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

                                    FORM 10-Q


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

For the quarterly period ended                   June 26, 2005
                               -------------------------------------------------

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

The number of shares of the registrant's common stock outstanding as of July 22,
2005 was 79,036,538.


                                       1
<PAGE>


                         APPLEBEE'S INTERNATIONAL, INC.
                                    FORM 10-Q
                       FISCAL QUARTER ENDED JUNE 26, 2005
                                      INDEX

<TABLE>
<CAPTION>
                                                                                                                Page
<S>               <C>                                                                                          <C>

Part I             Financial Information

Item 1.            Condensed Consolidated Financial Statements:

                   Consolidated Balance Sheets as of June 26, 2005
                        and December 26, 2004................................................................      3

                   Consolidated Statements of Earnings for the 13 Weeks and 26 Weeks
                        Ended June 26, 2005 and June 27, 2004 (as restated)..................................      4

                   Consolidated Statement of Stockholders' Equity for the
                        26 Weeks Ended June 26, 2005.........................................................      5

                   Consolidated Statements of Cash Flows for the 26 Weeks
                        Ended June 26, 2005 and June 27, 2004 (as restated)..................................      6

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

Item 2.            Management's Discussion and Analysis of
                        Financial Condition and Results of Operations........................................     18

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

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


Part II            Other Information

Item 1.            Legal Proceedings.........................................................................     33

Item 2.            Unregistered Sales of Equity Securities and Use of Proceeds...............................     33

Item 4.            Submission of Matters to a Vote of Security Holders.......................................     34

Item 6.            Exhibits..................................................................................     34

Signatures ..................................................................................................     35

Exhibit Index................................................................................................     36
</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>
                                                                                            June 26,           December 26,
                                                       .                                      2005                 2004
                                                                                        ----------------     ---------------
<S>                                                                                    <C>                  <C>

                                       ASSETS
Current assets:
    Cash and cash equivalents.....................................................        $       661          $    10,642
    Short-term investments, at market value.......................................                283                  282
    Receivables (less allowance for bad debts of $382 in 2005 and $417 in 2004)...             38,318               39,152
    Receivables related to captive insurance subsidiary...........................              3,908                2,566
    Inventories...................................................................             27,112               35,936
    Prepaid and other current assets..............................................             14,859               12,079
                                                                                        ----------------     ---------------
         Total current assets.....................................................             85,141              100,657
Property and equipment, net.......................................................            544,082              486,548
Goodwill..........................................................................            138,788              116,344
Restricted assets related to captive insurance subsidiary.........................             18,803               17,386
Other intangible assets, net......................................................              8,094                8,524
Other assets, net.................................................................             28,478               24,972
                                                                                        ----------------     ---------------
                                                                                          $   823,386          $   754,431
                                                                                        ================     ===============

                        LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Current portion of long-term debt.............................................        $       243        $         222
    Notes payable.................................................................              4,300                 --
    Accounts payable..............................................................             47,456               42,830
    Accrued expenses and other current liabilities................................             82,491               89,064
    Loss reserve and unearned premiums related to captive insurance subsidiary....             14,012               12,137
    Accrued dividends.............................................................               --                  4,867
    Accrued income taxes..........................................................             13,130                2,578
                                                                                        ----------------     ---------------
         Total current liabilities................................................            161,632              151,698
                                                                                        ----------------     ---------------
Non-current liabilities:
    Long-term debt - less current portion.........................................             82,349               35,472
    Deferred income taxes.........................................................             29,264               28,995
    Other non-current liabilities.................................................             45,392               41,539
                                                                                        ----------------     ---------------
         Total non-current liabilities............................................            157,005              106,006
                                                                                        ----------------     ---------------
         Total liabilities........................................................            318,637              257,704
                                                                                        ----------------     ---------------
Commitments and contingencies (Note 4)
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....................................................            231,468              220,897
    Unearned compensation.........................................................             (3,458)              (1,924)
    Retained earnings.............................................................            682,462              623,315
                                                                                        ----------------     ---------------
                                                                                              911,557              843,373
    Treasury stock - 29,082,335 shares in 2005 and 27,375,044 shares in 2004, at
      cost........................................................................           (406,808)            (346,646)
                                                                                        ----------------     ---------------
         Total stockholders' equity...............................................            504,749              496,727
                                                                                        ----------------     ---------------
                                                                                          $   823,386        $     754,431
                                                                                        ================     ===============
</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                         26 Weeks Ended
                                                          -----------------------------------    -----------------------------------
                                                              June 26,           June 27,            June 26,           June 27,
                                                                2005               2004                2005               2004
                                                          ----------------   ----------------    ----------------   ----------------
<S>                                                      <C>                <C>                 <C>                <C>

                                                                               (as restated)                         (as restated)
Revenues:
    Company restaurant sales ........................       $    272,703       $    247,769        $    543,161       $    491,329
    Franchise royalties and fees.....................             32,493             30,722              65,501             61,437
    Other franchise income...........................              1,424              3,399               2,489              6,514
                                                          ----------------   ----------------    ----------------   ----------------
         Total operating revenues....................            306,620            281,890             611,151            559,280
                                                          ----------------   ----------------    ----------------   ----------------
Cost of company restaurant sales:
    Food and beverage................................             72,565             66,647             144,200            130,162
    Labor............................................             90,115             80,683             178,839            160,338
    Direct and occupancy.............................             71,038             60,513             137,405            119,855
    Pre-opening expense..............................              1,268                425               2,435                992
                                                          ----------------   ----------------    ----------------   ----------------
         Total cost of company restaurant sales......            234,986            208,268             462,879            411,347
                                                          ----------------   ----------------    ----------------   ----------------
Cost of other franchise income.......................              1,229              5,035               2,048              7,972
General and administrative expenses..................             27,980             24,960              54,926             50,382
Amortization of intangible assets....................                226                158                 454                244
Loss on disposition of restaurants and equipment.....                564                584                 861              1,079
                                                          ----------------   ----------------    ----------------   ----------------
Operating earnings...................................             41,635             42,885              89,983             88,256
                                                          ----------------   ----------------    ----------------   ----------------
Other income (expense):
    Investment income................................                449                 18                 408                241
    Interest expense.................................               (634)              (416)               (971)              (760)
    Other income.....................................                584                562               1,019              1,023
                                                          ----------------   ----------------    ----------------   ----------------
         Total other income..........................                399                164                 456                504
                                                          ----------------   ----------------    ----------------   ----------------
Earnings before income taxes.........................             42,034             43,049              90,439             88,760
Income taxes.........................................             14,544             14,919              31,292             30,894
                                                          ----------------   ----------------    ----------------   ----------------
Net earnings.........................................       $     27,490       $     28,130        $     59,147       $     57,866
                                                          ================   ================    ================   ================

Basic net earnings per common share..................       $       0.34       $       0.34        $       0.74       $       0.71
                                                          ================   ================    ================   ================
Diluted net earnings per common share................       $       0.34       $       0.33        $       0.72       $       0.69
                                                          ================   ================    ================   ================

Basic weighted average shares outstanding............             79,897             81,781              80,295             81,883
                                                          ================   ================    ================   ================
Diluted weighted average shares outstanding..........             81,360             84,098              81,861             84,371
                                                          ================   ================    ================   ================
</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    Unearned    Retained   Treasury   Stockholders'
                                                      Shares   Amount    Capital  Compensation  Earnings     Stock      Equity
                                                    --------- -------- ---------- ------------ ---------- ---------- -------------
<S>                                                <C>       <C>      <C>        <C>          <C>        <C>        <C>
Balance, December 26, 2004.........................  108,503   $1,085   $220,897    $ (1,924)   $623,315  $(346,646)   $ 496,727

  Net earnings.....................................     --       --         --          --        59,147       --         59,147
  Purchases of treasury stock......................     --       --         --          --          --      (68,238)     (68,238)
  Stock options exercised and related tax benefit..     --       --        7,173        --          --        6,550       13,723
  Shares issued under employee benefit plans.......     --       --        1,413        --          --          910        2,323
  Restricted shares awarded under equity
    incentive plans, net of cancellations..........     --       --        1,985      (2,601)       --          616         --
  Amortization of unearned compensation
    relating to restricted shares..................     --       --         --         1,067        --         --          1,067
                                                    --------- -------- ---------- ------------ ---------- ---------- -------------

Balance, June 26, 2005.............................  108,503   $1,085   $231,468    $ (3,458)   $682,462  $(406,808)   $ 504,749
                                                    ========= ======== ========== ============ ========== ========== =============
</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>
                                                                                                   26 Weeks Ended
                                                                                        ------------------------------------
                                                                                            June 26,             June 27,
                                                                                             2005                 2004
                                                                                        ----------------     ---------------
<S>                                                                                    <C>                  <C>

                                                                                                              (as restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net earnings.....................................................................     $     59,147         $    57,866
    Adjustments to reconcile net earnings to net cash provided by operating
      activities:
         Depreciation and amortization...............................................           25,676              22,402
         Amortization of intangible assets...........................................              454                 244
         Amortization of unearned compensation.......................................            1,067                 695
         Other amortization..........................................................               63                 175
         Inventory impairment........................................................              --                2,300
         Deferred income tax benefit.................................................           (2,294)                (52)
         Loss on disposition of restaurants and equipment............................              861               1,079
         Income tax benefit from exercise of stock options...........................            3,794               5,169
    Changes in assets and liabilities (exclusive of effects of acquisitions):
         Receivables.................................................................              834              (8,889)
         Receivables related to captive insurance subsidiary.........................           (1,342)             (4,325)
         Inventories.................................................................            9,014             (13,103)
         Other current assets related to captive insurance subsidiary................              --               (1,049)
         Prepaid and other current assets............................................             (217)               (923)
         Accounts payable....................................................... ....            4,626               1,874
         Accrued expenses and other current liabilities..............................           (6,902)            (16,933)
         Loss reserve and unearned premiums related to captive insurance subsidiary..            1,875               8,914
         Income taxes................................................................           10,552              26,287
         Other non-current liabilities...............................................            1,759               1,892
         Other.......................................................................           (1,177)             (3,184)
                                                                                        ----------------     ---------------
         NET CASH PROVIDED BY OPERATING ACTIVITIES...................................          107,790              80,439
                                                                                        ----------------     ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchases of property and equipment..............................................          (59,922)            (36,543)
    Restricted assets related to captive insurance subsidiary........................           (1,417)             (5,488)
    Acquisitions of restaurants......................................................          (46,777)            (13,817)
    Lease acquisition costs..........................................................              --               (4,919)
    Purchases of short-term investments..............................................              --                 (253)
    Other investing activities.......................................................              --                 (966)
                                                                                        ----------------     ---------------
         NET CASH USED BY INVESTING ACTIVITIES.......................................         (108,116)            (61,986)
                                                                                        ----------------     ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
    Purchases of treasury stock......................................................          (68,238)            (53,223)
    Dividends paid...................................................................           (4,867)             (3,911)
    Issuance of common stock upon exercise of stock options..........................            9,929               8,789
    Shares issued under employee benefit plans.......................................            2,323               3,981
    Net debt proceeds................................................................           51,198              22,934
                                                                                        ----------------     ---------------
         NET CASH USED BY FINANCING ACTIVITIES.......................................           (9,655)            (21,430)
                                                                                        ----------------     ---------------
NET DECREASE IN CASH AND CASH EQUIVALENTS............................................           (9,981)             (2,977)
CASH AND CASH EQUIVALENTS, beginning of period.......................................           10,642              17,867
                                                                                        ----------------     ---------------
CASH AND CASH EQUIVALENTS, end of period.............................................     $        661         $    14,890
                                                                                        ================     ===============
</TABLE>


