<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

                   ------------------------------------------

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

                  For the quarterly period ended March 31, 1998

                                       OR

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

                         Commission file number 0-18001


                              THE PRESLEY COMPANIES

             (Exact name of registrant as specified in its charter)


               Delaware                                      33-0475923
        (State or jurisdiction of                         (I.R.S. Employer
      incorporation or organization)                    Identification No.)

          19 Corporate Plaza                                    92660
      Newport Beach, California                              (Zip Code)
   (Address of principal executive offices)

                                 (949) 640-6400
              (Registrant's telephone number, including area code)

                                 Not Applicable
              (Former name, former address and former fiscal year,
                          if changed since last report)

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

            YES    X                                          NO
                 -----                                            -----

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

<TABLE>
<CAPTION>
                                                                 Outstanding at
    Class of Common Stock                                        March 31, 1998
    ---------------------                                        --------------
<S>                                                                <C>       
    Series A, par value $.01                                       20,516,371
    Series B, restricted voting convertible, par value $.01        31,679,307
</TABLE>
--------------------------------------------------------------------------------

                                        1
<PAGE>   2
                                     THE PRESLEY COMPANIES

                                             INDEX


<TABLE>
<CAPTION>
                                                                                      Page No.
<S>                                                                                       <C>
PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements:
              Consolidated Balance Sheets - March 31, 1998 and
                  December 31, 1997.......................................................3

              Consolidated Statements of Operations - Three Months Ended
                  March 31, 1998 and 1997.................................................4

              Consolidated Statement of Stockholders' Equity (Deficit) - Three Months
                  Ended March 31, 1998....................................................5

              Consolidated Statements of Cash Flows - Three Months Ended
                  March 31, 1998 and 1997.................................................6

              Notes to Consolidated Financial Statements..................................7

Item 2.  Management's Discussion and Analysis of  Financial Condition
                  and Results of Operations..............................................11


PART II.  OTHER INFORMATION..............................................................20

SIGNATURES...............................................................................21
</TABLE>


                                        2
<PAGE>   3
                              THE PRESLEY COMPANIES

                           CONSOLIDATED BALANCE SHEETS
         (in thousands except number of shares and par value per share)
                                    (Note 2)

<TABLE>
<CAPTION>
                                                               March 31,      December 31,
                                                                  1998            1997
                                                               ---------       ---------
                                                              (unaudited)
<S>                                                            <C>             <C>      
                                     ASSETS
Cash and cash equivalents                                      $   2,173       $   4,569
Receivables                                                        8,259           8,652
Real estate inventories                                          233,485         255,472
Investments in and advances to unconsolidated
   joint ventures - Note 3                                        12,575           7,077
Property and equipment, less accumulated
  depreciation of $2,653 and $2,339 at March 31, 1998
  and December 31, 1997, respectively                              3,392           3,613
Deferred loan costs                                                2,853           3,266
Other assets                                                       2,282           2,595
                                                               ---------       ---------
                                                               $ 265,019       $ 285,244
                                                               =========       =========

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Accounts payable                                               $  15,123       $  12,854
Accrued expenses                                                  17,565          23,136
Notes payable                                                     61,210          74,935
12 1/2% Senior Notes due 2001 - Note 2                           180,000         180,000
                                                               ---------       ---------
                                                                 273,898         290,925
                                                               ---------       ---------
Stockholders' equity (deficit)
  Common stock:
     Series A common stock, par value $.01 per share;
        100,000,000 shares authorized; 20,516,371 issued
        and outstanding at March 31, 1998 and 17,838,535
        issued and outstanding at December 31, 1997,
        respectively                                                 205             178

     Series B restricted voting convertible common stock,
        par value $.01 per share; 50,000,000 shares
        authorized; 31,679,307 shares issued and
        outstanding at March 31, 1998 and 34,357,143
        issued and outstanding at December 31, 1997,
        respectively                                                 317             344

  Additional paid-in capital                                     114,599         114,599

  Accumulated deficit from January 1, 1994 - Note 1             (124,000)       (120,802)
                                                               ---------       ---------
                                                                  (8,879)         (5,681)
                                                               ---------       ---------
                                                               $ 265,019       $ 285,244
                                                               =========       =========
</TABLE>

                                        3
<PAGE>   4
                              THE PRESLEY COMPANIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 (in thousands except per common share amounts)
                                   (unaudited)
                                    (Note 2)

