FINANCIAL HIGHLIGHTS
--------------------

                                (In Thousands, Except Per Share Data)
                                52 Weeks      52 Weeks       53 Weeks
                                  Ended         Ended          Ended
                                 May 31,       June 1,        June 3,
                                  1997         1996(1)         1995 
                              ------------  ------------   ------------
Statement of Income

Net sales                      $3,212,431    $2,878,180     $1,222,779
Operating income (1)              191,143        78,758(2)      57,293
  % of net sales                     6.0%          2.7%           4.7%
Net income                     $   97,177    $   24,463(2)  $   20,697
  % of net sales                     3.0%          0.8%           1.7%
Per share:
  Net income                   $     2.55    $      .70(2)  $     1.05
  Book value                        14.34         12.34          10.09
  Common stock dividends              .53           .50            .50

Common shares outstanding (Avg.)   38,100        34,984         19,707

                                 May 31,       June 1,        June 3, 
                                  1997         1996(1)         1995
                              ------------  ------------   ------------
Balance Sheet

Total assets                   $1,493,087    $1,486,460     $  598,441
Long-term debt                    251,000       303,651        212,205
Stockholders' equity              538,722       460,247        198,037
Debt to total capital               31.8%         39.8%          51.7%


(1) Fiscal 1996 includes the operations of Continental Baking Company for 45   
    weeks from its acquisition on July 22, 1995.

(2) Fiscal 1996 includes a charge of $9,500,000 ($5,738,000 and $.16 per share 
    on an after-tax basis) resulting from a payment due a union-administered   
    multi-employer pension plan which failed

[This page includes 3 bar graphs which depict net sales, net income and % of
debt to total capital for fiscal 1995, 1996 and 1997.  All numbers presented
in these graphs are included in tabular form above.]

<PAGE>

COMMON STOCK INFORMATION
------------------------

The Company's common stock is listed on the New York Stock Exchange and is
traded under the symbol IBC.  The table below presents the high and low sales
prices for the stock and cash dividends paid during fiscal 1997 and 1996:

                                      Stock Price
        Fiscal                   ---------------------      Cash
         Year        Quarter       High         Low       Dividends
        ------      ---------    --------      -------   ------------

         1997           1         $30.125      $25.500       $.125
                        2          45.250       29.625        .135
                        3          51.000       42.250        .135
                        4          55.125       46.375        .135

  
         1996           1         $19.500      $14.375        .125
                        2          22.250       18.875        .125
                        3          23.250       20.500        .125
                        4          27.625       22.500        .125


The Company had approximately 4,700 shareholders at May 31, 1997.

                                       -3-                                     

[This page includes a bar graph of closing prices on the NYSE for Interstate
Bakeries Corporation common stock at fiscal 1996 year end, as well as at each
quarter end of fiscal 1997.  The prices presented are as follows: FYE 1996 -
$27.625; QTR 1 1997 - $30.125; QTR 2 1997 - $43.375; QTR 3 1997 - $46.500; and
FYE 1997 - $53.750]

<PAGE>

                                            INTERSTATE BAKERIES CORPORATION
                                           FIVE-YEAR SUMMARY OF FINANCIAL DATA
<TABLE>
<CAPTION>
                                    
                                                 (In Thousands, Except Per Share Data)
                                  52 Weeks       52 Weeks        53 Weeks        52 Weeks       52 Weeks  
                                    Ended          Ended           Ended           Ended          Ended      
                                   May 31,        June 1,         June 3,         May 28,        May 29, 
                                    1997          1996(1)          1995            1994           1993    
                                -----------     -----------     -----------     -----------    -----------
<S>                             <C>             <C>             <C>             <C>            <C>
Statement of Income
 Net sales                      $3,212,431      $2,878,180      $1,222,779      $1,142,684     $1,165,588
 Operating income                  191,143          78,758(2)       57,293          46,883(3)      71,344
   % of net sales                     6.0%            2.7%            4.7%            4.1%           6.1%

 Income before
  cumulative effect  
  of accounting change          $   97,177      $   24,463(2)   $   20,697      $   15,754(3)  $   30,784
   % of net sales                     3.0%            0.8%            1.7%            1.4%           2.6%
 Net income                     $   97,177      $   24,463(2)   $   20,697      $   15,754(3)  $   16,663(4)

 Per Share:
  Income before
   cumulative effect
   of accounting change               2.55             .70(2)         1.05             .78(3)        1.46
  Net income                          2.55             .70(2)         1.05             .78(3)         .79(4)
  Common stock dividends               .53             .50             .50            .495            .47
 Weighted average common
  shares outstanding                38,100          34,984          19,707          20,306         21,132

Balance Sheet
  Total assets                  $1,493,087      $1,486,460      $  598,441      $  574,791    $   586,756
  Long-term debt, excluding 
   current maturities              251,000         303,651         212,205         201,235        189,238
  Stockholders' equity             538,722         460,247         198,037         187,441        202,315
  Debt to total capital              31.8%           39.8%           51.7%           51.8%          48.3%

(1)  Fiscal 1996 includes the operations of Continental Baking Company for 45 weeks from its acquisition on  
     July 22, 1995.

(2)  Fiscal 1996 includes a charge of $9,500,000 ($5,738,000 and $.16 per share on an after-tax basis)       
     resulting from a payment due a union-administered multi-employer pension plan which failed.