                                       6
<PAGE>


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

<TABLE>
<CAPTION>
                                                                                                26 Weeks Ended
                                                                                        ------------------------------------
                                                                                            June 26,            June 27,
                                                                                              2005                2004
                                                                                        ----------------    ----------------
<S>                                                                                    <C>                 <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
    Cash paid during the 26 week period for:
         Income taxes...........................................................          $     20,316        $        749
                                                                                        ================    ================
         Interest...............................................................          $        654        $        377
                                                                                        ================    ================
</TABLE>

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:

We issued  restricted  common  stock,  net of  forfeitures,  of  $2,601,000  and
$1,497,000 for the 26 weeks ended June 26, 2005 and June 27, 2004, respectively.

In 2002,  we entered  into a rabbi trust  agreement to protect the assets of the
nonqualified deferred compensation plan for certain of our associates.  The plan
investments  are  included  in other  assets and the  offsetting  obligation  is
included in other non-current liabilities in our consolidated balance sheets. We
had non-cash increases in these balances of $2,094,000 and $1,727,000 for the 26
weeks ended June 26, 2005 and June 27, 2004, respectively.

In 2004,  we made  matching  contributions  in shares of our  common  stock to a
profit sharing plan and trust  established in accordance  with Section 401(k) of
the Internal Revenue Code of $1,308,000.


            See notes to condensed consolidated financial statements.


                                       7
<PAGE>


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

1.  Basis of Presentation

Our condensed  consolidated financial statements included in this Form 10-Q have
been prepared  without audit in accordance with the rules and regulations of the
Securities and Exchange  Commission.  Although certain  information and footnote
disclosures  normally  included in financial  statements  prepared in accordance
with accounting  principles  generally  accepted in the United States of America
have been condensed or omitted,  we believe that the disclosures are adequate to
make the  information  presented  not  misleading.  The  accompanying  condensed
consolidated financial statements should be read in conjunction with the audited
financial  statements  and notes  thereto  included in our Annual Report on Form
10-K for the fiscal year ended December 26, 2004.

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

We have made certain  reclassifications to the condensed  consolidated financial
statements to conform to the fiscal 2005 presentation.

2.  Restatement of Financial Statements

Like many other companies in the  restaurant,  retail and other  industries,  we
reviewed  our  accounting  treatment  for  leases  and  depreciation  of related
leasehold  improvements during the fourth fiscal quarter of 2004 and we restated
our  consolidated  financial  statements  for fiscal years 2003 and 2002 and the
first three fiscal quarters of fiscal 2004 in our Annual Report on Form 10-K for
the fiscal year ended December 26, 2004.

Historically,  when accounting for leases with renewal options,  we had recorded
rent  expense on a  straight-line  basis over the initial  non-cancelable  lease
term,  with the term  commencing when actual rent payments began and depreciated
leasehold  improvements  on those  properties  over a maximum period of 20 years
which, in certain cases,  included a portion of the renewal option  periods.  We
corrected  our lease term to include  option  periods where failure to recognize
such options would result in an economic  penalty such that the renewal  appears
reasonably assured.  The primary result of this correction was to accelerate the
recognition  of rent  expense  under  certain  leases  that  include  fixed-rent
escalations.  In addition,  the lease term is deemed to commence on the date the
company becomes  legally  obligated for rent payments.  Therefore,  we adopted a
policy to capitalize  the  straight-line  rent amounts  during the  construction
period of leased  properties,  which  resulted in an  increase  to  depreciation
expense in the restated consolidated statements of earnings.  Straight-line rent
subsequent to the  construction  period and prior to the  restaurant  opening is
recognized  as expense,  which  resulted in an increase to  previously  reported
pre-opening expenses in the restated consolidated statements of earnings.

In  connection  with the  restatement  for  lease  accounting  matters,  we also
corrected previously identified immaterial errors, primarily related to vacation
and workers' compensation expense.


                                       8
<PAGE>


The following table contains information regarding the impact of the restatement
adjustments on our  consolidated  statements of earnings for the 13 and 26 weeks
ended June 27, 2004. All amounts, except per share amounts, are in thousands.

Consolidated Statements of Earnings

<TABLE>
<CAPTION>
                                                                                  13 Weeks Ended
                                                                                   June 27, 2004                    13 Weeks Ended
                                                                                  (As previously     Restatement     June 27, 2004
                                                                                     reported)         amounts       (As restated)
                                                                                  --------------     -----------    --------------
<S>                                                                               <C>                <C>            <C>
Revenues:
    Company restaurant sales....................................................   $   247,769        $    --        $   247,769
    Franchise royalties and fees................................................        30,779             (57)           30,722
    Other franchise income......................................................         3,399             --              3,399
                                                                                  --------------     -----------    --------------
         Total operating revenue................................................       281,947             (57)          281,890
                                                                                  --------------     -----------    --------------
Cost of company restaurant sales:
    Food and beverage...........................................................        66,647             --             66,647
    Labor.......................................................................        81,086            (403)           80,683
    Direct and occupancy........................................................        60,240             273            60,513
    Pre-opening expense.........................................................           391              34               425
                                                                                  --------------     -----------    --------------
         Total cost of company restaurant sales.................................       208,364             (96)          208,268
                                                                                  --------------     -----------    --------------
Cost of other franchise income..................................................         5,035             --              5,035
General and administrative expenses.............................................        24,932              28            24,960
Amortization of intangible assets...............................................           158             --                158
Loss on disposition of restaurants and equipment................................           584             --                584
                                                                                  --------------     -----------    --------------
Operating earnings..............................................................        42,874              11            42,885
                                                                                  --------------     -----------    --------------
Other income (expense):
    Investment income...........................................................            18             --                 18
    Interest expense............................................................          (416)            --               (416)
    Other income................................................................           951            (389)              562
                                                                                  --------------     -----------    --------------
         Total other income.....................................................           553            (389)              164
                                                                                  --------------     -----------    --------------
Earnings before income taxes....................................................        43,427            (378)           43,049
Income taxes....................................................................        15,200            (281)           14,919
                                                                                  --------------     -----------    --------------
Net earnings....................................................................   $    28,227        $    (97)      $    28,130
                                                                                  ==============     ===========    ==============

Basic net earnings per common share.............................................   $      0.35        $    --        $      0.34
                                                                                  ==============     ===========    ==============
Diluted net earnings per common share...........................................   $      0.34        $    --        $      0.33
                                                                                  ==============     ===========    ==============

Basic weighted average shares outstanding.......................................        81,781                            81,781
                                                                                  ==============                    ==============
Diluted weighted shares outstanding.............................................        84,098                            84,098
                                                                                  ==============                    ==============
</TABLE>


                                       9
<PAGE>

<TABLE>
<CAPTION>
                                                                                  26 Weeks Ended
                                                                                   June 27, 2004                    26 Weeks Ended
                                                                                  (As previously     Restatement     June 27, 2004
                                                                                     reported)         amounts       (As restated)
                                                                                  --------------     -----------    --------------
<S>                                                                              <C>                <C>            <C>
Revenues:
    Company restaurant sales....................................................   $    491,329       $    --        $    491,329
    Franchise royalties and fees................................................         61,551           (114)            61,437
    Other franchise income......................................................          6,514            --               6,514
                                                                                  --------------     -----------    --------------
         Total operating revenue................................................        559,394           (114)           559,280
                                                                                  --------------     -----------    --------------
Cost of company restaurant sales:
    Food and beverage...........................................................        130,162            --             130,162
    Labor.......................................................................        160,745           (407)           160,338
    Direct and occupancy........................................................        119,309            546            119,855
    Pre-opening expense.........................................................            941             51                992
                                                                                  --------------     -----------    --------------
         Total cost of company restaurant sales.................................        411,157            190            411,347
                                                                                  --------------     -----------    --------------
Cost of other franchise income..................................................          7,972            --               7,972
General and administrative expenses.............................................         50,449            (67)            50,382
Amortization of intangible assets...............................................            244            --                 244
Loss on disposition of restaurants and equipment................................          1,079            --               1,079
                                                                                  --------------     -----------    --------------
Operating earnings..............................................................         88,493           (237)            88,256
                                                                                  --------------     -----------    --------------
Other income (expense):
    Investment income...........................................................            241            --                 241
    Interest expense............................................................           (760)           --                (760)
    Other income................................................................            842            181              1,023
                                                                                  --------------     -----------    --------------
         Total other income.....................................................            323            181                504
                                                                                  --------------     -----------    --------------
Earnings before income taxes....................................................         88,816            (56)            88,760
Income taxes....................................................................         31,086           (192)            30,894
                                                                                  --------------     -----------    --------------
Net earnings....................................................................   $     57,730       $    136       $     57,866
                                                                                  ==============     ===========    ==============

Basic net earnings per common share.............................................   $       0.71       $    --        $       0.71
                                                                                  ==============     ===========    ==============
Diluted net earnings per common share...........................................   $       0.68       $    --        $       0.69
                                                                                  ==============     ===========    ==============

Basic weighted average shares outstanding.......................................         81,883                            81,883
                                                                                  ==============                    ==============
Diluted weighted shares outstanding.............................................         84,371                            84,371
                                                                                  ==============                    ==============
</TABLE>

3.  Stock-Based Compensation

We have adopted the disclosure  provisions of Statement of Financial  Accounting
Standards  ("SFAS")  No.  148,   "Accounting  for  Stock-Based   Compensation  -
Transition  and  Disclosure,  an  amendment  of FASB  Statement  No.  123."  The
Statement  requires  prominent  disclosures in both annual and interim financial
statements   regarding  the  method  of  accounting  for  stock-based   employee
compensation and the effect of the method used on reported  results.  We account
for  stock-based  compensation  awards under the intrinsic  method of Accounting
Principles  Board Opinion No. 25,  "Accounting  for Stock Issued to  Employees."
Opinion No. 25 requires  compensation cost to be recognized based on the excess,
if any,  between the quoted  market  price of the stock at the date of grant and
the amount an employee must pay to acquire the stock.  All options awarded under
all of our plans are  granted  with an  exercise  price equal to the fair market
value on the date of the grant.  The following  table presents the effect on our
net  earnings and net earnings per share had we adopted the fair value method of
accounting for  stock-based  compensation  under SFAS No. 123,  "Accounting  for
Stock-Based Compensation" (in thousands, except for per share amounts).


