Applebee's International Reports Fourth Quarter and Fiscal Year 2005 Results

The company adopted FASB Interpretation No. 47 ("FIN 47"),"Accounting for Conditional Asset Retirement Obligations," in thefourth quarter of 2005. The cumulative effect of this change inaccounting principle was an expense of $350,000 on a pre-tax basis($225,000 after-tax or less than $0.01 per share).

For the fiscal year ended December 25, 2005, net earnings were$101.8 million, or $1.27 per diluted share, including impairmentcharges and the cumulative effect of a change in accounting principle.Excluding impairment charges recorded in the third quarter of 2005totaling $3.9 million ($2.5 million after-tax or approximately $0.03per share), net earnings were $104.3 million, or $1.30 per dilutedshare, for fiscal year 2005. A reconciliation of non-GAAP measurementsto GAAP results is attached to this release.

As previously reported, system-wide comparable sales for thefourth quarter of 2005 increased 1.0 percent, the 30th consecutivequarter of comparable sales growth. Comparable sales for companyrestaurants decreased 0.9 percent and franchise restaurant comparablesales increased 1.6 percent for the quarter. System-wide comparablesales for the 2005 fiscal year increased 1.8 percent, with franchiserestaurant comparable sales up 2.7 percent and company comparablerestaurant sales down 0.9 percent.

Lloyd Hill, chairman and chief executive officer, said, "Whileacknowledging the external challenges we faced, we were disappointedwith our results in 2005. Our management team is not making excusesfor our performance and is even more focused on improving the thingsthat are within our control to make Applebee's more relevant to all ofour guests. We remain committed to our long-term strategies, includingour emphasis on disciplined growth and enhancing shareholder value. Wehave recently begun to implement our leadership succession plan, and Iam confident that the future direction of the company is in the righthands."

Dave Goebel, president and chief operating officer, added, "Ourkey strategic initiatives in 2006 include more rapid innovation of ourfood, evolution of our advertising message, and leveraging our keypoints of differentiation with consumers. While we were pleased withour strong January sales performance, we recognize that a four-weekperiod is not long enough to declare a sustainable improvement intrends, and that our results do not yet reflect the implementation ofthose initiatives."

Other results for the fiscal year ended December 25, 2005,included:

-- Total system-wide sales for the 2005 fiscal year increased by 8.2 percent over 2004. System-wide sales are a non-GAAP financial measure that includes sales at all company and franchise Applebee's restaurants, as reported by franchisees. The company believes that system-wide sales information is useful in analyzing Applebee's market share and growth, and because franchisees pay royalties and contribute to the national advertising pool based on a percentage of their sales.

-- Applebee's ended the year with 1,804 restaurants system-wide (486 company and 1,318 franchise restaurants). There were 144 new Applebee's restaurants opened system-wide during fiscal year 2005, the 13th consecutive year of at least 100 new restaurant openings, including 52 company and 92 franchised restaurants.

-- During 2005, the company repurchased 8,288,100 shares of common stock at an average price of $23.66 for an aggregate cost of $196.1 million. As of December 25, 2005, $129.0 million remained available under the company's previous stock repurchase authorization.

-- As of December 25, 2005, the company had total debt outstanding of $188.4 million, with $58 million available under its revolving credit facility.

BUSINESS OUTLOOK

The company reiterated its previously stated guidance with respectto its business outlook for fiscal year 2006.

-- Over 120 new restaurants are expected to open in 2006, including at least 40 company restaurants and at least 80 franchise restaurants. Approximately 15 company restaurants are currently expected to open in the first half of the year, with the balance opening in the second half of the year. Approximately 20 to 25 franchise restaurants are expected to open in the first half of the year, with the remainder opening in the second half of the year.

-- System-wide comparable sales are expected to increase by 2 to 3 percent for the full year, with results expected to be lower during the first part of the year and accelerate throughout the year.

-- Overall restaurant margins before pre-opening expense for the full year of 2006 are expected to be similar to fiscal year 2005 results and will be dependent on comparable sales performance at company restaurants. In addition, higher energy costs, including utilities, fuel surcharges and packaging costs, will have a negative impact on margins, particularly in the first quarter.

-- General and administrative expenses, excluding the impact of stock compensation expense, as a percentage of operating revenues, are expected to be in the high-8 percent range.

-- The effective income tax rate is expected to be 35.5 to 36.0 percent for the year.