(3)  Fiscal 1994 includes a charge of $9,400,000 ($5,687,000 net of tax, or $.28 per share), related to a    
     plant disposal and environmental matters.

(4)  Fiscal 1993 includes a charge of $14,121,000 ($.67 per share) for the cumulative effect of the change   
     in accounting for postretirement benefits other than pensions, from adopting SFAS No. 106.
</TABLE>
                                      -15-          

<PAGE>

                   MANAGEMENT'S DISCUSSION AND ANALYSIS
            OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


RESULTS OF OPERATIONS

Fiscal 1997 Compared With Fiscal 1996

Net sales for the fifty-two weeks ended May 31, 1997 were $3,212,431,000, an
increase of $334,251,000 and 11.6% over net sales of $2,878,180,000 for the
fifty-two weeks ended June 1, 1996.  This increase in net sales was primarily
attributable to the acquisition of Continental Baking Company ("CBC") on July
22, 1995, with fiscal 1996 results reflecting only forty-five weeks of CBC's
operations.  Excluding the impact of current year acquisitions and
dispositions, net sales rose approximately 3.8%.

Fiscal 1997's gross profit was $1,646,166,000, or 51.2% of net sales, up
$221,177,000 from gross profit of $1,424,989,000, or 49.5% of net sales, the
prior year.  This margin improvement resulted from synergies realized through
continuing integration of existing and acquired operations, particularly
product sourcing efficiencies, and favorable mix changes to higher-margin
branded products.  These factors, along with higher selling prices, more than
offset the effect of higher ingredient costs experienced in fiscal 1997.

Selling, delivery and administrative expenses totaled $1,352,026,000, or 42.1%
of net sales, for fiscal 1997 compared to $1,236,586,000, or 43.0% of net
sales, in the prior year.  Continued emphasis on cost control, integration
synergies and higher selling prices resulted in improved selling, delivery and
administrative expenses as a percent of net sales in the current year.

Included in fiscal 1996 were other charges of $9,500,000 ($5,738,000 and $.l6
per share on an after-tax basis) resulting from a payment due a union-
administered multi-employer pension plan which failed.

Based upon these factors, operating income for fiscal 1997 was $191,143,000,
or 6.0% of net sales, a $112,385,000 and 142.7% increase over fiscal 1996's
operating income of $78,758,000, or 2.7% of net sales.

Interest expense for the current year was $22,592,000, a decrease of
$6,718,000 from the prior year.  The lower expense reflects both lower average
borrowing levels and lower interest rates.

The fiscal 1997 effective tax rate of 42.6%, as well as the fiscal 1996 rate
of 51.4%, reflects the nondeductibility of amortization of various
intangibles.

Reflecting the improved operations, net income for fiscal 1997 improved to
$97,177,000, or $2.55 per share, up from $24,463,000, or $.70 per share, for
fiscal 1996, an earnings per share improvement of 264%.

<PAGE>

Fiscal 1996 Compared With Fiscal 1995

Net sales for the fifty-two weeks ended June 1, 1996 were $2,878,180,000, a
$1,655,401,000 increase over net sales of $1,222,779,000 for the fifty-three
weeks ended June 3, 1995.  This substantial increase was attributable to the
acquisition of CBC on July 22, 1995, with fiscal 1996 results reflecting
forty-five weeks of CBC's operations.  Excluding the impact of the acquisition
and the additional week in fiscal 1995, net sales increased approximately 5.6%
for fiscal 1996.  This increase reflects higher selling prices, offset by some
volume erosion in cake units.

Gross profit for fiscal 1996 was $1,424,989,000, or 49.5% of net sales,
compared to fiscal 1995's gross profit of $591,895,000, or 48.4% of net sales. 
This margin improvement resulted from efficiencies of the acquired operations,
as well as synergies realized through integration of existing and acquired
operations.  Excluding the impact of acquired operations, cost of products
sold reflects substantially higher ingredient and packaging costs, offset
somewhat by higher selling prices.

Selling, delivery and administrative expenses for fiscal 1996 were
$1,236,586,000, representing 43.0% of net sales, while fiscal 1995's selling,
delivery and administrative expenses were $501,008,000, or 41.0% of net sales. 
This unfavorable variance was attributable to the CBC acquisition, with the
CBC operations having higher selling and delivery labor and labor related
costs as a percentage of net sales.  Selling, delivery and administrative
expenses as a percentage of net sales were consistent with fiscal 1995
excluding the impact of the acquisition.

                                       -16-

Included in fiscal 1996 were other charges of $9,500,000 ($5,738,000 and $.16
per share on an after-tax basis) resulting from a payment due a union-
administered multi-employer pension plan which failed.

Depreciation and amortization for fiscal 1996 was $100,145,000, up from
$33,594,000 during fiscal 1995.  Property and equipment, as well as
intangibles, obtained in the acquisition of CBC were responsible for this
increased expense.

Based upon these factors, operating income for fiscal 1996 was $78,758,000, or
2.7% of net sales, an increase of $21,465,000 from fiscal 1995's operating
income of $57,293,000, or 4.7% of net sales.

Interest expense was $29,310,000 for fiscal 1996, up $11,565,000 and 65.2%
from fiscal 1995's expense of $17,745,000, with the increase attributable to
higher borrowings to finance the acquisition of CBC.

The fiscal 1996 effective tax rate of 51.4%, as well as the fiscal 1995 rate
of 47.8%, reflects the nondeductibility of amortization of various
intangibles.