                                       10
<PAGE>


<TABLE>
<CAPTION>
                                                                   13 Weeks Ended                  26 Weeks Ended
                                                          ------------------------------- -------------------------------
                                                             June 26,        June 27,        June 26,        June 27,
                                                               2005            2004            2005            2004
                                                          --------------- --------------- --------------- ---------------
<S>                                                      <C>             <C>             <C>             <C>
                                                                           (as restated)                   (as restated)
Net earnings, as reported............................       $    27,490     $    28,130     $    59,147     $    57,866

Add: Stock-based employee compensation
    expense (benefit) included in net earnings,
    net of related taxes.............................               373             (12)            655             290
Less: Total stock-based employee
    compensation expense determined under
    fair value based methods for all awards,
    net of related taxes.............................             1,735           2,155           3,428           4,770
                                                          --------------- --------------- --------------- ---------------
Pro forma net earnings...............................       $    26,128     $    25,963     $    56,374     $    53,386
                                                          =============== =============== =============== ===============
Basic net earnings per common share,
    as reported......................................       $      0.34     $      0.34     $      0.74     $      0.71
                                                          =============== =============== =============== ===============
Basic net earnings per common share,
    pro forma........................................       $      0.33     $      0.32     $      0.70     $      0.65
                                                          =============== =============== =============== ===============
Diluted net earnings per common share,
    as reported......................................       $      0.34     $      0.33     $      0.72     $      0.69
                                                          =============== =============== =============== ===============
Diluted net earnings per common share,
    pro forma........................................       $      0.32     $      0.31     $      0.69     $      0.63
                                                          =============== =============== =============== ===============
</TABLE>

4.  Commitments and Contingencies

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

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

Lease guarantees and  contingencies:  In connection with the sale of restaurants
to  franchisees  and  other  parties,  we  have,  in  certain  cases,   remained
contingently  liable for the remaining lease  payments.  As of June 26, 2005, we
have outstanding  lease guarantees of  approximately  $18,200,000.  These leases
expire at various times  throughout  the next several years with the final lease
agreement expiring in 2025. 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
$17,200,000.  We have not  recorded a liability  as of June 26, 2005 or December
26, 2004.

Franchisee guarantees: In November 2003, we arranged for a third-party financing
company to provide up to  $75,000,000  to qualified  franchisees  for short-term
loans to fund remodel investments,  subject to our approval.  Under the terms of
this financing  program,  we will provide a limited guarantee pool for the loans
advanced during the three-year period ending December 2006. As of June 26, 2005,
there were  loans  outstanding  to four  franchisees  aggregating  approximately
$1,300,000 under this program.


                                       11
<PAGE>


In May 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 certain loans advanced under this program.  As of June 26,
2005, there were loans outstanding to five franchisees aggregating approximately
$20,100,000 under this program.  The fair value of our guarantee under these two
financing  programs was less than $100,000 and is recorded in other  non-current
liabilities  and other assets in our  consolidated  balance sheet as of June 26,
2005.

Severance  agreements:  We have severance and employment agreements with certain
officers  providing for severance  payments to be made in the event the employee
resigns or is terminated  related to a change in control.  The agreements define
the  circumstances  which will constitute a change in control.  If the severance
payments had been due as of June 26, 2005,  we would have been  required to make
payments totaling approximately $13,300,000.  In addition, we have severance and
employment  agreements with certain officers which contain severance  provisions
not  related  to a change in  control.  Those  provisions  would  have  required
aggregate  payments  of  approximately  $6,200,000  if such  officers  had  been
terminated as of June 26, 2005.

5.  Net Earnings Per Share

We compute basic net earnings per common share by dividing  income  available to
common  shareholders by the weighted average number of common shares outstanding
for the  reporting  period.  Diluted net earnings per common share  reflects the
potential  dilution that could occur if holders of options or other contracts to
issue common stock  exercised or converted  their  holdings  into common  stock.
Outstanding  stock  options and  equity-based  compensation  represent  the only
dilutive  effects  on  weighted  average  shares.  The chart  below  presents  a
reconciliation between basic and diluted weighted average shares outstanding and
the related net earnings per share.  All amounts in the chart,  except per share
amounts, are expressed in thousands.
<TABLE>
<CAPTION>
                                                                 13 Weeks Ended                  26 Weeks Ended
                                                         ------------------------------- -------------------------------
                                                            June 26,        June 27,        June 26,        June 27,
                                                              2005            2004            2005            2004
                                                         --------------- --------------- --------------- ---------------
<S>                                                     <C>             <C>             <C>             <C>
Net earnings...........................................    $    27,490     $    28,130     $    59,147     $    57,866
                                                         =============== =============== =============== ===============

Basic weighted average shares outstanding..............         79,897          81,781          80,295          81,883
Dilutive effect of stock options and
    equity-based compensation..........................          1,463           2,317           1,566           2,488
                                                         --------------- --------------- --------------- ---------------
Diluted weighted average shares outstanding............         81,360          84,098          81,861          84,371
                                                         =============== =============== =============== ===============

Basic net earnings per common share....................    $      0.34     $      0.34     $      0.74     $      0.71
                                                         =============== =============== =============== ===============
Diluted net earnings per common share..................    $      0.34     $      0.33     $      0.72     $      0.69
                                                         =============== =============== =============== ===============
</TABLE>

We excluded  stock options 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 have  excluded  approximately  593,000 and 1,464,000 of these
options for the 13 weeks ended June 26,  2005 and June 27,  2004,  respectively,
and 338,000 and 90,000 of these options for the 26 weeks ended June 26, 2005 and
June  27,  2004,   respectively,   from  our  diluted   weighted  average  share
computation.


                                       12
<PAGE>


6.  Acquisitions

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

In May 2005, we completed the  acquisition of 12 Applebee's  restaurants,  which
included one restaurant under construction, in Missouri, Kansas and Arkansas for
approximately  $39,500,000.  Through  June  2005,  we  have  paid  approximately
$38,900,000,  which  has been  allocated  to the  fair  value  of  property  and
equipment  of  $16,800,000,  goodwill  of  $21,900,000  and other net  assets of
approximately $200,000. In addition, we expect to pay the remaining $600,000 for
property  and  equipment  relating  to the  completion  of  construction  of one
restaurant in the third fiscal quarter of 2005.

The  following  table is comprised of actual  company  restaurant  sales for the
restaurant  acquisition above, which are included in our condensed  consolidated
financial  statements for each period presented and pro forma company restaurant
sales  assuming  the  acquisition  above  occurred  at  the  beginning  of  each
respective period (in thousands):
<TABLE>
<CAPTION>
                                                               13 Weeks Ended                  26 Weeks Ended
                                                       ------------------------------- -------------------------------
                                                          June 26,        June 27,        June 26,        June 27,
                                                            2005            2004            2005            2004
                                                       --------------- --------------- --------------- ---------------
<S>                                                   <C>             <C>             <C>             <C>

Actual acquired company restaurant sales.............    $     2,800     $      --       $     2,800     $      --
                                                       =============== =============== =============== ===============


Pro forma acquired company restaurant sales..........    $     7,300     $     6,700     $    14,400     $    13,400
                                                       =============== =============== =============== ===============
</TABLE>

In April 2005, we finalized the acquisition of eight Applebee's restaurants that
were closed in fiscal 2004 by a former franchisee for  approximately  $8,800,000
payable in cash.  In connection  with this  acquisition,  we paid  approximately
$800,000 in cash in the fourth quarter of fiscal 2004,  approximately $5,700,000
in cash in the first quarter of fiscal 2005 and approximately $2,300,000 in cash
in the second  quarter of fiscal 2005. The purchase price of $8,800,000 has been
allocated  to  the  fair  value  of  property  and  equipment  of  approximately
$8,200,000 and goodwill of approximately  $600,000. As of June 26, 2005, we have
remodeled  and  opened  six  restaurants.  Subsequent  to  June  26,  2005,  one
additional  restaurant  was opened and the  remaining  restaurant  was sold to a
third party for $1,300,000.

In April 2004, we completed our  acquisition of the operations and assets of ten
Applebee's   restaurants   located  in  Southern  California  for  approximately
$13,800,000  in cash.  The  purchase  price was  allocated  to the fair value of
property and  equipment of  $2,500,000,  goodwill of  $10,800,000  and other net
assets of approximately $500,000. Company restaurant sales for these restaurants
were  $4,700,000  for both the 13 weeks ended and 26 weeks ended June 27,  2004.
Proforma  company  restaurant  sales  for  these  restaurants  would  have  been
approximately  $7,000,000  and  $13,500,000  for the 13 weeks and 26 weeks ended
June 27, 2004 had this  acquisition  been  completed at the  beginning of fiscal
2004.


                                       13
<PAGE>


7.  Inventory Impairment

In the second quarter of 2004, we determined  that we had excess  inventories of
riblets that no longer met our quality  standards.  Accordingly,  we recorded an
inventory  impairment  of  $2,300,000  (approximately  $1,500,000  net of income
taxes) in our condensed  consolidated  financial statements.  The portion of the
riblet  inventory  impairment  related  to the  company's  historical  usage  of
approximately  $500,000 was  recorded in food and beverage  cost and the portion
related to the franchisees'  historical  usage of  approximately  $1,800,000 was
recorded in cost of other  franchise  income in the  consolidated  statement  of
earnings.  In the third and fourth  fiscal  quarters  of 2004,  we  recovered  a
portion of the inventory impairment as a result of higher than anticipated sales
of these excess inventories.

