UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

(Amendment No. 1)

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): November 29, 2007

IHOP CORP.

(Exact Name of Registrant as Specified in Charter)

(818) 240-6055

(Registrant’s telephone number, including area code)

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K/A filing is intended to simultaneously satisfy the filing obligation of the Registrant under any of the following provisions:

o                     Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o                     Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o                     Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o                     Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

This Current Report on Form 8-K/A (Amendment No. 1) amends IHOP Corp.’s Current Report on Form 8-K filed on December 5, 2007, in which IHOP Corp. reported the completion of its acquisition of Applebee’s International, Inc. This amendment is being filed to include the financial statements and pro forma financial information required under Item 9.01 of Form 8-K. The information previously reported in the Current Report on Form 8-K filed on December 5, 2007, is incorporated herein by reference.

Item 9.01                      Financial Statements and Exhibits.

(a)           Financial Statements of Businesses Acquired.

The audited consolidated balance sheets of Applebee’s International, Inc. and Subsidiaries as of December 31, 2006 and December 25, 2005 and the related consolidated statements of earnings, stockholders’ equity, and cash flows for the years ended December 31, 2006, December 25, 2005, and December 26, 2004, and the notes related thereto, which have been adjusted to reflect certain discontinued operations, are filed as Exhibit 99.1 to this amendment and incorporated herein by reference.

The condensed consolidated balance sheets of Applebee’s International, Inc. and Subsidiaries as of September 30, 2007 (unaudited) and December 31, 2006 and the related unaudited condensed consolidated statements of earnings, stockholder’s equity, and cash flows for the 13 and 39 weeks ended September 30, 2007 and September 24, 2006, and the notes related thereto, are incorporated herein by reference to Item 1. of Applebee’s International, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2007.

(b)          Pro Forma Financial Information

The unaudited pro forma combined condensed financial statements with respect to the transaction are filed as Exhibit 99.2 to this amendment and are incorporated herein by reference.

(d)          Exhibits

23.1              Consent of Independent Registered Public Accounting Firm.

99.1              The audited consolidated balance sheets of Applebee’s International, Inc. and Subsidiaries as of December 31, 2006 and December 25, 2005 and the related consolidated statements of earnings, stockholders’ equity, and cash flows for the years ended December 31, 2006, December 25, 2005 and December 26, 2004 and the notes related thereto.

99.2              Unaudited Pro Forma Condensed Combined Financial Statements of IHOP Corp.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

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EXHIBIT INDEX

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Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement Nos. 333-46361 and 333-71768 on Form S-8 of IHOP Corp. and subsidiaries of our reports dated February 28, 2007 (October 29, 2007 as to Note 6), relating to the consolidated financial statements of Applebee’s International, Inc. and subsidiaries (which report included an explanatory paragraph regarding a change in accounting for stock-based compensation upon adoption of Statement of Financial Accounting Standards No, 123R, Share-Based Payment) and management’s report on the effectiveness of internal control over financial reporting appearing in this Current Report on Form 8-K/A of IHOP Corp. and subsidiaries dated on or about February 11, 2008.

/s/ Deloitte & Touche LLP

Kansas City, MO

February 11, 2008

Exhibit 99.1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Applebee’s International, Inc. and Subsidiaries
Overland Park, KS

We have audited the accompanying consolidated balance sheets of Applebee’s International, Inc. and subsidiaries (the “Company”) as of December 31, 2006 and December 25, 2005, and the related consolidated statements of earnings, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2006 and December 25, 2005, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2006, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 3 to the consolidated financial statements, the Company changed its method of accounting for stock-based compensation upon adoption of Financial Accounting Standards Board Statement No. 123R, Share-Based Payment.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006, based on the criteria established in Internal Control — Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28, 2007, expressed an unqualified opinion on management’s assessment of effectiveness of the Company’s internal control over financial reporting and an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

/s/  DELOITTE & TOUCHE LLP

Kansas City, MO
February 28, 2007 (October 29, 2007 as to the effects of discontinued operations discussed in Note 6)

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Applebee’s International, Inc. and Subsidiaries
Overland Park, Kansas

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that Applebee’s International, Inc. and subsidiaries (the “Company”) maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting.  Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.  Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances.  We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America (“generally accepted accounting principles”).  A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis.  Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2006, of the Company and our report dated February 28, 2007 expressed an unqualified opinion on those financial statements and included an explanatory paragraph regarding a change in accounting for stock-based compensation upon adoption of Statement of Financial Accounting Standards No. 123(R), “Share-Based Payment.”

