<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                                Washington, D. C.
                                      20549

                                    FORM 10-K


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


For the year ended December 31, 1996          Commission file number 0-8621

                         THE WOODBURY TELEPHONE COMPANY
             (Exact name of registrant as specified in its charter)

          Connecticut                            06-0594990
   (State or other jurisdiction of            (I.R.S. Employer
   incorporation or organization)             Identification No.)

299 Main Street South, Woodbury, CT                 06798
                                                               
      (address of principal                        Zip Code
      executive offices)

Registrant's telephone number, including area code - (203) 263-2121

Securities registered pursuant to Section 12(b) of the Act:

                                           None

Securities registered pursuant to Section 12(g) of the Act:

                      Common Stock, par value $2.50 a share
                                (Title of Class)

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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K./  /

                                Cover Page 1 of 2
                                  Page 1 of 26
<PAGE>   2

State the aggregate market value of the voting stock held by nonaffiliates of
the registrant as of February 14, 1997.

              Common Stock, $2.50 par value--$30,379,727*
           (based on the market value on February 1, 1997)

*Southern New England Telecommunications Corporation ("SNET") owns 280,645
shares (or 36.5%) of the Company's Common Stock. Also, pursuant to an Amended
and Restated Agreement and Plan of Merger dated December 6, 1996 (the "Merger
Agreement"), among the Company, SNET and SNET Acquisition Subsidiary, Inc.
("SAS"), a wholly-owned subsidiary of SNET, upon satisfaction of the conditions
precedent to the transaction contemplated thereunder (the "Merger"), SAS will
merge into the Company and the Company will become a wholly-owned subsidiary of
SNET, and each share of the Company's Common Stock held by shareholders
(excluding shares of Common Stock held by SNET) will be converted into the right
to receive a number of publicly traded and listed shares of SNET common stock
having a value equal to $43.00, subject to adjustment as described in the Merger
Agreement (a copy of which is attached as Exhibit 2 hereto). The Merger is
intended to be generally free of federal income tax consequences to the Company
shareholders. It is the Company's position, with which SNET concurs, that SNET
is not an affiliate of the Company despite its stock ownership, because the
conditions to the Merger have not yet been satisfied, and for the past several
years, the Company's management has held sufficient proxies to elect the Board
of Directors' nominees without regard to SNET's vote of its shares. Excluding
SNET's stock, the aggregate market value of the Common Stock as of February 14,
1997 was $19,294,249.


Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of March 3, 1997.

                          Common Stock, $2.50 par value--769,107

DOCUMENTS INCORPORATED BY REFERENCE

None

                                Cover Page 2 of 2
                                   Page 2 of 26
<PAGE>   3
                                     PART I


Item 1. Business

      (a) GENERAL DEVELOPMENT OF BUSINESS - The Woodbury Telephone Company (the
"Company") is a Connecticut corporation which commenced business in 1899. The
purposes for which the Company was formed, as set forth in its Certificate of
Organization, are to build, own, equip, buy, sell, operate and maintain systems
of telephone exchange in any or all of the cities, towns and villages of the
State of Connecticut; and systems and methods of communication from and between
any or all of said cities, towns and villages by means of telephones and
telephone apparatus; and, generally, to lease, rent, sell and buy telephones and
telephone apparatus, and rights of every and all description. The Certificate of
Organization of the Company, as amended, permits it to enter into businesses in
addition to the telecommunications business. However, the Company has no present
plans to enter into any other business.

      (b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS - The sole business in
which the Company is engaged and its only industry segment is providing
telecommunications services (both regulated and unregulated) to its customers as
hereinafter described in Item 1(c).

      (c)  NARRATIVE DESCRIPTION OF BUSINESS

      (i) PRINCIPAL BUSINESS - The Company is engaged in the business of
furnishing local exchange telephone services, intrastate toll services, and
access to long distance telephone services (both intrastate and interstate). The
Company also sells telephone equipment and is an Internet services provider. The
Company currently is the primary provider of local exchange service in the major
portions of the Towns of Woodbury, Southbury, and Bethlehem, Connecticut, and
provides local exchange service to small portions of the Towns of Oxford and
Roxbury, Connecticut (the area to which the Company provides exchange service
being sometimes hereinafter referred to as its "Service Area"). The Service Area
was established by agreement with The Southern New England Telephone Company
("SNETCo"), a subsidiary of SNET and Connecticut's largest incumbent local
exchange carrier. The Service Area has been accepted by the Department of Public
Utility Control of the State of Connecticut ("DPUC") and is incorporated in
tariffs filed by the Company with the DPUC; however, as described in Item
1(c)(x) below regarding competition, recent Connecticut and Federal legislation
will enable competitive providers to offer local exchange service in the Service
Area.

                                  Page 3 of 26
<PAGE>   4
         The Company has no geographical limitation on its unregulated business.
The Company's business and number of customers has grown with the increase in
the population of the Service Area and the introduction of new
telecommunications applications (e.g., facsimiles, computer-based
communications). Future growth is expected to be impacted by population
increases; however, competition (as described in Item 1(c)(x) below) and
additional expansion of telecommunications applications, including a growing
proficiency in telecommunications-based technology, may have a greater influence
on the Company's business. The total number of exchange lines in service at the
end of each of the last five years was 16,640 for 1992, 17,240 for 1993, 17,977
for 1994, 18,710 for 1995 and 19,961 for 1996. Approximately 60% of the
Company's exchange lines are located in the Town of Southbury, 30% in the Town
of Woodbury, 8% in the Town of Bethlehem, and 2% in the Towns of Oxford and
Roxbury combined.

         The Company provides local exchange service in the Service Area to its
customers through central office switching equipment and cables (underground and
attached to poles). Customers have the option of purchasing or leasing their
telephone instrument and other terminal equipment from the Company or other
sources. The Company's lines and cables are interconnected with those of other
telephone companies in the United States and many other countries through the
facilities of SNETCo and other carriers. The Company provides intrastate toll
service under terms, conditions and rates consistent with SNETCo tariffs, as
approved by the DPUC, and intrastate and interstate access under terms,
conditions and rates consistent with National Exchange Carrier Association
("NECA") Tariff No. 5. See Item 1(c)(iv) below regarding regulation. The Company
has upgraded its switching system to provide for equal access to interexchange
carriers (e.g., AT&T Corp. ("AT&T"), Sprint, MCI Communications Corp. ("MCI")).

         (ii) NEW PRODUCTS - The Company has no present plans to introduce a new
product or enter into business in a second industry segment which would require
the investment of a material amount of the assets of the Company, or which is
otherwise material. However, the Company, SNET Springwich, Inc. (a subsidiary of
SNET) and certain other carriers are parties to a limited partnership agreement
pursuant to which the Company holds a 1% investment interest in Springwich
Cellular Limited Partnership ("Springwich"), a limited partnership that provides
cellular mobile telephone service. The Company's allocation of profits and
losses are determined in accordance with such agreement. The Company also has
recently become an Internet service provider, though the expenses and income
associated with that activity is currently immaterial.

                                  Page 4 of 26
<PAGE>   5
      (iii) SOURCES AND AVAILABILITY OF RAW MATERIALS - The Company is not
directly dependent on the availability of raw materials, but is dependent on its
suppliers to furnish it with finished goods and products. The Company has
alternative sources of supplies and is not dependent on any one supplier of
finished goods and products.

      (iv) REGULATION - The Company is a public service company subject to
regulation by the DPUC as to intrastate rates and services, issuance of
securities, reporting requirements, and other matters. The Company is also
subject to regulation by the Federal Communications Commission ("FCC") as to
interstate access charges, reporting requirements, use of a uniform system of
accounting established by the FCC for telephone companies, and other matters.
See Item 1(c)(x) below for further description of the present regulatory
climate.

      The Company provides intrastate toll service under terms, conditions and
rates consistent with SNETCo tariffs, as approved by the DPUC. The DPUC has
recently granted an application by SNETCo to reclassify its intrastate toll
service as competitive (as opposed to its previous designation as
noncompetitive), thereby allowing SNETCo greater flexibility with respect to its
intrastate toll service tariff. Given the recent change in such classification,
the Company cannot anticipate the precedential effect, if any, of that change
which to date has not had any material impact on the Company's operations or
rates for intrastate toll service.

      Effective December 1, 1996, the Company installed and implemented a system
to provide intrastate equal access and presubscription in accordance with a DPUC
order. If a customer selects an intrastate carrier other than the Company, the
Company will be compensated for its services in connection with intrastate toll
calls based on access charges. The Company provides intrastate access under
terms, conditions and rates consistent with NECA Tariff No. 5. Given its recent
adoption of intrastate equal access and presubscription, the Company cannot
anticipate the effect thereof, though the Company expects that it will
experience a loss, either from reduced revenue or increased cost (or a
combination of both). The amount of such loss also may be influenced by the
billing and collection arrangement, if any, that the Company maintains from time
to time with each of the carriers selected by customers.

      The method for compensating the Company for its services in connection
with interstate toll calls is based on access charges. The Company provides
interstate access through NECA Tariff No. 5. These access charges are paid by
the interstate toll carriers and end users. Under this system, the Company's
revenues from interstate toll calling are not affected by the caller's choice of
carrier. In 1992, the Company upgraded its switching system

                                  Page 5 of 26
<PAGE>   6
to provide for equal access to interstate carriers. While some local exchange
carriers or their affiliates have entered into the competitive interstate toll
market as a result of legislative and regulatory initiatives, the Company
currently is not affiliated with any interstate offering.

         (v) SEASONAL BUSINESS - No material portion of the Company's business
is seasonal.

         (vi) WORKING CAPITAL ITEMS - The Company bills its customers on a
monthly basis for interstate and intrastate toll calls (to the extent it
maintains a billing and collection arrangement with the interexchange carrier)
made during the preceding month and in advance, at established rates, for local
exchange service. The Company also has various arrangements with interexchange
carriers for access to the Company's network. None of its current business
practices results in any unusual demands on working capital requirements.

         (vii) CUSTOMERS - Substantially all of the Company's customers are
users of telecommunications services in the Service Area and interexchange
carriers that pay access charges to the Company. The Company does not have sales
in an amount equal to ten (10%) percent or more of its revenue to any single
customer or to any group of customers under common control or affiliated with
each other. No material part of the business of the Company is dependent on a
single customer or a few customers who use its telephone services, purchase
telephone equipment, or pay access charges. At this time, a significant portion
of the customers in the Service Area have selected one interexchange carrier as
their long-distance carrier. Therefore, a material portion of the Company's
access charges for interstate service are derived from that carrier.
Notwithstanding the foregoing, a change of carrier by such customers would not
materially affect the Company's revenue from access charges since the carriers
replacing the current carrier would be required to pay the same access rates
under the applicable tariff.

         (viii) BACKLOG - The Company ordinarily completes orders for telephone
service within approximately five (5) working days of receipt (though that
period may be extended by a few days during the summer months). There has never
been any material number of uncompleted orders for service. The nature of the
Company's business does not permit a reporting of the dollar amount of
uncompleted orders for service.

         (ix) GOVERNMENT CONTRACTS - No material portion of the Company's
business is with the Government.

         (x) COMPETITION - As described below, it is likely that recent
Connecticut and Federal legislation and regulations

                                  Page 6 of 26
<PAGE>   7
adopted in connection therewith will enable competitive providers to offer local
exchange service in the Service Area.

      Historically, the Company and other local exchange carriers generally have
competed, on an unregulated basis, in the areas of billing and collection of
interstate services, and customer premises equipment. The Company offers
customer premises equipment on an unregulated basis under an FCC approved plan.
An increasing number of customers are providing their own equipment and other
facilities in lieu of equipment and facilities leased from the Company. The
Company has no geographical limitation on its unregulated business. The Company
presently does not derive a material amount of its revenue from its unregulated
business.

      Federal Telecommunications Act

       Since AT&T was required to divest itself of the 22 Bell operating
companies, regulatory and judicial rulings have generally increased competition
within the telephone industry, and have deregulated the provision of new
terminal equipment and enhanced services. In February 1996, the Federal
Telecommunications Act of 1996 (the "Federal Telecommunications Act") became
law. The Federal Telecommunications Act, among other things, removes all
barriers to competition in the provision of local telecommunications services
and imposes certain obligations on local exchange carriers, like the Company, to
facilitate the introduction of competition to the local markets. In August 1996,
the FCC issued rules for interconnection between incumbent local exchange
carriers and competitive service providers. These rules have been the subject of
certain appeals currently pending in Federal court, and some rules have been
stayed pending judicial review.

      Generally, the Federal Telecommunications Act requires all
telecommunications carriers to interconnect with each other and not to install
equipment that would preclude interconnectivity. Each local exchange carrier has
the duty to not impose unreasonable or discriminatory conditions on the resale
of its telecommunications services; provide, to the extent technically feasible,
number portability; provide dialing parity and nondiscriminatory access to
telephone numbers, operator services, directory assistance and directory
listing; allow access to rights of way; and establish reciprocal compensation
for the transport and termination of telecommunications.

      The Federal Telecommunications Act also imposes additional obligations on
all incumbent local exchange carriers to negotiate in good faith; provide
interconnection with the facilities and equipment of any requesting carrier;
provide nondiscriminatory access to unbundled network elements; offer any
telecommunication service for resale at wholesale rates (based on retail rates
less avoided costs); provide public notice of changes that would

                                  Page 7 of 26
<PAGE>   8
affect interoperability; and provide for physical collocation of another
carrier's equipment necessary for interconnection or access to unbundled network
elements.

      As an incumbent local exchange carrier, the Company is not only subject to
the duties generally applicable to all local exchange carriers, but also, unless
exempt, the additional obligations imposed on incumbents. The Federal
Telecommunications Act exempts "rural telephone companies" from such additional
obligations. The Company qualifies as such a rural telephone company because it
provides telephone exchange services to fewer than 50,000 access lines.
Accordingly, the Company is exempt from such additional obligations until it has
received a bona fide request for interconnection, services, or network elements,
and the DPUC terminates the Company's exemption because the request is not
unduly economically burdensome, is technically feasible, and is consistent with
universal service principles being developed under the Federal
Telecommunications Act.

      To date one competitive carrier, TCI Telephony Services of Connecticut,
Inc. ("TCI"), has requested that the Company initiate negotiations concerning
interconnection, services and network elements under the Federal
Telecommunications Act. The Company has advised TCI of its exemption as a rural
telephone company. On November 5, 1996, on TCI's application, the DPUC opened
Docket No. 96-11-06 (the "TCI Docket") to conduct the inquiries necessary to
determine whether to terminate the Company's exemption. The Company recently
reached an agreement in principle with TCI pursuant to which, among other
things, the Company would offer for resale by TCI its local, retail
telecommunication services at a wholesale price reflecting a discount to be
established by the DPUC in a SNETCo docket. In connection with such agreement in
principle, TCI withdrew its request to inquire into the Company's exemption,
without prejudice if the Company and TCI fail to reach a definitive agreement on
resale. Accordingly, the DPUC has closed the TCI Docket. The Company anticipates
that other competitive carriers may seek to resell the Company's local, retail
telecommunication services in a manner similar to TCI.

      It is likely that irrespective of the Company's obligations under the
Federal Telecommunications Act, in 1997 the DPUC will process the Company's
dockets opened under the Connecticut Telecommunications Act described below,
subject to the regulatory treatment of the proposed Merger (see Item 12 below
for a description of the Merger). If the DPUC terminates the Company's exemption
or takes other action having a similar effect, the Company anticipates that
increased competition in the Service Area will result in market penetration by
other carriers, a reduction in the Company's traditional sources of revenues,
and increased expenses being incurred by the Company to satisfy its

                                  Page 8 of 26
<PAGE>   9
regulatory obligations. In the absence of regulatory relief, local exchange
competition and the additional obligations imposed on incumbent local exchange
carriers under the Federal Telecommunications Act could seriously threaten the
viability of the Company in the long term. In any event, the Company believes
that based on the DPUC's actions in implementing the Connecticut
Telecommunications Act described below and general industry trends, it is likely
that the Company will face local exchange competition and could be materially
and adversely affected thereby in the long term.

      Connecticut Telecommunications Act

       Prior to the enactment of the Federal Telecommunications Act, Connecticut
has taken steps to increase competition in the provision of local exchange
telephone service. Effective July 1, 1994, Public Act 93-84, Sections 16-247a et
seq. of the Connecticut General Statutes (the "Connecticut Telecommunications
Act") promotes broader competition in the Connecticut telecommunications market,
with the stated goal of assuring high quality customer and technical services.
The Connecticut Telecommunications Act opens Connecticut telecommunications
services, including local exchange service, to full competition, and encourages
the DPUC to adopt alternative forms of regulation for telephone companies, like
the Company. The Federal Telecommunications Act is largely consistent with the
Connecticut Telecommunications Act, though the Federal pricing provisions could
require the Company to charge competitors for services below the Company's cost
of providing such services.

      The DPUC has been charged with implementing the Connecticut
Telecommunications Act. More than 100 organizations have been certified to
operate as telecommunications companies in Connecticut, and approximately 20
(including AT&T, MCI and TCI) have been certified by the DPUC to provide local
service. The DPUC has held numerous hearings on, and is nearing the completion
of, implementation proceedings for SNETCo and certain other matters having
general application to the Connecticut telecommunications market. As a result of
proceedings in its dockets, SNETCo has already or shortly will unbundle its
local network, resell its local exchange services, and interconnect with
competitive carriers. SNETCo also has been granted an alternative form of
regulation and reclassified some of its services as competitive (as opposed to
emerging competitive or noncompetitive) under the Connecticut Telecommunications
Act.