8.  Goodwill and Other Intangible Assets

Changes in goodwill are summarized below (in thousands):
<TABLE>
<CAPTION>
                                                               26 Weeks Ended          52 Weeks Ended
                                                                  June 26,              December 26,
                                                                    2005                    2004
                                                           ----------------------  ----------------------
<S>                                                       <C>                     <C>
Carrying amount, beginning of the year..................      $        116,344        $        105,326
Goodwill acquired during the period.....................                22,444                  11,018
                                                           ----------------------  ----------------------
Goodwill amount, end of the period......................      $        138,788        $        116,344
                                                           ======================  ======================
</TABLE>

Intangible  assets subject to amortization  pursuant to SFAS No. 142,  "Goodwill
and Other Intangible Assets," are summarized below (in thousands):
<TABLE>
<CAPTION>
                                                                   June 26, 2005
                                             ----------------------------------------------------------
                                               Gross Carrying        Accumulated           Net Book
                                                   Amount            Amortization           Value
                                             ------------------   -----------------   -----------------
<S>                                         <C>                  <C>                 <C>
Amortized intangible assets:
    Franchise interest and rights.......       $        6,371       $       5,730       $         641
    Lease acquisition costs.............                4,911                 535               4,376
    Noncompete agreement................                  350                  65                 285
                                             ------------------   ----------------    -----------------

Total...................................       $       11,632       $       6,330       $       5,302
                                             ==================   =================   =================

                                                                 December 26, 2004
                                             ----------------------------------------------------------
                                               Gross Carrying        Accumulated           Net Book
                                                   Amount            Amortization           Value
                                             ------------------   -----------------   -----------------
Amortized intangible assets:
    Franchise interest and rights.......       $        6,371       $       5,565       $         806
    Lease acquisition costs.............                4,875                 294               4,581
    Noncompete agreement................                  350                  22                 328
                                             ------------------   -----------------   -----------------

Total...................................       $       11,596       $       5,881       $       5,715
                                             ==================   =================   =================
</TABLE>

In the fourth quarter of fiscal 2004, we acquired the exclusive right to operate
Applebee's restaurants in the Memphis, Tennessee market from a former franchisee
group for  approximately  $2,800,000.  This  intangible  asset has an indefinite


                                       14
<PAGE>


life, and accordingly,  will not be amortized but tested for impairment at least
annually.  In  connection  with this  acquisition,  we entered  into an expanded
4-year noncompete  agreement with the former franchise principals which is being
amortized over the life of the agreement.

In the second  quarter of fiscal 2004, we acquired six  restaurant  leases which
were formerly operated as Ground Round restaurants for approximately  $4,900,000
in cash.

Franchise  interest  and  rights are being  amortized  over the next two to four
years,  the lease  acquisition  costs are being  amortized over the next 8 to 20
years and the noncompete agreement is being amortized over the next four years.

We expect annual  amortization  expense for all  intangible  assets for the next
five fiscal years to range from approximately $400,000 to $900,000.

9.  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.  Applebee's International,  Inc. and covered franchisees make premium
payments to the captive  insurance  company which pays  administrative  fees and
insurance claims, subject to individual and aggregate maximum claim limits under
the captive insurance company's reinsurance policies. Franchisee premium amounts
billed by the captive  insurance  company are established based upon third-party
actuarial  estimates of settlement costs for incurred claims and  administrative
fees. The  franchisee  premiums are included in other  franchise  income ratably
over the policy year.  The related  offsetting  expenses are included in cost of
other franchise income.  Accordingly,  we do not expect franchisee participation
in the captive  insurance company to have a material impact on our net earnings.
In fiscal 2005, we reduced the types of insurance  coverage plans which resulted
in  fewer  franchisee   participants  in  our  captive  insurance  program.  Our
consolidated  balance  sheets  include  the  following  balances  related to the
captive insurance subsidiary:

    o    Franchise   premium   receivables  of   approximately   $3,200,000  and
         $1,900,000  as of June 26, 2005 and December  26,  2004,  respectively,
         included in receivables related to captive insurance subsidiary.
    o    Cash  equivalent  and other  long-term  investments  restricted for the
         payment of claims of  approximately  $18,100,000  and $16,700,000 as of
         June  26,  2005  and  December  26,  2004,  respectively,  included  in
         restricted assets related to captive insurance subsidiary.
    o    Loss  reserve  and  unearned  premiums  related  to  captive  insurance
         subsidiary of approximately  $21,400,000 and $19,600,000 as of June 26,
         2005 and December 26, 2004, respectively.  Approximately $7,400,000 and
         $7,500,000 as of June 26, 2005 and December 26, 2004, respectively,  is
         included in other non-current liabilities.
    o    Other   miscellaneous   items,  net,  of  approximately   $100,000  and
         $1,000,000  as of June 26, 2005 and December  26,  2004,  respectively,
         included in several line items in the consolidated balance sheets.


                                       15
<PAGE>


10. Treasury Shares

As of June 26, 2005, we had approximately  29,082,000 shares held in treasury. A
reconciliation  of our  treasury  shares for the 26 weeks ended June 26, 2005 is
provided below (shares in thousands):

                                                                  Treasury
                                                                   Shares
                                                               ---------------

    Balance as of December 26, 2004........................         27,375
    Purchases of treasury stock............................          2,660
    Stock options exercised................................           (756)
    Shares issued under employee benefit plans.............           (105)
    Restricted shares awarded under equity incentive
         plans.............................................            (92)
                                                               ---------------
    Balance as of June 26, 2005............................         29,082
                                                               ===============

11. New Accounting Pronouncements

In June 2005,  the Financial  Accounting  Standards  Board's  ("FASB")  Emerging
Issues  Task Force  reached a  consensus  on Issue No.  05-6,  "Determining  the
Amortization  Period for Leasehold  Improvements"  ("EITF  05-6").  The guidance
requires  that  leasehold  improvements  acquired in a business  combination  or
purchased subsequent to the inception of a lease be amortized over the lesser of
the  useful  life of the  assets  or a term  that  includes  renewals  that  are
reasonably  assured at the date of the business  combination  or  purchase.  The
guidance is effective for periods beginning after June 29, 2005. The adoption of
EITF 05-6 will not have an impact on our consolidated financial statements.

In May 2005,  the FASB issued  Statement of Financial  Accounting  Standards No.
154, "Accounting Changes and Error Corrections--A Replacement of APB Opinion No.
20 and FASB Statement No. 3." SFAS No. 154 requires retrospective application to
prior periods' financial statements for changes in accounting principle,  unless
it is  impracticable  to  determine  either the  period-specific  effects or the
cumulative  effect of the  change.  SFAS No.  154 is  effective  for  accounting
changes and  corrections of errors made in fiscal years beginning after December
15, 2005.

In March 2005,  the FASB  issued FASB  Interpretation  No. 47,  "Accounting  for
Conditional Asset Retirement Obligations," ("FIN 47"). FIN 47 clarifies that the
term  "conditional"  as used in SFAS No. 143,  "Accounting for Asset  Retirement
Obligations."  This  Interpretation  refers to a legal  obligation to perform an
asset retirement activity even if the timing and/or settlement is conditional on
a  future  event  that  may or may  not be  within  the  control  of an  entity.
Accordingly,  the entity  must  record a  liability  for the  conditional  asset
retirement  obligation  if the fair value of the  obligation  can be  reasonably
estimated.  The  Interpretation  is  effective  for fiscal  years  ending  after
December 15, 2005. We are evaluating the impact the adoption of FIN 47 will have
on our consolidated financial statements.

In December  2004,  the FASB issued SFAS No. 123  (revised  2004),  "Share-based
Payment,"   which   replaces   SFAS  No.  123,   "Accounting   for   Stock-Based
Compensation,"  and supercedes  Accounting  Principles Board ("APB") Opinion No.
25,  "Accounting  for Stock Issued to  Employees."  SFAS No. 123 (revised  2004)
requires  compensation costs related to share-based  payment  transactions to be
recognized in the financial statements.  With limited exceptions,  the amount of


                                       16
<PAGE>


compensation  cost will be measured based on the fair value on the grant date of
the equity or liability instruments issued. Compensation cost will be recognized
over the period that an employee provides service for that award, resulting in a
decrease in our net earnings. We will adopt the provisions of this Statement, as
amended,  using the modified  prospective  method  beginning in fiscal 2006.  We
expect that the adoption of this Standard  will be material to our  consolidated
financial  statements;  however,  we are still in the process of evaluating  its
impact.






                                       17
<PAGE>


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

Restatement of Financial Statements

The  accompanying  Management's  Discussion  and  Analysis  gives  effect to the
restatement of our condensed consolidated financial statements for quarterly and
year-to-date information in 2004 to correct our accounting treatment for leases,
depreciation of related  leasehold  improvements  and for previously  identified
immaterial errors,  primarily related to vacation and workers' compensation,  as
described in Note 2 to the condensed consolidated financial statements.

General

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

                                                                    Number
          Fiscal Year                  Fiscal Year End             of Weeks
------------------------------      ---------------------      ----------------
             2004                     December 26, 2004               52
             2005                     December 25, 2005               52
             2006                     December 31, 2006               53

                                                                    Number
         Fiscal Period                Fiscal Period End            of Weeks
------------------------------      ---------------------      ----------------
         2004 Quarter                   June 27, 2004                 13
         2005 Quarter                   June 26, 2005                 13
   2004 Year-to-date period             June 27, 2004                 26
   2005 Year-to-date period             June 26, 2005                 26

Our revenues are generated from three primary sources:

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

Beverage  sales  consist of sales of alcoholic  beverages,  while  non-alcoholic
beverages  are included in food sales.  Franchise  royalties are generally 4% of
each franchise  restaurant's monthly gross sales. Franchise fees typically range
from  $30,000 to $35,000 for each  restaurant  opened.  Other  franchise  income
includes  insurance  premiums for the current year and premium audit adjustments
for prior years from franchisee  participation in our captive  insurance program
and revenue  from  information  technology  products  and  services  provided to
certain  franchisees.  In fiscal 2005, we have fewer franchisee  participants in
the  captive  insurance  program  due to the  termination  of one of our captive
programs,  which will result in a decrease in franchise  premiums  recognized in
other franchise income of approximately $9,500,000.