/s/  DELOITTE & TOUCHE LLP

Kansas City, Missouri
February 28, 2007

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APPLEBEE’S INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

See notes to consolidated financial statements.

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APPLEBEE’S INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(in thousands, except per share amounts)

See notes to consolidated financial statements.

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APPLEBEE’S INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except per share amounts)

See notes to consolidated financial statements.

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APPLEBEE’S INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

See notes to consolidated financial statements.

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SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:

We issued nonvested shares (referred to as restricted stock prior to fiscal 2006) with grant date fair values of $4,500,000 in 2006, $2,921,000 in 2005 and $1,945,000 in 2004.

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 $3,357,000, $3,940,000 and $3,881,000 in 2006, 2005 and 2004, respectively.

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 in 2004.  In 2005, we began matching contributions in cash.

We had property and equipment purchases accrued in accounts payable of approximately $10,400,000 and $11,100,000 as of December 31, 2006 and December 25, 2005, respectively.

We declared cash dividends of $16,299,000, $14,840,000 and $4,867,000 in 2006, 2005 and 2004 which were subsequently paid in the following year.

See notes to consolidated financial statements.

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APPLEBEE’S INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.       Organization

Applebee’s International, Inc. and our subsidiaries develop, franchise and operate casual dining restaurants under the name “Applebee’s Neighborhood Grill & Bar.”  As of December 31, 2006, there were 1,930 Applebee’s restaurants.  Franchisees operated 1,409 of these restaurants and 521 restaurants were company-owned.  These restaurants were located in 49 states, 16 countries outside of the United States and one U.S. territory.

On September 20, 2002, we formed Neighborhood Insurance, Inc., a regulated Vermont corporation and a wholly-owned subsidiary, as a captive insurance company.  Neighborhood Insurance, Inc. was established to provide Applebee’s International, Inc. and qualified franchisees with workers’ compensation and general liability insurance.  In 2006, we discontinued writing insurance coverage for new or existing participants (Note 14).

2.       Summary of Significant Accounting Policies

Principles of consolidation:  The consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries.  We have eliminated all intercompany profits, transactions and balances.

Fiscal year:  Our fiscal year ends on the last Sunday of the calendar year. The fiscal year ended December 31, 2006 contained 53 weeks.  The fiscal years ended December 25, 2005 and December 26, 2004 each contained 52 weeks.  These fiscal years will be referred to hereafter as 2006, 2005 and 2004, respectively.

Cash and cash equivalents:  We consider all money market investment instruments to be cash and cash equivalents.  Periodically, we have outstanding checks that are written in excess of the cash balances at our bank which create a book overdraft and are required to be presented as a current liability.  As of December 25, 2005, we had checks written in excess of a bank balance of $13,430,000 which were included in accounts payable in the consolidated balance sheets.  This balance was subsequently funded through our credit facility in 2006.

Financial instruments:  Our financial instruments as of December 31, 2006 and December 25, 2005 consist of cash equivalents, short-term investments, accounts receivable, notes payable and long-term debt, excluding capitalized lease obligations.  The carrying amount of cash equivalents and accounts receivable (including receivables related to the captive insurance subsidiary) approximates fair value because of the short maturity of those instruments.  We based the carrying amount of short-term investments on quoted market prices.  We based the fair value of our long-term debt, excluding capitalized lease obligations, on quotations made on similar issues. The fair value of these financial instruments approximates the carrying amounts reported in the consolidated balance sheets.

Investments:  We have certificates of deposit that are included in short-term investments and auction rate securities that are included in restricted assets related to the captive insurance subsidiary in our consolidated balance sheets.  We have classified all investments as available-for-sale.  Due to the short time period between reset dates of the interest rates, there are no unrealized gains or losses associated with the auction rate securities.  The contractual maturities of the auction rate securities range from 2030 to 2033.