-- Excluding the cost of franchise acquisitions, capital expenditures are expected to be between $140 and $150 million in 2006, including costs relating to the construction of a new corporate headquarters.

-- In addition, the company completed the acquisition of four franchise restaurants in the Houston area in late January for approximately $8.2 million in cash.

-- The impact of the implementation of Statement of Financial Accounting Standards No. 123R, "Share-Based Payment," is estimated to be approximately $0.17 per diluted share for the year, with a slightly higher proportion to be recognized in the first quarter.

-- Based on the foregoing assumptions, diluted earnings per share for fiscal year 2006 are expected to be in the range of $1.43 to $1.47, excluding the impact of stock compensation expense, and $1.26 to $1.30 including the impact of stock compensation expense.

A conference call to review the fourth quarter and fiscal year2005 results and the current business outlook will be held on Thursdaymorning, February 9, 2006, at 10:00 a.m. Central Time (11:00 a.m.Eastern Time). The conference call will be broadcast live over theInternet and a replay will be available shortly after the call on theInvestors section of the company's website (www.applebees.com).

Applebee's International, Inc., headquartered in Overland Park,Kan., develops, franchises and operates restaurants under theApplebee's Neighborhood Grill & Bar brand, the largest casual diningconcept in the world. There are currently 1,813 Applebee's restaurantsoperating system-wide in 49 states and 14 international countries.Additional information on Applebee's International can be found at thecompany's website (www.applebees.com).

Certain statements contained in this release, including fiscalyear 2006 guidance as set forth in the Business Outlook section, areforward-looking and based on current expectations. There are severalrisks and uncertainties that could cause actual results to differmaterially from those described, including but not limited to theability of the company and its franchisees to open and operateadditional restaurants profitably, the ability of its franchisees toobtain financing, the continued growth of its franchisees, and itsability to attract and retain qualified franchisees, the impact ofintense competition in the casual dining segment of the restaurantindustry, the impact of economic factors on consumer spending, and itsability to control restaurant operating costs which are impacted bymarket changes, minimum wage and other employment laws, food costs andinflation. For additional discussion of the principal factors thatcould cause actual results to be materially different, the reader isreferred to the company's current report on Form 8-K filed with theSecurities and Exchange Commission on February 9, 2005. The companydisclaims any obligation to update these forward-looking statements.
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands, except per share amounts)


13 Weeks Ended 52 Weeks Ended
--------------------------------------------
Dec. 25, Dec. 26, Dec. 25, Dec. 26,
2005 2004 2005 2004
--------------------------------------------
Revenues:
Company restaurant sales $266,807 $238,296 $1,082,641 $976,798
Franchise royalties and
fees................... 31,723 29,736 128,813 121,221
Other franchise income.. 1,643 3,188 5,196 13,615
--------------------------------------------
Total operating
revenues............. 300,173 271,220 1,216,650 1,111,634
--------------------------------------------
Cost of company restaurant
sales:
Food and beverage....... 70,767 63,857 286,522 259,134
Labor................... 89,493 78,126 358,563 317,659
Direct and occupancy.... 75,545 62,938 287,656 244,707
Pre-opening expense..... 1,243 1,013 4,767 3,025
--------------------------------------------
Total cost of company
restaurant sales..... 237,048 205,934 937,508 824,525
--------------------------------------------
Cost of other franchise
income(a)................ 2,054 2,908 4,892 14,401
General and administrative
expenses................. 28,513 27,676 109,768 104,810
Amortization of intangible
assets................... 220 220 878 663
Impairment of long-lived
assets................... -- -- 3,900 --
Loss on disposition of
restaurants and equipment 726 435 2,067 1,955
--------------------------------------------
Operating earnings........ 31,612 34,047 157,637 165,280
--------------------------------------------
Other income (expense):
Investment income....... 719 718 1,695 1,284
Interest expense........ (2,162) (487) (4,365) (1,626)
Other income............ 150 1,780 1,762 3,557
--------------------------------------------
Total other income
(expense)............ (1,293) 2,011 (908) 3,215
--------------------------------------------
Earnings before income
taxes and cumulative
effect of change in
accounting principle..... 30,319 36,058 156,729 168,495
Income taxes(b)........... 9,574 11,656 54,702 57,630
--------------------------------------------
Earnings before cumulative
effect of change in
accounting principle..... 20,745 24,402 102,027 110,865
Cumulative effect of
change in accounting
principle, net of tax.... (225) -- (225) --
--------------------------------------------
Net earnings.............. $20,520 $24,402 $101,802 $110,865
============================================

