued income taxes........................................................             275               --
                                                                                      --------------     -------------
        Total current liabilities................................................         137,495            197,674
                                                                                      --------------     -------------
Non-current liabilities:
     Long-term debt, less current portion........................................         197,066            180,208
     Deferred income taxes.......................................................          34,235             37,722
     Other non-current liabilities...............................................          55,784             50,374
                                                                                      --------------     -------------
        Total non-current liabilities............................................         287,085            268,304
                                                                                      --------------     -------------
        Total liabilities........................................................         424,580            465,978
                                                                                      --------------     -------------
Commitments and contingencies (Note 3)
Stockholders' equity:
     Preferred stock - par value $0.01 per share: authorized - 1,000,000 shares;
        no shares issued.........................................................            --                 --
     Common stock - par value $0.01 per share:  authorized - 125,000,000 shares;
        issued - 108,503,243 shares..............................................           1,085              1,085
     Additional paid-in capital..................................................         248,656            234,988
     Unearned compensation.......................................................            --               (2,614)
     Retained earnings...........................................................         757,832            710,277
                                                                                      --------------     -------------
                                                                                        1,007,573            943,736
     Treasury stock - 34,133,112 shares in 2006 and 34,304,693 shares
        in 2005, at cost.........................................................        (539,399)          (531,126)
                                                                                      --------------     -------------
        Total stockholders' equity...............................................         468,174            412,610
                                                                                      --------------     -------------
                                                                                       $  892,754         $  878,588
                                                                                      ==============     =============
</TABLE>
            See notes to condensed consolidated financial statements.

                                       3.

<PAGE>



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


                                                                    13 Weeks Ended                         26 Weeks Ended
                                                          -----------------------------------    -----------------------------------
                                                             June 25,           June 26,            June 25,            June 26,
                                                               2006               2005                2006                2005
                                                          ---------------    ----------------    ----------------    ---------------
<S>                                                       <C>                <C>                 <C>                 <C>
Operating revenues:
     Company restaurant sales .......................       $   296,128        $   272,703         $   604,027         $   543,161
     Franchise royalties and fees....................            34,306             32,493              70,241              65,501
     Other franchise income..........................               539              1,424                 984               2,489
                                                          ---------------    ----------------    ----------------    ---------------
         Total operating revenues....................           330,973            306,620             675,252             611,151
                                                          ---------------    ----------------    ----------------    ---------------
Cost of company restaurant sales:
     Food and beverage...............................            78,433             72,565             160,669             144,200
     Labor...........................................           100,296             90,115             201,327             178,839
     Direct and occupancy............................            80,411             71,038             159,357             137,405
     Pre-opening expense.............................             1,157              1,268               1,907               2,435
                                                          ---------------    ----------------    ----------------    ---------------
         Total cost of company restaurant sales......           260,297            234,986             523,260             462,879
                                                          ---------------    ----------------    ----------------    ---------------
Cost of other franchise income.......................               281              1,229               1,047               2,048
General and administrative expenses..................            32,320             27,980              67,926              54,926
Amortization of intangible assets....................               204                226                 408                 454
Impairment and other restaurant closure costs........             3,000                --                4,600                 --
Loss on disposition of property and equipment........               430                564               1,007                 861
                                                          ---------------    ----------------    ----------------    ---------------
Operating earnings...................................            34,441             41,635              77,004              89,983
                                                          ---------------    ----------------    ----------------    ---------------
Other income (expense):
     Investment income (loss)........................              (285)               449                 460                 408
     Interest expense................................            (2,985)              (634)             (5,539)               (971)
     Other income....................................               101                584                 237               1,019
                                                          ---------------    ----------------    ----------------    ---------------
         Total other income (expense)................            (3,169)               399              (4,842)                456
                                                          ---------------    ----------------    ----------------    ---------------
Earnings before income taxes.........................            31,272             42,034              72,162              90,439
Income taxes.........................................            10,868             14,544              24,607              31,292
                                                          ---------------    ----------------    ----------------    ---------------
Net earnings.........................................       $    20,404        $    27,490         $    47,555         $    59,147
                                                          ===============    ================    ================    ===============

Basic net earnings per common share..................       $      0.28        $      0.34         $      0.64         $      0.74
                                                          ===============    ================    ================    ===============
Diluted net earnings per common share................       $      0.27        $      0.34         $      0.63         $      0.72
                                                          ===============    ================    ================    ===============

Basic weighted average shares outstanding............            74,112             79,897              74,113              80,295
                                                          ===============    ================    ================    ===============
Diluted weighted average shares outstanding..........            75,083             81,360              75,161              81,861
                                                          ===============    ================    ================    ===============
</TABLE>


            See notes to condensed consolidated financial statements.

                                       4.

<PAGE>



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

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

   Net earnings................................        --        --       --            --        47,555         --         47,555
   Purchases of treasury stock.................        --        --       --            --          --        (16,134)     (16,134)
   Reclassification of unearned compensation
      related to the adoption of Statement of
      Financial Accounting Standards
      No. 123(R) (Note 2)......................        --        --     (2,614)        2,614        --           --           --
   Stock options exercised and related tax
      benefit..................................        --        --      4,664          --          --          5,749       10,413
   Shares issued under employee benefit plans..        --        --      1,188          --          --          1,130        2,318
   Nonvested shares awarded under equity
     incentive plans...........................        --        --       (982)         --          --            982         --
   Stock-based compensation expense related
     to employee-based awards..................        --        --     11,412          --          --           --         11,412
                                                  --------- -------- ----------- ------------- --------- ------------- -------------
Balance, June 25, 2006.........................     108,503  $ 1,085  $248,656     $    --      $757,832   $ (539,399)  $  468,174
                                                  ========= ======== =========== ============= ========= ============= =============

</TABLE>





            See notes to condensed consolidated financial statements.

                                       5.

<PAGE>



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

                                                                                      26 Weeks Ended
                                                                              --------------------------------
                                                                                June 25,           June 26,
                                                                                  2006               2005
                                                                              -------------      -------------
<S>                                                                           <C>                <C>
 CASH FLOWS FROM OPERATING ACTIVITIES:
      Net earnings.......................................................       $  47,555          $  59,147
      Adjustments to reconcile net earnings to net cash provided by
          operating activities:
         Depreciation and amortization...................................          31,577             25,676
         Amortization of intangible assets...............................             408                454
         Stock-based compensation........................................          11,412              1,067
         Other amortization..............................................             156                 63
         Deferred income tax benefit.....................................          (1,046)            (2,294)
         Impairment and other restaurant closure costs...................           4,600               --
         Loss on disposition of property and equipment...................           1,007                861
         Income tax benefit from stock-based compensation................           1,403              3,794
      Changes in assets and liabilities, exclusive of effect of
         acquisitions:
         Receivables.....................................................             148                834
         Receivables related to captive insurance subsidiary.............           1,209             (1,342)
         Inventories.....................................................           7,906              9,014
         Income taxes....................................................           3,708             10,552
         Prepaid and other current assets................................          (7,262)              (217)
         Accounts payable................................................         (18,985)             4,626
         Accrued expenses and other current liabilities..................         (17,509)            (6,902)
         Loss reserve and unearned premiums related to
           captive insurance subsidiary..................................          (3,132)             1,875
         Other non-current liabilities...................................           4,138              1,759
         Other...........................................................          (1,461)            (1,177)
                                                                              -------------      -------------
         NET CASH PROVIDED BY OPERATING ACTIVITIES.......................          65,832            107,790
                                                                              -------------      -------------
 CASH FLOWS FROM INVESTING ACTIVITIES:
      Purchases of property and equipment................................         (59,976)           (59,922)
      Change in restricted assets related to captive
         insurance subsidiary............................................           2,062             (1,417)
      Acquisition of restaurants.........................................          (8,040)           (46,777)
      Proceeds from sale of property and equipment.......................             242               --
                                                                              -------------      -------------
         NET CASH USED BY INVESTING ACTIVITIES...........................         (65,712)          (108,116)
                                                                              -------------      -------------
 CASH FLOWS FROM FINANCING ACTIVITIES:
      Purchases of treasury stock........................................         (16,134)           (68,238)
      Dividends paid.....................................................         (14,840)            (4,867)
      Issuance of common stock upon exercise of stock options............           7,856              9,929
      Shares issued under employee benefit plans.........................           2,318              2,323
      Excess tax benefits from stock-based compensation..................           1,154               --
      Net debt proceeds .................................................          13,382             51,198
                                                                              -------------      -------------
         NET CASH USED BY FINANCING ACTIVITIES...........................          (6,264)            (9,655)
                                                                              -------------      -------------
 NET DECREASE IN CASH AND CASH EQUIVALENTS...............................          (6,144)            (9,981)
 CASH AND CASH EQUIVALENTS, beginning of period..........................          13,040             10,642
                                                                              -------------      -------------
 CASH AND CASH EQUIVALENTS, end of period................................       $   6,896          $     661
                                                                              =============      =============

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

                                       6.