Net income for fiscal 1996 was $24,463,000, or $.70 per share, compared to
$20,697,000 and $1.05 per share in fiscal 1995.  The per share earnings
decline was the result of increased interest expense and the additional shares
issued in conjunction with the CBC acquisition.

<PAGE>

CAPITAL RESOURCES AND LIQUIDITY

The Company's primary source of liquidity is cash provided by operations which
totaled $196,173,000 for fiscal 1997, an increase of $31,787,000 from the
prior year's $164,386,000.  This increase reflects improved operations,
partially offset by less favorable changes in working capital components. 
Cash generated by operations, along with asset sales of $19,291,000, during
fiscal 1997 was used to fund capital expenditures of $78,418,000, reduce
long-term debt a net $74,205,000, pay common stock dividends of $19,857,000
and fund acquisitions of $43,618,000.

For fiscal 1998, the Company anticipates cash needs of approximately
$165,000,000, consisting of $85,000,000 of planned capital expenditures,
$60,000,000 for the repurchase of common stock ($58,000,000 of which has been
expressly excluded from stock repurchase limitations under the Company's
borrowing agreements) and $20,000,000 of common stock dividends.  The Company
expects these needs to be funded by ongoing operations and borrowing capacity
under its bank credit facility.

NEW ACCOUNTING STANDARDS

See Note 2 to the Company's consolidated financial statements for discussions
on new accounting standards relating to earnings per share computation and
presentation, comprehensive income and segment disclosures.

                                       -17-

<PAGE>

                         INTERSTATE BAKERIES CORPORATION
                            CONSOLIDATED BALANCE SHEET
                               
                                                       (In Thousands)
                                                  May 31,           June 1, 
                                                   1997              1996   
                                                -----------       -----------
Assets
  Current assets:
    Accounts receivable, less allowance for 
     doubtful accounts of $4,577,000
     ($3,606,000 in 1996)                       $  190,747        $  179,538
    Inventories                                     63,962            67,254
    Other current assets                            70,453            71,481
                                                ----------        ----------
      Total current assets                         325,162           318,273
                                                ----------        ----------
  Property and equipment:
    Land and buildings                             291,526           279,863
    Machinery and equipment                        784,910           741,705
                                                ----------        ----------
                                                 1,076,436         1,021,568
    Less accumulated depreciation                 (269,153)         (204,173)
                                                ----------        ----------
      Net property and equipment                   807,283           817,395
                                                ----------        ----------
  Intangibles                                      360,642           350,792
                                                ----------        ----------
                                                $1,493,087        $1,486,460
                                                ==========        ==========
<PAGE>

Liabilities and Stockholders' Equity
  Current liabilities:
    Long-term debt payable within one year      $        -        $   21,554
    Accounts payable                               146,638           135,447
    Accrued expenses                               201,878           200,221
                                                ----------        ----------
      Total current liabilities                    348,516           357,222
                                                ----------        ----------
  Long-term debt                                   251,000           303,651
  Other liabilities                                230,967           254,962
  Deferred income taxes                            123,882           110,378
                                                ----------        ----------
      Total long-term liabilities                  605,849           668,991
                                                ----------        ----------
  Stockholders' equity:
    Preferred stock, par value $.01 per share; 
     authorized - 1,000,000 shares; issued - none        -                 -
    Common stock, par value $.01 per share; 
     authorized - 60,000,000 shares; 
     issued - 39,265,000 shares 
     (38,735,000 in 1996)                              393               387
    Additional paid-in capital                     529,127           515,497
    Retained earnings (accumulated deficit)         43,228           (34,092)
    Treasury stock, at cost - 1,708,000 shares 
     (1,449,000 in 1996)                           (34,026)          (21,545)
                                                ----------        ----------
      Total stockholders' equity                   538,722           460,247
                                                ----------        ----------
                                                $1,493,087        $1,486,460
                                                ==========        ==========

                             See accompanying notes.

                                       -18-

<PAGE>

                          INTERSTATE BAKERIES CORPORATION
                          CONSOLIDATED STATEMENT OF INCOME
                               

                                      (In Thousands, Except Per Share Data)    
                                      52 Weeks       52 Weeks      53 Weeks
                                        Ended          Ended         Ended  
                                       May 31,        June 1,       June 3, 
                                        1997           1996          1995   
                                     ----------     ----------    ----------
Net sales                            $3,212,431     $2,878,180    $1,222,779
                                     ----------     ----------    ----------
Cost of products sold                 1,566,265      1,453,191       630,884
Selling, delivery and
 administrative expenses              1,352,026      1,236,586       501,008
Other charges                                 -          9,500             -
Depreciation and amortization           102,997        100,145        33,594
                                     ----------     ----------    ----------
                                      3,021,288      2,799,422     1,165,486
                                     ----------     ----------    ----------
Operating income                        191,143         78,758        57,293
                                     ----------     ----------    ----------
Other income                               (747)          (887)         (104)
Interest expense                         22,592         29,310        17,745
                                     ----------     ----------    ----------
                                         21,845         28,423        17,641
                                     ----------     ----------    ----------
Income before income taxes              169,298         50,335        39,652
Provision for income taxes               72,121         25,872        18,955
                                     ----------     ----------    ---------- 

Net income                           $   97,177     $   24,463    $   20,697
                                     ==========     ==========    ==========

Earnings per common share            $     2.55     $      .70    $     1.05
                                     ==========     ==========    ==========

                                See accompanying notes.

