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                September 30, 2007
                               -------------------------------------------------

                                       OR

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

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

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


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

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

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

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


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

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

Indicate by check mark whether the registrant is a large  accelerated  filer, an
accelerated  filer, or a  non-accelerated  filer. See definition of "accelerated
filer" and "large  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 October
26, 2007 was 75,194,176.


                                       1
<PAGE>


                         APPLEBEE'S INTERNATIONAL, INC.
                                    FORM 10-Q
                     FISCAL QUARTER ENDED SEPTEMBER 30, 2007
                                      INDEX

<TABLE>
<CAPTION>

PART I              FINANCIAL INFORMATION                                                                      Page
<S>                 <C>                                                                                         <C>
Item 1.             Condensed Consolidated Financial Statements (Unaudited):

                    Consolidated Balance Sheets as of September 30, 2007
                       and December 31, 2006................................................................      3

                    Consolidated Statements of Earnings for the 13 Weeks
                       and 39 Weeks Ended September 30, 2007 and September 24, 2006.........................      4

                    Consolidated Statement of Stockholders' Equity for the
                       39 Weeks Ended September 30, 2007....................................................      5

                    Consolidated Statements of Cash Flows for the 39 Weeks
                       Ended September 30, 2007 and September 24, 2006......................................      6

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

Item 2.             Management's Discussion and Analysis of
                       Financial Condition and Results of Operations........................................     19

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

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

Exhibit Index...............................................................................................     38
</TABLE>

                                       2


<PAGE>


                          PART I. FINANCIAL INFORMATION

Item 1.       Condensed Consolidated Financial Statements

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

<TABLE>
<CAPTION>

                                                                                      September 30,      December 31,
                                                                                          2007              2006
                                                                                     ---------------    --------------
                                                       ASSETS
<S>                                                                                  <C>                <C>
Current assets:
     Cash and cash equivalents..................................................      $   18,912         $   22,309
     Short-term investments, at market value....................................             299                293
     Receivables, less allowance of $677 in 2007 and $917 in 2006...............          39,754             48,224
     Inventories................................................................          10,912             11,524
     Prepaid income taxes.......................................................           4,736                 55
     Prepaid and other current assets...........................................          19,192             15,255
     Assets held for sale.......................................................           5,273              7,633
     Current assets related to discontinued operations..........................           4,935              1,630
                                                                                     --------------     --------------
        Total current assets....................................................         104,013            106,923
Property and equipment, net.....................................................         631,243            618,492
Goodwill........................................................................         138,950            138,950
Restricted assets related to captive insurance subsidiary.......................          10,755             13,356
Other intangible assets, net....................................................           6,028              6,408
Other assets, net...............................................................          36,881             34,351
Non-current assets related to discontinued operations...........................           2,558             19,705
                                                                                     --------------     --------------
                                                                                      $  930,428         $  938,185
                                                                                     ==============     ==============

                                        LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Current portion of long-term debt..........................................      $      310         $      265
     Accounts payable...........................................................          49,720             43,235
     Accrued expenses and other current liabilities.............................          96,348            113,641
     Loss reserve related to captive insurance subsidiary.......................           4,940              6,094
     Accrued dividends..........................................................             --              16,299
     Accrued income taxes.......................................................             --               9,015
     Current liabilities related to discontinued operations.....................           1,162                --
                                                                                     --------------     --------------
        Total current liabilities...............................................         152,480            188,549
                                                                                     --------------     --------------
Non-current liabilities:
     Long-term debt, less current portion.......................................         122,697            174,920
     Deferred income taxes......................................................          25,134             26,225
     Other non-current liabilities..............................................          70,185             61,837
     Non-current liabilities related to discontinued operations.................           6,367                --
                                                                                     --------------     --------------
        Total non-current liabilities...........................................         224,383            262,982
                                                                                     --------------     --------------
        Total liabilities.......................................................         376,863            451,531
                                                                                     --------------     --------------
Commitments and contingencies (Note 11)
Stockholders' equity:
     Preferred stock - par value $0.01 per share:
        authorized - 1,000,000 shares; no shares issued.........................             --                 --
     Common stock - par value $0.01 per share:
        authorized - 125,000,000 shares; issued - 108,503,243 shares............           1,085              1,085
     Additional paid-in capital.................................................         274,412            265,122
     Retained earnings..........................................................         822,722            774,884
                                                                                     --------------     --------------
                                                                                       1,098,219          1,041,091
     Treasury stock - 33,343,536 shares in 2007 and 34,393,331 shares
        in 2006, at cost........................................................        (544,654)          (554,437)
                                                                                     --------------     --------------
        Total stockholders' equity..............................................         553,565            486,654
                                                                                     --------------     --------------
                                                                                      $  930,428         $  938,185
                                                                                     ==============     ==============
</TABLE>

           See notes to condensed consolidated financial statements.

                                       3
<PAGE>


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

<TABLE>
<CAPTION>
                                                                     13 Weeks Ended                        39 Weeks Ended
                                                          -----------------------------------    -----------------------------------
                                                            September 30,      September 24,       September 30,      September 24,
                                                                2007               2006                2007               2006
                                                          ----------------   ----------------    ----------------    ---------------
<S>                                                       <C>                <C>                 <C>                 <C>
Operating revenues:
     Company restaurant sales...........................   $     288,861      $    280,480        $    883,128        $    870,372
     Franchise royalties and fees.......................          34,357            33,340             107,651             103,581
     Other franchise income.............................             475               371               1,209               1,355
                                                           ---------------   ----------------    ----------------    ---------------
        Total operating revenues........................         323,693           314,191             991,988             975,308
                                                           ---------------   ----------------    ----------------    ---------------
Cost of company restaurant sales:
     Food and beverage..................................          77,093            74,856             235,048             231,726
     Labor..............................................         101,951            96,353             305,202             291,963
     Direct and occupancy...............................          83,262            77,296             243,302             230,948
     Pre-opening expense................................             214             1,115               1,700               3,022
                                                           ---------------   ----------------    ----------------    ---------------
        Total cost of company restaurant sales..........         262,520           249,620             785,252             757,659
                                                           ---------------   ----------------    ----------------    ---------------
Cost of other franchise income..........................             357               694               1,100               1,741
General and administrative expenses.....................          35,566            35,601             100,546             103,527
Amortization of intangible assets.......................             128               154                 382                 562
Impairment and other restaurant closure costs...........              74             1,296               5,830               2,416
Loss on disposition of property and equipment...........             655               680               1,279               1,677
                                                           ---------------   ----------------    ----------------    ---------------
Operating earnings......................................          24,393            26,146              97,599             107,726
                                                           ---------------   ----------------    ----------------    ---------------
Other income (expense):
     Investment income..................................             746               885               2,753               1,345
     Interest expense...................................          (1,945)           (2,970)             (6,670)             (8,509)
     Other income (expense).............................             (66)              301                (158)                538
                                                           ---------------   ----------------    ----------------    ---------------
        Total other expense.............................          (1,265)           (1,784)             (4,075)             (6,626)
                                                           ---------------   ----------------    ----------------    ---------------
Earnings from continuing operations before income
     taxes..............................................          23,128            24,362              93,524             101,100
Income taxes............................................           7,322             8,849              30,452              35,085
                                                           ---------------   ----------------    ----------------    ---------------
Earnings from continuing operations.....................          15,806            15,513              63,072              66,015
Loss from discontinued operations, net of tax...........             (42)             (672)            (13,684)             (3,619)
                                                           ---------------   ----------------    ----------------    ---------------
Net earnings............................................    $     15,764      $     14,841        $     49,388        $     62,396
                                                           ===============   ================    ================    ===============

Basic net earnings per common share:
     Earnings from continuing operations................    $       0.21      $       0.21        $       0.85        $       0.89
     Loss from discontinued operations, net of tax......             --              (0.01)              (0.18)              (0.05)
                                                           ---------------   ----------------    ----------------    ---------------
Basic net earnings per common share.....................    $       0.21      $       0.20        $       0.67        $       0.84
                                                           ===============   ================    ================    ===============

Diluted net earnings per common share:
     Earnings from continuing operations................    $       0.21      $       0.21        $       0.84        $       0.88
     Loss from discontinued operations, net of tax......             --              (0.01)              (0.18)              (0.05)
                                                           ---------------   ----------------    ----------------    ---------------
Diluted net earnings per common share...................    $       0.21      $       0.20        $       0.66        $       0.83
                                                           ===============   ================    ================    ===============

Basic weighted average shares outstanding...............          74,178            73,902              74,078              74,044
                                                           ===============   ================    ================    ===============
Diluted weighted average shares outstanding.............          75,287            74,673              75,186              75,007
                                                           ===============   ================    ================    ===============
</TABLE>


            See notes to condensed consolidated financial statements.

                                       4
<PAGE>


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


<TABLE>
<CAPTION>

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

   Net earnings........................................       --        --          --        49,388           --         49,388
   Purchases of treasury stock.........................       --        --          --           --           (999)         (999)
   Stock options exercised and related tax benefit.....       --        --        2,330          --          2,626         4,956
   Shares issued under employee benefit plans..........       --        --        1,474          --          1,357         2,831
   Nonvested shares awarded under equity
     incentive plans...................................       --        --       (6,799)         --          6,799           --
   Stock-based compensation expense related
     to employee-based equity awards...................       --        --       12,285          --            --         12,285
   Cumulative impact of change in accounting for
     uncertainty in income taxes (Note 9)..............       --        --          --        (1,550)          --         (1,550)
                                                        ---------- --------- ------------ ------------ ------------- ---------------

Balance, September 30, 2007............................   108,503   $ 1,085   $ 274,412    $ 822,722    $ (544,654)   $  553,565
                                                        ========== ========= ============ ============ ============= ===============
</TABLE>




            See notes to condensed consolidated financial statements.

                                       5

<PAGE>


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

<TABLE>
<CAPTION>
                                                                                       39 Weeks Ended
                                                                              ----------------------------------
                                                                               September 30,      September 24,
                                                                                   2007               2006
                                                                              ---------------    ---------------
<S>                                                                           <C>                <C>
 CASH FLOWS FROM OPERATING ACTIVITIES:
      Net earnings.......................................................       $  49,388          $  62,396
      Adjustments to reconcile net earnings to net cash provided by
       operating activities:
         Depreciation and amortization...................................          51,225             48,092
         Amortization of intangible assets...............................             382                562
         Stock-based compensation........................................          12,285             16,584
         Other amortization..............................................             250                233
         Deferred income tax benefit.....................................          (5,815)            (8,615)
         Impairment and other restaurant closure costs...................          25,935              6,500
         Loss on disposition of property and equipment...................             686              1,692
         Income tax benefit from stock-based compensation................             456              1,233
      Changes in assets and liabilities, exclusive of effect of
       acquisition:
         Receivables.....................................................           8,470              2,789
         Inventories.....................................................             522             10,031
         Prepaid and other current assets................................            (661)               115
         Accounts payable................................................           3,478            (24,502)
         Accrued expenses and other current liabilities..................         (17,824)           (16,750)
         Loss reserve and unearned premiums related to
           captive insurance subsidiary..................................          (1,154)            (4,210)
         Income taxes....................................................         (13,946)             7,440
         Other non-current liabilities...................................           6,481              7,770
         Other...........................................................          (3,684)            (1,922)
                                                                              ---------------    ---------------
          NET CASH PROVIDED BY OPERATING ACTIVITIES......................         116,474            109,438
                                                                              ---------------    ---------------
  CASH FLOWS FROM INVESTING ACTIVITIES:
      Purchases of property and equipment................................         (65,276)           (86,635)
      Change in restricted assets related to captive insurance
       subsidiary........................................................           2,601              4,318
      Acquisition of restaurants.........................................             --              (8,053)
      Proceeds from sale of property and equipment.......................           4,949                281
                                                                              ---------------    ---------------
          NET CASH USED BY INVESTING ACTIVITIES..........................         (57,726)           (90,089)
                                                                              ---------------    ---------------
  CASH FLOWS FROM FINANCING ACTIVITIES:
      Purchases of treasury stock........................................            (999)           (27,528)
      Dividends paid.....................................................         (16,299)           (14,840)
      Issuance of common stock upon exercise of stock options............           4,001              8,814
      Shares issued under employee benefit plans.........................           2,831              3,345
      Excess tax benefits from stock-based compensation..................             499              1,683
      Net debt proceeds (payments).......................................         (52,178)             5,913
                                                                              ---------------    ---------------
         NET CASH USED BY FINANCING ACTIVITIES...........................         (62,145)           (22,613)
                                                                              ---------------    ---------------
  NET DECREASE IN CASH AND CASH EQUIVALENTS..............................          (3,397)            (3,264)
 CASH AND CASH EQUIVALENTS, beginning of period..........................          22,309             13,040
                                                                              ---------------    ---------------
  CASH AND CASH EQUIVALENTS, end of period...............................       $  18,912          $   9,776
                                                                              ===============    ===============
</TABLE>



            See notes to condensed consolidated financial statements.

                                       6
<PAGE>


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

<TABLE>
<CAPTION>
                                                                                            39 Weeks Ended
                                                                                 ------------------------------------
                                                                                  September 30,       September 24,
                                                                                      2007                2006
                                                                                 ----------------    ----------------
<S>                                                                              <C>                 <C>
SUPPLEMENTAL DISCLOSURES OF CASH
     FLOW INFORMATION:
     Cash paid during the 39 week period for:
       Income taxes........................................................         $    32,256         $    27,699
                                                                                 ================    ================
       Interest............................................................         $     7,862         $     8,938
                                                                                 ================    ================
</TABLE>


SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

We issued nonvested shares with grant date fair values of $18,314,000 for the 39
weeks ended  September  30, 2007 and nonvested  shares of $3,598,000  for the 39
weeks ended September 24, 2006.

We have  entered  into a rabbi  trust  agreement  to  protect  the assets of the
nonqualified deferred compensation plan for certain of our associates.  The plan
investments  are  included  in other  assets and the  offsetting  obligation  is
included in other non-current liabilities in our consolidated balance sheets. We
had a non-cash  increase  in this  balance of  $781,000  for the 39 weeks  ended
September 30, 2007 and a non-cash  increase of $1,522,000 for the 39 weeks ended
September 24, 2006.

We  had  property  and  equipment  purchases  accrued  in  accounts  payable  of
approximately  $13,500,000  as of  September  30, 2007 and  September  24, 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  ("SEC").  Although certain  information and
footnote  disclosures  normally  included in  financial  statements  prepared in
accordance with accounting principles generally accepted in the United States of
America have been  condensed or omitted,  we believe  that the  disclosures  are
adequate to make the  information  presented not  misleading.  The  accompanying
condensed  consolidated  financial statements should be read in conjunction with
the audited financial statements and notes thereto included in our Annual Report
on Form 10-K for the fiscal year ended December 31, 2006.

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

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

References to the 13 weeks ended  September 30, 2007 and September 24, 2006 will
be  referred  to as the "2007  quarter"  and the "2006  quarter",  respectively.
References to the 39 weeks ended  September 30, 2007 and September 24, 2006 will
be referred  to as the "2007  year-to-date  period"  and the "2006  year-to-date
period", respectively.

As  discussed  in Note 5, we have  presented  the closure of 19  restaurants  as
discontinued  operations in our condensed  consolidated financial statements and
have made certain conforming changes to prior periods.


2.   Stock-Based Compensation

In 2006,  we adopted  the fair value  recognition  provisions  of  Statement  of
Financial Accounting Standards ("SFAS") No. 123(R),  "Share-Based Payment." SFAS
123(R) requires all stock-based compensation, including grants of employee stock
options, to be recognized in the statement of earnings based on fair value. With
limited  exceptions,  the amount of  compensation  cost is measured based on the
fair value on the grant date of the equity or liability instruments issued.


                                       8
<PAGE>


Stock-based  compensation  expense was  $4,604,000  and  $5,172,000 for the 2007
quarter and the 2006 quarter,  respectively, and $12,285,000 and $16,584,000 for
the 2007 year-to-date period and the 2006 year-to-date period, respectively.  We
granted the following awards which vest on March 1, 2011:

<TABLE>
<CAPTION>
                                                                                 2007
                                                              2007           Year-to-Date
                                                             Quarter            Period
                                                         ----------------  ----------------
<S>                                                      <C>               <C>
Stock Options...........................................         --             79,000
Stock Appreciation Rights ("SARs")......................     113,000           325,000
Nonvested Shares(1).....................................     216,000           728,000
Restricted Stock Units..................................       3,000            10,000
<FN>
------------
(1) The nonvested share grants include  approximately  46,000 and 138,000 shares
issued in the 2007 quarter and in the 2007 year-to-date period, respectively, to
certain officers which are performance-based.  The valuation for these nonvested
shares is based  upon a Monte  Carlo  simulation  which  better  represents  the
characteristics   of  these   grants.   The   ultimate   number   of  shares  of
performance-based  nonvested  shares,  if any,  that will vest will be dependent
upon our total shareholder return in relation to the total shareholder return of
a select group of restaurant companies over a four-year period.
</FN>
</TABLE>

3.   Net Earnings Per Share

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

<TABLE>
<CAPTION>
                                                                                            2007              2006
                                                           2007            2006         Year-to-Date      Year-to-Date
                                                          Quarter         Quarter           Period           Period
                                                      --------------- --------------- ----------------- ----------------
<S>                                                   <C>             <C>             <C>               <C>
Earnings from continuing operations.................   $  15,806       $  15,513       $   63,072        $   66,015
Loss from discontinued operations, net of tax.......         (42)           (672)         (13,684)           (3,619)
                                                      --------------- --------------- ----------------- ----------------
Net earnings........................................   $  15,764       $  14,841       $   49,388        $   62,396
                                                      =============== =============== ================= ================

Basic weighted average shares outstanding...........      74,178          73,902           74,078            74,044
Dilutive effect of stock options, SARs and other
     equity-based compensation......................       1,109             771            1,108               963
                                                      --------------- --------------- ----------------- ----------------
Diluted weighted average shares outstanding.........      75,287          74,673           75,186            75,007
                                                      =============== =============== ================= ================

Basic net earnings per common share:
   Earnings from continuing operations..............   $    0.21       $    0.21       $     0.85        $     0.89
   Loss from discontinued operations, net of tax....         --            (0.01)           (0.18)            (0.05)
                                                      --------------- --------------- ----------------- ----------------
Basic net earnings per common share.................   $    0.21       $    0.20       $     0.67        $     0.84
                                                      =============== =============== ================= ================

Diluted net earnings per common share:
    Earnings from continuing operations.............   $    0.21       $    0.21       $     0.84        $     0.88
    Loss from discontinued operations, net of tax...         --            (0.01)           (0.18)            (0.05)
                                                      --------------- --------------- ----------------- ----------------
Diluted net earnings per common shares..............   $    0.21       $    0.20       $     0.66        $     0.83
                                                      =============== =============== ================= ================
</TABLE>

                                       9
<PAGE>

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  4,100,000  and  2,600,000  of these
options and SARs from our diluted  weighted  average share  computation  for the
2007 quarter and the 2006 quarter, respectively, and approximately 4,000,000 and
3,100,000 of these  options and SARs for the 2007  year-to-date  period and 2006
year-to-date period, respectively.

4.   Acquisition

The acquisition discussed below has been accounted for using the purchase method
of accounting and, accordingly,  our condensed consolidated financial statements
reflect the results of operations for the acquisition  subsequent to the date of
acquisition.  The assets  acquired  and  liabilities  assumed  are  recorded  at
estimates  of fair value as  determined  by  management  based upon  information
available.

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

We  finalize  the  allocation  of  purchase  price to the fair  value of  assets
acquired  and  liabilities  assumed  when we obtain  information  sufficient  to
complete  the  allocation,  but in each case,  no longer than one year after the
acquisition date.

5.   Restaurant Closures and Impairments

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

We  believe  that four of the closed  restaurants  will have  significant  sales
transfer  to  other  existing  restaurant  locations  and,  therefore,  are  not
presented as  discontinued  operations in our condensed  consolidated  financial
statements  as required  by SFAS No.  144,  "Accounting  for the  Impairment  or
Disposal of Long-Lived  Assets." The results of operations,  impairment  charges
and lease  obligations  related to these four  restaurants  have been  presented
within operating earnings in the condensed consolidated statement of earnings.

In the 2007 quarter and 2007 year-to-date  period, we have presented the results
of operations for 19 of the closed restaurants as discontinued operations in our
condensed  consolidated  financial  statements  as  required by SFAS No. 144. In
addition,  we have presented the  impairment  charge and lease  obligations  for
these restaurants in discontinued  operations.  Company restaurant sales for the
restaurants  presented in  discontinued  operations  were $6,458,000 in the 2006
quarter and $7,298,000 and $20,593,000 in the 2007 year-to-date  period and 2006
year-to-date period, respectively.