<PAGE>



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

                                                                                           26 Weeks Ended
                                                                                 ------------------------------------
                                                                                     June 25,            June 26,
                                                                                       2006                2005
                                                                                 ----------------    ----------------
<S>                                                                              <C>                 <C>
SUPPLEMENTAL DISCLOSURES OF CASH
     FLOW INFORMATION:
     Cash paid during the 26 week period for:
       Income taxes........................................................         $    19,388         $    20,316
                                                                                 ================    ================
       Interest............................................................         $     5,616         $       654
                                                                                 ================    ================
</TABLE>


SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

We issued nonvested shares (previously  referred to as restricted stock prior to
fiscal  2006) with grant date fair values of  $2,447,000  for the 26 weeks ended
June 25, 2006 and nonvested shares, net of forfeitures, of $2,601,000 for the 26
weeks ended June 26, 2005.

In 2002,  we entered  into a rabbi trust  agreement to protect the assets of the
nonqualified deferred compensation plan for certain of our associates.  The plan
investments  are  included  in other  assets and the  offsetting  obligation  is
included in other non-current liabilities in our consolidated balance sheets. We
had non-cash  increases in these  balances of $566,000 and $2,094,000 for the 26
weeks ended June 25, 2006 and June 26, 2005, respectively.

We  had  property  and  equipment  purchases  accrued  in  accounts  payable  of
approximately $11,600,000 as of June 25, 2006.



            See notes to condensed consolidated financial statements.

                                       7.

<PAGE>



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

1.     Basis of Presentation

Our condensed  consolidated financial statements included in this Form 10-Q have
been prepared  without audit in accordance with the rules and regulations of the
Securities and Exchange  Commission.  Although certain  information and footnote
disclosures  normally  included in financial  statements  prepared in accordance
with accounting  principles  generally  accepted in the United States of America
have been condensed or omitted,  we believe that the disclosures are adequate to
make the  information  presented  not  misleading.  The  accompanying  condensed
consolidated financial statements should be read in conjunction with the audited
financial  statements  and notes  thereto  included in our Annual Report on Form
10-K for the fiscal year ended December 25, 2005.

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


2.     Stock-Based Compensation

Our Board of  Directors  has  approved  the  Amended  and  Restated  1995 Equity
Incentive Plan ("1995 Plan") and the 1999 Employee  Incentive Plan ("1999 Plan")
which allow the granting of stock options,  stock appreciation  rights ("SARs"),
nonvested  shares,   performance  units  and  performance   shares  to  eligible
participants.  Grants of stock options may be either  incentive or nonqualified.
There are 19,900,000 and 2,473,875 shares authorized under the 1995 Plan and the
1999 Plan, respectively.  As of June 25, 2006, we had 3,368,993 shares available
for grant under the 1995 Plan. We will not make additional grants under the 1999
Plan.  We issue  shares out of our treasury  for stock  option  exercises,  SARs
exercises and nonvested share issuances.

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

Under APB Opinion No. 25, pro forma  expense for  stock-based  compensation  was
calculated using a graded vesting schedule over the explicit vesting period. The
following  table  presents the effect on our net earnings and earnings per share
had we adopted the fair value method of accounting for stock-based  compensation
under SFAS No. 123,  "Accounting for Stock-Based  Compensation" for the 13 weeks
and 26 weeks ended June 26, 2005 (in thousands, except for per share amounts).

                                       8.

<PAGE>



<TABLE>
<CAPTION>
                                                                      13 Weeks Ended          26 Weeks Ended
                                                                         June 26,                June 26,
                                                                           2005                    2005
                                                                   ----------------------  ----------------------
<S>                                                                <C>                     <C>
Net earnings, as reported........................................    $     27,490            $     59,147

Add: Stock-based compensation expense included
     in net earnings, net of related taxes.......................             373                     655
Less: Total stock-based employee compensation expense
     determined under fair value-based methods for all
     awards, net of related taxes (1)............................           1,735                   3,428
                                                                   ----------------------  ----------------------
Pro forma net earnings...........................................    $     26,128            $     56,374
                                                                   ======================  ======================

Basic net earnings per common share, as reported.................    $       0.34            $       0.74
                                                                   ======================  ======================
Basic net earnings per common share, as adjusted.................    $       0.33            $       0.70
                                                                   ======================  ======================

Diluted net earnings per common share, as reported...............    $       0.34            $       0.72
                                                                   ======================  ======================
Diluted net earnings per common share, as adjusted...............    $       0.32            $       0.69
                                                                   ======================  ======================

<FN>
(1) SFAS No. 123 (revised 2004) requires  compensation  expense to be recognized
    over the requisite  service period which is generally from the grant date to
    the  earlier  of a) the  explicit  vesting  date or b) the date on which the
    employee becomes retirement eligible.  If pro forma expense for the 13 weeks
    ended June 26,  2005 ("2005  quarter")  and the 26 weeks ended June 26, 2005
    ("2005   year-to-date   period")  had  been  derived  using  this  approach,
    additional stock-based  compensation would have been $356 and $1,614, net of
    tax,  respectively,  and pro forma net income  would have been  $25,772  and
    $54,760,  respectively.  Additionally,  basic and diluted pro forma earnings
    per share  would  both have been  $0.32 for the 2005  quarter  and $0.68 and
    $0.67, respectively, for the 2005 year-to-date period.
</FN>
</TABLE>

We  adopted  the  fair  value   recognition   provisions  of  SFAS  No.  123(R),
"Share-Based Payment" ("SFAS 123(R)") at the beginning of fiscal year 2006. SFAS
123(R) requires all stock-based compensation, including grants of employee stock
options, to be recognized in the statement of earnings based on fair value. With
limited  exceptions,  the amount of compensation  cost will be measured based on
the fair value on the grant date of the equity or liability  instruments issued.
Compensation  cost will be recognized over the period that an employee  provides
service for that award. We adopted this accounting  treatment using the modified
prospective  transition  method;  therefore,  results for prior periods have not
been restated.

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

                                       9.

<PAGE>

Compensation costs for the 13 weeks ended June 25, 2006 ("2006 quarter") and the
26 weeks ended June 25, 2006 ("2006  year-to-date  period") have been recognized
for all new awards  granted in fiscal  2006 and those  awards  granted  prior to
fiscal 2006 that have yet to reach the end of their service period.  As required
by  SFAS  123(R),  we  began  recognizing   expense  for  employee   stock-based
compensation  over the shorter of the vesting period or the period from the date
of the grant until the date the employee  becomes  eligible for  retirement.  We
recognize  expense for stock-based  compensation over the graded vesting period.
We recognized  stock-based  compensation in the condensed consolidated financial
statements as follows:

<TABLE>
                                                                                            2006            2005
                                                            2006            2005        Year-to-Date    Year-to-Date
                                                          Quarter          Quarter         Period          Period
                                                       --------------- --------------- --------------- ---------------
<S>                                                    <C>             <C>             <C>             <C>
Labor................................................     $   243         $    --         $   487         $   --
General and administrative expenses..................       5,004             571          10,925           1,002
Income taxes.........................................      (1,769)           (197)         (3,933)           (346)
                                                       --------------- --------------- --------------- ---------------
Stock-based compensation expense included
   in net earnings, net of related tax...............     $ 3,478         $   374         $ 7,479         $   656
                                                       =============== =============== =============== ===============
</TABLE>

As of June 25, 2006, we had unrecognized  compensation expense for stock options
and SARs of $20,200,000 to be recognized  over a weighted  average period of 2.2
years.

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

Stock Options

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

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

                                      10.