                                       -19-

<PAGE>

                    INTERSTATE BAKERIES CORPORATION
                  CONSOLIDATED STATEMENT OF CASH FLOWS

                                                    (In Thousands)
                                            52 Weeks    52 Weeks    53 Weeks
                                              Ended       Ended       Ended
                                             May 31,     June 1,     June 3,
                                              1997        1996        1995
                                            ---------   ---------   ---------
Cash flows from operating activities:
  Net income                                $ 97,177    $ 24,463    $ 20,697
  Depreciation and amortization              102,997     100,145      33,594
  Other                                       (7,171)     (4,468)         44
  Change in operating assets                        
   and liabilities:
    Accounts receivable                      (11,209)     (5,958)     (3,450)
    Inventories                                3,292        (233)     (3,187)
    Other current assets                      (1,761)    (10,497)       (126)
    Accounts payable and accrued expenses     12,848      60,934       2,094
                                            ---------   ---------   ---------
      Cash from operating activities         196,173     164,386      49,666
                                            ---------   ---------   ---------

Cash flows from investing activities:
  Acquisitions                               (43,618)   (225,912)     (3,103)
  Additions to property and equipment        (78,418)    (47,658)    (34,272)
  Sale of assets                              19,291       1,945       1,167
  Other                                         (521)       (697)    (15,414)
                                            ---------   ---------   ---------
      Cash from investing activities        (103,266)   (272,322)    (51,622)
                                            ---------   ---------   ---------
Cash flows from financing activities:
  Reduction of long-term debt               (126,205)   (134,030)     (1,263)
  Addition to long-term debt                  52,000     245,000      12,000
  Common stock dividends paid                (19,857)    (16,342)     (9,819)
  Stock option exercise proceeds and
   related tax benefits                       13,636      11,339           1
  Acquisition of treasury stock              (12,481)       (519)       (283)
  Other                                            -      (1,238)          -
                                            ---------   ---------   ---------
      Cash from financing activities         (92,907)    104,210         636
                                            ---------   ---------   ---------
Change in cash and cash equivalents                -      (3,726)     (1,320)

Cash and cash equivalents:
  Beginning of period                              -       3,726       5,046
                                            ---------   ---------   ---------
  End of period                             $      -    $      -    $  3,726
                                            =========   =========   =========
Cash payments made:
  Interest                                  $ 22,226    $ 28,710    $ 18,852
  Income taxes                                63,402      24,162      23,533

                            See accompanying notes.

                                       -20-

<PAGE>

                                 INTERSTATE BAKERIES CORPORATION
                         CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                                    (In Thousands)
                               Common 
                            Stock Issued                                       Treasury Stock
                           ---------------                  Retained        ------------------ 
                           Number             Additional    Earnings        Number
                             of       Par      Paid-in    (Accumulated       of   
                           Shares    Value     Capital       Deficit)       Shares      Cost   
                           ------    -----    ----------  ------------     --------   --------  
<S>                        <C>        <C>      <C>          <C>             <C>       <C>
Balance May 28, 1994       21,050     $211     $261,064     $(53,091)       (1,400)   $(20,743) 
Net income                      -        -            -       20,697             -           -   
Stock options exercised
 and related tax benefits       6        -            1            -             -           -  
Dividends paid -
 $.50 per share                 -        -            -       (9,819)            -           -  
Treasury stock acquired         -        -            -            -           (21)       (283) 
                           ------     ----     --------     --------         -----    --------
Balance June 3, 1995       21,056      211      261,065      (42,213)       (1,421)    (21,026) 
Net income                      -        -            -       24,463             -           -  
Shares issued for an
 acquisition               16,923      169      243,100            -             -           -
Stock options exercised
 and related tax benefits     756        7       11,332            -             -           -  
Dividends paid -
 $.50 per share                 -        -            -      (16,342)            -           -  
Treasury stock acquired         -        -            -            -           (28)       (519)
                           ------     ----     --------     --------         -----    --------  
Balance June 1, 1996       38,735      387      515,497      (34,092)       (1,449)    (21,545)
Net income                      -        -            -       97,177             -           -
Stock options exercised
 and related tax benefits     530        6       13,630            -             -           -
Dividends paid -
 $.53 per share                 -        -            -      (19,857)            -           -
Treasury stock acquired         -        -            -            -          (259)    (12,481)
                           ------     ----     --------     --------         -----    --------
Balance May 31, 1997       39,265     $393     $529,127     $ 43,228        (1,708)   $(34,026)
                           ======     ====     ========     ========         =====    ========  
</TABLE>
                               See accompanying notes.

                                       -21-

<PAGE>

               INTERSTATE BAKERIES CORPORATION
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               
                               
1. Acquisitions

On March 29, 1997, Interstate Bakeries Corporation (the "Company") purchased
the assets comprising the San Francisco French Bread Company ("SFFB") from
Metz Baking Company.  SFFB, which prior to the acquisition produced and
distributed sourdough bread and rolls throughout Northern California and in
the San Diego area, had net sales in calendar 1996 of approximately $95
million and employed 1,100 people at five bakery locations.  In addition, in
April 1997, the Company acquired the right to use the "Marie Callender's"
trademark in conjunction with the manufacture, marketing, distribution and
sale of croutons.  The aggregate cash purchase price of these acquisitions was
$43,618,000.