Basic net earnings per
common share:
Basic earnings before
cumulative effect of
change in accounting
principle.............. $0.27 $0.30 $1.30 $1.36
Cumulative effect of
change in accounting
principle, net of tax.. -- -- -- --
--------------------------------------------
Basic net earnings per
common share............. $0.27 $0.30 $1.29 $1.36
============================================

Diluted net earnings per
common share:
Diluted earnings before
cumulative effect of
change in accounting
principle.............. $0.27 $0.30 $1.28 $1.33
Cumulative effect of
change in accounting
principle, net of tax.. -- -- -- --
--------------------------------------------
Diluted net earnings per
common share............. $0.27 $0.30 $1.27 $1.33
============================================

Basic weighted average
shares outstanding....... 75,525 80,835 78,650 81,528
============================================
Diluted weighted average
shares outstanding....... 76,542 82,518 80,010 83,600
============================================

(a) The company recorded an expense of $0.5 million in the fourth
quarter of 2005 to increase reserves for estimated insurance
losses incurred by franchise participants of its captive insurance
subsidiary that may not be recovered.
(b) Fourth quarter 2005 net earnings reflect a decrease in income tax
expense of $1.1 million due to the resolution of a state income
tax matter.
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP MEASUREMENTS TO GAAP RESULTS
(Unaudited)
(in thousands, except per share amounts)

In addition to the results provided in accordance with Generally
Accepted Accounting Principles ("GAAP") throughout this document, the
company has provided non-GAAP measurements which present operating
results on a basis before impairment charges. Impairment charges
reflect the write-down of the carrying value of the property and
equipment of four restaurants and one other long-lived asset. The
company is using earnings before impairment charges as a key
performance measure of results of operations for purposes of
evaluating performance internally. This non-GAAP measurement is not
intended to replace the presentation of our financial results in
accordance with GAAP. Rather, the company believes that the
presentation of earnings before impairment charges provides additional
information to facilitate the comparison of past and present
operations, excluding items that the company does not believe are
indicative of our ongoing operations.


13 Weeks Ended 52 Weeks Ended
--------------------------------------------
Dec. 25, Dec. 26, Dec. 25, Dec. 26,
2005 2004 2005 2004
--------------------------------------------
Impairment of long-lived
assets................... -- -- $(3,900) --
Income taxes.............. -- -- 1,392 --
--------------------------------------------
Impairment charges, net
of tax.................. -- -- $(2,508) --
============================================

Diluted weighted average
shares outstanding....... 76,542 82,518 80,010 83,600
============================================

Diluted earnings per
share impact of
impairment charges....... -- -- $(0.03) --
============================================

Reconciliation of earnings
before impairment
charges to net earnings:
Earnings before
impairment charges.... $20,520 $24,402 $104,310 $110,865
Impairment charges, net
of tax................ -- -- (2,508) --
--------------------------------------------
Net earnings........... $20,520 $24,402 $101,802 $110,865
============================================

Reconciliation of earnings
per share before
impairment charges to
reported earnings per
share:
Diluted earnings per
share before
impairment charges..... $0.27 $0.30 $1.30 $1.33
Diluted earnings per
share impact of
impairment charges..... -- -- (0.03) --
--------------------------------------------
Reported diluted
earnings per share..... $0.27 $0.30 $1.27 $1.33
============================================
The following table sets forth, for the periods indicated, information
derived from the Company's preliminary unaudited consolidated
statements of earnings expressed as a percentage of total operating
revenues, except where otherwise noted. Percentages may not add due
to rounding.