Inventories:  We state inventories at the lower of cost, using the first-in, first-out method, or market.  When necessary, we record inventory reserves for obsolescence and shrinkage based upon inventory turnover trends, historical experience and the specific identification method.

Property and equipment:  We report property and equipment at historical cost less accumulated depreciation. Depreciation is recorded on a straight-line method over the estimated useful lives of the assets.  Leasehold improvements are amortized over the lesser of the lease term, as defined in operating leases below, or the estimated useful life of the related asset.  The general ranges of original depreciable lives are as follows:

We record capitalized interest in connection with the development of new restaurants and amortize it over the estimated useful life of the related asset.  We capitalized $959,000 in interest costs during 2006, $462,000 during 2005 and $189,000 during 2004.

Software costs:  Costs incurred in connection with the development of internal-use software are capitalized and amortized over the expected useful life of the asset.

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Goodwill:  Goodwill is not subject to amortization but is tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired.  If an impairment is indicated, the fair value of the reporting unit’s goodwill is determined by allocating the unit’s fair value to its assets and liabilities (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination. The amount of impairment for goodwill is measured as the excess of its carrying value over its implied fair value.

Impairment of long-lived assets:  We review our restaurant property and equipment for impairment quarterly 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 non-amortizing 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.

Use of estimates:  The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions.  These estimates, which are frequently made in consultation with certain third-party advisors, include, but are not limited to, estimates for legal actions and general liability, workers’ compensation and health insurance, long-term incentives and the collectibility of receivables.

We are periodically involved in various legal actions arising in the normal course of business.  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 consideration of the probability of adverse judgment and a review of the facts of each legal action.

The estimated liability for general liability, workers’ compensation and health insurance is established based upon historical claims data and third-party actuarial estimates of settlement costs for incurred claims.  We recognized expense of $24,168,000 in 2006, $27,557,000 in 2005 and $25,116,000 in 2004 related to these types of insurance in our consolidated financial statements.  Unanticipated changes in these factors may require us to revise our estimates.

We have various long-term associate incentive compensation plans which require us to make estimates to determine our liability based upon projected performance of plan criteria.  If actual performance against the criteria differs from our estimates in the future, we will be required to adjust our liability accordingly.

We continually assess the collectibility of our franchise receivables.  We establish our allowance for bad debts based on several factors, including historical collection experience, the current economic environment and other specific information available to us at the time.  The allowance for bad debts may change in the future due to changes in the factors above or other new developments.

Estimates and assumptions used by management affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

Revenue Recognition:  We recognize company restaurant sales when food and beverage items are sold.  Company restaurant sales are reported net of sales tax collected from our guests and are remitted to the appropriate taxing authorities.

We record a liability in the period in which a gift card is issued and proceeds are received.  As gift cards are redeemed, this liability is reduced and revenue is recognized.  We recognize gift card slippage income when the likelihood of the redemption of the card becomes remote.

We recognize royalties on a franchisee’s sales in the period in which the sales are reported to have occurred.  The recognition of franchise fees is deferred until we have performed substantially all of our related obligations as franchisor, typically when the restaurant opens.  Franchise fees, included in franchise royalties and fees in the consolidated statements of earnings, totaled $3,957,000 for 2006, $3,358,000 for 2005 and $3,096,000 for 2004.

Other franchise income includes insurance premiums from franchisee participation in our captive insurance program in 2005 and 2004 and revenue from information technology products and services provided to certain franchisees in all periods.  Income from franchisee premiums and information technology services is recognized ratably over the related contract period.  Income from information technology products is recognized when the products are installed at the restaurant.

Advertising costs:  We recognize company-owned restaurant contributions to the national marketing pool in the period the contribution accrues.  We expense most local advertising costs for company-owned restaurants as we incur them, but we expense the production costs of advertising the first time the advertising takes place.  Advertising expense related to company-owned restaurants was $56,731,000 for 2006, $51,969,000 for 2005 and $46,324,000 for 2004.