On July 22, 1995, the Company acquired Continental Baking Company ("CBC") from
Ralston Purina Company ("RPC") for a total purchase price of $220,000,000 in
cash and 16,923,077 shares of the Company's common stock.  Prior to the
acquisition, CBC was the nation's largest wholesale baking company with annual
sales of approximately $2 billion and 21,000 employees at 36 bakery locations. 
As a result of the acquisition, RPC owns approximately 45% of the Company's
common stock.  Under terms of a shareholder agreement, RPC's holdings of the
Company's common stock must be less than 15% of the outstanding shares within
five years of the acquisition.

The acquisition of CBC has been accounted for as a purchase and the results of
CBC have been included in the accompanying consolidated financial statements
since the date of the acquisition.  The cash and stock portions of the
purchase price, including fees and expenses, were as follows:

                                                   (In Thousands)
     Estimated fair value of net assets acquired     $ 472,284
     Common stock issued                              (243,269)
                                                     ---------
     Cash paid for acquisition of CBC                $ 229,015
                                                     =========

The pro forma unaudited consolidated results of operations as though CBC had
been acquired as of the beginning of fiscal 1996 and 1995 are as follows:

                                   (In Thousands, Except Per Share Data)
                                          52 Weeks          53 Weeks 
                                            Ended             Ended
                                           June 1,           June 3,  
                                            1996              1995
                                         -----------      -----------
     
          Net sales                       $3,140,501       $3,180,109
          Net income                          25,830           14,543
          Earnings per share                     .69              .40

Pro forma data does not purport to be indicative of the results that would
have been obtained had these events actually occurred at the beginning of the
periods presented and is not intended to be a projection of future results.  

<PAGE>
2.  Description of Business and Significant Accounting Policies

Description of business - The Company is the largest baker and distributor of
fresh bakery products in the United States. 

Fiscal year end - The Company has a 52-53 week year that ends on the Saturday 
closest to the last day of May.

Principles of consolidation - The consolidated financial statements include 
the accounts of the Company and its subsidiaries.  All significant 
intercompany accounts and transactions have been eliminated.

Inventories - Inventories are stated at the lower of cost or market.  
Specific invoiced costs are used with respect to ingredients and average 
costs are used for other inventory items.

The components of inventories are as follows:

                                      (In Thousands)
                                    May 31,    June 1,
                                     1997       1996
                                   --------   --------
    Ingredients and packaging       $43,195    $42,591
    Finished goods                   14,420     14,806
    Other                             6,347      9,857
                                    -------    -------
                                    $63,962    $67,254
                                    =======    =======
                                  
Property and equipment - Property and equipment are recorded at cost and 
depreciated over estimated useful lives of 4 to 35 years, using the 
straight-line method for financial reporting purposes and accelerated methods 
for tax purposes.  Depreciation expense was $89,507,000, $85,747,000 and
$25,900,000 for fiscal 1997, 1996 and 1995, respectively.  Interest cost
capitalized as part of the construction cost of capital assets was $555,000 in
fiscal 1997.
                                       -22-

Intangibles - Included in intangibles, which are being amortized using the
straight-line method, are the following:

                                                      (In Thousands)
                                                   May 31,      June 1,
                                     Life           1997         1996
                                  -----------     --------     --------
    Licenses and patents              9 years     $  2,510     $  2,510
    Trademarks and tradenames     25-40 years      112,838      100,870
    Excess of purchase cost over
     net assets acquired             40 years      312,522      306,358
    Deferred financing cost
     and other-net              Term of loans        6,055        3,787
                                                  --------     --------
                                                   433,925      413,525
    Accumulated amortization                       (73,283)     (62,733)
                                                  --------     --------
    Net intangibles                               $360,642     $350,792
                                                  ========     ========

<PAGE>
Long-lived assets - During fiscal 1997, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". 
Under SFAS No. 121, impairment losses are recognized when information
indicates the carrying amount of long-lived assets, identifiable intangibles
and goodwill related to those assets will not be recovered through future
operations or disposal based upon a review of expected undiscounted cash
flows.  The adoption of this statement had no effect on the Company's
consolidated financial statements.

Interest rate swap agreements - The Company enters into interest rate swaps
with major banks to manage the balance of variable versus fixed rate debt
based upon current and anticipated future market conditions.  The differential
to be paid or received is recognized over the term of the swap agreements as a
component of interest expense.  The risk associated with these agreements is
limited to the cost of replacing these agreements at current market rates.

Statement of cash flows - For purposes of the statement of cash flows, the 
Company considers all investments purchased with a maturity of three months 
or less to be cash equivalents. 

Earnings per share - Per share amounts are calculated on the basis of the 
weighted average common shares outstanding and outstanding options to the 
extent they are dilutive.  Weighted average common and common equivalent
shares outstanding were 38,100,000, 34,984,000 and 19,707,000 for fiscal 1997,
1996 and 1995, respectively.
                 
Use of estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
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.

New accounting standards - In February 1997, SFAS No. 128, "Earnings per
Share" was issued by the Financial Accounting Standards Board ("FASB").  SFAS
No. 128, which establishes standards for computing and presenting basic and
diluted earnings per share for publicly held companies, is effective for
periods ending after December 15, 1997.  The Company believes that adoption of
the provisions of SFAS No. 128 will not have a material effect on its
financial statements.