13 Weeks Ended 52 Weeks Ended
--------------------------------------------
Dec. 25, Dec. 26, Dec. 25, Dec. 26,
2005 2004 2005 2004
--------------------------------------------
Revenues:
Company restaurant sales 88.9% 87.9% 89.0% 87.9%
Franchise royalties
and fees............... 10.6 11.0 10.6 10.9
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....... 26.5% 26.8% 26.5% 26.5%
Labor................... 33.5 32.8 33.1 32.5
Direct and occupancy.... 28.3 26.4 26.6 25.1
Pre-opening expense..... 0.5 0.4 0.4 0.3
--------------------------------------------
Total cost of sales... 88.8% 86.4% 86.6% 84.4%
============================================
Cost of other franchise
income (as a percentage
of other franchise
income)(a)............... 125.0% 91.2% 94.1% 105.8%
General and administrative
expenses................. 9.5 10.2 9.0 9.4
Amortization of intangible
assets................... 0.1 0.1 0.1 0.1
Impairment of long-lived
assets................... -- -- 0.3 --
Loss on disposition of
restaurants and equipment 0.2 0.2 0.2 0.2
--------------------------------------------
Operating earnings........ 10.5 12.6 13.0 14.9
--------------------------------------------
Other income (expense):
Investment income....... 0.2 0.3 0.1 0.1
Interest expense........ (0.7) (0.2) (0.4) (0.1)
Other income............ 0.0 0.7 0.1 0.3
--------------------------------------------
Total other income
(expense)............ (0.4) 0.7 (0.1) 0.3
--------------------------------------------
Earnings before income
taxes and cumulative
effect of change in
accounting principle..... 10.1 13.3 12.9 15.2
Income taxes(b)........... 3.2 4.3 4.5 5.2
--------------------------------------------
Earnings before cumulative
effect of change in
accounting principle..... 6.9 9.0 8.4 10.0
Cumulative effect of
change in accounting
principle, net of tax.... (0.1) -- -- --
--------------------------------------------
Net earnings.............. 6.8% 9.0% 8.4% 10.0%
============================================

(a) The company recorded an expense of $0.5 million in the fourth
quarter of 2005 to increase reserves for estimated insurance
losses incurred by franchise participants of its captive insurance
subsidiary that may not be recovered.
(b) Fourth quarter 2005 net earnings reflect a decrease in income tax
expense of $1.1 million due to the resolution of a state income
tax matter.
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:


13 Weeks Ended 52 Weeks Ended
--------------------------------------------
Dec. 25, Dec. 26, Dec. 25, Dec. 26,
2005 2004 2005 2004
--------------------------------------------
Number of restaurants:
Company:
Beginning of period... 473 413 424 383
Restaurant openings... 13 11 52 32
Restaurants closed.... -- -- (1) (1)
Restaurants acquired
from franchisees..... -- -- 11 10
--------------------------------------------
End of period......... 486 424 486 424
--------------------------------------------
Franchise:
Beginning of period... 1,282 1,224 1,247 1,202
Restaurant openings... 40 37 92 77
Restaurants closed.... (4) (14) (10) (22)
Restaurants acquired
from franchisees..... -- -- (11) (10)
--------------------------------------------
End of period......... 1,318 1,247 1,318 1,247
--------------------------------------------
Total:
Beginning of period... 1,755 1,637 1,671 1,585
Restaurant openings... 53 48 144 109
Restaurants closed.... (4) (14) (11) (23)
--------------------------------------------
End of period......... 1,804 1,671 1,804 1,671
============================================
Weighted average weekly
sales per restaurant:
Company................. $42,723 $43,812 $45,552 $46,536
Franchise............... $46,254 $45,695 $48,908 $47,613
Total................... $45,297 $45,215 $48,019 $47,345

Change in comparable
restaurant sales:(1)
Company................. (0.9)% 0.1% (0.9)% 3.8%
Franchise............... 1.6 % 3.0% 2.7 % 5.2%
Total................... 1.0 % 2.3% 1.8 % 4.8%

Total operating revenues
(in thousands):
Company restaurant sales $266,807 $238,296 $1,082,641 $976,798
Franchise royalties and
fees(2)................ 31,723 29,736 128,813 121,221
Other franchise
income(3).............. 1,643 3,188 5,196 13,615
--------------------------------------------
Total................... $300,173 $271,220 $1,216,650 $1,111,634
============================================

(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 $779,076 and $726,510 in the 2005
quarter and the 2004 quarter, respectively, and $3,223,505 and
$3,001,287 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 company and revenue from
information technology products and services provided to certain
franchisees.
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share amounts)