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


                                       18
<PAGE>


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

Cost of  other  franchise  income  includes  the  costs  related  to  franchisee
participation in our captive  insurance program and costs related to information
technology  products and  services  provided to certain  franchisees.  In fiscal
2005, we have fewer franchisee participants in the captive insurance program due
to the  termination  of one of our  captive  programs,  which  will  result in a
decrease in franchise  premiums expense in the cost of other franchise income of
approximately $9,500,000.

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

Overview

Applebee's  International,  Inc. and our  subsidiaries  develop,  franchise  and
operate casual dining restaurants under the name "Applebee's  Neighborhood Grill
& Bar" which is the largest  casual dining  concept in the world with over 1,700
system-wide  restaurants  open as of June 26, 2005. 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 business, we believe there are five key factors:

o   Development  - the number of new company and  franchise  restaurants  opened
    during  the  period.  As the  largest  casual  dining  concept in the world,
    Applebee's has a unique  opportunity to leverage our brand,  system size and
    scale to optimize  our future  growth.  Our  expansion  strategy has been to
    cluster  restaurants  in  targeted  markets,   thereby  increasing  consumer
    awareness and convenience, and enabling us to take advantage of operational,
    distribution  and  advertising  efficiencies.  We currently  expect that the
    Applebee's  system will  encompass at least 3,000  restaurants in the United
    States,   as  well  as  the  potential   for  at  least  1,000   restaurants
    internationally.  In the 2005 quarter and the 2005  year-to-date  period, we
    and our  franchisees  opened 30 and 56  restaurants,  respectively.  We have
    opened at least 100 restaurants system-wide each year for the past 12 fiscal
    years. In fiscal 2005, we currently  expect to open at least 135 restaurants
    system-wide, comprised of 50 company and 85 franchise restaurants.

o   Comparable  restaurant  sales - a  year-over-year  comparison  of sales  for
    restaurants  open at least 18 months.  Our revenues are generated  primarily
    from  company  restaurant  sales,  franchise  royalties  and fees and  other
    franchise income.  Increases in company and franchise comparable  restaurant
    sales will result in increases  in company  restaurant  sales and  franchise
    fees and royalties. In the 2005 quarter,  company comparable sales decreased
    1.2% while franchise and system-wide comparable sales were up 2.5% and 1.6%,
    respectively.  For the 2005 year-to-date  period,  company  comparable sales
    were down 0.4% while franchise and system-wide comparable sales were up 3.7%
    and 2.7%,  respectively.  We have had 28  consecutive  quarters  of positive
    system-wide   comparable  sales  growth.  We  currently  expect  system-wide
    comparable  restaurant sales to increase by at least 3% in fiscal 2005, with
    results expected to accelerate in the latter half of the year as comparisons


                                       19
<PAGE>


    become easier. Comparable restaurant sales increases are driven by increases
    in the average guest check and/or increases in guest traffic.  Average guest
    check  increases  result from menu price  increases  and/or a change in menu
    mix.  Although we may have  increases in our average guest check from period
    to period,  our main focus has been increasing guest traffic as we view this
    component to be more  indicative of the long-term  health of the  Applebee's
    brand.  We are  constantly  seeking to increase guest traffic by focusing on
    operations  and  improving our menu with  semi-annual  new menu rollouts and
    implementation   of  new  programs  such  as  Carside  to  Go(TM)and  Weight
    Watchers(TM).  Carside  To  Go(TM)is  expected  to be a driver  of  company,
    franchise and system-wide comparable sales growth in fiscal 2005.

o   Company restaurant margin - company restaurant sales less food and beverage,
    labor,  direct  and  occupancy  restaurant  costs and  pre-opening  expenses
    expressed as a percentage of company  restaurant sales.  Company  restaurant
    margins  were  13.8% and  14.8% in the 2005  quarter  and 2005  year-to-date
    period,  respectively.  We  currently  expect full year fiscal 2005  company
    restaurant margins to be less than full year fiscal 2004 results and will be
    dependent on comparable sales  performance at company  restaurants.  Company
    restaurant margins are susceptible to fluctuations in commodity costs, labor
    costs and other  operating  costs  such as  utilities  costs.  We attempt to
    negotiate  contracts  for the  majority  of our  food  products  in order to
    mitigate the impact of rising commodity costs. We currently expect commodity
    costs for beef, poultry and other proteins to increase by approximately 1.5%
    in fiscal 2005. Labor costs are impacted by many factors,  including minimum
    wage rate and other employment laws.

o   General and  administrative  expenses - general and  administrative  expense
    expressed  as  a  percentage  of  total  operating  revenues.   General  and
    administrative  expense  leverage is a key focus for us. We currently expect
    that revenues will grow faster than general and administrative  expenses. In
    fiscal  2005,  general  and  administrative  expenses  as a percent of total
    revenues are currently expected to be approximately 9%.

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

The  above  overview  contains  forward-looking  statements.   Please  refer  to
"Forward-Looking Statements" later in this section.

Application of Critical Accounting Estimates

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

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

We purchase and maintain  inventories  of certain  specialty  products to assure
sufficient   supplies  to  the  system.  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.


                                       20
<PAGE>


Property and equipment: We report property and equipment at historical cost less
accumulated  depreciation.  Depreciation is provided on a  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
shorten an asset's useful life, we will recognize increased depreciation expense
for that asset in future periods.

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

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

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

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

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

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

Acquisitions

All of our acquisitions  below have been accounted for using the purchase method
of accounting and,  accordingly,  our consolidated  financial statements reflect
the  results  of  operations  for  each  acquisition  subsequent  to the date of
acquisition.  The assets  acquired  and  liabilities  assumed  are  recorded  at


                                       21
<PAGE>


estimates of fair values as  determined  by  management  based upon  information
available.  We finalize the  allocation  of purchase  price to the fair value of
assets acquired and liabilities assumed when we obtain information sufficient to
complete  the  allocation,  but in each case,  no longer than one year after the
acquisition date.

In May 2005, we completed the  acquisition of 12 Applebee's  restaurants,  which
included one restaurant under construction, in Missouri, Kansas and Arkansas for
approximately  $39,500,000.  Through  June  2005,  we  have  paid  approximately
$38,900,000,  which  has been  allocated  to the  fair  value  of  property  and
equipment  of  $16,800,000,  goodwill  of  $21,900,000  and other net  assets of
approximately $200,000. In addition, we expect to pay the remaining $600,000 for
property  and  equipment  relating  to the  completion  of  construction  of one
restaurant in the third fiscal quarter of 2005.

The  following  table is comprised of actual  company  restaurant  sales for the
restaurant  acquisition above, which are included in our condensed  consolidated
financial  statements for each period presented and pro forma company restaurant
sales  assuming  the  acquisition  above  occurred  at  the  beginning  of  each
respective period (in thousands):
<TABLE>
<CAPTION>
                                                               13 Weeks Ended                  26 Weeks Ended
                                                       ------------------------------- -------------------------------
                                                          June 26,        June 27,        June 26,        June 27,
                                                            2005            2004            2005            2004
                                                       --------------- --------------- --------------- ---------------
<S>                                                   <C>             <C>             <C>             <C>

Actual acquired company restaurant sales.............    $     2,800     $      --       $     2,800     $      --
                                                       =============== =============== =============== ===============


Pro forma acquired company restaurant sales..........    $     7,300     $     6,700     $    14,400     $    13,400
                                                       =============== =============== =============== ===============
</TABLE>

In April 2005, we finalized the acquisition of eight Applebee's restaurants that
were closed in fiscal 2004 by a former franchisee for  approximately  $8,800,000
payable in cash.  In connection  with this  acquisition,  we paid  approximately
$800,000 in cash in the fourth quarter of fiscal 2004,  approximately $5,700,000
in cash in the first quarter of fiscal 2005 and approximately $2,300,000 in cash
in the second  quarter of fiscal 2005. The purchase price of $8,800,000 has been
allocated  to  the  fair  value  of  property  and  equipment  of  approximately
$8,200,000 and goodwill of approximately  $600,000. As of June 26, 2005, we have
remodeled  and  opened  six  restaurants.  Subsequent  to  June  26,  2005,  one
additional  restaurant  was opened and the  remaining  restaurant  was sold to a
third party for $1,300,000.

In April 2004, we completed our  acquisition of the operations and assets of ten
Applebee's   restaurants   located  in  Southern  California  for  approximately
$13,800,000  in cash.  The  purchase  price was  allocated  to the fair value of
property and  equipment of  $2,500,000,  goodwill of  $10,800,000  and other net
assets of approximately $500,000. Company restaurant sales for these restaurants
were  $4,700,000  for both the 13 weeks ended and 26 weeks ended June 27,  2004.
Proforma  company  restaurant  sales  for  these  restaurants  would  have  been
approximately  $7,000,000  and  $13,500,000  for the 13 weeks and 26 weeks ended
June 27, 2004 had this  acquisition  been  completed at the  beginning of fiscal
2004.


                                       22
<PAGE>


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.  Applebee's International,  Inc. and covered franchisees make premium
payments to the captive  insurance  company which pays  administrative  fees and
insurance claims, subject to individual and aggregate maximum claim limits under
the captive insurance company's reinsurance policies. Franchisee premium amounts
billed by the captive  insurance  company are established based upon third-party
actuarial  estimates of settlement costs for incurred claims and  administrative
fees. The  franchisee  premiums are included in other  franchise  income ratably
over the policy year.  The related  offsetting  expenses are included in cost of
other franchise income.  Accordingly,  we do not expect franchisee participation
in the captive  insurance company to have a material impact on our net earnings.
In fiscal 2005, we reduced the types of insurance  coverage plans which resulted
in  fewer  franchisee   participants  in  our  captive  insurance  program.  Our
consolidated  balance  sheets  include  the  following  balances  related to the
captive insurance subsidiary:

    o    Franchise   premium   receivables  of   approximately   $3,200,000  and
         $1,900,000  as of June 26, 2005 and December  26,  2004,  respectively,
         included in receivables related to captive insurance subsidiary.
    o    Cash  equivalent  and other  long-term  investments  restricted for the
         payment of claims of  approximately  $18,100,000  and $16,700,000 as of
         June  26,  2005  and  December  26,  2004,  respectively,  included  in
         restricted assets related to captive insurance subsidiary.
    o    Loss  reserve  and  unearned  premiums  related  to  captive  insurance
         subsidiary of approximately  $21,400,000 and $19,600,000 as of June 26,
         2005 and December 26, 2004, respectively.  Approximately $7,400,000 and
         $7,500,000 as of June 26, 2005 and December 26, 2004, respectively,  is
         included in other non-current liabilities.
    o    Other   miscellaneous   items,  net,  of  approximately   $100,000  and
         $1,000,000  as of June 26, 2005 and December  26,  2004,  respectively,
         included in several line items in the consolidated balance sheets.