In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information".  Based upon a preliminary review of the provisions of these
standards, the Company believes that they will have no impact on its financial
statements.

<PAGE>
3.  Debt

Long-term debt consists of the following:

                                      (In Thousands)
                                    May 31,    June 1,
                                     1997       1996
                                   --------   --------
Bank borrowings:
  Revolving credit loans(a)        $172,000   $120,000
  Term loans                              -    125,000
Senior notes (b)                     79,000     79,000
Other                                     -      1,205
                                   --------   --------
                                    251,000    325,205
Less amounts payable
 within one year                          -    (21,554)
                                   --------   --------
                                   $251,000   $303,651
                                   ========   ========

                                       -23-

(a)  Represents borrowings under an unsecured $350,000,000 revolving credit
facility, including up to $150,000,000 available for letters of credit (with
an unused amount of $54,000,000 at May 31, 1997), maturing in February 2002. 
The outstanding borrowings bear interest at variable rates generally equal to
the London Interbank Offered Rate (LIBOR) plus from .20% to .63% (.20% at May
31, 1997), depending on certain financial ratios.  The Company also pays a fee
of between .08% and .23% (.08% at May 31, 1997) on the unused portion of the
revolving credit facility.

To offset the variable rate characteristic of a portion of these bank
borrowings, the Company entered into interest rate swap agreements resulting
in fixed interest rates of 6.16% on $51,000,000 through July 1998, 5.47% on
$35,000,000 through January 1998, 5.95% on $43,000,000 through October 1997
and 6.35% on $51,000,000 through July 1997.  The overall weighted average
interest rate on the bank borrowings was 6.08% and 6.32% at May 31, 1997 and
June 1, 1996, respectively.

The credit facility agreement contains covenants which, among other matters
(i) limit the Company's ability to incur indebtedness, merge, consolidate and
acquire or sell assets, (ii) require the Company to satisfy certain ratios
related to net worth, debt-to-capitalization and interest coverage and (iii)
limit the payment of cash dividends on common stock and common stock
repurchases to a total of $20,000,000 plus 75% of aggregate consolidated net
income after fiscal 1995, with availability of $62,031,000 at May 31, 1997.

(b)  Represents 10.00% notes due in annual installments from July 1998 to July
2000.  The note agreement includes covenants mirroring those of the bank
credit agreement. 

<PAGE>
The fair value of the senior notes, described in (b) above, is estimated at
$83,800,000 and $85,800,000 as of May 31, 1997 and June 1, 1996, respectively,
based upon rates available for debt with similar terms.  The Company believes,
based upon current terms, that the carrying value of all other long-term debt 
approximates fair value.  Additionally, the termination value of all swap
agreements at May 31, 1997 is not material. 

The scheduled repayment of long-term debt is as follows:

               Fiscal Years Ending       (In Thousands)
               -------------------       --------------
                      1998                 $      -
                      1999                   25,000
                      2000                   25,000
                      2001                   29,000
                      2002                  172,000
                                           --------
                                           $251,000
                                           ========
4.  Commitments and Contingencies

Future minimum rental commitments for all noncancelable operating leases, 
exclusive of taxes and insurance, are as follows:

             Fiscal Years Ending        (In Thousands)
             -------------------        --------------
                    1998                   $ 48,211
                    1999                     39,257
                    2000                     30,059
                    2001                     22,508
                    2002                     14,869
                 Thereafter                  25,478
                                          ---------
                                           $180,382
                                          =========

Net rental expense under operating leases was $53,792,000, $49,955,000 and
$28,145,000 for fiscal 1997, 1996 and 1995, respectively.  The majority
of the operating leases contain renewal options for varying periods.  
Certain leases include purchase options during or at the end of the lease
term.

The Company is subject to various routine legal proceedings, environmental
actions and other matters in the ordinary course of business, some of which
may be covered in whole or in part by insurance.  In management's opinion,
none of these matters will have a material adverse effect on the Company's
financial position, but could be material to the results of operations or cash
flows for a particular quarter or annual period.

                                       -24-

<PAGE>
5.  Income Taxes

The reconciliation of the provision for income taxes to the statutory federal
rate is as follows:

                              52 Weeks    52 Weeks    53 Weeks
                                Ended       Ended       Ended
                               May 31,     June 1,     June 3,
                                1997        1996        1995
                              --------    --------    --------
Statutory federal tax           35.0%       35.0%       35.0%
State income tax                 5.1         5.6         5.4
Intangibles amortization         2.0         9.6         6.2
Other                            0.5         1.2         1.2
                                ----        ----        ----
                                42.6%       51.4%       47.8%
                                ====        ====        ====

The components of the provision for income taxes are as follows:

                                       (In Thousands)
                              52 Weeks    52 Weeks    53 Weeks
                                Ended       Ended       Ended
                               May 31,     June 1,     June 3,
                                1997        1996        1995
                              --------    --------    --------
Current:
  Federal                     $54,057     $22,426     $18,063
  State                        11,789       4,906       3,025
                              -------     -------     -------
                               65,846      27,332      21,088
                              -------     -------     -------
Deferred:
  Federal                       4,985        (561)     (2,446)
  State                         1,290        (899)        313
                              -------     -------     -------
                                6,275      (1,460)     (2,133)
                              -------     -------     -------
                              $72,121     $25,872     $18,955
                              =======     =======     =======