<TABLE>
<CAPTION>
                                                            Three Months Ended
                                                                 March 31,
                                                            1998           1997
                                                          --------       --------
<S>                                                       <C>            <C>     
Sales
  Homes                                                   $ 64,391       $ 67,157
  Lots, land and other                                       2,087            638
                                                          --------       --------
                                                            66,478         67,795
                                                          --------       --------
Operating costs
   Cost of sales - homes                                   (56,750)       (60,678)
   Cost of sales - lots, land and other                     (1,901)          (647)
   Sales and marketing                                      (5,087)        (5,507)
   General and administrative                               (3,681)        (3,932)
                                                          --------       --------
                                                           (67,419)       (70,764)
                                                          --------       --------

Operating loss                                                (941)        (2,969)

Loss from unconsolidated joint ventures                        (26)            --

Interest expense, net of amounts capitalized                (2,631)        (1,201)

Other income, net                                              400            596
                                                          --------       --------

Net loss                                                  $ (3,198)      $ (3,574)
                                                          ========       ========

Basic and diluted earnings per common share - Note 1      $  (0.06)      $  (0.07)
                                                          ========       ========
</TABLE>

                                        4
<PAGE>   5
                              THE PRESLEY COMPANIES

            CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
                        THREE MONTHS ENDED MARCH 31, 1998
                                 (in thousands)
                                   (unaudited)
                                    (Note 2)

<TABLE>
<CAPTION>
                                                      Common Stock
                                     ----------------------------------------------                    Accumulated
                                          Series A                    Series B           Additional    Deficit from
                                     ------------------          ------------------       Paid-In      January 1,
                                     Shares      Amount          Shares      Amount       Capital          1994            Total
                                     ------      ------          ------      ------       -------          ----            -----
<S>                                  <C>       <C>               <C>       <C>           <C>            <C>             <C>       
Balance - December 31, 1997          17,839    $     178         34,357    $     344     $ 114,599      $(120,802)      $  (5,681)

Net loss                                 --           --             --           --            --         (3,198)         (3,198)

Conversion of Series B Common
   Stock - Note 4                     2,678           27         (2,678)         (27)           --             --              --
                                     ------    ---------      ---------    ---------     ---------      ---------       ---------

Balance - March 31, 1998             20,517    $     205         31,679    $     317     $ 114,599      $(124,000)      $  (8,879)
                                     ======    =========      =========    =========     =========      =========       =========
</TABLE>

                                        5
<PAGE>   6
                              THE PRESLEY COMPANIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                   (unaudited)
                                    (Note 2)

<TABLE>
<CAPTION>
                                                                                  Three Months Ended
                                                                                       March 31,
                                                                                  ------------------
                                                                                  1998          1997
                                                                                  ----          ----
<S>                                                                           <C>           <C>       
OPERATING ACTIVITIES
  Net loss                                                                     $ (3,198)    $ (3,574)
  Adjustments to reconcile net loss to net
     cash used in operating activities
        Depreciation and amortization                                               313          154
        Net changes in operating assets and liabilities:
           Other receivables                                                       (109)        (500)
           Real estate inventories                                                7,720      (16,798)
           Deferred loan costs                                                      413          325
           Other assets                                                             313        3,418
           Accounts payable                                                       2,269           (8)
           Accrued expenses                                                      (5,249)      (5,829)
                                                                               --------     --------

   Net cash provided by (used in) operating activities                            2,472      (22,812)
                                                                               --------     --------

INVESTING ACTIVITIES
  Investment in unconsolidated joint ventures                                    (5,498)          --
  Principal payments on notes receivable                                            502          400
  Property and equipment, net                                                       (92)        (149)
                                                                               --------     --------

  Net cash provided by (used in) investing activities                            (5,088)         251
                                                                               --------     --------

FINANCING ACTIVITIES
  Proceeds from borrowing on notes payable                                       28,300       45,259
  Principal payments on notes payable                                           (28,080)     (24,022)
                                                                               --------     --------

  Net cash provided by financing activities                                         220       21,237
                                                                               --------     --------

NET DECREASE IN CASH AND CASH EQUIVALENTS                                        (2,396)      (1,324)

CASH AND CASH EQUIVALENTS - beginning of period                                   4,569        4,550
                                                                               ========     ========

CASH AND CASH EQUIVALENTS - end of period                                      $  2,173     $  3,226
                                                                               ========     ========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
  Cash paid during the period for interest, net of amounts capitalized         $  7,767     $  6,554
                                                                               ========     ========
  Issuance of notes payable for land acquisitions                              $  2,748     $     --
                                                                               ========     ========
  Assumption or repayment of notes payable by unconsolidated joint ventures    $ 17,015     $     --
                                                                               ========     ========
</TABLE>

                                        6
<PAGE>   7
                              THE PRESLEY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE 1 - BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and in accordance with the rules and regulations of the
Securities and Exchange Commission. Effective as of January 1, 1994, the Company
completed a capital restructuring and quasi-reorganization. The
quasi-reorganization resulted in the adjustment of assets and liabilities to
estimated fair values and the elimination of an accumulated deficit effective
January 1, 1994. The consolidated financial statements do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. The consolidated financial statements
included herein should be read in conjunction with the Company's Annual Report
on Form 10-K for the year ended December 31, 1997.

The interim consolidated financial statements have been prepared in accordance
with the Company's customary accounting practices. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered necessary
for a presentation in accordance with generally accepted accounting principles
have been included. Operating results for the three months ended March 31, 1998
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1998.

The consolidated financial statements include the accounts of the Company and
all majority-owned or controlled subsidiaries and joint ventures. The equity
interests of other partners are reflected as minority partners' interest. All
significant intercompany accounts and transactions have been eliminated.
Investments in unconsolidated joint ventures in which the Company has less than
a controlling interest are accounted for using the equity method. The accounting
policies of the joint ventures are substantially the same as those of the
Company.

The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of the assets and liabilities
as of March 31, 1998 and December 31, 1997 and revenues and expenses for the
periods presented. Accordingly, actual results could differ from those estimates
in the near-term.

In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings Per Share ("Statement No. 128") which replaced the calculation of
primary and fully diluted earnings per share with basic and diluted earnings per
share. All earnings per share amounts for all periods presented conform to
Statement No. 128 requirements. Basic and diluted earnings per common share for
the three months ended March 31, 1998 and 1997 are based on 52,195,678 of Series
A and Series B common stock outstanding.

                                        7
<PAGE>   8
                              THE PRESLEY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                   (CONTINUED)


NOTE 2 - COMPANY ENGAGES FINANCIAL ADVISOR

The Company announced on May 5, 1998 that it had engaged SBC Warburg Dillon Read
Inc. to explore various strategic alternatives including the
refinancing/restructuring of its outstanding debt obligations or the sale of
certain, or substantially all, of its assets. The Company's actions are a direct
result of the severe economic conditions encountered during the past several
years, together with the Company's highly leveraged capital structure.

The declining economic conditions began to affect the Company's primary
home-building markets in California during 1989 and continued on and off since
that time. In view of substantial declines in the value of certain of the
Company's real estate assets since 1992, the Company has been required to write
down the book value of these real estate assets in accordance with generally
accepted accounting principles. The $89,900,000 loss for the year ended December
31, 1997, includes a non-cash charge of $74,000,000 as a result of the
recognition of impairment losses on certain of the Company's real estate assets.
As a result of the substantial losses realized by the Company since 1992, the
Company had a stockholders' deficit of $5,700,000 at December 31, 1997 and
$8,900,000 as of March 31, 1998.

In accordance with the bond indenture agreement governing the Company's Senior
Notes which are due in 2001, because the Company's Consolidated Tangible Net
Worth was less than $60,000,000 as of September 30, 1997, the Company was,
effective on December 4, 1997, required to make an offer to purchase $20,000,000
of the Senior Notes at par plus accrued interest, less the face amount of Senior
Notes acquired by the Company after September 30, 1997. The Company acquired
Senior Notes with a face amount of $20,000,000 prior to December 4, 1997 and
therefore was not required to make said offer.

Each six months thereafter, until such time as the Company's Consolidated
Tangible Net Worth is $60,000,000 or more at the end of a fiscal quarter, the
Company will be required to make similar offers to purchase $20,000,000 of
Senior Notes. At March 31, 1998 the Company's Consolidated Tangible Net Worth
was a deficit of $11,732,000. The Company's management has previously held
discussions, and may in the future hold discussions, with representatives of
certain of the holders of the Senior Notes with respect to modifying this
repurchase provision of the bond indenture agreement. To date, no agreement has
been reached to modify this repurchase provision. Any such change in the terms
or conditions of the bond indenture agreement requires the affirmative vote of
at least a majority in principal amount of the Senior Notes outstanding. No
assurances can be given that any such change will be made.

The ability of the Company to meet its obligations on its indebtedness will
depend to a large degree on its future performance which in turn will be
subject, in part, to factors beyond its control, such as prevailing economic
conditions. The Company's degree of leverage may limit its ability to withstand
adverse business conditions or to capitalize on business opportunities.