<PAGE>

Transactions for stock options relative to both plans for the 2006  year-to-date
period were as follows:
<TABLE>
<CAPTION>
                                                                     1995 Plan
                                        ---------------------------------------------------------------------
                                                                             Weighted
                                                              Weighted        Average
                                                               Average       Remaining
                                             Number of        Exercise      Contractual        Aggregate
                                              Options           Price          Life         Intrinsic Value
                                        ------------------ -------------- ---------------- ------------------

                                                                                             (in thousands)
    <S>                                 <C>                <C>             <C>             <C>
    Options outstanding at
        December 25, 2005............        7,365,933        $   21.33        6.5 years
           Granted...................          335,510        $   22.30
           Exercised.................         (496,950)       $   12.20                        $    5,857
           Expired...................             (120)       $    8.30
           Forfeited.................         (247,686)       $   25.74
                                        ------------------
    Options outstanding at
        June 25, 2006................        6,956,687        $   21.87        6.2 years       $   11,863
                                        ==================
    Options exercisable at
        June 25, 2006................        2,354,237        $   15.16        5.7 years       $   11,855
                                        ==================

</TABLE>


<TABLE>
<CAPTION>
                                                                     1999 Plan
                                        ---------------------------------------------------------------------
                                                                             Weighted
                                                              Weighted        Average
                                                               Average       Remaining
                                             Number of        Exercise      Contractual        Aggregate
                                              Options           Price          Life         Intrinsic Value
                                        ------------------ -------------- ---------------- ------------------

                                                                                             (in thousands)
    <S>                                 <C>                <C>             <C>             <C>
    Options outstanding at
        December 25, 2005............          664,656        $   13.73        6.0 years
           Granted...................             --                --
           Exercised.................         (131,324)       $   14.49                        $    1,180
           Expired...................             --                --
           Forfeited.................             (505)       $   13.22
                                        ------------------
    Options outstanding at
        June 25, 2006................          532,827        $   13.54        5.4 years       $    3,199
                                        ==================
    Options exercisable at
        June 25, 2006................          528,327        $   13.52        5.4 years       $    3,183
                                        ==================
</TABLE>

The aggregate  intrinsic value was calculated  using the difference  between the
current market price and the grant price for only those awards that have a grant
price that is less than the current market price.

                                      11.

<PAGE>

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

<TABLE>
<CAPTION>
                                                                                        2006             2005
                                                     2006             2005          Year-to-Date     Year-to-Date
                                                    Quarter          Quarter           Period           Period
                                                 --------------  ----------------  ---------------  ---------------
                                                   (Binomial)    (Black-Scholes)     (Binomial)     (Black-Scholes)
<S>                                              <C>             <C>               <C>              <C>
   Expected term in years....................           5.2              4.2               4.8             4.3
   Expected stock price volatility...........          31.6%            31.2%             31.3%           32.6%
   Expected dividend yield...................           1.0%             0.3%              0.9%            0.3%
   Risk-free interest rate...................           5.0%             3.7%              4.6%            4.0%
   Fair value of options granted.............      $    6.61       $     8.28        $     6.89       $    8.84

</TABLE>

Stock Appreciation Rights

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


<TABLE>
<CAPTION>
                                                                     1995 Plan
                                        ---------------------------------------------------------------------
                                                                             Weighted
                                                             Weighted         Average
                                                              Average        Remaining
                                            Number of        Exercise       Contractual        Aggregate
                                              SARs             Price           Life         Intrinsic Value
                                        ------------------ -------------- ---------------- ------------------

                                                                                             (in thousands)
    <S>                                 <C>                <C>            <C>              <C>
    SARs outstanding at
        December 25, 2005............             --                --
           Granted(1)................          665,350        $   21.96
           Exercised.................             --                --
           Expired...................             --                --
           Forfeited.................          (10,175)       $   23.57
                                        ------------------
    SARs outstanding at
        June 25, 2006................          655,175        $   21.94        6.7 years             --
                                        ==================
    SARs exercisable at
         June 25, 2006...............             --
                                        ==================

<FN>
(1) Upon exercise of SARs, employees will receive the number of shares of common
    stock equal to the  appreciation  in the fair market  value of the number of
    shares  based on the  difference  between the fair market value on the grant
    date and the fair market value on the date of exercise. The number of shares
    of common stock  delivered as payment of such  appreciation  will reduce the
    shares available for issuance under the 1995 Plan.
</FN>
</TABLE>

                                      12.

<PAGE>

We  derived  the  following  weighted-average  assumptions  for SARs  using  the
binomial model:
<TABLE>
<CAPTION>
                                                                2006
                                              2006          Year-to-Date
                                             Quarter           Period
                                         ----------------   --------------
<S>                                      <C>                <C>
Expected term in years                          4.2                4.2
Expected stock price volatility                31.6%              31.5%
Expected dividend yield                         1.0%               0.9%
Risk-free interest rate                         5.0%               4.8%
Fair value of SARs granted                 $    5.90          $    6.31
</TABLE>
Assumptions

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

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

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

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

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


Nonvested Shares

We grant nonvested shares under our 1995 Plan. Nonvested shares vest either one,
two or three  years  after the date of the grant.  The fair  value of  nonvested
shares  granted is equal to the market  price of the stock at the date of grant.
The weighted  average fair value of nonvested  shares  granted was $20.34 in the
2006 quarter, and $22.08 and $28.05 in the 2006 year-to-date period and the 2005
year-to-date period, respectively. There were no nonvested shares granted in the
2005 quarter.  Transactions  during the 2006 year-to-date period were as follows
(in thousands, except fair values):
<TABLE>
<CAPTION>
                                                                                                Weighted
                                                                                Number of        Average
                                                                                  Awards       Fair Value
                                                                              --------------- --------------
<S>                                                                           <C>             <C>
Nonvested share awards outstanding as of December 25, 2005.................      257,813         $  24.03
Granted....................................................................      110,820            22.08
Vested.....................................................................      (88,179)           18.57
Forfeited..................................................................       (4,506)           26.11
                                                                              --------------- --------------
Nonvested share awards outstanding as of June 25, 2006.....................      275,948         $  24.96
                                                                              =============== ==============
</TABLE>
                                      13.

<PAGE>

As of June  25,  2006,  we had  unrecognized  compensation  expense  related  to
nonvested share awards of approximately $2,500,000 which will be recognized over
a weighted average period of 1.3 years.

Employee stock purchase plan

Our Board of Directors  has  authorized  an employee  stock  purchase  plan that
allows  associates  to  purchase  shares of our common  stock at a 15%  discount
through a payroll  deduction.  We record  compensation  for this plan  using the
Black-Scholes  valuation  model in the quarter that the purchase  occurs.  As of
June 25, 2006,  239,614  shares of the  1,850,000  shares which were  authorized
under this plan were available for purchase.


3.     Commitments and Contingencies

Litigation,  claims and disputes:  We are 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 June 25, 2006, we
have outstanding lease guarantees of approximately $16,300,000.  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 $13,200,000.  These leases expire at various
times with the final lease  agreement  expiring in 2018.  We have not recorded a
liability  related to these contingent lease  liabilities as of June 25, 2006 or
December 25, 2005.

In 2004,  we  arranged  for a  third-party  financing  company  to provide up to
$250,000,000  to  qualified  franchisees  for loans to fund  development  of new
restaurants  through  October 2007,  subject to our approval.  We will provide a
limited  guarantee of 10% of certain loans advanced under this program.  We will
be released  from our guarantee if certain  operating  results are met after the
restaurant has been open for at least two years. As of June 25, 2006, there were
loans  outstanding to six franchisees for  approximately  $55,900,000 under this
program.  The fair  value of our  guarantees  under  this  financing  program is
approximately  $110,000  and  is  recorded  in  non-current  liabilities  in our
consolidated balance sheet as of June 25, 2006.

Severance  agreements:  We have severance and employment agreements with certain
officers  providing for severance payments to be made in the event the associate
resigns  or is  terminated  not  related to a change in  control,  some of which
require  payments to be made only if we enforce certain terms in the agreements.
If the  severance  payments had been due as of June 25, 2006, we would have been
required to make payments totaling  approximately  $13,200,000.  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  $7,400,000 if such
officers had been terminated as of June 25, 2006.

                                      14.

<PAGE>

4.     Net Earnings Per Share

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

<TABLE>
<CAPTION>
                                                                                            2006            2005
                                                            2006            2005        Year-to-Date    Year-to-Date
                                                          Quarter         Quarter          Period          Period
                                                       --------------- --------------- --------------- ---------------
<S>                                                    <C>             <C>             <C>             <C>
Net earnings.........................................    $  20,404       $  27,490       $  47,555       $  59,147
                                                       =============== =============== =============== ===============

Basic weighted average shares outstanding............       74,112          79,897          74,113          80,295
Dilutive effect of stock options and
   equity-based compensation.........................          971           1,463           1,048           1,566
                                                       --------------- --------------- --------------- ---------------
Diluted weighted average shares outstanding..........       75,083          81,360          75,161          81,861
                                                       =============== =============== =============== ===============

Basic net earnings per common share..................    $    0.28       $    0.34       $    0.64       $    0.74
                                                       =============== =============== =============== ===============
Diluted net earnings per common share................    $    0.27       $    0.34       $    0.63       $    0.72
                                                       =============== =============== =============== ===============
</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 4,900,000 and 600,000 of these options
and SARs  from our  diluted  weighted  average  share  computation  for the 2006
quarter and the 2005  quarter,  respectively,  and  approximately  5,000,000 and
300,000  of these  options  and SARs for the 2006  year-to-date  period and 2005
year-to-date period, respectively.