                                       10

<PAGE>


The charges in the 2007 quarter and the 2007  year-to-date  period  included the
following (in thousands):

<TABLE>
<CAPTION>
                                                                            2007 Quarter
                                                              ------------------------------------------
                                                                 Impairment and
                                                                Other Restaurant        Discontinued
                                                                  Closure Costs          Operations
                                                              --------------------  --------------------
<S>                                                           <C>                   <C>
Write-down of the carrying value of property and
    equipment and other assets...........................      $         6           $        30
Lease obligation for closed restaurants..................               68                   192
Income from operations for discontinued operations.......               --                   (39)
Loss on sale of property and equipment...................               --                   116
Income tax benefit for discontinued operations...........               --                  (257)
                                                              --------------------  --------------------
Total costs..............................................      $        74           $        42
                                                              ====================  ====================


                                                                      2007 Year-to-Date Period
                                                              ------------------------------------------
                                                                 Impairment and
                                                                Other Restaurant        Discontinued
                                                                  Closure Costs          Operations
                                                              --------------------  --------------------
Write-down of the carrying value of property and
    equipment and other assets...........................      $     3,249           $    11,945
Lease obligation for closed restaurants..................            2,579                 9,243
Other costs..............................................                2                   311
Loss from operations for discontinued operations.........               --                   575
Gain on sale of property and equipment...................               --                  (592)
Income tax benefit for discontinued operations...........               --                (7,798)
                                                              --------------------  --------------------
Total costs..............................................      $     5,830           $    13,684
                                                              ====================  ====================

</TABLE>



                                       11

<PAGE>

The current and non-current  assets and  liabilities of the 19 restaurants  that
are presented as discontinued  operations in the condensed  consolidated balance
sheet are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                        September 30,          December 31,
                                                                            2007                  2006
                                                                     -------------------   --------------------
<S>                                                                  <C>                   <C>
Current assets:
    Property and equipment, net(1)..............................      $      4,043          $        --
    Other assets, net(1)........................................               562                   --
    Prepaid income taxes........................................               330                 1,630
                                                                     -------------------   --------------------
Current assets related to discontinued operations...............      $      4,935          $      1,630
                                                                     ===================   ====================
Non-current assets:
    Deferred income taxes.......................................      $      2,558          $      1,099
    Property and equipment, net.................................               --                 17,539
    Other assets, net...........................................               --                  1,067
                                                                     -------------------   --------------------
Non-current assets related to discontinued operations...........      $      2,558          $     19,705
                                                                     ===================   ====================
Current liabilities:
   Accrued expenses and other current liabilities...............      $      1,162          $        --
                                                                     -------------------   --------------------
Current liabilities related to discontinued operations..........      $      1,162          $        --
                                                                     ===================   ====================
Non-current liabilities:
   Other non-current liabilities................................      $      6,367          $        --
                                                                     -------------------   --------------------
Non-current liabilities related to discontinued operations......      $      6,367          $        --
                                                                     ===================   ====================
<FN>
------------------
(1) In the first  quarter of fiscal 2007, we began to actively  market  property
and equipment and other assets. Consequently, we have classified these assets as
held for sale.
</FN>
</TABLE>

We had the following  activity in our  liabilities  related to all of the closed
restaurants:

<TABLE>
<CAPTION>
                                                         2007 Quarter               2007 Year-to-Date Period
                                               -------------------------------- ---------------------------------
                                                    Lease            Other           Lease            Other
                                                 Obligations         Costs        Obligations         Costs
                                               ---------------- --------------- ---------------- ----------------
<S>                                            <C>              <C>             <C>              <C>
Balance, at beginning of period.............     $   10,627       $      173      $      956       $       --
Additions...................................            240               --          11,718              173
Payments....................................           (432)              --          (2,239)              --
                                               ---------------- --------------- ---------------- ----------------
Balance, September 30, 2007.................     $   10,435       $      173      $   10,435       $      173
                                               ================ =============== ================ ================
</TABLE>


In the 2006 quarter,  we recorded  impairment and other restaurant closure costs
of $1,900,000,  which consisted of an asset  impairment  charge of approximately
$1,000,000  related to the write-down of the carrying  value of two  restaurants
whose carrying  amounts were deemed not recoverable and  approximately  $900,000
write-down of a corporate aircraft. We have presented  approximately $600,000 of
the  impairment  and other  restaurant  closure  costs  related to the 19 closed
restaurants as discontinued  operations in our condensed  consolidated financial
statements.

In the 2006 year-to-date period, we recorded impairment and other restaurant
closure costs of $6,500,000 which includes approximately $700,000 related to
lease obligations, approximately $4,700,000 related to the write-down of the

                                       12
<PAGE>

carrying value of property and equipment and $1,100,000 related to the write-off
of lease acquisition  costs. We have presented  approximately  $4,100,000 of the
impairment  and  other  restaurant  closure  costs  related  to  the  19  closed
restaurants as discontinued  operations in our condensed  consolidated financial
statements.

In assessing restaurants for impairment, we use current and historical operating
results to  estimate  future cash flows on a  restaurant  by  restaurant  basis.
Generally,   the  asset  impairment  charges  for  all  periods  presented  were
calculated by comparing  the carrying  value of the  restaurants'  assets to the
estimated  future  cash  flow  projections.   In  addition,  we  calculated  the
impairment  charges for the assets which we  classified  as held for sale in the
first quarter of 2007 based upon the expected proceeds, net of any commission.

6.   Assets Held for Sale

We classify  assets as held for sale and cease  amortizing the assets when there
is a plan  for  disposal  of  assets  and  those  assets  meet the held for sale
criteria as defined in SFAS No. 144.  During 2006,  we began to actively  market
our existing corporate  headquarters and one of our two corporate aircraft under
a plan  approved  by our  Board  of  Directors,  as well as  other  assets  with
immaterial carrying values.  Consequently,  these assets were classified as held
for sale as of December  31,  2006.  In 2007,  we began to  actively  market the
assets of four owned properties which were closed in the first fiscal quarter of
2007 as well as other miscellaneous items.

In February 2007, the corporate  aircraft was sold for approximately  $2,500,000
and we recognized an immaterial  gain. In May 2007, we signed a contract to sell
the current  corporate  headquarters  for  $9,200,000,  net of  commissions.  We
anticipate closing this transaction early in fiscal 2008.

In the second quarter of fiscal 2007, we sold assets related to two  restaurants
closed in the first  quarter  of  fiscal  2007  which  have  been  presented  as
discontinued operations. The gain of approximately $700,000 has been included in
our  consolidated  statement  of earnings  as  discontinued  operations  in both
periods.

7.   Goodwill and Other Intangible Assets

Changes in goodwill are summarized below (in thousands):

<TABLE>
<CAPTION>
                                                                          September 30,        December 31,
                                                                               2007                2006
                                                                         -----------------   -----------------
<S>                                                                      <C>                 <C>
      Carrying amount, beginning of the year...........................    $   138,950         $   138,443
      Goodwill acquired during the period..............................            --                  507
                                                                         -----------------   -----------------
      Carrying amount, end of the period...............................    $   138,950         $   138,950
                                                                         =================   =================
</TABLE>

                                       13

<PAGE>


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

<TABLE>
<CAPTION>
                                                                  September 30, 2007
                                             --------------------------------------------------------------
                                              Gross Carrying          Accumulated            Net Book
                                                  Amount             Amortization              Value
                                             ------------------    ------------------    ------------------
<S>                                          <C>                   <C>                   <C>
Amortized intangible assets:
    Franchise interest and rights.......      $        6,371        $      6,303          $         68
    Lease acquisition costs.............               3,430                 834                 2,596
    Noncompete agreement................                 350                 264                    86
                                             ------------------    ------------------    ------------------
Total...................................      $       10,151        $      7,401          $      2,750
                                             ==================    ==================    ==================

                                                                   December 31, 2006
                                             --------------------------------------------------------------
                                              Gross Carrying          Accumulated            Net Book
                                                  Amount             Amortization              Value
                                             ------------------    ------------------    ------------------
Amortized intangible assets:
    Franchise interest and rights.......      $        6,371        $      6,172          $        199
    Lease acquisition costs.............               3,430                 650                 2,780
    Noncompete agreement................                 350                 199                   151
                                             ------------------    ------------------    ------------------
Total...................................      $       10,151        $      7,021          $      3,130
                                             ==================    ==================    ==================
</TABLE>

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

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

<TABLE>
<CAPTION>
                                                                    September 30,           December 31,
                                                                        2007                    2006
                                                                ----------------------  --------------------
<S>                                                             <C>                     <C>
      Carrying amount, beginning of the year..................      $      3,278            $      3,138
      Nonamortizable intangible assets acquired
           during the period..................................               --                      140
                                                                ----------------------  --------------------
      Nonamortizable intangible assets amount,
           end of the period(1)...............................      $      3,278            $      3,278
                                                                ======================  ====================
<FN>
------------------
(1) Nonamortizable intangible assets consist of $485,000 in reacquired franchise
rights and $2,793,000 in tradenames.
</FN>
</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 4).

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

8.   Captive Insurance Subsidiary

In 2002, we formed  Neighborhood  Insurance,  Inc., a Vermont  corporation and a
wholly-owned captive insurance  subsidiary to provide Applebee's  International,
Inc. and qualified  franchisees with workers' compensation and general liability
insurance. Through 2005, Applebee's International,  Inc. and covered franchisees
made premium payments to the captive insurance company which pays administrative

                                       14
<PAGE>

fees and insurance  claims,  subject to individual  and aggregate  maximum claim
limits under the captive insurance company's  reinsurance  policies.  Franchisee
premium amounts billed by the captive  insurance  company were established based
upon  third-party  actuarial  estimates  of  settlement  costs for  incurred and
anticipated  claims and  administrative  fees. In 2006, we discontinued  writing
insurance  coverage for new or existing  participants.  Cost of other  franchise
income  includes  costs  related  to  the  resolution  of  claims  arising  from
franchisee  participation  in our captive  insurance  program.  We do not expect
franchisee  participation  in the captive  insurance  company to have a material
impact  on our  net  earnings.  Our  consolidated  balance  sheets  include  the
following balances related to the captive insurance subsidiary:

     o    Franchise premium  receivables of approximately  $200,000 and $400,000
          as of September 30, 2007 and December 31, 2006, respectively, included
          in receivables.
     o    Cash  equivalent and other  long-term  investments  restricted for the
          payment of claims of  approximately  $10,000,000 and $12,600,000 as of
          September  30, 2007 and December 31, 2006,  respectively,  included in
          restricted assets related to captive insurance subsidiary.
     o    Loss reserve related to captive insurance  subsidiary of approximately
          $8,100,000  and  $12,600,000 as of September 30, 2007 and December 31,
          2006,  respectively.   Approximately  $3,200,000  and  $6,500,000  for
          September 30, 2007 and December 31, 2006, respectively, is included in
          other non-current liabilities.

9.   Accounting for Uncertainty in Income Taxes

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

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

As of September 30, 2007, we have  approximately  $7,800,000 of unrecognized tax
benefits,  including approximately  $2,500,000 of interest and penalties,  which
are included in accrued income taxes in the consolidated  balance sheet.  During
the 2007 quarter and the 2007  year-to-date  period ended September 30, 2007, we
recognized  approximately  $300,000  and  $900,000  in  potential  interest  and
penalties  associated  with  uncertain  tax  positions.  The  entire  balance of
unrecognized tax benefits, if recognized, would affect the effective tax rate.

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

                                       15

<PAGE>

10.  Treasury Shares

As of  September  30,  2007,  we had  approximately  33,344,000  shares  held in
treasury.  A  reconciliation  of our treasury  shares for the 2007  year-to-date
period is provided below (shares in thousands):

<TABLE>
<CAPTION>
                                                                  Treasury
                                                                   Shares
                                                               ---------------
<S>                                                            <C>
    Balance as of December 31, 2006........................         34,393
    Purchases of treasury stock............................             42
    Stock options exercised................................           (251)
    Shares issued under employee benefit plans.............           (134)
    Nonvested shares awarded under equity incentive
        plans..............................................           (706)
                                                               ---------------
    Balance as of September 30, 2007.......................         33,344
                                                               ===============
</TABLE>

11.  Commitments and Contingencies

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

On July 26, 2007,  the New Jersey  Building  Laborers  Pension and Annuity Funds
filed a putative class action complaint in the Court of Chancery of the State of
Delaware for New Castle  County  against  Applebee's  International,  Inc.,  its
directors,  and IHOP  Corporation.  On September 14, 2007, the plaintiff in this
matter  filed an amended  complaint  against  the same  defendants.  The amended
complaint alleges,  among other things, that the proposed  transaction with IHOP
is unfair to Applebee's stockholders.  As relief, the amended complaint seeks to
enjoin the transaction and seeks monetary damages in an unspecified  amount. The
parties have agreed in principle to a disclosure-based settlement described in a
Memorandum  of  Understanding  which was  submitted  to the Court on October 12,
2007.  The proposed  settlement is subject to, among other things,  confirmatory
discovery by  plaintiffs,  notice to the putative  class members and approval by
the Court.

We are  currently  defending  a  collective  action  filed  under the Fair Labor
Standards Act styled  Gerald Fast v.  Applebee's  International,  Inc., in which
named  plaintiffs  claim that  tipped  workers in  company  restaurants  perform
excessive amounts of non-tipped work for which they should be compensated at the
minimum  wage.  The court has  conditionally  certified  a  nationwide  class of
servers and bartenders who have worked in company-owned  restaurants  since June
19, 2004.  Unlike a class action, a collective  action requires  potential class
members  to "opt in"  rather  than "opt  out."  Therefore,  the  number of class
members will not be known until the end of 2007, when the opt in period expires.
Conditional  certification  is granted under a lenient  standard and the company
will have an opportunity to have the class  de-certified  following the close of
discovery  at the end of 2008.  The  company  believes  it has  strong  defenses
supporting the  de-certification of the class, as well as strong defenses to the
substantive claims asserted, and intends to vigorously defend this case. An

                                       16
<PAGE>

estimate of the possible  loss,  if any, or the range of the loss cannot be made
and therefore,  the Company has not accrued a loss  contingency  related to this
matter.

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 September 30, 2007,
we have outstanding lease guarantees of approximately $13,900,000.  In addition,
we or our subsidiaries  are contingently  liable for various leases that we have
assigned in connection  with the sale of restaurants  to  franchisees  and other
parties in the potential  amount of $11,100,000.  These leases expire at various
times with the final lease agreement expiring in 2018. The sale of virtually all
of the  restaurants  involving these lease  contingencies  occurred prior to the
effective  date of FASB  Interpretation  No.  45,  "Guarantor's  Accounting  and
Disclosure  Requirements  for  Guarantees,   Including  Indirect  Guarantees  of
Indebtedness  of Others"  ("FIN 45") and,  therefore,  we were not  required  to
record a liability for these  guarantees  following the prospective  application
guidance.  The fair value of the few  remaining  lease  guarantees  entered into
after  the  date  of  adoption  are  immaterial  to our  condensed  consolidated
financial  statements,  thus we did not  record  a  liability  related  to these
contingent lease liabilities as of September 30, 2007 or December 31, 2006.

Franchisee guarantees:  In 2004, we arranged for a third-party financing company
to  provide  up to  $250,000,000  to  qualified  franchisees  for  loans to fund
development of new restaurants through October 2007, subject to our approval. We
will provide a limited  guarantee of 10% of certain  loans  advanced  under this
program. We will be released from our guarantee if certain operating results are
met after the restaurant  has been open for at least two years.  As of September
30, 2007,  there were loans  outstanding to five  franchisees for  approximately
$34,900,000,  net of any  guarantees  in  which  we were  released,  under  this
program.  The fair  value of our  guarantees  under  this  financing  program is
approximately  $100,000  and  is  recorded  in  non-current  liabilities  in our
consolidated balance sheet as of September 30, 2007. This program will expire on
October 31, 2007.

Severance  agreements:  We have severance and employment agreements with certain
officers  providing for  severance  payments to be made in the event the officer
resigns  or is  terminated  not  related to a change in  control,  some of which
require  payments to be made only if we enforce certain terms in the agreements.
If the  severance  payments had been due as of September 30, 2007, we would have
been required to make payments totaling approximately $10,400,000.  In addition,
we have severance and employment  agreements with certain officers which contain
severance  provisions related to a change in control.  The agreements define the
circumstances which will constitute a change in control.  Those provisions would
have required additional aggregate payments of approximately  $6,400,000 if such
officers had been terminated as of September 30, 2007.

12.  Corporate Headquarters Incentives

During the second quarter of fiscal 2007, we entered into a transaction with the
City of Lenexa,  Kansas ("City"),  to lease the land,  building and property and
equipment for our new corporate  headquarters ("the facility").  The transaction
is designed to provide us with property tax exemptions for the facility of up to
90% after the effect of payments in lieu of taxes paid to the City.

In  conjunction  with the lease,  the City will  purchase the facility  with the
proceeds of up to $52 million in Industrial  Revenue  Bonds  ("IRBs") due May 1,
2018  which  will  be  funded  periodically  during  the  construction   period.
Applebee's  International,  Inc. is the sole purchaser of the IRBs. The City has
assigned the lease to the bond trustee for the benefit of the bondholder. As the
sole  bondholder,  in effect,  we control the  enforcement  of the lease against
ourselves.  During the 2007 year-to-date  period,  we have funded  approximately

                                       17
<PAGE>

$4,500,000  of the IRBs and have  included this amount in property and equipment
in our consolidated  balance sheet. Due to the bargain purchase option contained
within the lease, we have classified this amount as a capital lease. As a result
of the right to offset,  the capital lease obligation and the corresponding bond
investments have been offset in the condensed consolidated balance sheet.

13.  New Accounting Pronouncements

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

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

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

14.  IHOP Proposed Merger

On July 15, 2007, we entered into a definitive  agreement under which IHOP Corp.
("IHOP") will acquire the outstanding  stock of the Company for $25.50 per share
in cash,  representing a total transaction value of approximately  $2.1 billion.
IHOP  plans  to  fund  the  majority  of  the   acquisition   price   through  a
whole-business  securitization  of the  Applebee's  business  or will use bridge
financing previously committed.  The all-cash transaction,  which is expected to
close  by  November  29,  2007,   is  subject  to  the  approval  of  Applebee's
shareholders and customary closing conditions. Applebee's shareholders will vote
on October 30, 2007,  whether to accept the proposed  merger.  This  transaction
represents the culmination of a  comprehensive  strategic  alternatives  process
announced in February 2007, which was led by the Strategy Committee of our Board
of Directors.


                                       18

<PAGE>

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

Introductory Note

On July 15, 2007, we entered into a definitive  agreement under which IHOP Corp.
("IHOP") will acquire the outstanding  stock of the Company for $25.50 per share
in cash,  representing a total transaction value of approximately  $2.1 billion.
IHOP  plans  to  fund  the  majority  of  the   acquisition   price   through  a
whole-business  securitization  of the  Applebee's  business  or will use bridge
financing previously committed.  The all-cash transaction,  which is expected to
close  by  November  29,  2007,   is  subject  to  the  approval  of  Applebee's
shareholders and customary closing conditions. Applebee's shareholders will vote
on October 30, 2007,  whether to accept the proposed  merger.  This  transaction
represents the culmination of a  comprehensive  strategic  alternatives  process
announced in February 2007, which was led by the Strategy Committee of our Board
of Directors.

Forward-Looking Statements

The  statements  contained  in the  "Management's  Discussion  and  Analysis  of
Financial  Condition and Results of  Operations"  section  regarding  restaurant
development,  comparable sales,  revenue growth,  restaurant margins,  commodity
costs,  general and administrative  expenses,  capital  expenditures,  return on
invested  capital and financial  commitments  are  forward-looking  and based on
current expectations. There are several risks and uncertainties that could cause
actual results to differ  materially from those described.  These risks include,
but are not  limited  to, our  pending  merger  with IHOP,  our  ability and the
ability of our franchisees to open and operate additional restaurants profitably
and generate positive  operating cash flows and return on invested capital,  the
impact of economic and demographic factors on consumer spending, maintaining and
growing the value of the Applebee's brand, the impact of intense  competition in
the casual  dining  segment  of the  restaurant  industry,  the impact of future
leverage on our operations, the failure to open the restaurants anticipated, the
impact of  increases in capital  expenditure  costs on future  development,  our
ability to attract and retain qualified  franchisees,  and the impact of further
penetration of restaurants in existing markets.  For a more detailed  discussion
of the  principal  factors  that could  cause  actual  results to be  materially
different, you should read our risk factors in Item 1A of our 2006 Annual Report
on Form 10-K. We disclaim any obligation to update forward-looking statements.

Additional Information and Where to Find It

In  connection  with  the  proposed  transaction,   IHOP  Corp.  and  Applebee's
International  will  be  filing  documents  with  the  Securities  and  Exchange
Commission  (the "SEC"),  and  Applebee's has filed a related  definitive  proxy
statement. Investors and security holders are urged to read the definitive proxy
statement  because  it  contains   important   information  about  the  proposed
transaction.  Investors  and  security  holders  may obtain  free  copies of the
definitive  proxy  statement and other documents filed with the SEC at the SEC's
website at www.sec.gov.  In addition,  investors and security holders may obtain
free copies of the documents filed with the SEC by IHOP Corp. by contacting IHOP
Investor  Relations at  818-240-6055.  Investors and security holders may obtain
free copies of the  documents  filed with the SEC by  Applebee's  by  contacting
Applebee's  Investor Relations at 913-967-4000.  In addition,  you may also find
information about the merger transaction at www.ihopapplebeesacquisition.com.

Applebee's and their directors and executive officers may be deemed participants
in the solicitation of proxies from the stockholders of Applebee's in connection
with the proposed  transaction.  Information  regarding the special interests of

                                       19
<PAGE>

these directors and executive  officers in the proposed  transaction is included
in the definitive  proxy  statement of Applebee's  described  above.  Additional
information regarding the directors and executive officers of Applebee's is also
included  in  Applebee's   proxy  statement  for  its  2007  Annual  Meeting  of
Stockholders,  which  was  filed  with  the  SEC  on  April  9,  2007,  and  the
supplemental proxy statement filed on May 1, 2007. These documents are available
free of charge at the SEC's website at www.sec.gov  and from Investor  Relations
at IHOP and Applebee's as described above.


General

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

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

            Fiscal                                                            Number
            Period                         Fiscal Period End                 of Weeks
--------------------------------       --------------------------        -----------------
         2006 Quarter                     September 24, 2006                    13
         2007 Quarter                     September 30, 2007                    13
   2006 Year-to-date period               September 24, 2006                    39
   2007 Year-to-date period               September 30, 2007                    39
</TABLE>

Our operating revenues are generated from three 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 are $35,000 for each restaurant opened.

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

Certain expenses relate only to company-owned restaurants. These include:

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

                                       20
<PAGE>

Cost of other franchise income includes costs related to information  technology
products and services  provided to certain  franchisees and costs related to the
resolution  of claims  arising  from  franchisee  participation  in our  captive
insurance program.

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

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

Overview

Applebee's  International,  Inc. and our  subsidiaries  develop,  franchise  and
operate casual dining restaurants under the name "Applebee's  Neighborhood Grill
& Bar(R),"  which is the largest  casual  dining  concept in the world with over
1,900  system-wide  restaurants  open as of September  30,  2007(1).  The casual
dining segment of the restaurant  industry is highly  competitive  and there are
many  factors that affect our  profitability.  Our  industry is  susceptible  to
changes  in  economic  conditions,  trends  in  lifestyles,  fluctuating  costs,
government regulation,  availability of resources and consumer perceptions. When
evaluating  and assessing our financial  performance,  we believe there are five
key factors:

     o    Development  - the number of new  company  and  franchise  restaurants
          opened during the period.  Our expansion  strategy has been to cluster
          restaurants in targeted markets, thereby increasing consumer awareness
          and  convenience,  and enabling us to take  advantage of  operational,
          distribution  and advertising  efficiencies.  We currently expect that
          the  Applebee's  system  will  ultimately  encompass  at  least  3,000
          restaurants  in the United  States,  as well as the  potential  for at
          least 1,000 restaurants internationally. We and our franchisees opened
          2 and 14 restaurants in the 2007 quarter,  respectively, and opened 12
          and 42  restaurants  in the 2007  year-to-date  period,  respectively.
          During  the 2007  quarter,  we opened a  company-owned  restaurant  in
          Shanghai, China.

     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. The impact of menu price increases
          on company  restaurant  sales was  approximately  2.7% during both the
          2007  quarter  and  2007  year-to-date  period.  Although  we may have
          changes in our average  guest  check from  period to period,  our main
          focus has been  increasing  guest traffic as we view this component to
          be more indicative of the long-term health of the Applebee's brand. We
          are  constantly  seeking to  increase  guest  traffic by  focusing  on
          improving operations and enhancing our menu with new food and beverage
          offerings  including  the  implementation  of programs such as our new
          lunch menu  initiated in February  2007. In the 2007 quarter,  company
          comparable sales decreased 0.2%, while domestic franchise and domestic
          system-wide comparable sales decreased 0.4% and 0.3%, respectively. In
          the 2007 year-to-date period, company comparable sales decreased 2.0%,
          while domestic  franchise and domestic  system-wide  comparable  sales
          decreased  1.7% and  1.8%,  respectively.  We  believe  our  sales and
          traffic  have been  negatively  impacted  by multiple  factors.  Lower
          income  households,  which  represent  a  significant  portion  of our
          guests,  have been impacted by higher energy costs and interest rates.
          The bar  and  grill  category  of the  restaurant  industry  has  been
          negatively impacted by dining at home as well as increased  trade-down


------------------
(1) Source: Nation's Restaurant News, "Special Report: Top 100," June 25, 2007.


                                       21
<PAGE>

          to quick-service restaurants.  In addition, the supply growth of units
          opened in the category  over the last three years has outpaced  demand
          contributing to weaker sales trends.

     o    Company  restaurant  margins - company restaurant sales, less food and
          beverage, labor, direct and occupancy restaurant costs and pre-opening
          expenses,  expressed  as a  percentage  of company  restaurant  sales.
          Company   restaurant   margins  are  susceptible  to  fluctuations  in
          commodity  costs,  labor  costs  and  other  operating  costs  such as
          utilities.  Company restaurant margins were 9.1% and 11.0% in the 2007
          quarter and the 2006 quarter, respectively, and 11.1% and 12.9% in the
          2007   year-to-date   period   and  the  2006   year-to-date   period,
          respectively.

     o    General  and  administrative  expenses  - general  and  administrative
          expenses  expressed  as a  percentage  of  total  operating  revenues.
          General and  administrative  expenses were 11.0% and 11.3% in the 2007
          quarter and the 2006 quarter, respectively, and 10.1% and 10.6% in the
          2007   year-to-date   period   and  the  2006   year-to-date   period,
          respectively.   Stock-based   compensation  included  in  general  and
          administrative  expenses was 1.4% and 1.6% in the 2007 quarter and the
          2006 quarter, respectively, and 1.2% and 1.6% in the 2007 year-to-date
          period and the 2006 year-to-date period, respectively. We had expenses
          related to the  exploration  of strategic  alternatives  for enhancing
          shareholder value included in general and  administrative  expenses of
          approximately  1.3%  and  0.7%  in  the  2007  quarter  and  the  2007
          year-to-date period, respectively.

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

Application of Critical Accounting Policies

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

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

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

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

                                       22
<PAGE>

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

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

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

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

We are  periodically  audited by foreign and domestic tax  authorities  for both
income and sales and use taxes. In 2006, we recorded accruals when we determined
it was probable that we had an exposure in a matter relating to an audit.

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

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

We use estimates in the determination of the appropriate liabilities for general
liability,  workers' compensation and health insurance.  The estimated liability
is  established  based upon  historical  claims data and  third-party  actuarial

                                       23
<PAGE>

estimates of  settlement  costs for incurred  claims.  Unanticipated  changes in
these factors may require us to revise our estimates.

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

Acquisition

The acquisition discussed below has been accounted for using the purchase method
of accounting and, accordingly,  our condensed consolidated financial statements
reflect the results of operations for the acquisition  subsequent to the date of
acquisition.  The assets  acquired  and  liabilities  assumed  are  recorded  at
estimates  of fair value as  determined  by  management  based upon  information
available.

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

We  finalize  the  allocation  of  purchase  price to the fair  value of  assets
acquired  and  liabilities  assumed  when we obtain  information  sufficient  to
complete  the  allocation,  but in each case,  no longer than one year after the
acquisition date.

Captive Insurance Subsidiary

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

     o    Franchise premium  receivables of approximately  $200,000 and $400,000
          as of September 30, 2007 and December 31, 2006, respectively, included
          in receivables.
     o    Cash  equivalent and other  long-term  investments  restricted for the
          payment of claims of  approximately  $10,000,000 and $12,600,000 as of
          September  30, 2007 and December 31, 2006,  respectively,  included in
          restricted assets related to captive insurance subsidiary.
     o    Loss reserve related to captive insurance  subsidiary of approximately
          $8,100,000  and  $12,600,000 as of September 30, 2007 and December 31,

                                       24
<PAGE>

          2006,  respectively.   Approximately  $3,200,000  and  $6,500,000  for
          September 30, 2007 and December 31, 2006, respectively, is included in
          other non-current liabilities.

Results of Operations

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

<TABLE>
<CAPTION>
                                                                                                  2007          2006
                                                                                                Year-to-      Year-to-
                                                                     2007           2006          Date          Date
                                                                    Quarter        Quarter       Period        Period
                                                                 -------------  ------------  ------------- -------------
<S>                                                              <C>            <C>           <C>           <C>
Operating revenues:
     Company restaurant sales...................................     89.2%          89.3%         89.0%         89.2%
     Franchise royalties and fees...............................     10.6           10.6          10.9          10.6
     Other franchise income.....................................      0.1            0.1           0.1           0.1
                                                                 -------------  ------------  ------------- -------------
        Total operating revenues................................    100.0%         100.0%        100.0%        100.0%
                                                                 =============  ============  ============= =============
Cost of sales (as a percentage of company restaurant sales):
     Food and beverage..........................................     26.7%          26.7%         26.6%         26.6%
     Labor......................................................     35.3           34.4          34.6          33.5
     Direct and occupancy.......................................     28.8           27.6          27.6          26.5
     Pre-opening expense........................................      0.1            0.4           0.2           0.3
                                                                 -------------  ------------  ------------- -------------
        Total cost of sales.....................................     90.9%          89.0%         88.9%         87.1%
                                                                 =============  ============  ============= =============
Cost of other franchise income (as a percentage of other
     franchise income)..........................................     75.2%         187.1%         91.0%        128.5%
General and administrative expenses.............................     11.0           11.3          10.1          10.6
Amortization of intangible assets...............................       --             --            --           0.1
Impairment and other restaurant closure costs...................       --            0.4           0.6           0.2
Loss on disposition of property and equipment...................      0.2            0.2           0.1           0.2
                                                                 -------------  ------------  ------------- -------------
Operating earnings..............................................      7.5            8.3           9.8          11.0
                                                                 -------------  ------------  ------------- -------------
Other income (expense):
     Investment income..........................................      0.2            0.3           0.3           0.1
     Interest expense...........................................     (0.6)          (0.9)         (0.7)         (0.9)
     Other income...............................................       --            0.1            --           0.1
                                                                 -------------  ------------  ------------- -------------
        Total other expense.....................................     (0.4)          (0.6)         (0.4)         (0.7)
                                                                 -------------  ------------  ------------- -------------
Earnings from continuing operations before income taxes.........      7.1            7.8           9.4          10.4
Income taxes....................................................      2.3            2.8           3.1           3.6
                                                                 -------------  ------------  ------------- -------------
Earnings from continuing operations.............................      4.9            4.9           6.4           6.8
Loss from discontinued operations, net of tax...................       --           (0.2)         (1.4)         (0.4)
                                                                 -------------  ------------  ------------- -------------
Net earnings....................................................      4.9%           4.7%          5.0%          6.4%
                                                                 =============  ============  ============= =============
</TABLE>


                                       25

<PAGE>


The  following  table  sets  forth  certain  financial   information  and  other
restaurant data relating to company and franchise restaurants, as reported to us
by franchisees:

<TABLE>
<CAPTION>
                                                                                            2007             2006
                                                        2007              2006          Year-to-Date     Year-to-Date
                                                       Quarter           Quarter           Period           Period
                                                    --------------    -------------    --------------   --------------
<S>                                                 <C>               <C>              <C>              <C>
Number of restaurants:
     Company:
         Beginning of period.....................           508              507              521               486
         Restaurant openings.....................             2                6               12                25
         Restaurant closings.....................           --                (1)             (23)               (3)
         Restaurants acquired from franchisees...           --               --               --                  4
                                                    --------------    -------------    --------------   --------------
         End of period...........................           510              512              510               512
                                                    --------------    -------------    --------------   --------------
     Franchise:
         Beginning of period.....................         1,435            1,353            1,409             1,318
         Restaurant openings.....................            14               22               42                67
         Restaurant closings.....................            (6)              (3)              (8)               (9)
         Restaurants acquired by franchisor......           --               --               --                 (4)
                                                    --------------    -------------    --------------   --------------
         End of period...........................         1,443            1,372            1,443             1,372
                                                    --------------    -------------    --------------   --------------
     Total:
         Beginning of period.....................         1,943            1,860            1,930             1,804
         Restaurant openings.....................            16               28               54                92
         Restaurant closings.....................            (6)              (4)             (31)              (12)
                                                    --------------    -------------    --------------   --------------
         End of period...........................         1,953            1,884            1,953             1,884
                                                    ==============    =============    ==============   ==============
Weighted average weekly sales per restaurant:
         Company(1)..............................    $   43,720        $  43,331        $  44,501        $   45,527
         Domestic franchise......................    $   46,928        $  47,516        $  48,993        $   50,394
         Domestic total..........................    $   46,046        $  46,327        $  47,744        $   49,011
Change in comparable restaurant sales:(2)
         Company(3)..............................          (0.2)%           (1.7)%           (2.0)%            (0.8)%
         Domestic franchise......................          (0.4)%           (2.5)%           (1.7)%            (0.4)%
         Domestic total..........................          (0.3)%           (2.3)%           (1.8)%            (0.5)%
Total operating revenues (in thousands):
         Company restaurant sales(4).............    $  288,861        $ 280,480        $ 883,128        $  870,372
         Franchise royalties and fees(5).........        34,357           33,340          107,651           103,581
         Other franchise income(6)...............           475              371            1,209             1,355
                                                    --------------    -------------    --------------   --------------
         Total...................................    $  323,693        $ 314,191        $ 991,988        $  975,308
                                                    ==============    =============    ==============   ==============

<FN>
------------------
(1)  Includes restaurants  presented as discontinued  operations.  Excluding the
     restaurants  presented as discontinued  operations,  company average weekly
     sales were  $43,720 and $43,997 in the 2007  quarter and the 2006  quarter,
     respectively,  and $44,763 and $46,225 in the 2007 year-to-date  period and
     the 2006 year-to-date period, respectively.
(2)  When computing comparable  restaurant sales,  restaurants open for at least
     18 months are compared from period to period.
(3)  Includes restaurants  presented as discontinued  operations.  Excluding the
     restaurants  presented  as  discontinued  operations,   company  comparable
     restaurant  sales were  (0.2)% and (1.6)% in the 2007  quarter and the 2006
     quarter,  respectively,  and  (2.0)%  and  (0.7)% in the 2007  year-to-date
     period and the 2006 year-to-date period, respectively.
(4)  Excludes restaurants presented as discontinued operations.  Sales for these
     restaurants,  in thousands,  were $6,458 in the 2006 quarter and $7,298 and
     $20,593 in the 2007 year-to-date  period and the 2006 year-to-date  period,
     respectively.
(5)  Franchise  royalties  are  generally  4%  of  each  franchise  restaurant's
     reported  monthly  gross sales.  Reported  unaudited  franchise  sales,  in
     thousands,  were  $865,484  and  $830,458 in the 2007  quarter and the 2006
     quarter,   respectively,   and   $2,681,427  and  $2,594,659  in  the  2007
     year-to-date  period  and  the  2006  year-to-date  period,   respectively.
     Franchise fees typically are $35,000 for each restaurant opened.
(6)  Other  franchise  income  includes  revenue  from  information   technology
     products and services provided to certain franchisees.
</FN>
</TABLE>

                                       26
<PAGE>

2007 Quarter  Compared With 2006 Quarter and 2007  Year-to-Date  Period Compared
With 2006 Year-to-Date Period

Company Restaurant Sales.  Total company  restaurant sales increased  $8,381,000
(3%) from  $280,480,000  in the 2006 quarter to $288,861,000 in the 2007 quarter
and increased $12,756,000 (1%) from $870,372,000 in the 2006 year-to-date period
to  $883,128,000 in the 2007  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 4% in the 2007 quarter and 5% in the 2007
year-to-date  period,  excluding the 19 restaurants which have been presented as
discontinued operations.  The increase in both periods was partially offset by a
decline  in  average  weekly  sales  for  restaurants  presented  in  continuing
operations.

Comparable restaurant sales at company restaurants decreased by 0.2% and 2.0% in
the  2007  quarter  and the 2007  year-to-date  period,  respectively.  Weighted
average weekly sales at company  restaurants  increased 0.9% from $43,331 in the
2006 quarter to $43,720 in the 2007 quarter and  decreased  2.3% from $45,527 in
the 2006 year-to-date period to $44,501 in the 2007 year-to-date period. Average
weekly  sales  were  negatively   impacted  by  declines  in  guest  traffic  of
approximately 4.2% in both the 2007 quarter and the 2007 year-to-date period, as
well as the  underperformance  of  restaurants  open  less  than 18  months.  In
addition,  both periods were favorably  impacted by a higher guest check related
to our menu promotions and menu price increases of approximately 2.7%.

Franchise Royalties and Fees.  Franchise royalties and fees increased $1,017,000
(3%) from $33,340,000 in the 2006 quarter to $34,357,000 in the 2007 quarter and
increased  $4,070,000 (4%) from $103,581,000 in the 2006 year-to-date  period to
$107,651,000  in the 2007  year-to-date  period due  primarily to the  increased
number of franchise restaurants operating during both periods as compared to the
prior year.  Domestic  franchise  weighted  average  weekly sales and comparable
restaurant sales decreased 1.2% and 0.4%, respectively,  in the 2007 quarter and
decreased by 2.8% and 1.7%, respectively, in the 2007 year-to-date period.

Cost of Company Restaurant Sales. Food and beverage costs were 26.7% in both the
2006 quarter and the 2007  quarter and were 26.6% in both the 2006  year-to-date
period  and  the  2007  year-to-date   period.  Food  and  beverage  costs  were
unfavorably  impacted  in both  periods by a shift in menu mix and  higher  food
costs related to our menu  promotions  which were offset by menu price increases
of approximately 2.7% in both the 2007 quarter and the 2007 year-to-date period.
We currently expect net commodity costs to increase by approximately 1% in 2007.

Labor  costs  increased  from  34.4%  in the 2006  quarter  to 35.3% in the 2007
quarter and increased from 33.5% in the 2006 year-to-date period to 34.6% in the
2007 year-to-date period due primarily to higher restaurant  management salaries
and hourly wage rates including the impact of state minimum wage rate increases,
and higher vacation expense which was partially  offset by better  management of
hourly  staffing.  In  addition,  the 2007 quarter was  unfavorably  impacted by
higher  group  insurance  expense  and higher  restaurant  management  incentive
compensation.  We  currently  expect  labor costs to  continue to be  negatively
impacted by recently enacted state hourly minimum wage increases in 2007.

Direct and occupancy  costs increased from 27.6% in the 2006 quarter to 28.8% in
the 2007 quarter and  increased  from 26.5% in the 2006  year-to-date  period to
27.6% in the 2007  year-to-date  period due  primarily to lower sales volumes at
company restaurants which resulted in unfavorable year-over-year comparisons for

                                       27
<PAGE>

depreciation  and rent, as a percentage of sales,  due to their relatively fixed
nature as well as higher  repairs  and  maintenance,  utilities  and credit card
usage expense. In addition,  the 2007 quarter was unfavorably impacted by higher
advertising expenses, as a percentage of sales and the 2007-year-to-date  period
was favorably impacted by lower kitchen and dining supplies expense.

General  and  Administrative  Expenses.   General  and  administrative  expenses
decreased  from  11.3% in the 2006  quarter  to  11.0% in the 2007  quarter  and
decreased  from  10.6%  in the  2006  year-to-date  period  to 10.1% in the 2007
year-to-date  period  due  primarily  to lower  stock-based  compensation  which
decreased  $600,000 in the 2007 quarter and $4,000,000 in the 2007  year-to-date
period as well as the favorable impact of a $1,500,000 legal expense recorded in
the third quarter of fiscal 2006 related to the settlement of a California  wage
and hour lawsuit.  The decrease was partially  offset by expenses related to the
exploration of strategic  alternatives for enhancing  shareholder  value in both
periods,  as well as expenses in the 2007 year-to-date period related to a proxy
contest,  which  totaled  approximately  $4,000,000  in  the  2007  quarter  and
approximately $7,500,000 in the 2007 year-to-date period.

Impairment and Other Restaurant  Closure Costs.  Impairment and other restaurant
closure costs  decreased  from  $1,296,000 in the 2006 quarter to $74,000 in the
2007 quarter and increased from  $2,416,000 in the 2006  year-to-date  period to
$5,830,000  in  the  2007  year-to-date   period.   The  increase  in  the  2007
year-to-date  period  was  due to  the  decision  to  close  24  underperforming
restaurants as discussed below.

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

Investment Income. Investment income decreased from $885,000 in the 2006 quarter
to  $746,000 in the 2007  quarter  and  increased  from  $1,345,000  in the 2006
year-to-date period to $2,753,000 in the 2007 year-to-date  period. The increase
in the 2007  year-to-date  period was due primarily to an increase in the return
on investments in our deferred compensation plan investments.

Interest Expense. Interest expense decreased from $2,970,000 in the 2006 quarter
to $1,945,000 in the 2007 quarter and from  $8,509,000 in the 2006  year-to-date
period to  $6,670,000 in the 2007  year-to-date  period due to a decrease in the
amount of borrowings outstanding under our revolving credit facility.

Income Taxes.  The  effective  income tax rate, as a percentage of earnings from
continuing  operations  before  income taxes,  decreased  from 36.3% in the 2006
quarter  to 31.7% in the  2007  quarter  and  decreased  from  34.7% in the 2006
year-to-date  period to 32.6% in the 2007 year-to-date  period due to the impact
of  discontinued  operations,  the impact of higher tax  credits  related to the
construction of our new corporate headquarters and higher employment credits all
of which were over a lower taxable income base as compared to 2006.

Earnings  from  Continuing  Operations.   Earnings  from  continuing  operations
increased  $293,000 (2%) from  $15,513,000 in the 2006 quarter to $15,806,000 in
the 2007 quarter and  decreased  $2,943,000  (4%) from  $66,015,000  in the 2006
year-to-date period to $63,072,000 in the 2007 year-to-date period. The decrease
in the 2007  year-to-date  period  was due  primarily  to  impairment  and other
restaurant  closure  costs  of  approximately  $5,800,000  incurred  in the 2007
year-to-date period related to four restaurants closed which have been presented
in continuing operations.

                                       28
<PAGE>

Loss  from  Discontinued  Operations,  Net of Tax.  The loss  from  discontinued
operations  decreased  $630,000 from a loss of $672,000 in the 2006 quarter to a
loss of $42,000 in the 2007  quarter and  increased  $10,065,000  from a loss of
$3,619,000 in the 2006 year-to-date  period to a loss of $13,684,000 in the 2007
year-to-date period. The decrease in the loss in the 2007 quarter was due to the
write down of the carrying  value of property and  equipment in the 2006 quarter
which has been presented as discontinued operations. The increase in the loss in
the 2007  year-to-date  period was due primarily to a write-down of the carrying
value of property and equipment and other assets of  approximately  $11,900,000,
lease  obligations  for  closed  restaurants  and other  costs of  approximately
$9,600,000, loss from restaurant operations of approximately $600,000 and a gain
on the sale of property and equipment of approximately  $600,000  (approximately
$13,700,000  net of tax for all items)  which are related to the 19  restaurants
presented as discontinued operations.

Net Earnings.  Net earnings increased $923,000 (6%) from $14,841,000 in the 2006
quarter to $15,764,000 in the 2007 quarter and decreased  $13,008,000 (21%) from
$62,396,000  in  the  2006  year-to-date  period  to  $49,388,000  in  the  2007
year-to-date  period.  The  decrease  in the 2007  year-to-date  period  was due
primarily to discontinued operations of approximately  $13,700,000,  net of tax,
and impairment and other restaurant  closure costs of  approximately  $5,800,000
incurred related to the decision to close 24 restaurants.

Liquidity and Capital Resources

Our primary  sources of liquidity are cash provided by operations and borrowings
under our credit  facility.  Our need for  capital  resources  historically  has
resulted from the construction and acquisition of restaurants, refurbishment and
capital replacement for existing restaurants, the repurchase of our common stock
and investment in information  technology systems. We obtain capital through our
ongoing operations and debt financing.

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

<TABLE>
<CAPTION>
                                                                  2007               2006
                                                              Year-to-Date       Year-to-Date
                                                                 Period             Period
                                                           ------------------ ------------------
<S>                                                        <C>                <C>
Net cash provided by operating activities..........         $   116,474        $   109,438

Net cash used by investing activities..............             (57,726)           (90,089)

Net cash used by financing activities..............             (62,145)           (22,613)
                                                           ------------------ ------------------
Net decrease in cash and cash equivalents..........         $    (3,397)       $    (3,264)
                                                           ================== ==================
</TABLE>


Capital  expenditures  were  $65,276,000  in the 2007  year-to-date  period  and
$86,635,000 in the 2006 year-to-date period.

                                       29
<PAGE>

Excluding costs related to the  construction of our new corporate  headquarters,
capital  expenditures are expected to be between  $60,000,000 and $70,000,000 in
2007 and will primarily be for the development of new restaurants, refurbishment
and  capital  replacement  for  existing  restaurants  and  the  enhancement  of
information systems. Costs for the new corporate headquarters are expected to be
approximately  $35,000,000  in 2007.  We intend to enter  into a  sale-leaseback
transaction  with  respect  to the  new  headquarters  upon  its  completion  or
thereafter,  depending  upon  market  conditions.  We  currently  expect to open
between 13 and 15 company restaurants in 2007. We expect to continue to purchase
a portion  of our  restaurant  sites;  however  the  amount  of  actual  capital
expenditures  will be dependent  upon,  among other  things,  the  proportion of
leased versus owned  properties.  If we construct more or fewer restaurants than
we  currently  anticipate,  or  acquire  additional  restaurants,   our  capital
requirements will increase or decrease accordingly.

In January 2006, we completed the acquisition of four Applebee's  restaurants in
the Houston area for approximately $8,100,000 in cash.

In December 2006, we entered into a five-year  revolving  credit  facility.  The
terms of the  bank  credit  agreement  provide  for  $400,000,000  in  unsecured
revolving credit as well as an additional  $200,000,000 of revolving credit upon
satisfaction of the conditions set forth in the credit facility. The facility is
subject to various covenants and restrictions which, among other things, require
the  maintenance  of stipulated  fixed charge and leverage  ratios,  as defined.
There is no limit on cash  dividends or repurchases of our common stock provided
the  declaration  and payment of such  dividend or  repurchase of stock does not
cause a default of any other covenant  contained in the agreement.  The facility
is  subject to other  standard  terms,  conditions,  covenants  and fees.  As of
September 30, 2007, we were in  compliance  with the covenants  contained in our
credit agreement.  We had borrowings of $118,000,000,  standby letters of credit
of  approximately   $20,300,000   outstanding  and  approximately   $261,700,000
available under our revolving credit facility as of September 30, 2007.

In November 2006, with  approximately  $100,000,000 of a previous  authorization
remaining,  our Board of  Directors  authorized  additional  repurchases  of our
common stock of up to $150,000,000, subject to market conditions, for a total of
approximately   $250,000,000   in  authorized   repurchases.   During  the  2007
year-to-date  period,  we  repurchased  42,000  shares of our common stock at an
average price of $23.93 for an aggregate cost of approximately $1,000,000. As of
September  30,  2007,  we had  approximately  $239,400,000  remaining  under our
repurchase authorizations.

In December  2006, the Board of Directors  declared an annual  dividend of $0.22
per share  payable to  shareholders  of record on  December  22,  2006.  We paid
approximately  $16,300,000  in January  2007  related to this  dividend.  We are
precluded  from stock  repurchases  and the payment of any  dividends  under the
terms of the agreement with IHOP.

As of September 30, 2007,  our liquid assets totaled  $19,211,000.  These assets
consisted  of cash  and  cash  equivalents  in the  amount  of  $18,912,000  and
short-term investments in the amount of $299,000.

Historically, we operate with working capital deficits as we carry low levels of
accounts  receivable  and most of our  revenues  are  received in cash or credit
cards at the time of sale.  We have  used  this cash to  purchase  property  and
equipment, repurchase our common stock and pay down long-term debt, all of which
are  non-current  in  nature.   The  working  capital  deficit   decreased  from
$81,626,000  as of December 31, 2006 to  $48,467,000  as of September  30, 2007.
This decrease  resulted  primarily  from a combination of factors which included
decreases in receivables and accrued dividends, an increase in accounts payable,

                                       30
<PAGE>

payments on debt,  the  reclassification  of certain  property and  equipment to
assets  held for sale,  and higher  redemption  of gift cards as compared to the
sales of gift cards.

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

The following table shows our debt amortization  schedule,  future capital lease
commitments (including principal and interest payments),  future operating lease
commitments  and  future  purchase  obligations  as of  September  30,  2007 (in
thousands):

<TABLE>
<CAPTION>
                                                                           Payments due by period
                                                   ----------------------------------------------------------------------
                        Certain                                    Less than 1       1-3          3-5       More than 5
              Contractual Obligations(1)               Total           year         years        years         years
      -------------------------------------------- -------------  ------------- ------------- ------------ -------------
<S>                                                <C>            <C>           <C>           <C>          <C>
      Long-term Debt (excluding capital
         lease obligations) (2)..................    $  119,225     $       42    $       97    $ 118,116    $      970
      Capital Lease Obligations..................         6,924            843         1,776        1,785         2,520
      Operating Leases (3).......................       403,243         30,571        60,007       58,948       253,717
      Purchase Obligations - Company(4)..........       116,982         92,123        24,859          --            --
      Purchase Obligations - Franchise(5)........       270,851        200,513        70,338          --            --
<FN>
------------------
(1)  This amount excludes approximately  $7,800,000 of unrecognized tax benefits
     due to the uncertainty related to the timing of any payments.
(2)  The amounts for long-term debt are primarily borrowings under our revolving
     credit facility and exclude interest payments which are variable in nature.
(3)  The amounts for operating  leases  include  option periods where failure to
     exercise  such options  would  result in an economic  penalty such that the
     renewal appears reasonably assured.
(4)  The amounts for company purchase  obligations  include commitments for food
     items, energy, supplies, and other miscellaneous commitments.
(5)  The amounts for franchise purchase obligations include commitments for food
     items and supplies made by us for our franchisees. We contract with certain
     suppliers to ensure competitive pricing. These amounts will only be payable
     by  us  if  our  franchisees  do  not  meet  certain  minimum   contractual
     requirements.
</FN>
</TABLE>

Other Contractual Obligations

In June 2007, we entered into a capital lease with the City of Lenexa, Kansas in
association  with  the  development  of our new  corporate  headquarters.  As of
September 30, 2007,  our lease  obligation  is  $4,500,000.  In accordance  with
Financial  Accounting  Standards  Board  ("FASB")   Interpretation   Number  39,
"Offsetting  of Amounts  Related to Certain  Contracts"  ("FIN  39"),  our lease
obligation  has been offset  against  $4,500,000 of related  industrial  revenue
bonds issued by the City of Lenexa, Kansas and purchased by us.