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Operating leases:  We account for our restaurant and office space leases in accordance with Statement of Financial Accounting Standards (“SFAS”) No.13, “Accounting for Leases” and other authoritative guidance.  We recognize rent expense for our operating leases, which have escalating rentals over the term of the lease, on a straight-line basis over the initial term and those option periods where failure to exercise such options would result in an economic penalty such that the renewal appears reasonably assured.  In addition, the lease term is deemed to commence on the date we become legally obligated for rent payments.  Prior to 2006, we capitalized the straight-line rent amounts during the construction period of leased properties.  In 2006, we changed our policy to expense the straight-line rent during the construction period as required by FASB Staff Position (“FSP”) 13-1, “Accounting for Rental Costs Incurred during a Construction Period.”  The impact of FSP 13-1 was not material to our consolidated financial statements. Straight-line rent subsequent to the construction period and prior to the restaurant opening is recognized as expense.  We use a consistent lease term when calculating depreciation of leasehold improvements, determining straight-line rent expense and determining classification of our leases as either operating or capital.  Contingent rents are generally amounts due as a result of sales in excess of amounts stipulated in certain restaurant leases and are included in rent expense as they accrue.

Certain of our lease agreements contain tenant improvement allowances, rent holidays, lease premiums, rent escalation clauses and/or contingent rent provisions.  For purposes of recognizing incentives, premiums, rent holidays and minimum rental expenses on a straight-line basis over the terms of the leases, we use the date of initial possession to begin amortization, which is generally when we enter the property and begin to make improvements in preparation of its intended use.

For tenant improvement allowances, we record a deferred rent liability in either other current liabilities or other non-current liabilities on the consolidated balance sheet and amortize the deferred rent over the term of the lease as a reduction to direct and occupancy costs in the consolidated statements of earnings.

Asset Retirement Obligations: In 2005, we adopted FASB Interpretation No. 47 “Accounting for Conditional Asset Retirement Obligations” (“FIN 47”).  We have entered into certain leases which may require us to return the property to the landlord in its original condition.  Beginning in 2005, we recorded expenses for these leases in our consolidated financial statements in direct and occupancy costs.  We recorded an expense of $350,000 ($225,000, net of income taxes) for years prior to 2005 as a cumulative effect of a change in accounting principle as required by FIN 47.

Pre-opening expense:  We expense direct training, food and beverage costs and other costs, including rent expense subsequent to the construction period but prior to restaurant opening, related to opening new or relocated restaurants as they are incurred, which is typically in the month of opening.

Income taxes:  We use the asset and liability method to determine deferred income taxes.  Deferred tax assets and liabilities are computed based upon future tax consequences associated with differences between the financial statement carrying amount and the tax bases of assets and liabilities.

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, stock appreciation rights and other 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.

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We excluded stock options and stock appreciation rights (“SARs”) with exercise prices greater than the average market price of our common stock for the applicable periods from the computation of diluted weighted average shares outstanding as the effect would be anti-dilutive.  We excluded approximately 5,400,000, 2,800,000 and 1,500,000 of these options and SARs from our diluted weighted average share computation for 2006, 2005 and 2004, respectively.

Cash flows:  For purposes of the consolidated statements of cash flows, we consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

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

In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. (“FIN”) 48, “Accounting for Uncertainty in Income Taxes,” which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” FIN 48 is effective for fiscal years beginning after December 15, 2006.  The impact of this adoption will not be material to our consolidated financial statements.

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

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans.”  This statement requires companies to recognize a net liability or asset and an offsetting adjustment to accumulated other comprehensive income to report the funded status of defined benefit pension and other postretirement benefit plans.  The statement requires prospective application, and the recognition and disclosure requirements are effective for companies with fiscal years ending after December 15, 2006.  Additionally, SFAS No. 158 requires companies to measure plan assets and obligations at their year-end balance sheet date.  This requirement is effective for fiscal years ending after December 15, 2008. The impact of this adoption was not material to our consolidated financial statements and we are in compliance with the measurement date provisions of this statement as of December 31, 2006.

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In September 2006, the SEC issued Staff Accounting Bulletin (“SAB”) No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” which provides interpretive guidance regarding the consideration given to prior year misstatements when determining materiality in current year financial statements.  SAB No. 108 is effective for fiscal years ending after November 15, 2006.  The impact of this adoption was not material to our consolidated financial statements.