Dec. 25, Dec. 26,
2005 2004
------------------------
ASSETS

Current assets:
Cash and cash equivalents................... $13,040 $10,642
Short-term investments, at market value..... 286 282
Receivables, net of allowance............... 37,857 39,152
Receivables related to captive insurance
subsidiary................................. 1,712 1,866
Inventories................................. 20,373 35,936
Prepaid income taxes........................ 3,488 --
Prepaid and other current assets............ 13,518 12,079
------------------------
Total current assets...................... 90,274 99,957
Property and equipment, net................... 587,493 486,548
Goodwill...................................... 138,443 116,344
Restricted assets related to captive insurance
subsidiary................................... 19,329 17,386
Other intangible assets, net.................. 8,050 8,524
Other assets, net............................. 31,899 25,672
------------------------
$875,488 $754,431
========================

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Current portion of long-term debt........... $259 $222
Notes payable............................... 7,900 --
Accounts payable............................ 60,345 42,830
Accrued expenses and other current
liabilities................................ 100,995 89,064
Loss reserve and unearned premiums related
to captive insurance subsidiary............ 10,235 12,137
Accrued dividends........................... 14,840 4,867
Accrued income taxes........................ -- 2,578
------------------------
Total current liabilities................. 194,574 151,698
------------------------
Non-current liabilities:
Long-term debt - less current portion....... 180,208 35,472
Deferred income taxes....................... 37,722 28,995
Other non-current liabilities............... 50,374 41,539
------------------------
Total non-current liabilities............. 268,304 106,006
------------------------
Total liabilities......................... 462,878 257,704
------------------------
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.................. 234,988 220,897
Unearned compensation....................... (2,614) (1,924)
Retained earnings........................... 710,277 623,315
------------------------
943,736 843,373
Treasury stock - 34,304,693 shares in 2005
and 27,375,044 shares in 2004, at cost..... (531,126) (346,646)
------------------------
Total stockholders' equity................ 412,610 496,727
------------------------
$875,488 $754,431
========================
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)


52 Weeks Ended
------------------------
Dec. 25, Dec. 26,
2005 2004
------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings................................ $101,802 $110,865
Adjustments to reconcile net earnings to net
cash provided by operating activities:.....
Cumulative effect of change in accounting
principle, net of tax.................... 225 --
Depreciation and amortization............. 54,580 46,051
Amortization of intangible assets......... 878 663
Amortization of unearned compensation..... 2,231 1,422
Other amortization........................ 246 309
Inventory impairment...................... -- 2,000
Deferred income tax provision............. 9,871 25,313
Impairment of long-lived assets........... 3,900 --
Loss on disposition of restaurants and
equipment................................ 2,067 1,955
Income tax benefit from exercise of stock
options.................................. 5,370 10,459
Changes in assets and liabilities
(exclusive of effects of acquisitions
or dispositions):..........................
Receivables............................... 1,371 (7,218)
Receivables related to captive insurance
subsidiary............................... 154 (2,116)
Inventories............................... 15,753 (16,925)
Income taxes.............................. (5,941) 8,378
Prepaid and other current assets.......... (2,583) (665)
Accounts payable.......................... 18,757 5,197
Accrued expenses and other current
liabilities.............................. 11,842 (3,542)
Loss reserve and unearned premiums related
to captive insurance subsidiary.......... (1,202) 6,880
Other non-current liabilities............. 4,866 3,418
Other..................................... (2,984) (1,839)
------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES. 221,203 190,605
------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment......... (138,602) (104,620)
Restricted assets related to captive
insurance subsidiary....................... (1,943) (6,623)
Acquisitions of restaurants................. (48,410) (13,817)
Lease acquisition costs..................... -- (4,875)
Acquisition of other intangible asset....... -- (2,809)
Proceeds from the sale of restaurants and
equipment.................................. 1,237 66
Maturities and sales of short-term
investments................................ -- (253)
Other investing activities.................. -- (1,124)
------------------------
NET CASH USED BY INVESTING ACTIVITIES..... (187,718) (134,055)
------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchases of treasury stock................. (196,066) (99,723)
Dividends paid.............................. (4,867) (3,911)
Issuance of common stock upon exercise of
stock options.............................. 12,984 19,497
Shares issued under employee benefit plans.. 4,402 5,979
Net debt proceeds........................... 152,673 14,832
Deferred financing costs relating to
issuance of long-term debt................. (213) (449)
------------------------
NET CASH USED BY FINANCING ACTIVITIES..... (31,087) (63,775)
------------------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................. 2,398 (7,225)
CASH AND CASH EQUIVALENTS, beginning of period 10,642 17,867
------------------------
CASH AND CASH EQUIVALENTS, end of period...... $13,040 $10,642
========================