<PAGE>
Temporary differences and carryforwards which give rise to the deferred income
tax assets and liabilities are as follows:

                                         (In Thousands)
                                      May 31,       June 1,   
                                       1997          1996         
                                     --------      --------      
Deferred tax asset:
  Payroll and benefits accruals      $ 19,404      $ 23,198
  Self-insurance reserves              16,355        15,056
  Other                                25,098        15,374
  Valuation allowance                       -             -
                                     --------      --------      
                                     $ 60,857      $ 53,628
                                     ========      ========       
Deferred tax liability:
  Property and equipment             $154,559      $161,202
  Intangibles                          43,191        40,419
  Self-insurance reserves             (37,241)      (44,532)
  Payroll and benefits accruals       (37,686)      (36,602)
  Environmental accruals               (9,392)      (10,138)
  Other                                10,451            29
                                     --------      --------   
                                     $123,882      $110,378
                                     ========      ========   

6.  Employee Benefit Plans

The 1991 Employee Stock Purchase Plan, which is noncompensatory, allows all
eligible employees to purchase common stock of the Company.  The common stock
can be either issued by the Company at market prices or purchased on the open
market.  At May 31, 1997, 116,000 shares were authorized but not issued under
this plan.

The Company sponsors a defined contribution retirement plan for eligible
employees not covered by union plans.  Contributions are based upon a 
percentage of annual compensation plus a percentage of voluntary employee
contributions.  Retirement expense related to this plan was $15,543,000,
$15,301,000 and $6,528,000 for fiscal 1997, 1996 and 1995, respectively.

There are also in effect numerous negotiated pension plans covering employees
participating by reason of union contracts.  Expense for these plans was
$88,971,000, $78,378,000 and $28,219,000 for fiscal 1997, 1996 and 1995,
respectively.  

In addition to providing retirement pension benefits, the Company provides
health care benefits for eligible retired employees.  Under the Company's
plans, all nonunion employees, with 10 years of service after age 50, are
eligible for retiree health care coverage between ages 60 and 65. 
Grandfathered nonunion employees and certain union employees who have
bargained into the Company-sponsored health care plans are generally eligible
after age 55, with 10 years of service, and have only supplemental benefits
after Medicare eligibility is reached.  Certain of the plans require
contributions by retirees and spouses.

                                       -25-

<PAGE>
The components of the net postretirement benefit expense are as follows:

                                                 (In Thousands)
                                       52 Weeks     52 Weeks      53 Weeks
                                         Ended        Ended         Ended
                                        May 31,      June 1,       June 3,
                                         1997         1996          1995
                                       --------     --------      --------
     Service cost                       $ 2,237       $1,209       $  743
     Interest cost                        6,977        5,850        2,488
     Amortization of unrecognized
      prior service cost                    695          115            -
     Amortization of unrecognized   
      net loss                              688          135          355
                                        -------       ------       ------
     Net postretirement benefit 
      expense                           $10,597       $7,309       $3,586
                                        =======       ======       ======

The status of the Company's unfunded postretirement benefit obligation is as
follows:
                                       (In Thousands)
                                    May 31,      June 1,   
                                     1997         1996    
                                    -------      -------  
 
     Retirees                       $58,915      $59,892
     Fully eligible active 
      plan participants              14,155       10,354
     Other active plan
      participants                   16,716       12,609
                                    -------      -------    
     Accumulated postretirement
      benefit obligation (APBO)      89,786       82,855
     Unrecognized prior service
      cost                           (5,082)      (1,231)
     Unrecognized net loss from
      assumption changes             (2,409)      (3,749)
                                    -------      -------    
     Accrued postretirement
      benefit                        82,295       77,875
     Less current portion            (7,450)      (6,450)
                                    -------      -------    
     APBO included in other
      liabilities                   $74,845      $71,425
                                    =======      =======    

In determining the APBO, the weighted average discount rate was assumed to be
8.0% for fiscal 1997, 1996 and 1995.  The assumed health care cost trend rate
for fiscal 1997 was 9.5%, declining gradually to 6.5% over the next 12 years
and to 5.5% after 18 years. A 1.0% increase in this assumed health care cost
trend rate would increase the service and interest cost components of the net
postretirement benefit expense for fiscal 1997 by approximately $1,686,000, as
well as increase the May 31, 1997 APBO by approximately $13,199,000.

<PAGE>
The Company also participates in a number of multi-employer plans which
provide postretirement health care benefits to substantially all union
employees not covered by Company-administered plans.  Amounts reflected as
benefit cost and contributed to such plans, including amounts related to
health care benefits for active employees, totaled $134,917,000, $123,867,000
and $47,672,000 in fiscal 1997, 1996 and 1995, respectively.