                                       23
<PAGE>


Results of Operations

The  following  table  contains   information   derived  from  our  consolidated
statements of earnings  expressed as a percentage of total  operating  revenues,
except where otherwise noted. Percentages may not add due to rounding.
<TABLE>
<CAPTION>
                                                                     13 Weeks Ended            26 Weeks Ended
                                                                -------------------------  -------------------------
                                                                  June 26,     June 27,      June 26,     June 27
                                                                    2005         2004          2005         2004
                                                                ------------ ------------  ------------ ------------
<S>                                                            <C>          <C>           <C>          <C>
                                                                                 (as                        (as
                                                                               restated)                  restated)
Revenues:
    Company restaurant sales..................................       88.9%        87.9%         88.9%        87.9%
    Franchise royalties and fees..............................       10.6         10.9          10.7         11.0
    Other franchise income....................................        0.5          1.2           0.4          1.2
                                                                ------------ ------------  ------------ ------------
         Total operating revenues.............................      100.0%       100.0%        100.0%       100.0%
                                                                ============ ============  ============ ============
Cost of sales (as a percentage of company restaurant sales):
    Food and beverage.........................................       26.6%        26.9%         26.5%        26.5%
    Labor.....................................................       33.0         32.6          32.9         32.6
    Direct and occupancy......................................       26.0         24.4          25.3         24.4
    Pre-opening expense.......................................        0.5          0.2           0.4          0.2
                                                                ------------ ------------  ------------ ------------
         Total cost of sales..................................       86.2%        84.1%         85.2%        83.7%
                                                                ============ ============  ============ ============

Cost of other franchise income (as a percentage of other
    franchise income).........................................       86.3%       148.1%         82.3%       122.4%
General and administrative expenses...........................        9.1          8.9           9.0          9.0
Amortization of intangible assets.............................        0.1          0.1           0.1           --
Loss on disposition of restaurants and equipment..............        0.2          0.2           0.1          0.2
                                                                ------------ ------------  ------------ ------------
Operating earnings............................................       13.6         15.2          14.7         15.8
                                                                ------------ ------------  ------------ ------------
Other income (expense):
    Investment income.........................................        0.1           --           0.1           --
    Interest expense..........................................       (0.2)        (0.1)         (0.2)        (0.1)
    Other income..............................................        0.2          0.2           0.2          0.2
                                                                ------------ ------------  ------------ ------------
         Total other income...................................        0.1          0.1           0.1          0.1
                                                                ------------ ------------  ------------ ------------
Earnings before income taxes..................................       13.7         15.3          14.8         15.9
Income taxes..................................................        4.7          5.3           5.1          5.5
                                                                ------------ ------------  ------------ ------------
Net earnings..................................................        9.0%        10.0%          9.7%        10.3%
                                                                ============ ============  ============ ============
</TABLE>


                                       24
<PAGE>



The following table sets forth certain unaudited financial information and other
restaurant data relating to company and franchise restaurants, as reported to us
by franchisees:
<TABLE>
<CAPTION>
                                                               13 Weeks Ended                     26 Weeks Ended
                                                       -------------------------------    -------------------------------
                                                         June 26,          June 27,          June 26,          June 27,
                                                           2005              2004              2005              2004
                                                       -------------     -------------    --------------    -------------
<S>                                                   <C>               <C>              <C>               <C>
Number of restaurants:
    Company:
         Beginning of period.......................            437               391               424              383
         Restaurant openings.......................             14                 4                27               12
         Restaurants acquired from franchisees.....             11                10                11               10
                                                       -------------     -------------    --------------    -------------
         End of period.............................            462               405               462              405
                                                       -------------     -------------    --------------    -------------
    Franchise:
         Beginning of period.......................          1,257             1,212             1,247            1,202
         Restaurant openings.......................             16                 8                29               19
         Restaurants closed........................             (2)               (3)               (5)              (4)
         Restaurants acquired from franchisees.....            (11)              (10)              (11)             (10)
                                                       -------------     -------------    --------------    -------------
         End of period.............................          1,260             1,207             1,260            1,207
                                                       -------------     -------------    --------------    -------------
    Total:
         Beginning of period.......................          1,694             1,603             1,671            1,585
         Restaurant openings.......................             30                12                56               31
         Restaurants closed........................             (2)               (3)               (5)              (4)
                                                       -------------     -------------    --------------    -------------
         End of period.............................          1,722             1,612             1,722            1,612
                                                       =============     =============    ==============    =============

Weighted average weekly sales per restaurant:
    Company........................................     $   46,800        $   47,758        $   47,483       $   48,075
    Franchise......................................     $   50,114        $   48,759        $   50,705       $   48,763
    Total..........................................     $   49,244        $   48,510        $   49,868       $   48,593
Change in comparable restaurant sales:(1)
    Company........................................          (1.2)%             5.5 %            (0.4)%            7.0 %
    Franchise......................................           2.5 %             6.5 %             3.7 %            7.2 %
    Total..........................................           1.6 %             6.3 %             2.7 %            7.2 %

Total operating revenues (in thousands):
    Company restaurant sales.......................     $  272,703        $  247,769        $  543,161       $  491,329
    Franchise royalties and fees(2)................         32,493            30,722            65,501           61,437
    Other franchise income(3)......................          1,424             3,399             2,489            6,514
                                                       -------------     -------------    --------------    -------------
    Total..........................................     $  306,620        $  281,890        $  611,151       $  559,280
                                                       =============     =============    ==============    =============
</TABLE>

(1) When computing comparable restaurant sales, restaurants open for at least 18
    months are compared from period to period.
(2) Franchise royalties are generally 4% of each franchise restaurant's reported
    monthly gross sales.  Reported franchise sales, in thousands,  were $820,483
    and $764,422 in the 2005  quarter and the 2004  quarter,  respectively,  and
    $1,653,480 and  $1,528,538 in the 2005  year-to-date  and 2004  year-to-date
    period, respectively. Franchise fees typically range from $30,000 to $35,000
    for each restaurant opened.
(3) Other  franchise   income  includes   insurance   premiums  from  franchisee
    participation in our captive  insurance program and revenue from information
    technology products and services provided to certain franchisees.


                                       25
<PAGE>


2005 Quarter  Compared With 2004 Quarter and 2005  Year-to-Date  Period Compared
With 2004 Year-to-Date Period

Company Restaurant Sales.  Total company restaurant sales increased  $24,934,000
(10%) from  $247,769,000 in the 2004 quarter to $272,703,000 in the 2005 quarter
and  increased  $51,832,000  (11%) from  $491,329,000  in the 2004  year-to-date
period to $543,161,000 in the 2005 year-to-date  period. The percentage increase
in total company restaurant sales was comprised of the following:
<TABLE>
<CAPTION>
                                                                                     2005 Year-to-Date
                                                                2005 Quarter               Period
                                                           ----------------------  ----------------------
<S>                                                       <C>                     <C>
Company restaurant openings.............................            11 %                    10 %
Restaurant acquisitions.................................             1 %                     2 %
Weighted average weekly sales...........................            (2)%                    (1)%
</TABLE>

Comparable restaurant sales at company restaurants decreased by 1.2% and 0.4% in
the  2005  quarter  and the 2005  year-to-date  period,  respectively.  Weighted
average weekly sales at company  restaurants  decreased 2.0% from $47,758 in the
2004 quarter to $46,800 in the 2005 quarter and  decreased  1.2% from $48,075 in
the 2004 year-to-date period to $47,483 in the 2005 year-to-date  period.  These
decreases  were a result of a reduction in guest traffic due to lapping over the
implementation  of our Weight  Watchers(TM)  menu  system-wide in May 2004 and a
decline in guest counts in the Kansas City,  St.  Louis and  Minnesota  markets,
where  more  than  one-third  of our  company  restaurants  are  located.  These
decreases  were  partially  offset  by  increases  in the  average  guest  check
resulting from menu price increases of  approximately  1.0% in November 2004 and
1.5% in May 2005 and our Carside To Go(TM)  initiative.  Carside To Go(TM) sales
mix increased from 9.4% of company restaurant sales in the 2004 quarter to 10.4%
of company restaurant sales in the 2005 quarter.

Franchise Royalties and Fees.  Franchise royalties and fees increased $1,771,000
(6%) from $30,722,000 in the 2004 quarter to $32,493,000 in the 2005 quarter and
increased  $4,064,000 (7%) from $61,437,000 in the 2004  year-to-date  period to
$65,501,000 in the 2005 year-to-date  period. These increases were due primarily
to the  increased  number of  franchise  restaurants  operating  during the 2005
quarter and 2005 year-to-date period as compared to the same periods in 2004 and
increases in  comparable  restaurant  sales.  Weighted  average  weekly sales at
franchise  restaurants  increased  2.8% and 4.0% in the  2005  quarter  and 2005
year-to-date period,  respectively,  and franchise  comparable  restaurant sales
increased  2.5% and  3.7% in the 2005  quarter  and  2005  year-to-date  period,
respectively.  These  increases  were due in part to the  implementation  of the
Carside To Go(TM)  program in most  franchise  restaurants  which were partially
offset by lapping over sales increases which resulted from the implementation of
our Weight Watchers(TM) menu system-wide in May 2004.

Other Franchise Income.  Other franchise income decreased  $1,975,000 (58%) from
$3,399,000  in the 2004 quarter to  $1,424,000 in the 2005 quarter and decreased
$4,025,000 (62%) from $6,514,000 in the 2004  year-to-date  period to $2,489,000
in the 2005 year-to-date  period due primarily to fewer franchisee  participants
in our captive  insurance  program  resulting from the reduction of the types of
insurance  coverage  plans  offered.  Franchise  premiums  are included in other
franchise income ratably over the policy year.

Cost of Company  Restaurant  Sales. Food and beverage costs decreased from 26.9%
in the 2004 quarter to 26.6% in the 2005 quarter and were 26.5% in both the 2004
year-to-date  period  and  the  2005  year-to-date  period.  Both  periods  were
favorably  impacted by a menu price  increases of 1.0% in November 2004 and 1.5%
in May 2005,  which were offset by higher  commodity costs. The 2004 quarter and


                                       26
<PAGE>


2004 year-to-date period were unfavorably impacted by the company portion of the
June 2004  impairment of  approximately  $500,000 for excess riblet  inventories
which no longer met our quality standards.