5.     Acquisitions

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

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

                                      15.

<PAGE>

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

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

<TABLE>
<CAPTION>
                                                                                         2006            2005
                                                           2006           2005       Year-to-Date    Year-to-Date
                                                          Quarter        Quarter        Period          Period
                                                       -------------- ------------- ---------------  --------------
<S>                                                    <C>            <C>           <C>              <C>
Actual company restaurant sales for acquired
    restaurants......................................    $  1,800       $ 2,800       $   3,300        $  2,800
                                                       ============== ============= ===============  ==============

Pro forma company restaurant sales for acquired
    restaurants......................................    $  1,800       $ 8,200       $   4,000        $ 16,400
                                                       ============== ============= ===============  ==============
</TABLE>
In April 2005, we completed the acquisition of eight  Applebee's  restaurants in
the  Memphis  market,  which  were  closed in 2004 by a former  franchisee,  for
approximately  $8,800,000  payable in cash. In connection with this acquisition,
we paid  approximately  $800,000 in 2004 and  $8,000,000  in 2005.  The purchase
price of $8,800,000 was allocated to the fair value of property and equipment of
approximately  $8,200,000  and  goodwill  of  approximately  $600,000.  We  have
remodeled and opened seven restaurants and the remaining  restaurant was sold to
a third party.

6.     Goodwill and Other Intangible Assets

Changes in goodwill are summarized below (in thousands):

<TABLE>
<CAPTION>
                                                                      June 25,            December 25,
                                                                        2006                  2005
                                                                ---------------------  -------------------
      <S>                                                       <C>                    <C>
      Carrying amount, beginning of the year..................      $    138,443          $   116,344
      Goodwill acquired during the period.....................               668               22,099
                                                                ---------------------  -------------------
      Goodwill amount, end of the period......................      $    139,111          $   138,443
                                                                =====================  ===================
</TABLE>
                                      16.

<PAGE>

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

<TABLE>
<CAPTION>
                                                                     June 25, 2006
                                             --------------------------------------------------------------
                                              Gross Carrying          Accumulated            Net Book
                                                  Amount             Amortization              Value
                                             ------------------    ------------------    ------------------
<S>                                          <C>                   <C>                   <C>
Amortized intangible assets:
    Franchise interest and rights.......       $        6,371        $      6,034          $        337
    Lease acquisition costs (1).........                3,867                 966                 2,901
    Noncompete agreement................                  350                 153                   197
                                             ------------------    ------------------    ------------------
Total...................................       $       10,588        $      7,153          $      3,435
                                             ==================    ==================    ==================
</TABLE>

<TABLE>
<CAPTION>
                                                                   December 25, 2005
                                             --------------------------------------------------------------
                                              Gross Carrying          Accumulated            Net Book
                                                  Amount             Amortization              Value
                                             ------------------    ------------------    ------------------
<S>                                          <C>                   <C>                   <C>
Amortized intangible assets:
    Franchise interest and rights.......       $        6,371        $      5,896          $        475
    Lease acquisition costs (1).........                4,939                 743                 4,196
    Noncompete agreement................                  350                 109                   241
                                             ------------------    ------------------    ------------------
Total...................................       $       11,660        $      6,748          $      4,912
                                             ==================    ==================    ==================
<FN>
(1) In connection with the review of long-lived assets during our preparation of
    the 2006 quarter condensed consolidated financial statements, we recorded an
    asset impairment  charge of approximately  $1,100,000 for lease  acquisition
    costs related to two restaurants  that were not performing as expected (Note
    8). This charge has been  reflected  as a  reduction  to the gross  carrying
    amount.
</FN>
</TABLE>
We expect annual amortization  expense for amortizable other assets for the next
five fiscal years to range from approximately $200,000 to $700,000.

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

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

                                      17.

<PAGE>

In connection  with our  acquisition  of 12 Applebee's  restaurants in Missouri,
Kansas and Arkansas  from a franchisee  in May 2005,  we recorded  approximately
$300,000 of reacquired franchise rights (Note 5).

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

7.     Captive Insurance Subsidiary

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

    o         Franchise  premium  receivables  of  approximately   $500,000  and
              $1,700,000   as  of  June  25,  2006  and   December   25,   2005,
              respectively, included in receivables related to captive insurance
              subsidiary.
    o         Cash equivalent and other long-term investments restricted for the
              payment of claims of approximately  $16,600,000 and $18,600,000 as
              of June 25, 2006 and December 25, 2005, respectively,  included in
              restricted assets related to captive insurance subsidiary.
    o         Loss  reserve   related  to  captive   insurance   subsidiary   of
              approximately  $17,100,000 and $20,700,000 as of June 25, 2006 and
              December  25, 2005,  respectively.  Approximately  $8,000,000  and
              $10,500,000 for June 25, 2006 and December 25, 2005, respectively,
              is included in other non-current liabilities.

8.     Impairment and Other Restaurant Closure Costs

In connection with the review of long-lived assets during our preparation of the
2006 quarter condensed consolidated  financial statements,  we recorded an asset
impairment  charge of $3,000,000 for two restaurants  that are not performing as
expected. The impairment charge consisted of approximately $1,900,000 write-down
of the carrying value of the property and equipment and approximately $1,100,000
write-off for lease  acquisition  costs. In the first quarter of fiscal 2006, we
recorded an asset impairment charge of approximately  $900,000 consisting of the
write-down  of the carrying  value of the  property  and  equipment of two other
restaurants  that are not  performing as expected and we recorded  approximately
$700,000  relating to remaining lease  obligations for two restaurants that were
closed in the first quarter of fiscal 2006.  The total expense of $3,000,000 and
$4,600,000 for the 2006 quarter and the 2006 year-to-date period,  respectively,
is included in impairment and other restaurant closure costs in the consolidated
statements of earnings.


                                      18.

<PAGE>

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  year-to-date  period were calculated by
comparing the carrying value of the restaurants'  assets to the estimated future
cash flow projections.

9.     Treasury Shares

As of June 25, 2006, we had approximately  34,133,000 shares held in treasury. A
reconciliation  of our  treasury  shares  for the 2006  year-to-date  period  is
provided below (shares in thousands):
<TABLE>
<CAPTION>
                                                                  Treasury
                                                                   Shares
                                                               ---------------
    <S>                                                        <C>
    Balance as of December 25, 2005........................         34,305
    Purchases of treasury stock............................            687
    Stock options exercised................................           (625)
    Shares issued under employee benefit plans.............           (123)
    Nonvested shares awarded under equity incentive plans..           (111)
                                                               ---------------
    Balance as of June 25, 2006............................         34,133
                                                               ===============
</TABLE>
10.     New Accounting Pronouncements

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

In July 2006, the FASB issued FASB  Interpretation  No. ("FIN") 48,  "Accounting
for Uncertainty in Income Taxes," which clarifies the accounting for uncertainty
in income taxes  recognized in the financial  statements in accordance with SFAS
No. 109,  "Accounting  for Income  Taxes." FIN 48 is effective  for fiscal years
beginning  after December 15, 2006. We are evaluating the impact the adoption of
FIN 48 will have on our consolidated financial statements.

                                      19.

<PAGE>

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

Forward-Looking Statements

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

General

We operate on a 52 or 53 week fiscal year ending on the last Sunday in December.
Our fiscal years and fiscal periods are as follows:
<TABLE>
<CAPTION>
                                                                              Number
          Fiscal Year                       Fiscal Year End                  of Weeks
--------------------------------       --------------------------        -----------------
<C>                                    <C>                               <C>
             2005                          December 25, 2005                    52
             2006                          December 31, 2006                    53
             2007                          December 30, 2007                    52
<CAPTION>
            Fiscal                                                            Number
            Period                         Fiscal Period End                 of Weeks
--------------------------------       --------------------------        -----------------
<C>                                    <C>                               <C>
         2005 Quarter                        June 26, 2005                      13
         2006 Quarter                        June 25, 2006                      13
   2005 Year-to-date period                  June 26, 2005                      26
   2006 Year-to-date period                  June 25, 2006                      26
</TABLE>

Our revenues are generated from three primary sources:

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

Beverage  sales  consist of sales of alcoholic  beverages,  while  non-alcoholic
beverages  are included in food sales.  Franchise  royalties are generally 4% of
each franchise  restaurant's monthly gross sales. Franchise fees typically range
from  $30,000 to $35,000 for each  restaurant  opened.  Other  franchise  income
includes revenue from information  technology  products and services provided to
certain  franchisees.  In 2005, other franchise  income also included  insurance
premiums for the current year and premium audit adjustments for prior years from
franchisee   participation  in  our  captive  insurance  program.  In  2006,  we
discontinued  writing any new coverage.  Franchise  premium  adjustments will be
included in other franchise income when audited.

                                      20.

<PAGE>

Certain expenses relate only to company operated restaurants. These include:

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

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

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

Overview

Applebee's  International,  Inc. and our  subsidiaries  develop,  franchise  and
operate casual dining restaurants under the name "Applebee's  Neighborhood Grill
& Bar," which is the largest  casual dining concept in the world with over 1,800
system-wide  restaurants  open as of June 25, 2006. The casual dining segment of
the restaurant  industry is highly  competitive  and there are many factors that
affect our  profitability.  Our industry is  susceptible  to changes in economic
conditions,  trends in lifestyles,  fluctuating  costs,  government  regulation,
availability  of  resources,  and  consumer  perceptions.  When  evaluating  and
assessing our financial performance, we believe there are five key factors:

o   Development  - the number of new company and  franchise  restaurants  opened
    during  the  period.  As the  largest  casual  dining  concept in the world,
    Applebee's has a unique  opportunity to leverage our brand,  system size and
    scale to optimize  our future  growth.  Our  expansion  strategy has been to
    cluster  restaurants  in  targeted  markets,   thereby  increasing  consumer
    awareness and convenience, and enabling us to take advantage of operational,
    distribution  and  advertising  efficiencies.  We currently  expect that the
    Applebee's  system will  encompass at least 3,000  restaurants in the United
    States,   as  well  as  the  potential   for  at  least  1,000   restaurants
    internationally.  In the 2006 quarter and the 2006  year-to-date  period, we
    and our franchisees opened 35 and 64 restaurants, respectively. Together, we
    have opened at least 100 restaurants  system-wide  each year for the past 13
    fiscal  years.  In 2006,  we  currently  expect  to open  approximately  125
    restaurants system-wide,  comprised of approximately 35 company and at least
    90 franchise  restaurants.  Development  costs,  which include  construction
    costs,  fixtures  and  equipment  and land costs,  continue to increase as a
    result of increased  demand for material,  labor and commercial real estate.
    We are evaluating the impact of rising  development costs, as well as slower
    sales trends, on the pipeline of future openings. We currently expect fiscal
    year 2007 company openings to be fewer than fiscal year 2006.

                                      21.

<PAGE>

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. 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  operations  and  improving  our menu with new food and beverage
    offerings.  In 2006,  we  began  implementation  of a plan to  substantially
    improve the quality and flavor profile of our food and beverage offerings as
    a result of  comprehensive  consumer  research we completed in 2005.  In the
    2006  quarter,  company  comparable  sales  decreased  2.0%  while  domestic
    franchise and domestic system-wide comparable sales decreased 1.7% and 1.8%,
    respectively.  In the 2006  year-to-date  period,  company  comparable sales
    decreased 0.4%, while domestic franchise and domestic system-wide comparable
    sales  increased  0.7% and  0.4%,  respectively.  We  believe  our sales and
    traffic  growth 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 the  category  has outpaced  demand  contributing  to weaker sales
    trends.  We believe less effective  advertising has also impacted traffic in
    fiscal 2006. As a result of these factors,  we currently expect  system-wide
    comparable sales for the remainder of the year to be in a range from flat to
    down 4.0%.

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  were 12.1% and 13.4% in the 2006  quarter  and the 2006
    year-to-date period,  respectively,  and 13.8% and 14.8% in the 2005 quarter
    and the 2005 year-to-date period,  respectively.  We currently expect fiscal
    2006 company restaurant margins, which will be dependent on comparable sales
    performance  at company  restaurants,  to be less than fiscal 2005.  Company
    restaurant margins are susceptible to fluctuations in commodity costs, labor
    costs and other operating  costs such as utilities.  We attempt to negotiate
    contracts  for the  majority of our food  products in order to mitigate  the
    impact of rising commodity costs. In 2006, we currently expect net commodity
    costs to be flat,  including  the  negative  impact of fuel  surcharges.  In
    addition,  the  improved  menu  offerings  may  increase  food  costs,  as a
    percentage of sales, when compared to other menu offerings.  We expect labor
    costs to continue to be negatively  impacted by health  insurance  costs and
    the  impact  of wage rate  increases.  In  addition,  higher  energy  costs,
    including  utilities  and the cost of materials  used in the  production  of
    packaging,  will have a negative impact on company restaurant  margins,  but
    will be partially  offset by the favorable  impact of a change in accounting
    convention for smallwares that was implemented in the 2006 quarter.

o   General and administrative  expenses - general and  administrative  expenses
    expressed  as  a  percentage  of  total  operating  revenues.   General  and
    administrative  expenses were 9.8% and 9.1% in the 2006 quarter and the 2005
    quarter,  respectively,  and 10.1% and 9.0% for the 2006 year-to-date period
    and the 2005 year-to-date  period,  respectively.  Stock-based  compensation
    included in general  and  administrative  expenses  was 1.5% and 0.2% in the
    2006 quarter and the 2005  quarter,  respectively,  and 1.6% and 0.2% in the
    2006  year-to-date  period and the 2005 year-to-date  period,  respectively.
    General and administrative  expenses, as a percentage of operating revenues,
    for fiscal  2006 are  expected  to be in the  low-to-mid  10 percent  range,
    including the impact of stock-based compensation.

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

                                      22.

<PAGE>


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  significant  accounting
policies involve a significant degree of judgment or complexity.

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

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

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

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

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

Income taxes: We record  valuation  allowances  against our deferred tax assets,
when necessary,  in accordance with 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.

                                      23.

<PAGE>

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

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

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

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

Acquisitions

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

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

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

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

                                      24.

<PAGE>

<TABLE>
<CAPTION>
                                                                                         2006            2005
                                                           2006           2005       Year-to-Date    Year-to-Date
                                                          Quarter       Quarter         Period          Period
                                                       -------------- ------------- ---------------  --------------
<S>                                                    <C>            <C>           <C>              <C>
Actual company restaurant sales for acquired
    restaurants......................................    $  1,800       $ 2,800       $   3,300        $  2,800
                                                       ============== ============= ===============  ==============

Pro forma company restaurant sales for acquired
     restaurants.....................................    $  1,800       $ 8,200       $   4,000        $ 16,400
                                                       ============== ============= ===============  ==============
</TABLE>

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

Captive Insurance Subsidiary

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

    o         Franchise  premium  receivables  of  approximately   $500,000  and
              $1,700,000   as  of  June  25,  2006  and   December   25,   2005,
              respectively, included in receivables related to captive insurance
              subsidiary.
    o         Cash equivalent and other long-term investments restricted for the
              payment of claims of approximately  $16,600,000 and $18,600,000 as
              of June 25, 2006 and December 25, 2005, respectively,  included in
              restricted assets related to captive insurance subsidiary.
    o         Loss  reserve   related  to  captive   insurance   subsidiary   of
              approximately  $17,100,000 and $20,700,000 as of June 25, 2006 and
              December  25, 2005,  respectively.  Approximately  $8,000,000  and
              $10,500,000 for June 25, 2006 and December 25, 2005, respectively,
              is included in other non-current liabilities.

                                      25.

<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>
                                                                                             2006          2005
                                                                                           Year-to-      Year-to-
                                                                2006          2005           Date          Date
                                                               Quarter       Quarter        Period        Period
                                                            -------------  ------------  ------------- -------------
<S>                                                         <C>            <C>           <C>           <C>
Operating revenues:
     Company restaurant sales..............................     89.5%          88.9%         89.5%         88.9%
     Franchise royalties and fees..........................     10.4           10.6          10.4          10.7
     Other franchise income................................      0.2            0.5           0.1           0.4
                                                            -------------  ------------  ------------- -------------
        Total operating revenues...........................    100.0%         100.0%        100.0%        100.0%
                                                            =============  ============  ============= =============
Cost of sales (as a percentage of company
     restaurant sales):
     Food and beverage.....................................     26.5%          26.6%         26.6%         26.5%
     Labor.................................................     33.9           33.0          33.3          32.9
     Direct and occupancy..................................     27.2           26.0          26.4          25.3
     Pre-opening expense...................................      0.4            0.5           0.3           0.4
                                                            -------------  ------------  ------------- -------------
        Total cost of sales................................     87.9%          86.2%         86.6%         85.2%
                                                            =============  ============  ============= =============

Cost of other franchise income (as a percentage of other
     franchise income).....................................     52.1%          86.3%        106.4%         82.3%
General and administrative expenses........................      9.8            9.1          10.1           9.0
Amortization of intangible assets..........................      0.1            0.1           0.1           0.1
Impairment and other restaurant closure costs..............      0.9             --           0.7            --
Loss on disposition of property and equipment..............      0.1            0.2           0.1           0.1
                                                            -------------  ------------  ------------- -------------
Operating earnings.........................................     10.4           13.6          11.4          14.7
                                                            -------------  ------------  ------------- -------------
Other income (expense):
     Investment income (loss)..............................     (0.1)           0.1           0.1           0.1
     Interest expense......................................     (0.9)          (0.2)         (0.8)         (0.2)
     Other income..........................................       --            0.2            --           0.2
                                                            -------------  ------------  ------------- -------------
        Total other income (expense).......................     (1.0)           0.1          (0.7)          0.1
                                                            -------------  ------------  ------------- -------------

Earnings before income taxes...............................      9.4           13.7          10.7          14.8
Income taxes...............................................      3.3            4.7           3.6           5.1
                                                            -------------  ------------  ------------- -------------
Net earnings...............................................      6.2%           9.0%          7.0%          9.7%
                                                            =============  ============  ============= =============
</TABLE>
                                      26.

<PAGE>

The  following  table  sets  forth  certain  financial   information  and  other
restaurant data relating to company and franchise restaurants, as reported to us
by franchisees:
<TABLE>
<CAPTION>
                                                                                               2006              2005
                                                                                             Year-to-          Year-to-
                                                           2006              2005              Date              Date
                                                          Quarter           Quarter           Period            Period
                                                       -------------     -------------    --------------    -------------
<S>                                                    <C>               <C>              <C>               <C>
Number of restaurants:
     Company:
         Beginning of period.......................           497               437              486               424
         Restaurant openings.......................            10                14               19                27
         Restaurants closings......................            --                --               (2)               --
         Restaurants acquired from franchisees.....            --                11                4                11
                                                       -------------     -------------    --------------    -------------
         End of period.............................           507               462              507               462
                                                       -------------     -------------    --------------    -------------
     Franchise:
         Beginning of period.......................         1,332             1,257            1,318             1,247
         Restaurant openings.......................            25                16               45                29
         Restaurants closings......................            (4)               (2)              (6)               (5)
         Restaurants acquired from franchisees.....            --               (11)              (4)              (11)
                                                       -------------     -------------    --------------    -------------
         End of period.............................         1,353             1,260            1,353             1,260
                                                       -------------     -------------    --------------    -------------
     Total:
         Beginning of period.......................         1,829             1,694            1,804             1,671
         Restaurant openings.......................            35                30               64                56
         Restaurants closings......................            (4)               (2)              (8)               (5)
                                                       -------------     -------------    --------------    -------------
         End of period.............................         1,860             1,722            1,860             1,722
                                                       =============     =============    ==============    =============

Weighted average weekly sales per restaurant:
     Company.......................................    $   45,245        $   46,800       $   46,650        $   47,483
     Domestic franchise............................    $   50,127        $   51,056       $   51,863        $   51,547
     Domestic total................................    $   48,736        $   49,894       $   50,383        $   50,452

Change in comparable restaurant sales:(1)
     Company.......................................        (2.0)%            (1.2)%           (0.4)%            (0.4)%
     Domestic franchise............................        (1.7)%             2.3 %            0.7 %             3.6 %
     Domestic total................................        (1.8)%             1.4 %            0.4 %             2.6 %

Total operating revenues (in thousands):
     Company restaurant sales......................    $  296,128        $  272,703       $  604,027        $  543,161
     Franchise royalties and fees(2)...............        34,306            32,493           70,241            65,501
     Other franchise income(3).....................           539             1,424              984             2,489
                                                       -------------     -------------    --------------    -------------
     Total.........................................    $  330,973        $  306,620       $  675,252        $  611,151
                                                       =============     =============    ==============    =============
<FN>

(1) When computing comparable restaurant sales, restaurants open for at least 18
    months are compared from period to period.
(2) Franchise royalties are generally 4% of each franchise restaurant's reported
    monthly  gross sales.  Reported  franchise  sales  (including  international
    restaurants),  in thousands,  were $859,557 and $820,483 in the 2006 quarter
    and the 2005 quarter,  respectively,  and  $1,764,201  and $1,653,480 in the
    2006  year-to-date  period and the 2005 year-to-date  period,  respectively.
    Franchise fees typically  range from $30,000 to $35,000 for each  restaurant
    opened.
(3) Other franchise income includes revenue from information technology products
    and services provided to certain franchisees.  In addition,  the 2005 period
    includes  insurance  premiums from franchisee  participation  in our captive
    insurance program.
</FN>
</TABLE>
                                      27.

<PAGE>

2006 Quarter  Compared With 2005 Quarter and 2006  Year-to-Date  Period Compared
With 2005 Year-to-Date Period

Company Restaurant Sales.  Total company restaurant sales increased  $23,425,000
(9%) from  $272,703,000  in the 2005 quarter to $296,128,000 in the 2006 quarter
and  increased  $60,866,000  (11%) from  $543,161,000  in the 2005  year-to-date
period to $604,027,000 in the 2006 year-to-date  period. The percentage increase
in total  company  restaurant  sales  was due to an  increase  in the  number of
restaurant  weeks open of  approximately  12% in the 2006 quarter and 13% in the
2006  year-to-date  period,  which was partially offset by a decline in weighted
average  weekly  sales in the 2006  quarter  and the 2006  year-to-date  period,
respectively.

Comparable restaurant sales at company restaurants decreased by 2.0% and 0.4% in
the  2006  quarter  and the 2006  year-to-date  period,  respectively.  Weighted
average weekly sales at company  restaurants  decreased 3.3% from $46,800 in the
2005 quarter to $45,245 in the 2006 quarter and  decreased  1.8% from $47,483 in
the 2005  year-to-date  period to $46,650 in the 2006 year-to-date  period.  The
decrease in average weekly sales was due to a reduction in guest traffic in 2006
as compared to 2005. These decreases were partially offset by an increase in the
average guest check resulting from menu price increases of approximately 2.5% in
2005. In both periods,  we experienced more significant  guest count declines in
New  England,  Virginia  and  Michigan  where  approximately  40% of our company
restaurants are located. 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 the category has outpaced  demand  contributing to weaker sales
trends.  We believe less  effective  advertising  has also  impacted  traffic in
fiscal 2006.  Weighted  average weekly sales declined more than comparable sales
declined due to weaker new restaurant  opening  volumes  primarily in St. Louis,
New  England,  and  Virginia  for  both  periods  and  Minnesota  for  the  2006
year-to-date period.

Franchise Royalties and Fees.  Franchise royalties and fees increased $1,813,000
(6%) from $32,493,000 in the 2005 quarter to $34,306,000 in the 2006 quarter and
increased  $4,740,000 (7%) from $65,501,000 in the 2005  year-to-date  period to
$70,241,000  in the 2006  year-to-date  period due  primarily  to the  increased
number of franchise restaurants operating during both periods as compared to the
prior year. In addition,  the increase in the 2006  year-to-date  period was due
partially to increases  in  franchisee  comparable  restaurant  sales.  Domestic
franchise  weighted  average  weekly  sales  and  comparable   restaurant  sales
decreased 1.8% and 1.7%, respectively, in the 2006 quarter and increased by 0.6%
and 0.7%, respectively, in the 2006 year-to-date period.

Other Franchise  Income.  Other franchise income  decreased  $885,000 (62%) from
$1,424,000  in the 2005  quarter to $539,000 in the 2006  quarter and  decreased
$1,505,000 (60%) from $2,489,000 in the 2005 year-to-date  period to $984,000 in
the 2006  year-to-date  period due  primarily  to the  decision  to  discontinue
writing new  coverage  in our captive  insurance  program.  In 2005,  franchisee
premiums were included in other franchise income ratably over the policy year.

Cost of Company  Restaurant  Sales.  Food and beverage costs decreased  slightly
from  26.6% in the 2005  quarter  to 26.5%  in the 2006  quarter  and  increased
slightly  from  26.5%  in the  2005  year-to-date  period  to  26.6% in the 2006
year-to-date  period.  Food and beverage  costs in both periods were  negatively
impacted by food costs  associated  with our improved  menu, a shift in menu mix
and higher  alcoholic  beverage costs, as a percentage of sales,  related to our
late-night  value strategy.  These increases were offset by menu price increases
of 2.5% and improved management of food spoilage and waste in both periods.

                                      28.

<PAGE>

Labor  costs  increased  from  33.0%  in the 2005  quarter  to 33.9% in the 2006
quarter and increased from 32.9% in the 2005 year-to-date period to 33.3% in the
2006  year-to-date  period due  primarily to higher hourly and  management  wage
rates,  payroll taxes and the impact of lower sales volumes,  as a percentage of
sales,  which were partially offset by lower workers'  compensation  expense and
incentive compensation expense.

Direct and occupancy  costs increased from 26.0% in the 2005 quarter to 27.2% in
the 2006 quarter and  increased  from 25.3% in the 2005  year-to-date  period to
26.4% in the 2006  year-to-date  period due  primarily to higher  utilities  and
unfavorable  year-over-year  comparisons  for  depreciation,  as a percentage of
sales, due to their relatively fixed nature,  which were partially offset by the
favorable  impact of a change in accounting  convention for smallwares  that was
implemented in the 2006 quarter.

Cost of  Other  Franchise  Income.  Cost of  other  franchise  income  decreased
$948,000  (77%) from  $1,229,000  in the 2005  quarter to  $281,000  in the 2006
quarter and decreased  $1,001,000 (49%) from $2,048,000 in the 2005 year-to-date
period to  $1,047,000  in the 2006  year-to-date  period due to the  decision to
discontinue  writing new coverage in our captive  insurance  program,  which was
partially  offset by  $500,000  recorded  for  estimated  insurance  losses from
franchise participants in the first quarter of 2006.

General  and  Administrative  Expenses.   General  and  administrative  expenses
increased  from  9.1%  in the  2005  quarter  to 9.8% in the  2006  quarter  and
increased  from  9.0% in the  2005  year-to-date  period  to  10.1%  in the 2006
year-to-date  period due  primarily to an increase in  stock-based  compensation
related to adoption of SFAS 123(R),  higher compensation expense due to staffing
levels  and a shift in the  timing of our  general  manager  meeting in the 2006
year-to-date   period.   Stock-based   compensation   included  in  general  and
administrative  expenses  was 1.5% and  0.2% in the  2006  quarter  and the 2005
quarter, respectively, and 1.6% and 0.2% in the 2006 year-to-date period and the
2005  year-to-date  period,  respectively.  The  increase  in both  periods  was
partially  offset by the absorption of general and  administrative  costs over a
larger  revenue base as well as decreases  in the return on  investments  of our
nonqualified   deferred   compensation   plan  and   lower   accrued   incentive
compensation.

Impairment and Other Restaurant  Closure Costs.  Impairment and other restaurant
closure  costs were  $3,000,000  in the 2006 quarter and  $4,600,000 in the 2006
year-to-date  period.  These costs  consisted of  $1,900,000  impairment  of the
carrying  value of the property and equipment and  approximately  $1,100,000 for
the write-off of lease  acquisition costs in the 2006 quarter.  In addition,  we
recorded an  impairment  of $900,000 of the  carrying  value of the property and
equipment and $700,000 of lease obligations for closed  restaurants in the first
quarter of fiscal 2006.

Investment Income (Loss). Investment income decreased from income of $449,000 in
the 2005  quarter to a loss of $285,000 in the 2006 quarter due to a decrease in
the  return on  investments  in our  nonqualified  deferred  compensation  plan.
Investment  income  increased from $408,000 in the 2005  year-to-date  period to
$460,000 in the 2006 year-to-date period.

Interest  Expense.  Interest expense increased from $634,000 in the 2005 quarter
to  $2,985,000  in the 2006 quarter and from  $971,000 in the 2005  year-to-date
period to  $5,539,000  in the 2006  year-to-date  period due primarily to higher
interest rates and increased  borrowings used for capital  expenditure  funding,
repurchases of our common stock, and acquisitions.

                                      29.
<PAGE>

Income Taxes.  The effective income tax rate, as a percentage of earnings before
income  taxes,  increased  from  34.6% in the 2005  quarter to 34.8% in the 2006
quarter and decreased from 34.6% in the 2005 year-to-date period to 34.1% in the
2006  year-to-date  period.  Both  periods  were  impacted by  favorable  hourly
employment tax credits and the resolution of state tax matters.

Liquidity and Capital Resources

Our primary  sources of liquidity are cash provided by operations and borrowings
under our credit  facility.  Our need for  capital  resources  historically  has
resulted from the construction and acquisition of restaurants, the repurchase of
our common stock, and investment in information technology systems. In the past,
we have obtained capital through our ongoing operations and debt financing. Cash
flows from our ongoing operations  primarily include cash generated from company
and franchise operations,  management of credit from trade suppliers,  decisions
to enter into restaurant  operating leases,  and cash received from the exercise
of employee stock options. In addition,  we have assumed debt or issued new debt
in  connection  with  certain  mergers and  acquisitions.  The  following  table
presents a summary of our cash  flows for the 2006  year-to-date  period and the
2005 year-to-date period (in thousands):

<TABLE>
<CAPTION>
                                                          2006               2005
                                                      Year-to-Date       Year-to-Date
                                                         Period             Period
                                                   ------------------- ------------------
<S>                                                <C>                 <C>
Net cash provided by operating activities.........   $    65,832         $   107,790

Net cash used by investing activities.............       (65,712)           (108,116)

Net cash used by financing activities.............        (6,264)             (9,655)
                                                   ------------------- ------------------
Net decrease in cash and cash equivalents.........   $    (6,144)        $    (9,981)
                                                   =================== ==================
</TABLE>
Capital  expenditures  were  $59,922,000  in the 2005  year-to-date  period  and
$59,976,000 in the 2006  year-to-date  period.  In 2006, we currently  expect to
open approximately 35 company restaurants,  and capital expenditures,  excluding
franchise   acquisitions,   are   expected  to  be  between   $135,000,000   and
$145,000,000.

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

In fiscal 2006, we expect to incur approximately $16,000,000 in costs associated
with the construction of our new corporate headquarters including $4,500,000 for
land, which we paid in January 2006. We will incur additional construction costs
in fiscal 2007, the amount of which has yet to be determined.

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

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

                                      30.

<PAGE>

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

In December  2004, we completed the  refinancing of our  $150,000,000  unsecured
revolving  credit  facility.  The  new  bank  credit  agreement  provided  for a
$150,000,000 five-year unsecured revolving credit facility, of which $40,000,000
may be used for the  issuance of letters of credit.  The  facility is subject to
various  covenants  and  restrictions  which,  among other  things,  require the
maintenance  of  stipulated   fixed  charge,   leverage  and   indebtedness   to
capitalization  ratios, as defined. There is no limit on cash dividends provided
that the  declaration  and payment of such  dividend does not cause a default of
any other covenant contained in the agreement.  The facility is subject to other
standard  terms,  conditions,  covenants and fees. In September 2005, we entered
into an amendment to our credit  facility which  increased the revolving  credit
commitment  available from  $150,000,000  to  $200,000,000.  In October 2005, we
entered  into a second  amendment to our credit  facility  which  increased  the
revolving  credit  commitment  available from  $200,000,000 to $250,000,000  and
provided for an additional  $75,000,000 of revolving credit upon satisfaction of
the conditions set forth in the credit facility. As of June 25, 2006, we were in
compliance with the covenants contained in our credit agreement.  As of June 25,
2006,  we  had  borrowings  of  $196,400,000,   standby  letters  of  credit  of
$16,400,000  outstanding  and  approximately  $37,200,000  available  under  our
revolving credit facility.

In October 2005, our Board of Directors approved a $175,000,000 authorization to
repurchase  our  common  stock,  subject to market  conditions.  During the 2006
year-to-date  period,  we  repurchased  687,200 shares of our common stock at an
average  price of $23.48 for an aggregate  cost of  $16,134,000.  As of June 25,
2006, we had $112,833,000 remaining under our repurchase authorization.

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

As of June  25,  2006,  our  liquid  assets  totaled  $7,185,000.  These  assets
consisted  of  cash  and  cash  equivalents  in the  amount  of  $6,896,000  and
short-term  investments in the amount of $289,000.  The working  capital deficit
decreased  from  $107,400,000  as of December 25, 2005 to $61,182,000 as of June
25, 2006. This decrease was due primarily to the redemption of gift cards in the
2006  quarter  sold in 2005  and  decreases  in  accounts  payable  and  accrued
dividends.

We believe that our liquid assets and cash generated from  operations,  combined
with  available   borrowings,   will  provide   sufficient   funds  for  capital
expenditures,  repurchases  of our common  stock,  the payment of dividends  and
other such  operating  activities for at least the next 12 months and thereafter
for the foreseeable future.

                                      31.