7.  Stock Option Plans

The 1996 Stock Option Plan allows the Company to grant to employees and
directors stock options to purchase up to 6,842,000 shares of common stock at
prices which are not less than the fair market value at the date of grant. 
These options may be granted over a period not to exceed 10 years and
generally vest from one to three years from the date of grant. At May 31,
1997, options to purchase 3,896,000 shares were authorized but not granted. 
The changes in outstanding options are as follows:

                                                 Weighted Average
                                 Shares           Exercise Price
                              Under Option           Per Share
                              ------------       ----------------
     
     Balance May 28, 1994        924,000              $15.75
     Issued                      726,000               13.50
     Surrendered                 (62,000)              15.45
                               ---------              ------
     Balance June 3, 1995      1,588,000               14.73
     Issued                      252,000               20.61
     Surrendered                 (61,000)              20.50
     Exercised                  (748,000)              15.16
                               ---------              ------
     Balance June 1, 1996      1,031,000               15.52
     Issued                    1,123,000               37.00
     Surrendered                 (19,000)              33.43
     Exercised                  (520,000)              15.66
                               ---------              ------
     Balance May 31, 1997      1,615,000              $30.20
                               =========              ======

                                       -26-

<PAGE>
Stock options outstanding and exercisable at May 31, 1997 were as follows:

                                                              Weighted Average
                                           Weighted Average       Remaining
Range of Exercise             Shares        Exercise Price    Contractual Life
Prices Per Share           Under Option        Per Share          In Years
-----------------          ------------    ----------------   ----------------
Outstanding:
 $12.25 - $14.50              325,000           $13.59              6.7
  17.00 -  21.25              193,000            19.53              6.8
  37.00 -  37.00            1,097,000            37.00              9.3
----------------            ---------           ------              ---
 $12.25 - $37.00            1,615,000           $30.20              8.5
----------------            ---------           ------              ---

Exercisable:
 $12.25 - $14.50              325,000           $13.59
  17.00 -  21.25              193,000            19.53
  37.00 -  37.00               70,000            37.00
----------------            ---------           ------
 $12.25 - $37.00              588,000           $18.32
----------------            ---------           ------

The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB25"), and related interpretations in
accounting for its stock option plan, and, therefore, no compensation expense
has been recognized for its plan.  For companies electing to continue the use
of APB25, SFAS No. 123, "Accounting for Stock-Based Compensation" requires
proforma disclosures determined through the use of an option-pricing model as
if the provisions of SFAS No. 123 had been adopted.

The weighted average fair value at date of grant for options granted during
fiscal 1997 and 1996 was $12.96 and $6.64 per share, respectively.  The fair
value of each option grant is estimated on the date of the grant using the
Black-Scholes option-pricing model with the following assumptions used for
1997 and 1996 grants: dividend yield of 1.0% for both years; expected
volatility of 26.5% and 27.9%, respectively; risk-free interest rate of 6.4%
and 5.9%, respectively; and an expected term of four years for all grants. 
Had the Company adopted the provisions of SFAS No. 123, reported net income
would have been reduced by $4,050,000 ($.11 per share) and $565,000 ($.02 per
share) for fiscal 1997 and 1996, respectively.

At May 31, 1997, 5,648,000 total shares of common stock were reserved for
issuance under various employee benefit plans.

<PAGE>
8.  Accrued Expenses and Other Liabilities

Included in accrued expenses are the following:

                                               (In Thousands)
                                             May 31,     June 1,
                                              1997        1996
                                            --------    --------
     Payroll, vacation and other
      compensation                          $64,454     $61,737
     Self-insurance reserves                 53,160      44,498
     Pension and welfare                     34,372      39,799
     Taxes other than income                 21,306      21,731


Included in other liabilities are the following:

                                               (In Thousands)
                                             May 31,     June 1, 
                                              1997        1996
                                            --------    --------

     Self-insurance reserves                $ 95,819    $113,484
     Accrued postretirement benefit           74,845      71,425



9.  Other Charges

The Company incurred $9,500,000 of other charges in fiscal 1996 as the result
of a payment due a union-administered multi-employer pension plan which
failed.

                                       -27-

<PAGE>
10.  Quarterly Financial Information (Unaudited)

Summarized quarterly financial information for the fiscal years ended May 31,
1997 and June 1, 1996 is as follows (each quarter represents a period of
twelve weeks except the third quarters, which cover sixteen weeks):

                                (In Thousands, Except Per Share Data)
                              First       Second      Third      Fourth
                             --------    --------    --------   --------
1997
  Net sales                  $753,625    $758,378    $945,258   $755,170
  Cost of products sold       374,139     365,865     465,891    360,370
  Operating income             38,735      51,126      46,268     55,014
  Net income                   18,667      26,242      22,629     29,639
  Earnings per share              .49         .69         .59        .77

1996
  Net sales                  $471,441    $734,537    $926,482   $745,720
  Cost of products sold       241,302     375,791     470,459    365,639
  Operating income             16,523      20,694      17,711     23,830
  Net income                    5,726       6,095       4,166      8,476
  Earnings per share              .21         .16         .11        .23


First quarter fiscal 1996 results include the operations of CBC for five
weeks, from the acquisition date of July 22, 1995.  The fourth quarter of
fiscal 1996 includes other charges of $9,500,000 ($5,738,000 and $.15 per
share on an after-tax basis) resulting from a payment due a union-administered
multi-employer pension plan which failed.

<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------

To the Board of Directors and Stockholders
Interstate Bakeries Corporation

We have audited the accompanying consolidated balance sheets of Interstate
Bakeries Corporation and its subsidiaries as of May 31, 1997 and June 1, 1996, 
and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three fiscal years in the period ended May 31,
1997.  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 generally accepted auditing
standards.  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 Interstate Bakeries Corporation
and its subsidiaries as of May 31, 1997 and June 1, 1996, and the results of
their operations and their cash flows for each of the three fiscal years in
the period ended May 31, 1997 in conformity with generally accepted accounting
principles.

/s/ Deloitte & Touche LLP

Kansas City, Missouri
July 15, 1997

                                       -28-