Labor  costs  increased  from  32.6%  in the 2004  quarter  to 33.0% in the 2005
quarter and increased from 32.6% in the 2004 year-to-date period to 32.9% in the
2005  year-to-date  period.  The increases in both periods were due primarily to
higher  management and hourly wage rates and higher group  insurance costs which
were partially offset by lower management incentive compensation.

Direct and occupancy costs increased from 24.4% in both the 2004 quarter and the
2004  year-to-date  period  to 26.0% in the 2005  quarter  and 25.3% in the 2005
year-to-date  period due primarily to lower sales volumes at company restaurants
which resulted in unfavorable depreciation, rent and property tax expenses, as a
percentage  of sales,  due to their  relatively  fixed  nature as well as higher
utilities,  packaging and smallwares costs. The increase in the 2005 quarter was
also due to higher advertising costs, as a percentage of sales.

Pre-Opening Expenses.  Pre-opening expenses increased from 0.2% in both the 2004
quarter and the 2004 year-to-date period to 0.5% in the 2005 quarter and 0.4% in
the 2005 year-to-date period due primarily to the increased number of restaurant
openings.

Cost of  Other  Franchise  Income.  Cost of  other  franchise  income  decreased
$3,806,000  (76%) from  $5,035,000 in the 2004 quarter to $1,229,000 in the 2005
quarter and decreased  $5,924,000 (74%) from $7,972,000 in the 2004 year-to-date
period  to  $2,048,000  in  the  2005   year-to-date  due  to  fewer  franchisee
participants in our captive  insurance  program  resulting from the reduction of
the types of insurance  coverage plans offered and the franchisee portion of the
June 2004 impairment of approximately  $1,800,000 for excess riblet  inventories
which no longer met our quality standards.

General  and  Administrative  Expenses.   General  and  administrative  expenses
increased  from 8.9% in the 2004  quarter to 9.1% in the 2005  quarter  and were
9.0% in both the 2004  year-to-date  period  and the 2005  year-to-date  period.
General and administrative expenses were unfavorably impacted in both periods by
higher  compensation  expense  due to  staffing  levels  and  higher  management
training  costs due to the increased  number of company  restaurant  openings as
compared to 2004. The increase in the 2005 quarter was also due to the timing of
our restaurant general manager convention.

Income Taxes.  The effective income tax rate, as a percentage of earnings before
income  taxes,  decreased  from 34.7% in the 2004  quarter and 34.8% in the 2004
year-to-date  period to 34.6% in both the 2005 quarter and the 2005 year-to-date
period due to a reduction in state and local income taxes.


                                       27
<PAGE>


Liquidity and Capital Resources

Our primary  source of liquidity is cash  provided by  operations.  Our need for
capital   resources   historically   has  resulted  from  the  construction  and
acquisition of restaurants, the repurchase of our common stock and investment in
information  technology  systems.  In the past, we have obtained capital through
public stock offerings,  debt financing, and our ongoing operations.  Cash flows
from our ongoing  operations  include cash  generated from company and franchise
operations,  credit from trade  suppliers,  real  estate  lease  financing,  and
landlord contributions to leasehold  improvements.  In addition, we have assumed
debt or issued new debt in connection with certain mergers and acquisitions. The
following  table  presents  a  summary  of our cash  flows for the 2005 and 2004
year-to-date period (in thousands):
<TABLE>
<CAPTION>
                                                            2005                 2004
                                                        Year-to-Date         Year-to-Date
                                                           Period               Period
                                                     -------------------  -------------------
<S>                                                 <C>                  <C>
                                                                             (as restated)
Net cash provided by operating activities..........     $     107,790        $      80,439

Net cash used by investing activities..............          (108,116)             (61,986)

Net cash used by financing activities..............            (9,655)             (21,430)
                                                     -------------------  -------------------

Net decrease in cash and cash equivalents..........     $      (9,981)       $      (2,977)
                                                     ===================  ===================
</TABLE>

Capital  expenditures,  excluding  acquisitions,  were  $36,543,000  in the 2004
year-to-date  period and $59,922,000 in the 2005 year-to-date  period. In fiscal
2005, we currently expect to open at least 50 company  restaurants,  and capital
expenditures are expected to be between $150,000,000 and $160,000,000, including
the costs to acquire and re-open seven company  restaurants  that were closed in
fiscal 2004 by a former  franchisee  in Memphis,  Tennessee,  but  excluding the
costs to acquire the assets of 12 Applebee's restaurants in Missouri, Kansas and
Arkansas.

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

In May 2005, we completed the  acquisition of 12 Applebee's  restaurants,  which
included one restaurant under construction, in Missouri, Kansas and Arkansas for
approximately  $39,500,000.  Through  June  2005,  we  have  paid  approximately
$38,900,000,  which  has been  allocated  to the  fair  value  of  property  and
equipment  of  $16,800,000,  goodwill  of  $21,900,000  and other net  assets of
approximately $200,000. In addition, we expect to pay the remaining $600,000 for
property  and  equipment  relating  to the  completion  of  construction  of one
restaurant in the third fiscal quarter of 2005.

In April 2005, we finalized the acquisition of eight Applebee's restaurants that
were closed in fiscal 2004 by a former franchisee for  approximately  $8,800,000
payable in cash.  In connection  with this  acquisition,  we paid  approximately
$800,000 in cash in the fourth quarter of fiscal 2004,  approximately $5,700,000
in cash in the first quarter of fiscal 2005 and approximately $2,300,000 in cash
in the second quarter of fiscal 2005.


                                       28
<PAGE>


In April 2004, we completed our  acquisition of the operations and assets of ten
Applebee's   restaurants   located  in  Southern  California  for  approximately
$13,800,000 in cash.

In December  2004, we completed the  refinancing of our  $150,000,000  unsecured
revolving  credit  facility.  The  new  bank  credit  agreement  provides  for a
$150,000,000 five-year unsecured revolving credit facility, of which $40,000,000
may be used for the  issuance of letters of credit.  The  facility is subject to
various  covenants  and  restrictions  which,  among other  things,  require the
maintenance  of  stipulated   fixed  charge,   leverage  and   indebtedness   to
capitalization  ratios, as defined. There is no limit on cash dividends provided
that the  declaration  and payment of such  dividend does not cause a default of
any other  covenant  contained  in the  agreement.  The  facility  is subject to
standard other terms,  conditions,  covenants, and fees. As of June 26, 2005, we
are in compliance with the covenants  contained in our credit  agreement.  As of
June 26, 2005, we had borrowings of  $81,300,000,  standby  letters of credit of
$9,500,000  outstanding  and  approximately   $59,200,000  available  under  our
revolving  credit  facility.  During fiscal 2005, we expect to fund  operations,
capital expansion, any repurchases of common stock, and the payment of dividends
from operating cash flows and borrowings under our revolving credit facility.

In October 2004, our Board of Directors authorized additional repurchases of our
common  stock of up to  $150,000,000  beginning  in fiscal  2005 and  approved a
written plan for repurchases of our common stock in the open market.  During the
2005 year-to-date period, we repurchased 2,660,000 shares of our common stock at
an average price of $25.65 for an aggregate cost of $68,200,000.  As of June 26,
2005, we had $81,800,000 remaining under our repurchase authorization.

As of June 26, 2005, our liquid assets totaled $944,000.  These assets consisted
of  cash  and  cash  equivalents  in  the  amount  of  $661,000  and  short-term
investments in the amount of $283,000.  The working  capital  deficit  increased
from  $51,041,000  as of December 26, 2004 to  $76,491,000  as of June 26, 2005.
This  increase  was due  primarily  to  increases  in accrued  income  taxes and
decreases in cash and cash  equivalents  due to repurchases of our common stock,
acquisition of restaurants  and capital  expenditures  in the 2005  year-to-date
period  and was  partially  offset by the  redemption  of gift cards in the 2005
year-to-date period sold in fiscal 2004.

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


                                       29
<PAGE>


The following table shows our debt amortization  schedule,  future capital lease
commitments (including principal and interest payments),  future operating lease
commitments and future purchase obligations as of June 26, 2005 (in thousands):
<TABLE>
<CAPTION>
                                                                             Payments due by period
                                                   -------------------------------------------------------------------------
                     Certain                                       Less than 1       1-3             3-5        More than 5
             Contractual Obligations                   Total           year         Years           years          years
-------------------------------------------------  -------------  -------------  -------------  -------------  -------------
<S>                                               <C>            <C>            <C>            <C>            <C>
Long-term Debt (excluding capital
    lease obligations) (1)......................    $    82,784    $     4,428    $       162    $    77,095    $     1,099
Capital Lease Obligations.......................          8,720            780          1,644          1,760          4,536
Operating Leases (2)............................        360,523         25,208         50,628         50,634        234,053
Purchase Obligations - Company(3)...............        206,221        174,938         21,130         10,153           --
 Purchase Obligations - Franchise(4)............        448,359        384,875         40,934         22,550           --
</TABLE>

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

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

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

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

Other Contractual Obligations

We have outstanding lease guarantees of approximately $18,200,000 as of June 26,
2005  (see  Note 4 to  the  condensed  consolidated  financial  statements).  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 $17,200,000.  We have not recorded a
liability for these guarantees as of June 26, 2005 or December 26, 2004.

We have severance and employment  agreements with certain officers providing for
severance  payments  to be  made  in  the  event  the  associate  resigns  or is
terminated   related  to  a  change  in  control.   The  agreements  define  the
circumstances  which  will  constitute  a change in  control.  If the  severance
payments had been due as of June 26, 2005,  we would have been  required to make
payments totaling approximately $13,300,000.  In addition, we have severance and
employment  agreements with certain officers which contain severance  provisions
not  related  to a change in  control.  Those  provisions  would  have  required
aggregate  payments  of  approximately  $6,200,000  if such  officers  had  been
terminated as of June 26, 2005.

In November 2003, we arranged for a third-party  financing company to provide up
to $75,000,000  to qualified  franchisees  for short-term  loans to fund remodel
investments, subject to our approval. Under the terms of this financing program,
we will  provide a limited  guarantee  pool for the loans  advanced  during  the
three-year  period ending  December 2006. As of June 26, 2005,  there were loans
outstanding to four franchisees for approximately $1,300,000 under this program.