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 September 30, 2007,  we have  outstanding  lease  guarantees of
approximately $13,900,000.  In addition, we or our subsidiaries are contingently
liable for various  leases that we have assigned in connection  with the sale of
restaurants  to  franchisees  and  other  parties  in the  potential  amount  of
$11,100,000. These leases expire at various times with the final lease agreement
expiring in 2018. The sale of virtually all of the  restaurants  involving these
lease contingencies  occurred prior to the effective date of FASB Interpretation
No. 45,  "Guarantor's  Accounting and Disclosure  Requirements  for  Guarantees,
Including  Indirect  Guarantees  of  Indebtedness  of  Others"  ("FIN  45") and,

                                       31
<PAGE>

therefore,  we were not  required  to record a  liability  for these  guarantees
following  the  prospective  application  guidance.  The  fair  value of the few
remaining  lease  guarantees  entered  into  after  the  date  of  adoption  are
immaterial to our consolidated  financial  statements,  thus we did not record a
liability related to these contingent lease liabilities as of September 30, 2007
or December 31, 2006.

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 September 30, 2007, there
were loans outstanding to five franchisees for approximately $34,900,000, net of
any guarantees in which we were released,  under this program. The fair value of
our guarantees  under this financing  program is  approximately  $100,000 and is
recorded in  non-current  liabilities  in our  consolidated  balance sheet as of
September 30, 2007.  This program will expire on October 31, 2007.

We have severance and employment  agreements with certain officers providing for
severance  payments to be made in the event the officer resigns or is terminated
not related to a change in control,  some of which  require  payments to be made
only if we enforce  certain terms in the agreements.  If the severance  payments
had been due as of  September  30,  2007,  we would have been  required  to make
payments totaling approximately $10,400,000.  In addition, we have severance and
employment  agreements with certain officers which contain severance  provisions
related to a change in control.  The agreements define the  circumstances  which
will  constitute  a change in  control.  Those  provisions  would have  required
additional  aggregate payments of approximately  $6,400,000 if such officers had
been terminated as of September 30, 2007.

New Accounting Pronouncements

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

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

In February  2007,  the FASB issued  SFAS No.  159,  "The Fair Value  Option for
Financial Assets and Liabilities."  This statement permits entities to choose to
measure many financial instruments and certain other items at fair value. If the
fair value option is elected,  unrealized gains and losses will be recognized in
earnings at each subsequent reporting date. SFAS No. 159 is effective for fiscal

                                       32
<PAGE>

years beginning after November 15, 2007. We are currently  evaluating the impact
of this adoption 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 0.45%, at our option.  As of September 30, 2007,
the total amount of debt subject to interest rate fluctuations was $118,000,000,
which was outstanding on our revolving credit facility.  A 1% change in interest
rates  would  result  in  an  increase  or  decrease  in  interest   expense  of
approximately  $1,200,000 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 September 30, 2007, we have evaluated the  effectiveness of the design and
operation of our disclosure  controls and procedures,  under the supervision and
with  the  participation  of the  Chief  Executive  Officer  ("CEO")  and  Chief
Financial Officer ("CFO"). Based on this evaluation,  our management,  including
the CEO and CFO,  concluded  that our  disclosure  controls and  procedures  are
effective.

During the 2007 quarter, there have been no changes in our internal control over
financial  reporting  that  occurred  that  have  materially  affected,  or  are
reasonably  likely to materially  affect,  our internal  control over  financial
reporting.

                                       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.

On July 26, 2007,  the New Jersey  Building  Laborers  Pension and Annuity Funds
filed a putative class action complaint in the Court of Chancery of the State of
Delaware for New Castle  County  against  Applebee's  International,  Inc.,  its
directors,  and IHOP  Corporation.  On September 14, 2007, the plaintiff in this
matter  filed an amended  complaint  against  the same  defendants.  The amended
complaint alleges,  among other things, that the proposed  transaction with IHOP
is unfair to Applebee's stockholders.  As relief, the amended complaint seeks to
enjoin the transaction and seeks monetary damages in an unspecified  amount. The
parties have agreed in principle to a disclosure-based settlement described in a
Memorandum  of  Understanding  which was  submitted  to the Court on October 12,
2007.  The proposed  settlement is subject to, among other things,  confirmatory
discovery by  plaintiffs,  notice to the putative  class members and approval by
the Court.

We are  currently  defending  a  collective  action  filed  under the Fair Labor
Standards Act styled  Gerald Fast v.  Applebee's  International,  Inc., in which
named  plaintiffs  claim that  tipped  workers in  company  restaurants  perform
excessive amounts of non-tipped work for which they should be compensated at the
minimum  wage.  The court has  conditionally  certified  a  nationwide  class of
servers and bartenders who have worked in company-owned  restaurants  since June
19, 2004.  Unlike a class action, a collective  action requires  potential class
members  to "opt in"  rather  than "opt  out."  Therefore,  the  number of class
members will not be known until the end of 2007, when the opt in period expires.
Conditional  certification  is granted under a lenient  standard and the company
will have an opportunity to have the class  de-certified  following the close of
discovery  at the end of 2008.  The  company  believes  it has  strong  defenses
supporting the  de-certification of the class, as well as strong defenses to the
substantive  claims  asserted,  and intends to  vigorously  defend this case. An
estimate of the possible  loss,  if any, or the range of the loss cannot be made
and therefore,  the Company has not accrued a loss  contingency  related to this
matter.

Item 1A. Risk Factors

There have been no material  changes in our risk factors from those disclosed in
our 2006 Annual  Report on Form 10-K and  Quarterly  Report on Form 10-Q for the
fiscal quarter ended July 1, 2007, except as listed below.

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

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

                                       34

<PAGE>


Failure to comply with the various  federal and state labor laws  pertaining  to
minimum  wage,  overtime  pay,  meal and rest  breaks,  unemployment  tax rates,
workers' compensation rates, citizenship or residency requirements,  child labor
requirements  and sales taxes may have a material adverse effect on our business
or operations. In particular, we are party to a number of employment-related and
wage-related lawsuits,  including a collective action suit filed in July 2006 in
a U.S.  federal  court in Missouri  relating to minimum  wage and tip credit for
past and present  servers and bartenders of our  restaurants  whose minimum wage
calculation  included "tip credit".  The plaintiffs allege,  among other things,
that  Applebee's  International,  Inc.  violated the Fair Labor Standards Act of
1938 by  failing  to pay the  legally  mandated  minimum  wage for work  such as
general  preparation or  maintenance  work, for which the employees did not earn
tips.  We  are  actively   defending  against  the  case,  and  intend  to  seek
decertification  of the  class,  which is  expected  to be  heard in early  2009
following discovery proceedings.  Since the case is at a very preliminary stage,
we  cannot  currently  make an  estimate  as to the  chance of  success  for the
plaintiffs or the magnitude of our  liability  associated  with the case, if the
class is not decertified and is decided against Applebee's  International,  Inc.
If the case is  decided  against  us,  significant  changes  to the  timekeeping
systems of our  restaurants or increases in employee wage rates may be required.
If we incur  losses as a result of  employment  liabilities,  our  business  and
operations will be adversely affected.

Further,   employee  claims  based  on,  among  other  things,   discrimination,
harassment  or wrongful  termination  may divert our  financial  and  management
resources and adversely affect our operations.


                                       35
<PAGE>


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

(c) Issuer Purchases of Equity Securities.

<TABLE>
<CAPTION>
                                        Purchases of Equity Securities(1)
-------------------------------------------------------------------------------------------------------------------
                                        (a)           (b)                (c)                        (d)
---------------------------------- -------------- ----------- ------------------------- ---------------------------
                                                                                          Maximum Dollar Value of
                                                    Average    Total Number of Shares      Shares that May Yet Be
                                    Total Number     Price      Purchased as Part of         Purchased Under the
                                      of Shares     Paid Per     Publicly Announced           Plans or Programs
           Period                     Purchased      Share        Plans or Programs             (in thousands)
---------------------------------- -------------- ----------- ------------------------- ---------------------------
<S>                                <C>            <C>         <C>                       <C>
July 2, 2007 through
July 29, 2007                            --           --                  --                     $239,446
---------------------------------- -------------- ----------- ------------------------- ---------------------------
July 30, 2007 through
August 26,                               --           --                  --                     $239,446
---------------------------------- -------------- ----------- ------------------------- ---------------------------
August 27, 2007 through
September 30, 2007                       --           --                  --                     $239,446
---------------------------------- -------------- ----------- ------------------------- ---------------------------
           Total                         --                               --
================================== ============== =========== ========================= ===========================
<FN>
------------------
(1)  In  November  2006,  with   approximately   $100,000,000  of  the  previous
authorization   remaining,   our  Board  of  Directors   authorized   additional
repurchases  of our  common  stock  of up to  $150,000,000,  subject  to  market
conditions, for a total of approximately $250,000,000 in authorized repurchases.
</FN>
</TABLE>

Item 6. Exhibits

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

                                       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: October 29, 2007       By:  /s/    David L. Goebel
     -------------------        ------------------------------------------------
                                 David L. Goebel
                                 Director, President and Chief Executive Officer
                                 (principal executive officer)

Date: October 29, 2007       By:  /s/    Steven K. Lumpkin
     ------------------         ------------------------------------------------
                                 Steven K. Lumpkin
                                 Director, Executive Vice President,
                                 Chief Financial and Strategy Officer
                                 (principal financial officer)

Date: October 29, 2007       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
-----------     ----------------------------------------------------------------

      2.1       Agreement  and  Plan  of  Merger  dated  July  15,  2007,  among
                IHOP  Corp.,  CHLH  Corp.  and  Applebee's  International,  Inc.
                (incorporated by reference to Exhibit 2.1  of  the  Registrant's
                Form  8-K  filed July 18, 2007).

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

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

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



                                       38