<PAGE>

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 June 25, 2006 (in thousands):

<TABLE>
<CAPTION>
                                                                          Payments due by period
                                                   ----------------------------------------------------------------------
                        Certain                                   Less than 1       1-3           3-5      More than 5
                Contractual Obligations               Total           year         years         years        years
      -------------------------------------------- -------------  ------------- ------------- ------------ -------------
      <S>                                          <C>            <C>           <C>           <C>          <C>
      Long-term Debt (excluding capital
         lease obligations) (1)..................  $ 197,756      $   4,521     $      86    $ 192,104     $   1,045
      Capital Lease Obligations..................      7,940            808         1,701        1,822         3,609
      Operating Leases (2).......................    393,789         28,351        56,850       55,598       252,990
      Purchase Obligations - Company(3)..........    233,319         62,462       137,510       33,347          --
      Purchase Obligations - Franchise(4)........    574,252        123,389       361,872       88,991          --

<FN>
(1) The amounts for long-term debt are primarily  borrowings under our revolving
    credit facility and exclude interest payments which are variable in nature.
(2) The amounts for operating  leases  include  option  periods where failure to
    exercise  such  options  would  result in an economic  penalty such that the
    renewal appears reasonably assured.
(3) The amounts for company purchase  obligations  include  commitments for food
    items,  energy,  supplies,  severance and employment  agreements,  and other
    miscellaneous commitments.
(4) The amounts for franchise purchase  obligations include commitments for food
    items and supplies made by 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  June  25,  2006,  we  have  outstanding  lease  guarantees  of
approximately $16,300,000.  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
$13,200,000. These leases expire at various times with the final lease agreement
expiring in 2018. We have not recorded a liability  related to these  contingent
lease liabilities as of June 25, 2006 or December 25, 2005.

In 2004,  we  arranged  for a  third-party  financing  company  to provide up to
$250,000,000  to  qualified  franchisees  for loans to fund  development  of new
restaurants  through  October 2007,  subject to our approval.  We will provide a
limited  guarantee of 10% of certain loans advanced under this program.  We will
be released  from our guarantee if certain  operating  results are met after the
restaurant has been open for at least two years. As of June 25, 2006, there were
loans  outstanding to six franchisees for  approximately  $55,900,000 under this
program.  The fair  value of our  guarantees  under  this  financing  program is
approximately  $110,000  and  is  recorded  in  non-current  liabilities  in our
consolidated balance sheet as of June 25, 2006.

We have severance and employment  agreements with certain officers providing for
severance  payments  to be  made  in  the  event  the  associate  resigns  or is
terminated not related to a change in control, some of which require payments to
be made only if we enforce  certain  terms in the  agreements.  If the severance
payments had been due as of June 25, 2006,  we would have been  required to make
payments totaling approximately $13,200,000.  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  $7,400,000 if such officers had
been terminated as of June 25, 2006.

                                      32.

<PAGE>

New Accounting Pronouncements

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

In July 2006, the FASB issued FASB  Interpretation  No. ("FIN") 48,  "Accounting
for Uncertainty in Income Taxes," which clarifies the accounting for uncertainty
in income taxes  recognized in the financial  statements in accordance with SFAS
No. 109,  "Accounting  for Income  Taxes." FIN 48 is effective  for fiscal years
beginning  after December 15, 2006. We are evaluating the impact the adoption of
FIN 48 will have on our consolidated financial statements.

Item 3.     Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk from fluctuations in interest rates and changes in
commodity  prices.  Our revolving  credit  facility bears interest at either the
bank's prime rate or LIBOR plus 0.75%,  at our option.  As of June 25, 2006, the
total amount of debt subject to interest  rate  fluctuations  was  $196,400,000,
which was outstanding on our revolving credit facility.  A 1% change in interest
rates would result in an increase or decrease in interest  expense of $1,964,000
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 June 25,  2006,  we have  evaluated  the  effectiveness  of the design and
operation of our disclosure  controls and procedures,  under the supervision and
with the  participation of the principal  executive  officer and Chief Financial
Officer  ("CFO").  Based  on this  evaluation,  our  management,  including  the
principal  executive officer and CFO, concluded that our disclosure controls and
procedures are effective.

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

                                      33.

<PAGE>




                           PART II. OTHER INFORMATION

Item 1.     Legal Proceedings

We  are  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 2005 Annual Report on Form 10-K.

                                      34.

<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
                                                           Total Number of Shares    Shares that May Yet Be
                                   Total      Average       Purchased as Part of       Purchased Under the
                                 Number of    Price          Publicly Announced         Plans or Programs
            Period                 Shares     Paid Per       Plans or Programs           (in thousands)
                                 Purchased      Share
------------------------------- ------------- ----------- ------------------------- --------------------------
<S>                             <C>           <C>         <C>                       <C>
March 27, 2006 through
April 23, 2006                     256,700      $23.37            256,700                   $117,798
------------------------------- ------------- ----------- ------------------------- --------------------------
April 24, 2006 through
May 21, 2006                       212,300      $23.39            212,300                   $112,833
------------------------------- ------------- ----------- ------------------------- --------------------------
May 22, 2006 through
June 25, 2006                         --           --                --                     $112,833
------------------------------- ------------- ----------- ------------------------- --------------------------
            Total                  469,000                        469,000
=============================== ============= =========== ========================= ==========================

<FN>

(1) In October 2005, our Board of Directors authorized additional repurchases of
    our common stock of up to $175,000,000, subject to market conditions.
</FN>
</TABLE>
                                      35.

<PAGE>


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


Our Annual Meeting of  Stockholders  was held on May 11, 2006. The  stockholders
voted on the following matters:

    Proposal I.    Election of six directors.
    Proposal II.   Approve  the  Applebee's  International,   Inc.  2001  Senior
                   Executive Bonus Plan, as amended.
    Proposal III.  Ratify  the  selection  of  Deloitte  &  Touche  LLP  as  our
                   independent  registered  public  accounting firm for the 2006
                   fiscal year.
    Proposal IV.   Act  on  a  shareholder  proposal  to  require  us  to  issue
                   quarterly  reports in 2006 detailing the progress made toward
                   accelerating  the  development  of an  alternative  method of
                   poultry slaughter.

The results of the voting were as follows:
<TABLE>
<CAPTION>
                                                         Negative/
                                 Affirmative             Withheld                                         Broker
        Proposal                    Votes                  Votes                 Abstentions            Non-Votes
--------------------------     ----------------     --------------------     --------------------    -----------------
<S>                            <C>                  <C>                      <C>                     <C>
I (Boswell)                      68,637,606                  327,981                     --                 --
I (Goebel)                       68,300,086                  665,501                     --                 --
I (Conant)                       66,696,411                2,269,176                     --                 --
I (Curran)                       68,350,630                  614,957                     --                 --
I (Lumpkin)                      67,187,199                1,778,388                     --                 --
I (Rebolledo)                    68,681,772                  283,815                     --                 --
II                               64,584,445                1,193,592                3,187,550               --
III                              68,783,912                  110,705                   70,970               --
IV                                2,383,094               51,937,081                5,363,347          9,282,065

</TABLE>
Proposals  I, II,  and III  received  the  required  affirmative  votes and were
adopted  by  the  stockholders.   Proposal  IV  did  not  receive  the  required
affirmative votes.


Item 6.       Exhibits


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


                                      36.

<PAGE>




                                   SIGNATURES


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

                                       APPLEBEE'S INTERNATIONAL, INC.
                                       (Registrant)



Date:    July 26, 2006                 By:  /s/    David L. Goebel
     ---------------------                --------------------------------------
                                          David L. Goebel
                                          Director, President and
                                          Chief Operating Officer
                                          (principal executive officer)

Date:    July 26, 2006                 By:  /s/    Steven K. Lumpkin
     ---------------------                --------------------------------------
                                          Steven K. Lumpkin
                                          Director, Executive Vice President,
                                          Chief Financial Officer and Treasurer
                                          (principal financial officer)

Date:    July 26, 2006                 By:  /s/    Beverly O. Elving
     ---------------------                --------------------------------------
                                          Beverly O. Elving
                                          Vice President and Controller
                                          (principal accounting officer)



                                      37.

<PAGE>




                         APPLEBEE'S INTERNATIONAL, INC.
                                  EXHIBIT INDEX


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


    10.1      2001 Senior  Executive  Bonus Plan,  as amended  (incorporated  by
              reference to the Registrant's Form 8-K filed on May 16, 2006).

    10.2      Separation Agreement, Release and Waiver dated May 17, 2006 by and
              between  the  Company  and  John  C.  Cywinski   (incorporated  by
              reference to the Registrant's Form 8-K filed on May 18, 2006).

    10.3      Amendment to the Amended and Restated 1995 Equity Incentive Plan.

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

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

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


                                      38.