                                        8
<PAGE>   9
                              THE PRESLEY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                   (CONTINUED)


NOTE 3 - INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED JOINT VENTURES

The Company and certain of its subsidiaries are general partners in six joint
ventures involved in the development and sale of residential housing projects.
Such joint ventures are not effectively controlled by the Company and,
accordingly, the financial statements of such joint ventures are not
consolidated in the preparation of the Company's consolidated financial
statements. The Company's investments in unconsolidated joint ventures are
accounted for using the equity method. Condensed combined financial information
of these joint ventures as of March 31, 1998 and December 31, 1997 is summarized
as follows (in thousands):

<TABLE>
<CAPTION>
                                                          March 31,   December 31,
                                                            1998         1997
                                                            ----         ----
                                                        (unaudited)
<S>                                                        <C>          <C>    
                                     ASSETS
 Cash and cash equivalents                                 $   419      $    18
 Receivables                                                   261          293
 Real estate inventories                                    78,755       32,097
 Other assets                                                   --          750
                                                           -------      -------
                                                           $79,435      $33,158
                                                           =======      =======

                       LIABILITIES AND PARTNERS' CAPITAL

 Accounts payable                                          $   845      $    86
 Accrued expenses                                              685          701
 Notes payable                                              12,500           --
 Advances from The Presley Companies and subsidiaries           51          127
                                                           -------      -------
                                                            14,081          914
                                                           -------      -------

 Partners' capital
   The Presley Companies and subsidiaries                   12,524        6,950
   Others                                                   52,830       25,294
                                                           -------      -------
                                                            65,354       32,244
                                                           -------      -------
                                                           $79,435      $33,158
                                                           =======      =======
</TABLE>

                                        9
<PAGE>   10
                              THE PRESLEY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                   (CONTINUED)


NOTE 4 - CONVERSION OF SERIES B COMMON STOCK

The Company's Series B Common Stock became convertible into the Company's Series
A Common Stock on a share-for-share basis at the option of the holder from and
after May 20, 1997. On January 30, 1998, the Company issued an aggregate
2,677,836 shares of its Series A Common Stock as a result of the conversion of a
like number of shares of its Series B Common Stock.

                                       10
<PAGE>   11
                              THE PRESLEY COMPANIES

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



The following discussion of results of operations and financial condition should
be read in conjunction with the consolidated financial statements and notes
thereto included in Item 1, as well as the information presented in the Annual
Report on Form 10-K for the year ended December 31, 1997.


GENERAL OVERVIEW

The Company announced on May 5, 1998 that it had engaged SBC Warburg Dillon Read
Inc. to explore various strategic alternatives including the
refinancing/restructuring of its outstanding debt obligations or the sale of
certain, or substantially all, of its assets. The Company's actions are a direct
result of the severe economic conditions encountered during the past several
years, together with the Company's highly leveraged capital structure.

The declining economic conditions began to affect the Company's primary
home-building markets in California during 1989 and continued on and off since
that time. In view of substantial declines in the value of certain of the
Company's real estate assets since 1992, the Company has been required to write
down the book value of these real estate assets in accordance with generally
accepted accounting principles. The $89,900,000 loss for the year ended December
31, 1997, includes a non-cash charge of $74,000,000 as a result of the
recognition of impairment losses on certain of the Company's real estate assets.
As a result of the substantial losses realized by the Company since 1992, the
Company had a stockholders' deficit of $5,700,000 at December 31, 1997 and
$8,900,000 as of March 31, 1998.

In accordance with the bond indenture agreement governing the Company's Senior
Notes which are due in 2001, because the Company's Consolidated Tangible Net
Worth was less than $60,000,000 as of September 30, 1997, the Company was,
effective on December 4, 1997, required to make an offer to purchase $20,000,000
of the Senior Notes at par plus accrued interest, less the face amount of Senior
Notes acquired by the Company after September 30, 1997. The Company acquired
Senior Notes with a face amount of $20,000,000 prior to December 4, 1997 and
therefore was not required to make said offer.

Each six months thereafter, until such time as the Company's Consolidated
Tangible Net Worth is $60,000,000 or more at the end of a fiscal quarter, the
Company will be required to make similar offers to purchase $20,000,000 of
Senior Notes. At March 31, 1998 the Company's Consolidated Tangible Net Worth
was a deficit of $11,732,000. The Company's management has previously held
discussions, and may in the future hold discussions, with representatives of
certain of the holders of the Senior Notes with respect to modifying this
repurchase provision of the bond indenture agreement. To date, no agreement has
been reached to modify this repurchase provision. Any such change in the terms
or conditions of the bond indenture agreement requires the affirmative vote of
at least a majority in principal amount of the Senior Notes outstanding. No
assurances can be given that any such change will be made.

                                       11
<PAGE>   12
                              THE PRESLEY COMPANIES

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                                   (CONTINUED)


The ability of the Company to meet its obligations on its indebtedness will
depend to a large degree on its future performance which in turn will be
subject, in part, to factors beyond its control, such as prevailing economic
conditions. At this time, the Company's degree of leverage may limit its ability
to withstand adverse business conditions or to capitalize on business
opportunities.

Because of the Company's obligation to offer to purchase $20,000,000 of the
Senior Notes each six months so long as the Company's Consolidated Tangible Net
Worth is less than $60,000,000, the Company is restricted in its ability to
acquire, hold and develop real estate projects. The Company changed its
operating strategy during 1997 to finance certain projects in California by
forming joint ventures with venture partners that would provide a substantial
portion of the capital necessary to develop these projects. The Company believes
that the use of joint venture partnerships will better enable it to reduce its
capital investment and risk in the highly capital intensive California markets,
as well as to repurchase the Company's Senior Notes as described above. The
Company would generally receive, after priority returns and capital
distributions to its partners, approximately 50% of the profits and losses, and
cash flows from these joint ventures.

                                              12
<PAGE>   13
                              THE PRESLEY COMPANIES

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                                   (CONTINUED)


                              RESULTS OF OPERATIONS

OVERVIEW AND RECENT RESULTS

Homes sold, closed and in backlog as of and for the periods presented are as
follows:

<TABLE>
<CAPTION>
                                                              As of and for
                                                             the Three Months
                                                             Ended March 31,
                                                             1998       1997
                                                             ----       ----
<S>                                                          <C>        <C>
    Number of homes sold                                      539        449
                                                             ====       ====

    Number of homes closed                                    337        362
                                                             ====       ====

    Backlog of homes sold but not closed at end of period     605        369
                                                             ====       ====
</TABLE>


Homes in backlog are generally closed within three to six months. The dollar
amount of backlog of homes sold but not closed as of March 31, 1998 was
$140,004,000, as compared to $73,360,000 as of March 31, 1997 and $84,600,000 as
of December 31, 1997. The cancellation rate of buyers who contracted to buy a
home but did not close escrow at the Company's projects was approximately 18%
during 1997 and approximately 17% during the first three months of 1998.

The number of homes closed in the first quarter of 1998 was down 7 percent to
337 from 362 in the first quarter of 1997. Net new home orders for the quarter
ended March 31, 1998 increased 20 percent to 539 units from 449 a year ago. For
the first quarter of 1998, net new orders increased 28 percent to 539 from 422
units in the fourth quarter of 1997. The backlog of homes sold as of March 31,
1998 was 605, up 64 percent from 369 units a year earlier, and up 50 percent
from 403 units at December 31, 1997. The Company's inventory of completed and
unsold homes as of March 31, 1998 has decreased by 11 percent to 99 units from
111 units as of December 31, 1997.

The decline in closings for the first quarter of 1998 as compared with the first
quarter of 1997 is primarily the result of the completion or near completion of
certain of the Company's older master-planned communities in California and past
delays in completion of new land acquisitions, which resulted in less product
available for sale, as well as construction delays in certain projects. The
improvement in net new homes orders and backlog for the first quarter of 1998 as
compared with the first quarter of 1997 is primarily the result of improved
market conditions in substantially all of the Company's markets and additional
sales locations as a result of new land acquisitions. At March 31, 1998, the
Company had 44 sales locations as compared to 41 sales locations at March 31,
1997.

                                       13
<PAGE>   14
                              THE PRESLEY COMPANIES

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                                   (CONTINUED)


In general, housing demand is adversely affected by increases in interest and
housing costs. Interest rates, the length of time that assets remain in
inventory, and the proportion of inventory that is financed affect the Company's
interest cost. If the Company is unable to raise sales prices sufficiently to
compensate for higher costs or if mortgage interest rates increase
significantly, affecting prospective buyers' ability to adequately finance home
purchases, the Company's sales, gross margins and net results may be adversely
impacted. To a limited extent, the Company hedges against increases in interest
costs by acquiring interest rate protection that locks in or caps interest rates
for limited periods of time for mortgage financing for prospective homebuyers.


COMPARISON OF THREE MONTHS ENDED MARCH 31, 1998 TO THREE MONTHS ENDED MARCH 31,
1997.

Sales (which represent recorded revenues from closings) for the three months
ended March 31, 1998 were $66.5 million, a decrease of $1.3 million (1.9%) from
sales of $67.8 million for the three months ended March 31, 1997. Revenue from
sales of homes decreased $2.8 million to $64.4 million in the 1998 period from
$67.2 million in the 1997 period. This decrease was due primarily to a decrease
in the number of units closed, partially offset by an increase in the average
sales prices of homes to $191,000 in the 1998 period from $186,000 in the 1997
period, which resulted primarily from increased sales prices, decreased buyer
incentives and a change in the mix of product. Revenue from lots, land and other
increased $1.5 million to $2.1 million in the 1998 period from $0.6 million in
the 1997 period.

Total operating loss changed from $3.0 million in the 1997 period to $0.9
million in the 1998 period. The excess of revenue from sales of homes over the
related cost of sales increased by $1.1 million, to $7.6 million in the 1998
period from $6.5 million in the 1997 period. This increase was primarily due to
an increase in the average sales prices of homes, offset by a decrease in the
number of units closed. Sales and marketing expenses decreased by $0.4 million
to $5.1 million in the 1998 period from $5.5 million in the 1997 period
primarily as a result of decreased direct sales expenses related to the
decreased sales volume. General and administrative expenses decreased by $0.2
million to $3.7 million in the 1998 period from $3.9 million in the 1997 period.

Total interest incurred increased $0.5 million (6.2%) from $8.1 million in the
1997 period to $8.6 million in the 1998 period as a result of an increase in the
amount of outstanding debt. Net interest expense increased to $2.6 million in
the 1998 period from $1.2 million for the 1997 period. This increase was due
primarily to a reduction in real estate assets which qualify for interest
capitalization.

Other income, net decreased to $0.4 million in the 1998 period from $0.6 million
in the 1997 period primarily as a result of decreased income from recreational
facilities, and design center operations, partially offset by increased income
from mortgage operations.

                                       14
<PAGE>   15
                              THE PRESLEY COMPANIES

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                                   (CONTINUED)

                        FINANCIAL CONDITION AND LIQUIDITY

The Company provides for its ongoing cash requirements principally from
internally generated funds from the sales of real estate and from outside
borrowings and, beginning in 1997, by joint venture financing from newly formed
joint ventures with venture partners that will provide a substantial portion of
the capital required for certain projects. The Company currently maintains the
following major credit facilities: 12 1/2% Senior Notes (the "Senior Notes"); a
secured revolving lending facility (the "Working Capital Facility"); and a
revolving line of credit relating to Carmel Mountain Ranch, its wholly-owned
joint venture partnership (the "CMR Facility").

The ability of the Company to meet its obligations on the Senior Notes
(including the repurchase obligation described in General Overiew above) and its
other indebtedness will depend to a large degree on its future performance,
which in turn will be subject, in part, to factors beyond its control, such as
prevailing economic conditions. The Company's degree of leverage may limit its
ability to withstand adverse business conditions or to capitalize on business
opportunities.

The Company will in all likelihood be required to refinance the Working Capital
Facility and the Senior Notes when they mature, and no assurances can be given
that the Company will be successful in that regard.


SENIOR NOTES

The Company filed with the Securities and Exchange Commission a Registration
Statement on Form S-1 for the sale of $200,000,000 of 12 1/2% Senior Notes which
became effective on June 23, 1994. The offering closed on June 29, 1994 and was
fully subscribed and issued. The following discussion of the Senior Notes should
be read in conjunction with the Registration Statement as filed with the
Securities and Exchange Commission.

The 12 1/2% Senior Notes due 2001 (the "Senior Notes") were offered by The
Presley Companies, a Delaware corporation ("Delaware Presley" or the "Company"),
and are unconditionally guaranteed on a senior basis by Presley Homes (formerly
The Presley Companies), a California corporation and a wholly-owned subsidiary
of Delaware Presley ("California Presley"). However, California Presley has
granted liens on substantially all of its assets as security for its obligations
under the Working Capital Facility and other loans. Because the California
Presley guarantee is not secured, holders are effectively junior to borrowings
under the Working Capital Facility with respect to such assets. Delaware Presley
and its consolidated subsidiaries are referred to collectively herein as
"Presley" or the "Company". Interest on the Senior Notes is payable on January 1
and July 1 of each year, commencing January 1, 1995. Except as set forth in the
Indenture Agreement (the "Indenture"), the Senior Notes are not redeemable by
Presley prior to July 1, 1998. Thereafter, the Senior Notes will be redeemable
at the option of Delaware Presley, in whole or in part, at the redemption prices
set forth in the Indenture.

                                       15
<PAGE>   16
                              THE PRESLEY COMPANIES

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                                   (CONTINUED)


The Senior Notes are senior obligations of Presley and rank pari passu in right
of payment to all existing and future unsecured indebtedness of Presley, and
senior in right of payment to all future indebtedness of the Company which by
its terms is subordinated to the Senior Notes.

As described above in General Overview, Presley is required to offer to
repurchase certain Senior Notes at a price equal to 100% of the principal amount
plus any accrued and unpaid interest to the date of repurchase if Delaware
Presley's Consolidated Tangible Net Worth is less than $60 million for any two
consecutive fiscal quarters, as well as from the proceeds of certain asset
sales.

Upon certain changes of control as described in the Indenture, Presley must
offer to repurchase Senior Notes at a price equal to 101% of the principal
amount plus accrued and unpaid interest, if any, to the date of repurchase.

The Indenture governing the Senior Notes restricts, among other things: (i) the
payment of dividends on and redemptions of capital stock by Presley, (ii) the
incurrence of indebtedness by Presley or the issuance of preferred stock by
Delaware Presley's subsidiaries, (iii) the creation of certain liens, (iv)
Delaware Presley's ability to consolidate or merge with or into, or to transfer
all or substantially all of its assets to, another person, and (v) transactions
with affiliates. These restrictions are subject to a number of important
qualifications and exceptions.


WORKING CAPITAL FACILITY

The collateral for the loans provided by the Working Capital Facility includes
substantially all real estate and other assets of the Company (excluding assets
of partnerships and the portion of the partnership interests in Carmel Mountain
Ranch partnership which are currently pledged to other lenders). The borrowing
base is calculated based on specified percentages of book values of real estate
assets. The borrowing base at March 31, 1998 was approximately $153,000,000;
however, the maximum loan under the Working Capital Facility is limited to
$72,000,000. The principal outstanding under the Working Capital Facility at
March 31, 1998 was $46,000,000.

The Working Capital Facility had a termination date of May 20, 1997, with two
one-year extensions at the Company's option. On April 18, 1997, the Company
exercised its option to extend the termination date of the Working Capital
Facility for one period of twelve months from May 20, 1997 to May 20, 1998. Upon
the extension of the termination date, the Company paid an extension fee of 1%
of the Working Capital Facility commitment amount (in addition to the loan fee
described below). Effective on May 8, 1998, the Company and the lenders under
the Working Capital Facility (1) agreed to a 45-day extension of the Working
Capital Facility from May 20, 1998 to Monday, July 6, 1998 and (2) agreed that
the Company will have the option, on or before Thursday, July 2, 1998, to extend
the termination date to May 20, 1999. If the Company elects to exercise this
option in the future, an additional extension fee of 1% of the Working Capital
Facility commitment amount (in addition to the loan fee described below) would
be incurred.

                                       16
<PAGE>   17
                              THE PRESLEY COMPANIES

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                                   (CONTINUED)


Pursuant to the terms of the Working Capital Facility, outstanding advances bear
interest at the prime rate plus 2%. An alternate option provides for interest
based on a specified overseas base rate plus 4.44%, but not less than the prime
rate option in effect at December 31, 1993 (8.00%). In addition, the Company
pays a loan fee of 1% per annum, payable quarterly, on the total Working Capital
Facility commitment amount.

The Working Capital Facility requires certain minimum cash flow and pre-tax and
pre-interest tests. The Working Capital Facility also includes negative
covenants which, among other things, place limitations on the payment of cash
dividends, merger transactions, transactions with affiliates, the incurrence of
additional debt and the acquisition of new land as described in the following
paragraph.

Under the terms of the Working Capital Facility, the Company may acquire new
improved land for development of housing units of no more than 300 lots in any
one location without approval from the lenders if certain conditions are
satisfied. The Company may, however, acquire any new raw land or improved land
provided the Company has obtained the prior written approval of lenders holding
two-thirds of the obligations under the Working Capital Facility.

The Working Capital Facility requires that mandatory prepayments be made to
reduce the outstanding balance of loans to the extent of all funds in excess of
$20,000,000 in the principal operating accounts of the Company.


CMR FACILITY

Carmel Mountain Ranch ("CMR"), the partnership that owns the Carmel Mountain
Ranch master-planned community, is a California general partnership and is 100%
owned by The Presley Companies and its wholly-owned subsidiary. Effective in
March 1995, the development and construction of CMR, a consolidated joint
venture, is financed through a revolving line of credit. The revolving line of
credit consists of several components relating to production units, models and
residential lots. At March 31, 1998, the revolving line of credit had an
outstanding balance of $8,372,000. Availability under the line is subject to a
number of limitations, but in any case cannot exceed $10,000,000. Interest on
the outstanding balance is at prime plus 1.00%. In March 1998, the maturity date
of this line was extended to June 16, 1998. Management is currently in
discussions with the lender to extend the maturity date of this line for an
additional twelve month period to June 16, 1999. Although management believes
that current discussions with this lender will result in this longer term
extension, no assurances can be given in that regard.

                                       17
<PAGE>   18
                              THE PRESLEY COMPANIES

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                                   (CONTINUED)


SELLER FINANCING

Another source of financing available to the Company is seller-provided
financing for land acquired by the Company. At March 31, 1998, the Company had
outstanding notes payable related to land acquisitions for which seller
financing was provided in the amount of $6,838,000.


JOINT VENTURE FINANCING

As of March 31, 1998, the Company had formed six joint ventures in California.
The Company contributed approximately $12,524,000 to these joint ventures and
the Company's venture partners contributed approximately $52,830,000 to these
joint ventures. In January 1998, one of these joint ventures aquired land from
the Company at the Company's approximate book value of $23,200,000 (which also
approximated the land's current market value) and assumed the Company's
non-recourse note payable of $12,500,000 relating to the purchase of land
acquired from the Company. In March 1998, one of these joint ventures acquired
land from the Company at the Company's approximate book value of $6,300,000
(which also approximated the land's current market value) and repaid the
Company's non-recourse note payable of $4,515,000 related to the purchase of
this property. These projects are currently in the initial development stages
and, based upon current estimates of project revenues and costs, all future
development and construction costs will be funded by the Company's venture
partners.


ASSESSMENT DISTRICT BONDS

In some locations in which the Company develops its projects, assessment
district bonds are issued by municipalities to finance major infrastructure
improvements and fees. Such financing has been an important part of financing
master-planned communities due to the long-term nature of the financing,
favorable interest rates when compared to the Company's other sources of funds
and the fact that the bonds are sold, administered and collected by the relevant
government entity. As a landowner benefited by the improvements, the Company is
responsible for the assessments on its land. When Presley's homes or other
properties are sold, the assessments are either prepaid or the buyers assume the
responsibility for the related assessments.


CASH FLOWS - COMPARISON OF THREE MONTHS ENDED MARCH 31, 1998 TO THREE MONTHS
ENDED MARCH 31, 1997

Net cash provided by (used in) operating activities changed from a use of $22.8
million in the 1997 period to a source of $2.5 million in the 1998 period. This
change was primarily as a result of decreased land acquisition and construction
activity.


                                       18
<PAGE>   19
                              THE PRESLEY COMPANIES

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                                   (CONTINUED)


Net cash provided by (used in) investing activities changed from a source of
$0.3 million in the 1997 period to a use of $5.0 million in the 1998 period
primarily as a result of investments in unconsolidated joint ventures.

Net cash provided by financing activities changed from a source of $21.2 million
in the 1997 period to a source of $0.2 million in the 1998 period as a result of
a decrease in net borrowings activity.


IMPACT OF YEAR 2000

The Company has conducted an assessment of its computer systems to ascertain
what modifications it will be required to make so that its computer systems will
function properly with respect to dates in the year 2000 and thereafter.
Management believes that any such modifications will have minimal effects on its
systems and the costs incurred in that connection will not be material.

                                   * * * * *

Certain statements contained herein that are not historical information contain
forward-looking statements. The forward-looking statements involve risks and
uncertainties and actual results may differ materially from those projected or
implied. Further, certain forward-looking statements are based on assumptions of
future events which may not prove to be accurate. Factors that may impact such
forward-looking statements include, among others, changes in general economic
conditions and in the markets in which the Company competes, changes in interest
rates and competition.

                                       19
<PAGE>   20
                              THE PRESLEY COMPANIES

                           PART II. OTHER INFORMATION


ITEMS 1, 2, 3, 4 AND 5. Not applicable.


ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K


           (A)  EXHIBITS.

                    27       Financial Data Schedule


           (B)  REPORTS ON FORM 8-K.

                    FEBRUARY 6, 1998. A report on Form 8-K was filed by the
                    Company in reference to the issuance of 2,677,836 shares of
                    its Series A Common Stock as a result of the conversion of a
                    like number of shares of its Series B Common Stock.


                                       20
<PAGE>   21
                              THE PRESLEY COMPANIES


                                   SIGNATURES

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



Date: May 14, 1998                   By:   /s/  David M. Siegel
                                         ---------------------------------------
                                         DAVID M. SIEGEL
                                         Senior Vice President, Chief Financial
                                         Officer and Treasurer (Principal
                                         Financial Officer)



Date: May 14, 1998                   By:   /s/  W. Douglass Harris
                                         ---------------------------------------
                                         W. DOUGLASS HARRIS
                                         Vice President, Corporate Controller
                                         (Principal Accounting Officer)


                                       21
<PAGE>   22

                                 EXHIBIT INDEX


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

 27                 Financial Data Schedule