In May 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


                                       30
<PAGE>


limited  guarantee of certain loans advanced under this program.  As of June 26,
2005,  there  were  loans  outstanding  to five  franchisees  for  approximately
$20,100,000 under this program. The fair value of our guarantees under these two
financing  programs was less than $100,000 and is recorded in other  non-current
liabilities  and other assets in our  consolidated  balance sheet as of June 26,
2005.

New Accounting Pronouncements

In June 2005,  the Financial  Accounting  Standards  Board's  ("FASB")  Emerging
Issues  Task Force  reached a  consensus  on Issue No.  05-6,  "Determining  the
Amortization  Period for Leasehold  Improvements"  ("EITF  05-6").  The guidance
requires  that  leasehold  improvements  acquired in a business  combination  or
purchased subsequent to the inception of a lease be amortized over the lesser of
the  useful  life of the  assets  or a term  that  includes  renewals  that  are
reasonably  assured at the date of the business  combination  or  purchase.  The
guidance is effective for periods beginning after June 29, 2005. The adoption of
EITF 05-6 will not have an impact on our consolidated financial statements.

In May 2005,  the FASB issued  Statement of Financial  Accounting  Standards No.
154, "Accounting Changes and Error Corrections--A Replacement of APB Opinion No.
20 and FASB Statement No. 3." SFAS No. 154 requires retrospective application to
prior periods' financial statements for changes in accounting principle,  unless
it is  impracticable  to  determine  either the  period-specific  effects or the
cumulative  effect of the  change.  SFAS No.  154 is  effective  for  accounting
changes and  corrections of errors made in fiscal years beginning after December
15, 2005.

In March 2005,  the FASB  issued FASB  Interpretation  No. 47,  "Accounting  for
Conditional Asset Retirement Obligations," ("FIN 47"). FIN 47 clarifies that the
term  "conditional"  as used in SFAS No. 143,  "Accounting for Asset  Retirement
Obligations."  This  Interpretation  refers to a legal  obligation to perform an
asset retirement activity even if the timing and/or settlement is conditional on
a  future  event  that  may or may  not be  within  the  control  of an  entity.
Accordingly,  the entity  must  record a  liability  for the  conditional  asset
retirement  obligation  if the fair value of the  obligation  can be  reasonably
estimated.  The  Interpretation  is  effective  for fiscal  years  ending  after
December 15, 2005. We are evaluating the impact the adoption of FIN 47 will have
on our consolidated financial statements.

In December  2004,  the FASB issued SFAS No. 123  (revised  2004),  "Share-based
Payment,"   which   replaces   SFAS  No.  123,   "Accounting   for   Stock-Based
Compensation,"  and supercedes  Accounting  Principles Board ("APB") Opinion No.
25,  "Accounting  for Stock Issued to  Employees."  SFAS No. 123 (revised  2004)
requires  compensation costs related to share-based  payment  transactions to be
recognized in the financial statements.  With limited exceptions,  the amount of
compensation  cost will be measured based on the fair value on the grant date of
the equity or liability instruments issued. Compensation cost will be recognized
over the period that an employee provides service for that award, resulting in a
decrease in our net earnings. We will adopt the provisions of this Statement, as
amended,  using the modified  prospective  method  beginning in fiscal 2006.  We
expect that the adoption of this Standard  will be material to our  consolidated
financial  statements;  however,  we are still in the process of evaluating  its
impact.


                                       31
<PAGE>


Forward-Looking Statements

The  statements  contained  in the  "Management's  Discussion  and  Analysis  of
Financial  Condition and Results of  Operations"  section  regarding  restaurant
development,  comparable sales,  Carside To Go(TM),  revenue growth,  restaurant
margin,   commodity  costs,   general  and  administrative   expenses,   capital
expenditures, return on equity and financial commitments are forward-looking and
based on current  expectations.  There are several risks and uncertainties  that
could cause actual  results to differ  materially  from those  described.  These
risks  include  but are not  limited  to our  ability  and  the  ability  of our
franchisees to open and operate additional restaurants  profitably,  the ability
of our franchisees to obtain financing, the continued growth of our franchisees,
our ability to attract and retain qualified  franchisees,  the impact of intense
competition in the casual dining segment of the restaurant industry,  the impact
of economic factors on consumer spending,  and our ability to control restaurant
operating  costs which are  impacted by market  changes,  minimum wage and other
employment laws, food costs and inflation. For a more detailed discussion of the
principal  factors that could cause actual  results to be materially  different,
you  should  read  our  current  report  on Form 8-K  which  we  filed  with the
Securities  and  Exchange  Commission  on  February  9, 2005.  We  disclaim  any
obligation to update forward-looking statements.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk from fluctuations in interest rates and changes in
commodity  prices.  Our revolving  credit  facility bears interest at either the
bank's prime rate or LIBOR plus 0.5%,  at our option.  As of June 26, 2005,  the
total amount of debt subject to interest rate fluctuations was $81,300,000 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 $813,000  per
year.  We may from time to time  enter into  interest  rate swap  agreements  to
manage the impact of interest  rate  changes on our  earnings.  Many of the food
products we purchase  are subject to price  volatility  due to factors  that are
outside of our control such as weather,  seasonality  and fuel costs. As part of
our  strategy to moderate  this  volatility,  we have  entered  into fixed price
purchase commitments.

Item 4.  Controls and Procedures

As of June 26,  2005,  we have  evaluated  the  effectiveness  of the design and
operation of our disclosure  controls and procedures  under the  supervision and
with  the  participation  of the  Chief  Executive  Officer  ("CEO")  and  Chief
Financial Officer ("CFO"). Based on this evaluation,  our management,  including
the CEO and CFO,  concluded  that our disclosure  controls and  procedures  were
effective.  During our most recent fiscal 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.


                                       32
<PAGE>



                           PART II. OTHER INFORMATION

Item 1.  Legal Proceedings

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

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

Item 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)
------------------------------ ------------------ ----------- ------------------------- --------------------------
<S>                           <C>                <C>         <C>                       <C>
                                                                                              Maximum Dollar
                                                                   Total Number of         Value of Shares that
                                                    Average      Shares Purchased as            May Yet Be
                                  Total Number       Price         Part of Publicly        Purchased Under the
                                   of Shares       Paid Per       Announced Plans or        Plans or Programs
           Period                  Purchased         Share            Programs                (in thousands)
------------------------------ ------------------ ----------- ------------------------- --------------------------
March 28, 2005 through
April 24, 2005                        86,000         $26.72              86,000                 $129,079
------------------------------ ------------------ ----------- ------------------------- --------------------------
April 25, 2005 through
May 22, 2005                       1,752,400         $25.56           1,752,400                  $84,291
------------------------------ ------------------ ----------- ------------------------- --------------------------
May 23, 2005 through
June 26, 2005                         94,239(2)      $26.76              93,300                  $81,795
------------------------------ ------------------ ----------- ------------------------- --------------------------
            Total                  1,932,639                          1,931,700
============================== ================== =========== ========================= ==========================
</TABLE>

(1) In October 2004, our Board of Directors authorized additional repurchases of
our common stock of up to  $150,000,000  beginning in fiscal 2005.
(2) Includes  939 shares  received  as partial  payment for shares  issued under
stock option plans.


                                       33
<PAGE>



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

Our annual meeting of  stockholders  was held on May 12, 2005. The  stockholders
voted on the following matters:

    Proposal I.         Elect  Erline Belton and  Eric L.  Hansen as  Directors.
    Proposal II.        Approve an  amendment to the  Applebee's  International,
                        Inc.  Amended and  Restated 1995  Equity Incentive Plan.
    Proposal III.       Approve  an amendment to the  Applebee's  International,
                        Inc. Employee Stock Purchase Plan.
    Proposal IV.        Ratify  Deloitte  &  Touche   LLP   as  our  independent
                        registered  public accounting  firm for the  2005 fiscal
                        year.
    Proposal V.         Act on a shareholder  proposal to  require us to issue a
                        report  on the  feasibility  of  requiring  our  chicken
                        suppliers to utilize an alternative method of slaughter.

The results of the voting were as follows:
<TABLE>
<CAPTION>
                                                         Negative/
                                 Affirmative             Withheld                                         Broker
         Proposal                    Votes                  Votes                 Abstentions            Non-Votes
--------------------------     ----------------     --------------------     --------------------    -----------------
<S>                           <C>                  <C>                      <C>                     <C>
        I (Belton)                74,075,223               1,885,305                    --                     --
        I (Hansen)                73,930,090               2,030,438                    --                     --
           II                     47,478,774              17,841,092                 135,508             10,505,154
           III                    62,431,883               2,904,626                 118,865             10,505,154
           IV                     75,129,910                 554,259                 276,359                   --
            V                      3,639,797              57,048,023               4,767,554             10,505,154
</TABLE>

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


Item 6.  Exhibits

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



                                       34
<PAGE>



                                   SIGNATURES


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

                         APPLEBEE'S INTERNATIONAL, INC.
                                  (Registrant)



Date: July 27, 2005                    By: /s/ Lloyd L. Hill
      ---------------------------         --------------------------------------
                                       Lloyd L. Hill
                                       Director, Chairman of the Board and Chief
                                       Executive Officer
                                       (principal executive officer)

Date: July 27, 2005                    By: /s/ Steven K. Lumpkin
      ---------------------------         --------------------------------------
                                       Steven K. Lumpkin
                                       Director, Executive Vice President, Chief
                                       Financial Officer and Treasurer
                                       (principal financial officer)

Date: July 27, 2005                    By: /s/ Beverly O. Elving
      ---------------------------         --------------------------------------
                                       Beverly O. Elving
                                       Vice President and Controller
                                       (principal accounting officer)



                                       35
<PAGE>


                 APPLEBEE'S INTERNATIONAL, INC AND SUBSIDIARIES
                                  EXHIBIT INDEX


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

    10.1    Amendment to  Memorandum of  Understanding,  dated  October 5, 2002,
            with Louis A. Kaucic

    10.2    Asset Purchase Agreement with  The Ozark Apples, Inc. dated April 8,
            2005

    10.3    Amended and Restated 1995 Equity Incentive Plan, as amended

    10.4    Employee Stock Purchase Plan, as amended

    10.5    Amendment to Executive Retirement Plan

    10.6    CEO Use of the Company  Airplane Policy  (incorporated  by reference
            to Form 8-K filed on May 16, 2005)

    10.7    Personal Use of Corporate  Aircraft for Senior Team (incorporated by
            reference to Form 8-K filed on May 16, 2005)

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


                                       36