In October 2006, the FASB issued FASB Staff Position (“FSP”) FAS 123 (R)-5, “Amendment to FSP FAS 123 (R)-1.”  FSP FAS 123(R)-5 addresses whether a modification of an instrument in connection with an equity restructuring should be considered a modification for purposes of applying FSP FAS 123(R)-1.  This FSP states that no change in the recognition or the measurement (due to a change in classification as a result of a modification solely to reflect an equity restructuring that occurs when the holders are no longer employees) of the instruments will result if two conditions are met: (1) there is no increase in fair value of the award or the antidilution provision is not added to the terms of the award in contemplation of an equity restructuring and (2) all holders of the same class of equity instruments  are treated in the same manner. The effective date of FSP FAS 123(R)-5 is the first reporting period beginning after October 10, 2006.  The impact of this adoption was not material to our consolidated financial statements.

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

3.             Stock-Based Compensation

Our Board of Directors has approved the Amended and Restated 1995 Equity Incentive Plan (“1995 Plan”) and the 1999 Employee Incentive Plan (“1999 Plan”) which allow for the granting of stock options, SARs, nonvested shares, performance units and performance shares to eligible participants.  Grants of stock options may be either incentive or nonqualified.  There are 19,900,000 and 2,473,875 shares authorized under the 1995 Plan and the 1999 Plan, respectively.  As of December 31, 2006, we estimate there are 3,382,155 shares available for grant under the 1995 Plan.  This estimate is based upon the total number of SARs that would be exercised using the market price of our stock as of December 29, 2006.  We will not make additional grants under the 1999 Plan.  Only shares actually issued upon exercise of a SAR are counted against the shares authorized under the 1995 Plan.  We issue shares out of our treasury for stock option exercises, SAR exercises and nonvested share issuances.

In 2002, our Board of Directors approved performance share plans with a three-year performance period.  Performance shares represent rights to receive our common stock, cash or any combination thereof, based upon certain performance criteria.  In 2004, we reversed $447,000 of compensation expense previously recognized due to the 2004 performance versus our three-year performance criteria.  We recorded compensation expense of $65,000 in 2005 related to these grants.  These amounts were based on the market price of our common stock at the end of each fiscal year.  We no longer grant performance shares.

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

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Under APB Opinion No. 25, pro forma expense for stock-based compensation was calculated using a graded vesting schedule over the explicit vesting period.  The following table presents the effect on our net earnings and earnings per share had we adopted the fair value method of accounting for stock-based compensation under SFAS No. 123, “Accounting for Stock-Based Compensation” for 2005 and 2004 (in thousands, except for per share amounts).

(1) SFAS No. 123 (revised 2004) requires compensation expense to be recognized over the requisite service period which is generally from the grant date to the earlier of a) the explicit vesting date or b) the date on which the employee becomes retirement eligible.  If pro forma expense for 2005 and 2004 had been derived using this approach, additional stock-based compensation would have been $2,731 and $2,013, net of tax, respectively, and pro forma net income would have been $91,944 and $100,935, respectively.  Additionally, basic and diluted pro forma earnings per share would have been $1.17 and $1.15, respectively, for 2005 and $1.24 and $1.21, respectively, for 2004.

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

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

Compensation costs for 2006 have been recognized for all new equity awards granted in 2006 and those equity awards granted prior to 2006 that have yet to reach the end of their service period.  As required by SFAS No. 123(R), we began recognizing expense for employee stock-based compensation over the shorter of the vesting period or the period from the date of the grant until the date the employee becomes eligible for retirement.  We recognize expense for stock-based compensation over the graded vesting period.  We recognized stock-based compensation in the consolidated financial statements as follows:

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As of December 31, 2006, we had unrecognized compensation expense for stock options and SARs of $16,300,000 to be recognized over a weighted average period of 1.8 years.

As required by SFAS No. 123(R), unearned compensation of $2,614,000, which was previously reflected as a reduction to stockholders’ equity as of December 25, 2005, was reclassified as a reduction to additional paid-in capital upon our adoption of this statement.

Stock Options

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

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

Transactions for stock options relative to both plans for 2004 to 2006 were as follows: