<PAGE>   1
 
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                       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, 1999
 
                                       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)
 
<TABLE>
<S>                                              <C>
                    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)
</TABLE>
 
                                 (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                         MAY 10, 1999
                   ---------------------                        --------------
<S>                                                             <C>
Series A, par value $.01                                          34,792,732
Series B, restricted voting convertible, par value $.01           17,402,946
</TABLE>
 
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<PAGE>   2
 
                             THE PRESLEY COMPANIES
 
                                     INDEX
 
<TABLE>
<CAPTION>
                                                                         PAGE NO.
                                                                         --------
  <S>      <C>                                                           <C>
  PART I. FINANCIAL INFORMATION
 
  ITEM 1.  FINANCIAL STATEMENTS:
 
           Consolidated Balance Sheets -- March 31, 1999 and December
             31, 1998..................................................      3
 
           Consolidated Statements of Operations -- Three Months Ended
             March 31, 1999 and 1998...................................      4
 
           Consolidated Statement of Stockholders' Equity -- Three
             Months Ended March 31, 1999...............................      5
 
           Consolidated Statements of Cash Flows -- Three Months Ended
             March 31, 1999 and 1998...................................      6
 
           Notes to Consolidated Financial Statements..................      7
 
  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
             AND RESULTS OF OPERATIONS.................................     14
 
  ITEM 3.  NOT APPLICABLE.
 
  PART II. OTHER INFORMATION...........................................     25
 
  SIGNATURES...........................................................     26
</TABLE>
 
                                        2
<PAGE>   3
 
                         PART I. FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS.
 
                             THE PRESLEY COMPANIES
 
                          CONSOLIDATED BALANCE SHEETS
         (IN THOUSANDS EXCEPT NUMBER OF SHARES AND PAR VALUE PER SHARE)
                                    (NOTE 2)
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                               MARCH 31,     DECEMBER 31,
                                                                 1999            1998
                                                              -----------    ------------
                                                              (UNAUDITED)
<S>                                                           <C>            <C>
Cash and cash equivalents...................................   $   2,084      $  23,955
Receivables.................................................      10,750          8,613
Real estate inventories.....................................     164,697        174,502
Investments in and advances to unconsolidated joint
  ventures -- Note 3........................................      33,516         30,462
Property and equipment, less accumulated depreciation of
  $3,464 and $3,156 at March 31, 1999 and December 31, 1998,
  respectively..............................................       2,711          2,912
Deferred loan costs.........................................       2,993          3,381
Other assets................................................       2,629          2,579
                                                               ---------      ---------
                                                               $ 219,380      $ 246,404
                                                               =========      =========
 
                          LIABILITIES AND STOCKHOLDERS' EQUITY
 
Accounts payable............................................   $  17,019      $  17,364
Accrued expenses............................................      23,471         27,823
Notes payable...............................................      26,765         55,393
12 1/2% Senior Notes due 2001 -- Notes 4 and 5..............     140,000        140,000
                                                               ---------      ---------
                                                                 207,255        240,580
                                                               ---------      ---------
 
Stockholders' equity
  Common stock:
     Series A common stock, par value $.01 per share;
      100,000,000 shares authorized; 34,792,732 issued and
      outstanding at March 31, 1999 and December 31, 1998,
      respectively..........................................         348            348
     Series B restricted voting convertible common stock,
      par value $.01 per share; 50,000,000 shares
      authorized; 17,402,946 shares issued and outstanding
      at March 31, 1999 and December 31, 1998,
      respectively..........................................         174            174
  Additional paid-in capital -- Note 1......................     117,154        116,249
  Accumulated deficit from January 1, 1994 -- Note 1........    (105,551)      (110,947)
                                                               ---------      ---------
                                                                  12,125          5,824
                                                               ---------      ---------
                                                               $ 219,380      $ 246,404
                                                               =========      =========
</TABLE>
 
                            See accompanying notes.
 
                                        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,
                                                              --------------------
                                                                1999        1998
                                                              --------    --------
<S>                                                           <C>         <C>
Sales
  Homes.....................................................  $ 82,071    $ 64,391
  Lots, land and other......................................       226       2,087
                                                              --------    --------
                                                                82,297      66,478
                                                              --------    --------
 
Operating costs
  Cost of sales -- homes....................................   (68,020)    (56,750)
  Cost of sales -- lots, land and other.....................      (675)     (1,901)
  Sales and marketing.......................................    (4,075)     (5,087)
  General and administrative................................    (3,931)     (3,681)
                                                              --------    --------
                                                               (76,701)    (67,419)
                                                              --------    --------
Income (loss) from unconsolidated joint ventures............     2,945         (26)
                                                              --------    --------
Operating income (loss).....................................     8,541        (967)
Interest expense, net of amounts capitalized................    (2,215)     (2,631)
Financial advisory expenses -- Note 2.......................      (692)         --
Other income (expense), net.................................       667         400
                                                              --------    --------
Income (loss) before income taxes...........................     6,301      (3,198)
Provision for income taxes -- Note 1........................      (905)         --
                                                              --------    --------
Net income (loss)...........................................  $  5,396    $ (3,198)
                                                              ========    ========
Basic and diluted earnings per common share -- Note 1.......  $   0.10    $  (0.06)
                                                              ========    ========
</TABLE>
 
                            See accompanying notes.
 
                                        4
<PAGE>   5
 
                             THE PRESLEY COMPANIES
 
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                       THREE MONTHS ENDED MARCH 31, 1999
                                 (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, 1998..............  34,793     $348     17,403     $174      $116,249      $(110,947)     $ 5,824
Net income................................      --       --         --       --            --          5,396        5,396
Income tax benefits relating to temporary
  differences existing prior to the quasi-
  reorganization -- Note 1................      --       --         --       --           905             --          905
                                            ------     ----     ------     ----      --------      ---------      -------
Balance -- March 31, 1999.................  34,793     $348     17,403     $174      $117,154      $(105,551)     $12,125
                                            ======     ====     ======     ====      ========      =========      =======
</TABLE>
 
                            See accompanying notes.
 
                                        5
<PAGE>   6
 
                             THE PRESLEY COMPANIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                  (UNAUDITED)
                                    (NOTE 2)
 
<TABLE>
<CAPTION>
                                                               THREE MONTHS ENDED
                                                                   MARCH 31,
                                                              --------------------
                                                                1999        1998
                                                              --------    --------
<S>                                                           <C>         <C>
Operating activities
  Net income (loss).........................................  $  5,396    $ (3,198)
  Adjustments to reconcile net income (loss) to net cash
     used in operating activities
     Depreciation and amortization..........................       308         313
     Equity in earnings of joint ventures...................    (2,945)         --
     Provision for income taxes.............................       905          --
     Net changes in operating assets and liabilities:
       Other receivables....................................    (2,051)       (109)
       Real estate inventories..............................    11,441       7,720
       Deferred loan costs..................................       388         413
       Other assets.........................................       (50)        313
       Accounts payable.....................................      (345)      2,269
       Accrued expenses.....................................    (4,352)     (5,249)
                                                              --------    --------
  Net cash provided by operating activities.................     8,695       2,472
                                                              --------    --------
Investing activities
  Investment in unconsolidated joint ventures...............      (109)     (5,498)
  Issuance of notes receivable..............................       (98)         --
  Principal payments on notes receivable....................        12         502
  Property and equipment, net...............................      (106)        (92)
                                                              --------    --------
  Net cash used in investing activities.....................      (301)     (5,088)
                                                              --------    --------
Financing activities
  Proceeds from borrowing on notes payable..................    17,185      28,300
  Principal payments on notes payable.......................   (47,450)    (28,080)
                                                              --------    --------
  Net cash provided by (used in) financing activities.......   (30,265)        220
                                                              --------    --------
Net decrease in cash and cash equivalents...................   (21,871)     (2,396)
Cash and cash equivalents -- beginning of period............    23,955       4,569
                                                              --------    --------
Cash and cash equivalents -- end of period..................  $  2,084    $  2,173
                                                              ========    ========
Supplemental disclosures of cash flow information
  Cash paid during the period for interest, net of amounts
     capitalized............................................  $  6,798    $  7,767
                                                              ========    ========
  Issuance of notes payable for land acquisitions...........  $  1,637    $  2,748
                                                              ========    ========
</TABLE>
 
                            See accompanying notes.
 
                                        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. 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, 1998.
 
     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. Income tax
benefits resulting from the utilization of net operating loss and other
carryforwards existing at January 1, 1994 and temporary differences existing
prior to or resulting from the quasi-reorganization, are excluded from the
results of operations and credited to paid-in capital. During the three months
ended March 31, 1999 income tax benefits of $905,000 were excluded from results
of operations and credited to paid-in capital.
 
     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, 1999 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1999.
 
     The consolidated financial statements include the accounts of the Company
and all majority-owned or controlled subsidiaries and joint ventures. 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.
 
     In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures About Segments of an
Enterprise and Related Information ("Statement No. 131"). Statement No. 131
establishes new standards for segment reporting which are based on the way
management organizes segments within the Company for making operating decisions
and assessing performance. The adoption of Statement No. 131 did not affect the
results of operations or financial position of the Company.
 
     The Company designs, constructs and sells a wide range of homes designed to
meet the specific needs of each of its markets. For internal reporting purposes,
the Company is organized into six geographic home building regions and its
mortgage operations. Because each of the Company's geographic home building
regions has similar economic characteristics, housing products and class of
prospective buyers, the geographic home building regions have been aggregated
into a single home building segment. Mortgage company operations did not meet
the materiality thresholds which would require disclosure under Statement No.
131 for the three months ended March 31, 1999 and 1998, and accordingly, are not
separately reported.
 
     The Company evaluates performance and allocates resources primarily on the
operating income of individual home building projects. Operating income is
defined by the Company as sales of homes, lots and land; less cost of sales,
impairment losses on real estate, selling and marketing, and general and
administrative expenses. Accordingly, operating income excludes certain expenses
included in the determination of net income. Operating income (loss) from home
building operations, including income from the Company's investment in
unconsolidated joint ventures, totaled $8.5 million and ($1.0) million for the
three months ended March 31, 1999 and 1998, respectively. All other segment
measurements are disclosed in the Company's consolidated financial statements.
 
                                        7
<PAGE>   8
                             THE PRESLEY COMPANIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  (UNAUDITED)
 
     All revenues are from external customers and no revenues are generated from
transactions with other segments. There were no customers that contributed 10%
or more of the Company's total revenues during the three months ended March 31,
1999 and 1998.
 
     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, 1999 and December 31, 1998 and revenues and expenses for the
periods presented. Accordingly, actual results could differ materially from
those estimates in the near-term.
 
     Earnings per share amounts for all periods presented conform to Financial
Accounting Standards Board Statement No. 128, Earnings Per Share. Basic and
diluted earnings per common share for the three months ended March 31, 1999 and
1998 are based on 52,195,678 shares of Series A and Series B common stock
outstanding.
 
NOTE 2 -- COMPANY ENGAGES FINANCIAL ADVISOR AND ENTERS INTO LETTER OF INTENT
          WITH WILLIAM LYON HOMES, INC.
 
     The Company announced on May 5, 1998 that it had engaged 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. In conjunction with the engagement
of the financial advisor, a Special Committee comprised of independent directors
of the Company's Board of Directors was formed to evaluate strategic
alternatives. The Company's actions were 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 $89,894,000 loss for the year ended December
31, 1997, included 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 $5,681,000 at December 31, 1997. As of
March 31, 1999, the Company's stockholders equity totaled $12,125,000.
 
     On December 31, 1998, the Company announced that, after unanimous approval
by the Special Committee of independent directors, Presley had entered into a
letter of intent with William Lyon Homes, Inc. ("William Lyon Homes") setting
forth their preliminary understanding with respect to (i) the proposed
acquisition by Presley of substantially all of the assets of William Lyon Homes
for approximately $48,000,000 together with the assumption of related
liabilities, and (ii) the concurrent purchase by William Lyon Homes pursuant to
a tender offer for not less than 40% and not more than 49% of the outstanding
shares of Presley common stock held by stockholders other than William Lyon at a
price of $0.62 per share. William Lyon Homes, which is owned by William Lyon and
his son, William H. Lyon, is a California-based homebuilder and real estate
developer with projects currently under development in Northern and Southern
California. The execution of the letter of intent followed a review over several
months by the Special Committee, together with its financial and legal advisors,
of strategic alternatives available to Presley as well as a review of other
proposals received from third parties.
 
     The letter of intent provided that, subject to the fiduciary duties of
their respective boards of directors, Presley and William Lyon Homes would
negotiate exclusively with each other toward a definitive agreement until March
31, 1999.
 
     On February 18, 1999 the Company announced that it had received a letter
from William Lyon, Chairman of the Board of William Lyon Homes and also Chairman
of the Board of Presley, proposing a
 
                                        8
<PAGE>   9
                             THE PRESLEY COMPANIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  (UNAUDITED)
 
modification to the previously executed letter of intent with William Lyon
Homes. Under the proposed modification, William Lyon Homes would make a tender
offer for not more than 37% of the outstanding shares of common stock of Presley
for a purchase price of $0.62 per share. In the event that more than 37% of the
outstanding shares of common stock of Presley is tendered, William Lyon Homes
would purchase shares from each tendering stockholder on a pro rata basis. The
tender offer would be conditioned upon there being tendered and not withdrawn, a
number of shares which constitutes at least 37% of the outstanding shares of
Presley. The proposed modification also provided that the transaction would be
structured to permit William Lyon or his affiliates, prior to consummation of
the transaction and consistent with applicable securities laws, to sell shares
of Presley common stock owned by them up to a maximum of 4% of the total number
of shares of Presley common stock presently outstanding.
 
     On March 30, 1999, the parties amended the letter of intent to extend its
term and the period of exclusive negotiation to April 30, 1999. The condition
included in the letter of intent that the boards of directors of Presley and
William Lyon Homes must approve a definitive agreement by March 31, 1999 was
also extended to April 30, 1999. The parties agreed that William Lyon Homes
could participate in discussions and negotiations with the holders of Presley's
Series B Common Stock regarding the purchase by William Lyon Homes of such
percentage of the Series B holder's shares so as to reduce such Series B
holder's ownership interest in Presley Common Stock to between 4.9% and 5% of
Presley's outstanding Common Stock following consummation of the proposed
transactions. William Lyon Homes could also seek commitments from the Series B
holders to sell additional shares to the extent that the number of shares of
Series A Common Stock tendered in the tender offer are below the minimum
threshold set forth in a definitive agreement.William Lyon Homes was required to
notify the Special Committee regarding the details of any such discussions and
negotiations. William Lyon Homes could not enter into any agreement with any
Series B Holder prior to receiving the written approval from the Special
Committee or Presley's Board of Directors.
 
     On May 4, 1999, the Company announced that after approval by the Special
Committee of its Board of Directors, it has entered into a revised letter of
intent with William Lyon Homes setting forth their preliminary understanding
with respect to (i) the proposed acquisition by Presley of substantially all of
the assets of William Lyon Homes for a cash purchase price of $48,000,000 and
the assumption of all or substantially all of the liabilities of William Lyon
Homes; and (ii) the proposed purchase by William Lyon Homes of a portion of the
outstanding shares of Common Stock of Presley.
 
     Under the terms of the revised letter of intent, William Lyon Homes will
make offers to the holders of Presley's Series B Common Stock and a tender offer
to the holders of Presley's Series A Common Stock to purchase, for a cash
purchase price of $0.655 per share, an aggregate number of shares of Presley's
Common Stock which when added to the number of shares of Presley already owned
by William Lyon Homes and its affiliates, and after giving effect to a
disposition of up to 8% of the total number of shares of Presley Common Stock
currently outstanding by William Lyon Homes and/or its affiliates, will cause
William Lyon Homes and its affiliates to own an aggregate of approximately 49%
of the outstanding shares of Presley's Common Stock.
 
     The proposed transactions are subject to various conditions, including the
successful negotiation and execution of a definitive agreement; the receipt of
opinions of Presley's advisors with respect to the fairness of the transactions
to Presley and its stockholders as well as the solvency of Presley following the
consummation of the transactions; the receipt of real estate appraisals
satisfactory to Presley and William Lyon Homes with respect to the real estate
assets of William Lyon Homes; the approval of a definitive agreement by the
respective boards of directors of Presley and William Lyon Homes by July 15,
1999; receipt of all required regulatory approvals and third party consents,
including any required lender consents; the possession of sufficient borrowing
capacity or the receipt of financing by Presley in an amount sufficient to
enable Presley to finance the transactions; the holders of Presley's Series B
Common Stock not acquiring or disposing of any beneficial interest in Presley's
Common Stock prior to closing; the purchase by William Lyon Homes of a
 
                                        9
<PAGE>   10
                             THE PRESLEY COMPANIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  (UNAUDITED)
 
sufficient number of shares of Presley Common Stock to cause, when added to the
number of shares already owned and after giving effect to the sale of up to 8%
of Presley's Common Stock, William Lyon Homes to own at least 49% of Presley's
Common Stock (but not more than 49.9%); and the absence of any material adverse
change in the business or financial condition of either Presley or William Lyon
Homes.
 
     The proposed transactions are also conditioned upon each holder of
Presley's Series B Common Stock having consented to the transactions and
executed a written agreement, in form and substance satisfactory to William Lyon
Homes and Presley, to sell shares of Presley's Series B Common Stock to William
Lyon Homes such that each holder will own less than 5% of the aggregate number
of shares of Presley's Common Stock. In the case of Foothill Capital
Corporation, which is the beneficial owner of less than 5% of the outstanding
shares of Presley Common Stock, William Lyon Homes would purchase 710,574 shares
of Series B Common Stock. If the proposed tender offer to the holders of
Presley's Series A Common Stock is undersubscribed, each holder of Series B
Common Stock would sell an additional number of shares pro rata and at the same
price. Each of the holders of Presley Series B Common Stock would also agree
that prior to the completion of the tender offer for the Series A Common Stock,
they will not transfer or tender any Series A Common Stock that they may own or
transfer or convert any of their remaining Series B Common Stock. William Lyon
Homes would also agree not to sell for three years any shares of Presley Common
Stock in excess of the number currently owned unless such sale occurs in a
transaction in which all stockholders of Presley are treated equally. William
Lyon Homes has advised Presley's Special Committee that each holder of Series B
Common Stock has indicated its acceptance of these terms but has not entered
into a binding or enforceable agreement.
 
     The letter of intent contemplates that each of the transactions will be
structured so as to be subject to the successful completion of the others. The
letter of intent also contemplates that the parties will structure the
transactions (including, if necessary, by imposing limitations on certain
transfers of shares) so as to avoid triggering the change of control tax
provisions that would result in the loss of Presley's net operating losses for
tax purposes. The letter of intent also contemplates that Presley's 12 1/2%
Senior Notes due 2001 will remain outstanding without modification.
 
     The letter of intent provides that, subject to the fiduciary duties of
their respective boards of directors, Presley and William Lyon Homes will
negotiate exclusively with each other toward a definitive agreement until July
15, 1999. The letter of intent does not constitute a binding agreement to
consummate the transactions and there can be no assurance that the parties will
enter into a definitive agreement with respect to the transactions or that the
conditions to the transactions will be satisfied.
 
     In connection with these events, the Company has incurred costs of
approximately $692,000 for the three months ended March 31, 1999 which are
reflected in the Consolidated Statement of Operations as financial advisory
expenses.
 
                                       10
<PAGE>   11
                             THE PRESLEY COMPANIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  (UNAUDITED)
 
NOTE 3 -- INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED JOINT VENTURES
 
     The Company and certain of its subsidiaries are general partners or members
in twelve joint ventures involved in the development and sale of residential
projects. Such joint ventures are not effectively controlled by the Company and,
accordingly, the financial statements of such joint ventures are not
consolidated with 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, 1999 and December 31, 1998 and for the three months ended March 31,
1999 and 1998 is summarized as follows:
 
                       CONDENSED COMBINED BALANCE SHEETS
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                               MARCH 31,     DECEMBER 31,
                                                                 1999            1998
                                                              -----------    ------------
                                                              (UNAUDITED)
<S>                                                           <C>            <C>
                                         ASSETS
 
Cash and cash equivalents...................................    $  2,770       $    304
Receivables.................................................       1,407            851
Real estate inventories.....................................     159,215        168,417
Other assets................................................       1,118          1,034
                                                                --------       --------
                                                                $164,510       $170,606
                                                                ========       ========
 
                             LIABILITIES AND OWNERS' CAPITAL
 
Accounts payable............................................    $  6,320       $  6,453
Accrued expenses............................................       3,264          2,098
Notes payable...............................................      28,760         29,024
Advances from The Presley Companies and subsidiaries........         764            655
                                                                --------       --------
                                                                  39,108         38,230
                                                                --------       --------
 
Owners' capital
  The Presley Companies and subsidiaries....................      32,752         29,807
  Others....................................................      92,650        102,569
                                                                --------       --------
                                                                 125,402        132,376
                                                                --------       --------
                                                                $164,510       $170,606
                                                                ========       ========
</TABLE>
 
                                       11
<PAGE>   12
                             THE PRESLEY COMPANIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  (UNAUDITED)
 
                  CONDENSED COMBINED STATEMENTS OF OPERATIONS
                                 (IN THOUSANDS)
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED
                                                                   MARCH 31,
                                                              -------------------
                                                                1999       1998
                                                              --------    -------
<S>                                                           <C>         <C>
Sales
  Homes.....................................................  $ 37,917    $    --
Operating costs
  Cost of sales -- homes....................................   (30,831)        --
  Sales and marketing.......................................    (1,404)       (26)
                                                              --------    -------
Operating income............................................     5,682        (26)
Other income, net...........................................       177         --
                                                              --------    -------
Net income (loss)...........................................  $  5,859    $   (26)
                                                              ========    =======
Allocation to owners
  The Presley Companies and subsidiaries....................  $  2,945    $   (26)
  Others....................................................     2,914         --
                                                              --------    -------
                                                              $  5,859    $   (26)
                                                              ========    =======
</TABLE>
 
     The majority of these projects are currently in the initial development
stages and, based upon current estimates, all future development and
construction costs will be funded by the Company's venture partners or from the
proceeds of non-recourse construction financing obtained by the joint ventures.
 
NOTE 4 -- 12 1/2% SENIOR NOTES DUE 2001
 
     In accordance with the bond indenture governing the Company's Senior Notes
which are due in 2001, if the Company's Consolidated Tangible Net Worth is less
than $60,000,000 for two consecutive fiscal quarters, the Company is required to
offer to purchase $20,000,000 in principal amount of the Senior Notes. Because
the Company's Consolidated Tangible Net Worth has been less than $60,000,000
beginning with the quarter ended June 30, 1997, the Company would, effective on
December 4, 1997, June 4, 1998, and December 4, 1998, have been required to make
offers 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, March 31, 1998, and September 30, 1998, respectively. The Company acquired
Senior Notes with a face amount of $20,000,000 after September 30, 1997 and
prior to December 4, 1997, again after March 31, 1998 and prior to June 4, 1998,
and again after September 30, 1998 and prior to December 4, 1998, and therefore
was not required to make said offers.
 
     Because the Company's Consolidated Tangible Net Worth was less than
$60,000,000 as of March 31, 1999, the Company would, effective on June 4, 1999,
be required to make similar offers to purchase $20,000,000 in principal amount
of the Senior Notes. In April 1999 the Company acquired Senior Notes with a face
amount of $20,000,000 and therefore will not be required to make such offer
effective on June 4, 1999.
 
     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, 1999 the Company's Consolidated Tangible Net Worth
was $9,132,000. 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
 
                                       12
<PAGE>   13
                             THE PRESLEY COMPANIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  (UNAUDITED)
 
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.
 
     Because of the Company's obligation to offer to purchase $20,000,000
principal amount 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
by forming joint ventures with venture partners that would provide a substantial
portion of the capital necessary to develop these projects.
 
NOTE 5 -- SUBSEQUENT EVENT -- GAIN FROM RETIREMENT OF DEBT
 
     In April 1999, the Company purchased $20,000,000 principal amount of its
outstanding Senior Notes at a cost of $17,700,000. The net gain resulting from
the purchase, after giving effect to income taxes and amortization of related
deferred loan costs, was $1,789,000. Such gain will be reflected as an
extraordinary item in the Company's results of operations for the second quarter
ending June 30, 1999.
 
                                       13
<PAGE>   14
 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS
 
                             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, 1998.
 
GENERAL OVERVIEW
 
     The Company announced on May 5, 1998 that it had engaged 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. In conjunction with the engagement
of the financial advisor, a Special Committee comprised of independent directors
of the Company's Board of Directors was formed to evaluate strategic
alternatives. The Company's actions were 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 $89,894,000 loss for the year ended December
31, 1997, included 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 $5,681,000 at December 31, 1997. As of
March 31, 1999, the Company's stockholders equity totaled $12,125,000.
 
     On December 31, 1998, the Company announced that, after unanimous approval
by the Special Committee of independent directors, Presley had entered into a
letter of intent with William Lyon Homes, Inc. ("William Lyon Homes") setting
forth their preliminary understanding with respect to (i) the proposed
acquisition by Presley of substantially all of the assets of William Lyon Homes
for approximately $48,000,000 together with the assumption of related
liabilities, and (ii) the concurrent purchase by William Lyon Homes pursuant to
a tender offer for not less than 40% and not more than 49% of the outstanding
shares of Presley common stock held by stockholders other than William Lyon at a
price of $0.62 per share. William Lyon Homes, which is owned by William Lyon and
his son, William H. Lyon, is a California-based homebuilder and real estate
developer with projects currently under development in Northern and Southern
California. The execution of the letter of intent followed a review over several
months by the Special Committee, together with its financial and legal advisors,
of strategic alternatives available to Presley as well as a review of other
proposals received from third parties.
 
     The letter of intent provided that, subject to the fiduciary duties of
their respective boards of directors, Presley and William Lyon Homes would
negotiate exclusively with each other toward a definitive agreement until March
31, 1999.
 
     On February 18, 1999 the Company announced that it had received a letter
from William Lyon, Chairman of the Board of William Lyon Homes and also Chairman
of the Board of Presley, proposing a modification to the previously executed
letter of intent with William Lyon Homes. Under the proposed modification,
William Lyon Homes would make a tender offer for not more than 37% of the
outstanding shares of common stock of Presley for a purchase price of $0.62 per
share. In the event that more than 37% of the outstanding shares of common stock
of Presley is tendered, William Lyon Homes would purchase shares from each
tendering stockholder on a pro rata basis. The tender offer would be conditioned
upon there being tendered and not withdrawn, a number of shares which
constitutes at least 37% of the outstanding shares of Presley. The proposed
modification also provided that the transaction would be structured to permit
William Lyon or his affiliates, prior to consummation of the transaction and
consistent with applicable securities laws,
 
                                       14
<PAGE>   15
 
to sell shares of Presley common stock owned by them up to a maximum of 4% of
the total number of shares of Presley common stock presently outstanding.
 
     On March 30, 1999, the parties amended the letter of intent to extend its
term and the period of exclusive negotiation to April 30, 1999. The condition
included in the letter of intent that the boards of directors of Presley and
William Lyon Homes must approve a definitive agreement by March 31, 1999 was
also extended to April 30, 1999. The parties agreed that William Lyon Homes
could participate in discussions and negotiations with the holders of Presley's
Series B Common Stock regarding the purchase by William Lyon Homes of such
percentage of the Series B holder's shares so as to reduce such Series B
holder's ownership interest in Presley Common Stock to between 4.9% and 5% of
Presley's outstanding Common Stock following consummation of the proposed
transactions. William Lyon Homes could also seek commitments from the Series B
holders to sell additional shares to the extent that the number of shares of
Series A Common Stock tendered in the tender offer are below the minimum
threshold set forth in a definitive agreement. William Lyon Homes was required
to notify the Special Committee regarding the details of any such discussions
and negotiations. William Lyon Homes could not enter into any agreement with any
Series B Holder prior to receiving the written approval from the Special
Committee or Presley's Board of Directors.
 
     On May 4, 1999, the Company announced that after approval by the Special
Committee of its Board of Directors, it has entered into a revised letter of
intent with William Lyon Homes setting forth their preliminary understanding
with respect to (i) the proposed acquisition by Presley of substantially all of
the assets of William Lyon Homes for a cash purchase price of $48 million and
the assumption of all or substantially all of the liabilities of William Lyon
Homes; and (ii) the proposed purchase by William Lyon Homes of a portion of the
outstanding shares of Common Stock of Presley.
 
     Under the terms of the revised letter of intent, William Lyon Homes will
make offers to the holders of Presley's Series B Common Stock and a tender offer
to the holders of Presley's Series A Common Stock to purchase, for a cash
purchase price of $0.655 per share, an aggregate number of shares of Presley's
Common Stock which when added to the number of shares of Presley already owned
by William Lyon Homes and its affiliates, and after giving effect to a
disposition of up to 8% of the total number of shares of Presley Common Stock
currently outstanding by William Lyon Homes and/or its affiliates, will cause
William Lyon Homes and its affiliates to own an aggregate of approximately 49%
of the outstanding shares of Presley's Common Stock.
 
     The proposed transactions are subject to various conditions, including the
successful negotiation and execution of a definitive agreement; the receipt of
opinions of Presley's advisors with respect to the fairness of the transactions
to Presley and its stockholders as well as the solvency of Presley following the
consummation of the transactions; the receipt of real estate appraisals
satisfactory to Presley and William Lyon Homes with respect to the real estate
assets of William Lyon Homes; the approval of a definitive agreement by the
respective boards of directors of Presley and William Lyon Homes by July 15,
1999; receipt of all required regulatory approvals and third party consents,
including any required lender consents; the possession of sufficient borrowing
capacity or the receipt of financing by Presley in an amount sufficient to
enable Presley to finance the transactions; the holders of Presley's Series B
Common Stock not acquiring or disposing of any beneficial interest in Presley's
Common Stock prior to closing; the purchase by William Lyon Homes of a
sufficient number of shares of Presley Common Stock to cause, when added to the
number of shares already owned and after giving effect to the sale of up to 8%
of Presley's Common Stock, William Lyon Homes to own at least 49% of Presley's
Common Stock (but not more than 49.9%); and the absence of any material adverse
change in the business or financial condition of either Presley or William Lyon
Homes.
 
     The proposed transactions are also conditioned upon each holder of
Presley's Series B Common Stock having consented to the transactions and
executed a written agreement, in form and substance satisfactory to William Lyon
Homes and Presley, to sell shares of Presley's Series B Common Stock to William
Lyon Homes such that each holder will own less than 5% of the aggregate number
of shares of Presley's Common Stock. In the case of Foothill Capital
Corporation, which is the beneficial owner of less than 5% of the outstanding
shares of Presley Common Stock, William Lyon Homes would purchase 710,574 shares
of Series B Common Stock. If the proposed tender offer to the holders of
Presley's Series A Common Stock is undersubscribed, each holder of Series B
Common Stock would sell an additional number of shares pro rata and at the same
 
                                       15
<PAGE>   16
 
price. Each of the holders of Presley Series B Common Stock would also agree
that prior to the completion of the tender offer for the Series A Common Stock,
they will not transfer or tender any Series A Common Stock that they may own or
transfer or convert any of their remaining Series B Common Stock. William Lyon
Homes would also agree not to sell for three years any shares of Presley Common
Stock in excess of the number currently owned unless such sale occurs in a
transaction in which all stockholders of Presley are treated equally. William
Lyon Homes has advised Presley's Special Committee that each holder of Series B
Common Stock has indicated its acceptance of these terms but has not entered
into a binding or enforceable agreement.
 
     The letter of intent contemplates that each of the transactions will be
structured so as to be subject to the successful completion of the others. The
letter of intent also contemplates that the parties will structure the
transactions (including, if necessary, by imposing limitations on certain
transfers of shares) so as to avoid triggering the change of control tax
provisions that would result in the loss of Presley's net operating losses for
tax purposes. The letter of intent also contemplates that Presley's 12 1/2%
Senior Notes due 2001 will remain outstanding without modification.
 
     The letter of intent provides that, subject to the fiduciary duties of
their respective boards of directors, Presley and William Lyon Homes will
negotiate exclusively with each other toward a definitive agreement until July
15, 1999. The letter of intent does not constitute a binding agreement to
consummate the transactions and there can be no assurance that the parties will
enter into a definitive agreement with respect to the transactions or that the
conditions to the transactions will be satisfied.
 
     In connection with these events, the Company has incurred costs of
approximately $692,000 for the three months ended March 31, 1999 which are
reflected in the Consolidated Statement of Operations as financial advisory
expenses.
 
     In accordance with the bond indenture governing the Company's Senior Notes
which are due in 2001, if the Company's Consolidated Tangible Net Worth is less
than $60 million for two consecutive fiscal quarters, the Company is required to
offer to purchase $20 million in principal amount of the Senior Notes. Because
the Company's Consolidated Tangible Net Worth has been less than $60 million
beginning with the quarter ended June 30, 1997, the Company would, effective on
December 4, 1997, June 4, 1998 and December 4, 1998, have been required to make
offers to purchase $20 million of the Senior Notes at par plus accrued interest,
less the face amount of Senior Notes acquired by the Company after September 30,
1997, March 31, 1998, and September 30, 1998, respectively. The Company acquired
Senior Notes with a face amount of $20 million after September 30, 1997 and
prior to December 4, 1997, again after March 31, 1998 and prior to June 4, 1998,
and again after September 30, 1998 and prior to December 4, 1998, and therefore
was not required to make said offers.
 
     Because the Company's Consolidated Tangible Net Worth was less than $60
million as of March 31, 1999, the Company would, effective on June 4, 1999, have
been required to make similar offers to purchase $20 million in principal amount
of the Senior Notes. In April 1999 the Company acquired Senior Notes with a face
amount of $20 million at a cost of $17.7 million and therefore will not be
required to make such offer effective on June 4, 1999. The net gain resulting
from the purchase, after giving effect to income taxes and amortization of
related loan costs was $1.8 million. Such gain will be reflected in the
Company's results of operations for the second quarter ending June 30, 1999.
 
     Each six months thereafter, until such time as the Company's Consolidated
Tangible Net Worth is $60 million or more at the end of a fiscal quarter, the
Company will be required to make similar offers to purchase $20 million of
Senior Notes. At March 31, 1999 the Company's Consolidated Tangible Net Worth
was $9.1 million. 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.
 
                                       16
<PAGE>   17
 
     As more fully discussed under Working Capital Facility, on July 6, 1998 the
Company completed an agreement with the Agent of its existing lender group under
its Working Capital Facility to (1) extend this loan facility to May 20, 2001,
(2) increase the loan commitment to $100 million, and (3) decrease the fees and
costs compared to the prior revolving facility.
 
     Because of the Company's obligation to offer to purchase $20 million of the
Senior Notes each six months so long as the Company's Consolidated Tangible Net
Worth is less than $60 million, 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 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.
 
     As of March 31, 1999, the Company and certain of its subsidiaries are
general partners or members in twelve joint ventures involved in the development
and sale of residential projects. Such joint ventures are not effectively
controlled by the Company and, accordingly, the financial statements of such
joint ventures are not consolidated with the Company's consolidated financial
statements. The Company's investments in unconsolidated joint ventures are
accounted for using the equity method. See Note 3 of "Notes to Consolidated
Financial Statements" for condensed combined financial information for these
joint ventures. The majority of these projects are currently in the initial
development stages and, based upon current estimates, all future development and
construction costs will be funded by the Company's venture partners or from the
proceeds of non-recourse construction financing obtained by the joint ventures.
 
     At December 31, 1998, the Company had net operating loss carryforwards for
Federal tax purposes of approximately $117.9 million, of which $5.1 million
expires in 2007, $17.5 million expires in 2008, $27.4 million expires in 2009,
$35.8 million expires in 2010, $13.7 million expires in 2011, $16.4 million
expires in 2012 and $2.0 million expires in 2013. The Company's ability to
utilize the tax benefits associated with its net operating loss carryforwards
will depend upon the amount of its otherwise taxable income and may be limited
in the event of an "ownership change" under federal tax laws and regulations.
The Company presently cannot prohibit such ownership changes from occurring.
 
     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, mortgage and other interest rates, weather, the occurrence of events
such as landslides, soil subsidence and earthquakes that are uninsurable, not
economically insurable or not subject to effective indemnification agreements,
availability of labor and homebuilding materials, changes in governmental laws
and regulations, and the availability and cost of land for future development.
At this time, the Company's degree of leverage may limit its ability to meet its
obligations, withstand adverse business or other conditions and capitalize on
business opportunities.
 
                                       17
<PAGE>   18
 
RESULTS OF OPERATIONS
 
  OVERVIEW AND RECENT RESULTS
 
     Homes sold, closed and in backlog for the Company and its unconsolidated
joint ventures as of and for the periods presented are as follows:
 
<TABLE>
<CAPTION>
                                                               AS OF AND FOR
                                                              THE THREE MONTHS
                                                              ENDED MARCH 31,
                                                              ----------------
                                                               1999      1998
                                                              ------    ------
<S>                                                           <C>       <C>
Number of homes sold
  Company...................................................     466       539
  Unconsolidated joint ventures.............................     188        --
                                                              ------    ------
                                                                 654       539
                                                              ======    ======
Number of homes closed
  Company...................................................     401       337
  Unconsolidated joint ventures.............................     116        --
                                                              ------    ------
                                                                 517       337
                                                              ======    ======
Backlog of homes sold but not closed at end of period
  Company...................................................     564       605
  Unconsolidated joint ventures.............................     190        --
                                                              ------    ------
                                                                 754       605
                                                              ======    ======
Dollar amount of backlog of homes sold but not closed at end
  of period (in millions):
  Company...................................................  $123.0    $140.0
  Unconsolidated joint ventures.............................    76.7        --
                                                              ------    ------
                                                              $199.7    $140.0
                                                              ======    ======
</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, 1999 was
$199.7 million, as compared to $140.0 million as of March 31, 1998 and $165.1
million as of December 31, 1998. The cancellation rate of buyers who contracted
to buy a home but did not close escrow at the Company's projects was
approximately 19% during 1998 and approximately 16% during the first three
months of 1999.
 
     The number of homes sold for the quarter ended March 31, 1999 increased 21
percent to 654 units from 539 a year ago. For the first quarter of 1999, the
number of homes sold increased 52 percent to 654 from 429 units in the fourth
quarter of 1998. The number of homes closed in the first quarter of 1999
increased 53 percent to 517 from 337 in the first quarter of 1998. The backlog
of homes sold as of March 31, 1999 was 754, up 25 percent from 605 units a year
earlier, and up 22 percent from 617 units at December 31, 1998. The Company's
inventory of completed and unsold homes as of March 31, 1999 has decreased by 42
percent to 29 units from 50 units as of December 31, 1998.
 
     The increase in net new homes orders, closings and backlog for the first
quarter of 1999 as compared with the first quarter of 1998 is primarily the
result of improved market conditions in substantially all of the Company's
markets.
 
     In general, housing demand is adversely affected by increases in interest
rates and housing prices. 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.
 
                                       18
<PAGE>   19
 
  COMPARISON OF THREE MONTHS ENDED MARCH 31, 1999 TO THREE MONTHS ENDED MARCH
31, 1998
 
     Total sales (which represent recorded revenues from closings) for the three
months ended March 31, 1999 were $82.3 million, an increase of $15.8 million
(23.8%) from sales of $66.5 million for the three months ended March 31, 1998.
Revenue from sales of homes increased $17.7 million to $82.1 million in the 1999
period from $64.4 million in the 1998 period. This increase was due primarily to
an increase in the number of units closed and an increase in the average sales
prices of homes to $204,700 in the 1999 period from $191,200 in the 1998 period.
 
     Total operating income changed from a loss of $1.0 million in the 1998
period to an income of $8.5 million in the 1999 period. The excess of revenue
from sales of homes over the related cost of sales increased by $6.5 million, to
$14.1 million in the 1999 period from $7.6 million in the 1998 period. This
increase was primarily due to (1) an increase in the number of units closed, (2)
changes in product mix and (3) an improvement in margins at certain of the
Company's projects as a result of increased sales prices. Sales and marketing
expenses decreased by $1.0 million to $4.1 million in the 1999 period from $5.1
million in the 1998 period primarily as a result of reductions in advertising
and sales office/model operation expenses, offset by increased direct sales
expenses related to the increased sales volume. General and administrative
expenses increased slightly by $0.2 million to $3.9 million in the 1999 period
from $3.7 million in the 1998 period. Income from unconsolidated joint ventures
amounting to $2.9 was recognized in the 1999 period, compared to an
insignificant loss in the comparable period for 1998. The Company did not begin
investing in unconsolidated joint ventures until the fourth quarter of 1997 and
no significant operating results were realized in the first quarter of 1998.
 
     Total interest incurred decreased $2.4 million (28%) from $8.6 million in
the 1998 period to $6.2 million in the 1999 period as a result of a decrease in
the average amount of outstanding debt. Net interest expense decreased to $2.2
million in the 1999 period from $2.6 million in the 1998 period as a result of
the decrease in the average amount of outstanding debt.
 
     As a result of the Company's engagement of a financial advisor in May 1998
as described previously, the Company has incurred costs of approximately $0.7
million for the three months ended March 31, 1999.
 
     Other income (expense), net increased to $0.7 million in the 1999 period
from $0.4 million in the 1998 period primarily as a result of increased income
from mortgage operations and design center operations.
 
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 letter of intent with William Lyon Homes includes the proposed
acquisition by Presley of substantially all of the assets of William Lyon Homes
for approximately $48 million. The letter of intent is conditioned upon, among
other things, the receipt of financing by Presley in an amount sufficient to
finance the transaction.
 
     The ability of the Company to meet its obligations on the Senior Notes
(including the repurchase obligation described in General Overview 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 meet its obligations, withstand adverse business conditions and
capitalize on business opportunities.
 
     The Company will in all likelihood be required to refinance the Senior
Notes and the Working Capital Facility when they mature, and no assurances can
be given that the Company will be successful in that regard.
 
                                       19
<PAGE>   20
 
  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 of the Senior Notes 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 were not redeemable by Presley prior to July 1, 1998. Thereafter,
the Senior Notes are redeemable at the option of Delaware Presley, in whole or
in part, at the redemption prices set forth in the Indenture.
 
     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
letter of intent with William Lyon Homes described above contemplates that the
transaction would be structured so as to not constitute a change of control as
described in the Indenture.
 
     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
 
     On July 6, 1998 California Presley completed an agreement with the Agent of
its existing lender group under its Working Capital Facility to (1) extend this
loan facility to May 20, 2001, (2) increase the loan commitment to $100 million,
and (3) decrease the fees and costs compared to the prior revolving facility.
 
     The collateral for the loans provided by the Working Capital Facility
continues to include 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, 1999 was
approximately $113 million; however, the maximum loan under the Working Capital
Facility, as stated above, is limited to $100 million. The principal outstanding
under the Working Capital Facility at March 31, 1999 was $16.5 million. In
addition, $2.8 million of available loan capacity is restricted for letters of
credit outstanding under the Working Capital Facility.
 
                                       20
<PAGE>   21
 
     Pursuant to the terms of the Working Capital Facility, outstanding advances
bear interest at the "reference rate" of Chase Manhattan Bank plus 2%. An
alternate option provides for interest based on a specified overseas base rate
plus 4.44%, but not less than 8%. In addition, the Company pays a monthly fee of
0.25% on the average daily unused portion of the loan facility.
 
     Upon completion of the new Working Capital Facility agreement, the Company
paid a one-time, non-refundable Facility Fee of $2 million, as well as a yearly
non-refundable Administrative Fee of $100,000.
 
     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 million 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 Company. 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, 1999, the revolving line of credit had an outstanding balance of $4.1
million. Availability under the line is subject to a number of limitations, but
in any case cannot exceed $5 million. Interest on the outstanding balance is at
prime plus 1.00%. In April 1999, the maturity date of this line was extended to
November 16, 1999.
 
  SELLER FINANCING
 
     Another source of financing available to the Company is seller-provided
financing for land acquired by the Company. At March 31, 1999, the Company had
various notes payable outstanding related to land acquisitions for which seller
financing was provided in the amount of $6.2 million within the Company's
Arizona, New Mexico and Nevada regions.
 
  JOINT VENTURE FINANCING
 
     As of March 31, 1999, the Company and certain of its subsidiaries are
general partners or members in twelve joint ventures involved in the development
and sale of residential projects. Such joint ventures are not effectively
controlled by the Company and, accordingly, the financial statements of such
joint ventures are not consolidated with the Company's financial statements. The
Company's investments in unconsolidated joint ventures are accounted for using
the equity method. See Note 3 of "Notes to Consolidated Financial Statements"
for condensed combined financial information for these joint ventures. The
majority of these projects are currently in the initial development stages and,
based upon current estimates, all future development and construction costs will
be funded by the Company's venture partners or from the proceeds of non-recourse
construction financing obtained by the joint ventures.
 
     As of March 31, 1999, the Company's investment in such joint ventures was
approximately $32.8 million and the Company's venture partners' investment in
such joint ventures was approximately $92.7 million. In addition, certain joint
ventures have obtained financing from land sellers or construction lenders which
amounted to approximately $28.8 million at March 31, 1999.
 
                                       21
<PAGE>   22
 
  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, 1999 TO THREE MONTHS
  ENDED MARCH 31, 1998
 
     Net cash provided by operating activities increased to $8.7 million in the
1999 period from $2.5 million in the 1998 period primarily as a result of
increased income and reductions in real estate inventories.
 
     Net cash used in investing activities decreased to $0.3 million in the 1999
period from $5.1 million in the 1998 period primarily as a result of decreased
investments in unconsolidated joint ventures.
 
     Net cash provided by (used in) financing activities changed from a source
of $0.2 million in the 1998 period to a use of $30.3 million in the 1999 period
primarily as a result of reduced net borrowings from notes payable.
 
IMPACT OF YEAR 2000
 
     The term "year 2000 issue" is a general term used to describe the
complications that may be caused by existing computer hardware and software that
were designed without consideration for the upcoming change in the century. If
not corrected, such programs may cause computer systems and equipment to fail or
to miscalculate data. Due to the year 2000 issue, the Company has undertaken
initiatives to modify or replace portions of its existing computer operating
systems so that they will function properly with respect to dates in the year
2000 and thereafter.
 
     To date, the Company's year 2000 compliance effort has been focused on its
core business computer applications (i.e., those systems that the Company is
dependent upon for the conduct of day-to-day business operations). The Company
determined that the highest priority project based on greatest business risk and
greatest technical effort should be the conversion and upgrade of the Company's
JD Edwards accounting systems (the "JD Edwards Programs"). The version of the JD
Edwards programs which the Company is currently using is not year 2000
compliant. However, the Company has acquired and installed a year 2000 compliant
version of the software and is currently testing such software and developing
programs to convert its current applications to the new version of the software.
Based on current evaluations, the Company believes that this conversion will be
implemented no later than June 30, 1999 and will have minimal effects on its
systems and that the cost incurred in that connection will not be material.
 
     The Company has undertaken an assessment of other internal systems used by
the Company in various of its operations. Internal systems used by the Company
in its mortgage company operations, payroll processing and banking interfaces
were all converted during 1998 to systems which are year 2000 compliant and as
such, the Company's efforts are 100% complete with respect to these systems. The
implementation had minimal effect on its systems and the costs incurred in that
connection were not material. Internal systems used by the Company in its design
center operations are currently being converted to a system which is year 2000
compliant. This implementation is expected to be completed no later than June
30, 1999 and the cost incurred in that connection will not be material.
 
     As part of these projects, the Company's relationships with suppliers,
subcontractors, financial institutions and other third parties are being
examined to determine the status of their year 2000 issue efforts as related to
the Company. As a general matter, the Company is vulnerable to significant
suppliers' inability to remedy their own year 2000 issues. Furthermore, the
Company relies on financial institutions, government agencies (particularly for
zoning, building permits and related matters), utility companies,
telecommunication service
 
                                       22
<PAGE>   23
 
companies and other service providers outside of its control. There is no
assurance that such third parties will not suffer a year 2000 business
disruption and it is conceivable that such failures could, in turn, have a
material adverse effect on the Company's liquidity, financial condition and
results of operations.
 
     The Company acknowledges that its failure to resolve a material year 2000
issue could result in the interruption in, or a failure of, certain normal
business activities or operations. Such failures could materially and adversely
affect the Company's results of operations. Although the Company considers its
exposure to the year 2000 issue from third party suppliers as generally low, due
to the uncertainty of the year 2000 readiness of third party suppliers, the
Company is unable to determine at this time whether the consequences of year
2000 failures will have a material impact on the Company's results of
operations, liquidity or financial condition. In addition, the Company could be
materially impacted by the widespread economic or financial market disruption by
year 2000 computer system failures at government agencies on which the Company
is dependent for zoning, building permits and related matters. Possible risks of
year 2000 failure could include, among other things, delays or errors with
respect to payments, third party delivery of materials and government approvals.
The Company's year 2000 project is expected to significantly reduce the
Company's level of uncertainty and exposure to the year 2000 issue. To date, the
Company has not identified any operating systems, either of its own or of a
material third party supplier, that present a material risk of not being year
2000 ready or for which a suitable alternative cannot be implemented.
 
     Management will consider the necessity of implementing a contingency plan
to mitigate any adverse effects associated with the year 2000 issue. The
Company's ability to complete the year 2000 modifications outlined above prior
to any anticipated impact on its operating systems is based on numerous
assumptions of future events and is dependent upon numerous factors, including
the ability of third party software and hardware suppliers and manufacturers to
make necessary modifications to current versions of their products, the
availability of resources to install and test the modified systems and other
factors. Accordingly, there can be no assurance that these modifications will be
successful.
 
     The Company has incurred less than $50,000 in connection with its year 2000
initiatives. The Company estimates its future costs related to its year 2000
initiatives to be less than $250,000. The Company currently anticipates that its
operating system will be year 2000 ready well before January 1, 2000, and that
the year 2000 issue will not have a material adverse effect upon the Company's
liquidity, financial position or results of operations.
 
INFLATION
 
     Although inflation rates have been low in recent years, the Company's
revenues and profitability may be affected by increased inflation rates and
other general economic conditions. In periods of high inflation, demand for the
Company's homes may be reduced by increases in mortgage interest rates. Further,
the Company's profits will be affected by its ability to recover through higher
sales prices increases in the costs of land, construction, labor and
administrative expenses. The Company's ability to raise prices at such times
will depend upon demand and other competitive factors.
 
FORWARD LOOKING STATEMENTS
 
     Investors are cautioned that certain statements contained in this Quarterly
Report on Form 10-Q, as well as some statements by the Company in periodic press
releases and some oral statements by Company officials to securities analysts
and stockholders during presentations about the Company are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 (the "Act"). Statements which are predictive in nature, which depend
upon or refer to future events or conditions, or which include words such as
"expects", "anticipates", "intends", "plans", "believes", "estimates", "hopes",
and similar expressions constitute forward-looking statements. In addition, any
statements concerning future financial performance (including future revenues,
earnings or growth rates), ongoing business strategies or prospects, and
possible future Company actions, which may be provided by management are also
foward-looking statements as defined in the Act. Forward-looking statements are
based upon expectations and
 
                                       23
<PAGE>   24
 
projections about future events and are subject to assumptions, risks and
uncertainties about, among other things, the Company, economic and market
factors and the homebuilding industry. Forward-looking statements are not
guarantees of future performance or results. The Company has no specific
intention to update these statements and does not undertake any obligation to
update any forward-looking statements in this Quarterly Report on Form 10-Q or
elsewhere.
 
     Actual events and results may differ materially from those expressed or
forecasted in the forward-looking statements due to a number of factors. The
principal factors that could cause the Company's actual performance and future
events and actions to differ materially from such forward-looking statements
include, but are not limited to, changes in general economic conditions either
nationally or in regions in which the Company operates, whether an ownership
change occurs which results in the limitation of the Company's ability to
utilize the tax benefits associated with its net operating loss carryforwards,
changes in home mortgage interest rates, changes in prices of homebuilding
materials, labor shortages, adverse weather conditions, the occurrence of events
such as landslides, soil subsidence and earthquakes that are uninsurable, not
economically insurable or not subject to effective indemnification agreements,
changes in governmental laws and regulations, whether a definitive agreement
with William Lyon Homes is executed and consummated, whether the Company is able
to refinance the outstanding balances of Senior Notes and Working Capital
Facility at their respective maturities, and the availability and cost of land
for future growth.
 
                                       24
<PAGE>   25
 
                             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.
 
    10.1(1) Amendment to Letter of Intent dated March 30, 1999 by and among
            William Lyon Homes, Inc., a California corporation, The Presley
            Companies, a Delaware corporation and Presley Homes, a California
            corporation.
 
    27      Financial Data Schedule
---------------
(1) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
    for the year ended December 31, 1998 and incorporated herein by this
    reference.
 
(b) REPORTS ON FORM 8-K.
 
     None
 
                                       25
<PAGE>   26
 
                             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 12, 1999                        By:      /s/ DAVID M. SIEGEL
                                            ------------------------------------
                                                      DAVID M. SIEGEL
                                                   Senior Vice President,
                                                Chief Financial Officer and
                                                          Treasurer
                                               (Principal Financial Officer)
 
Date: May 12, 1999                        By:    /s/ W. DOUGLASS HARRIS
                                            ------------------------------------
                                                     W. DOUGLASS HARRIS
                                            Vice President, Corporate Controller
                                               (Principal Accounting Officer)
 
                                       26
<PAGE>   27
 
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                               DESCRIPTION
-------                              -----------
<C>          <S>
 10.1(1)     Amendment to Letter of Intent dated March 30, 1999 by and
             among William Lyon Homes, Inc., a California corporation,
             The Presley Companies, a Delaware corporation and Presley
             Homes, a California corporation.
   27        Financial Data Schedule
</TABLE>
 
---------------
(1) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
    for the year ended December 31, 1998 and incorporated herein by this
    reference.