      The Company has been participating in the proceedings involving the
implementation of the Connecticut Telecommunications Act, and the DPUC has
opened three dockets to examine the cost of providing service, intrastate
depreciation rates, and unbundling the local telecommunications network,
respectively, for the Company. While the Company's dockets have

                                  Page 9 of 26
<PAGE>   10
not been significantly advanced, the DPUC has indicated that the principles
developed in the SNETCo dockets are likely to apply equally to the Company. The
Company has consistently maintained that such a uniform application may not be
appropriate given certain significant differences between SNETCo and the
Company. For example, the Company has a different rate and access charge
structure, almost all of the Company's telecommunications services are currently
classified as noncompetitive, and there is no alternative regulation plan for
the Company pending before the DPUC. Unlike the Federal Telecommunications Act,
the Connecticut Telecommunications Act does not provide for any exemption for
the Company as a rural or small telephone company.

      Like the potential adverse effect of the Federal Telecommunications Act,
the implementation of the Connecticut Telecommunications Act, including the
introduction of local exchange competition to the Service Area, could seriously
threaten the viability of the Company in the long term. The Company anticipates
that the DPUC will process the Company's dockets in 1997, subject to the
regulatory treatment of the proposed Merger (see Item 12 below for a description
of the Merger). Moreover, it is likely that in the near future the DPUC will
implement local exchange competition in the Service Area. While the Company
cannot reasonably predict the effect of such competition at this time, absent
favorable regulatory treatment, including modifying some of the principles
developed in the SNETCo dockets, it is likely that local exchange competition
could materially and adversely affect the Company in the long term.

      (xi) RESEARCH ACTIVITIES - The Company continually reviews technological
advances in products and methods of providing services used or usable by it.
Expenses for these activities are classified as general operating expenses. No
material amount of money, or time of any employee or officer of the Company, is
spent on Company sponsored research and development activities or customer
sponsored research activities.

      (xii) COMPLIANCE WITH ENVIRONMENTAL PROTECTION LAWS - Compliance by the
Company with Federal, state, and local provisions relating to the discharge of
materials into the environment or otherwise relating to the protection of the
environment does not have a material effect upon the capital expenditures,
earnings, or competitive position of the Company.

      (xiii) EMPLOYEES - As of December 31, 1996, the Company employed 72
full-time persons and 4 part-time employees. In January, 1996, the Company
negotiated a three year contract with its nonmanagement employees who are
represented by the Connecticut Union of Telephone Workers, Inc., which contract
will expire January 31, 1999.

                                  Page 10 of 26
<PAGE>   11
      (d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES - Substantially all operating revenues and sales of the Company were
derived from the Service Area.

Item 2.  Properties.

      The Company's executive office is located on Main Street, Woodbury,
Connecticut. The Company owns a building adjacent to the executive office, which
serves as the Company's commercial and accounting offices and its customer
service center. The Company's two central offices, which contain its primary
switching equipment, are located in the Towns of Woodbury and Southbury in
buildings owned by the Company and situated on land that it owns in fee.
Substantially all connecting lines that are not located on customers' premises
are located on public roads, streets, and highways. The remainder of the
connecting lines and remote switching locations are located on property pursuant
to easements or permits in favor of the Company. Most of the poles that hold the
Company's cables and lines are owned jointly by the Company and an electric
light and power company. Substantially all other telephone plant is owned by the
Company.

      Capital expenditures for all telephone plant were approximately $1,812,000
for 1992, $2,041,000 for 1993, $3,536,000 for 1994, $2,076,000 for 1995 and
$3,813,000 for 1996. Included were the replacement of the Company's older poles
and cable and additions to its central office equipment. All of the Company's
customers are served by digital central office switching equipment, which the
Company upgraded in 1992.

      Based on estimates of population growth and current business practices,
the Company's central office buildings are believed to be adequate to serve its
customers for at least the next fifteen years. The Company possesses sufficient
garage and storage facilities, primarily under a long term lease of certain
property located in Woodbury, Connecticut. Under the terms of such lease, in the
second half of 2004, the Company possesses the option to purchase such property
at its then fair market value. All telephone plant is adequate to serve the
Company's present customers. As required by increased demand for service,
additional plant will be added.

      The Company is indebted pursuant to an Indenture of Mortgage and Deed of
Trust dated as of February 1, 1973, as amended by a First Supplemental Indenture
dated as of April 1, 1975, a Second Supplemental Indenture dated as of November
1, 1977, a Third Supplemental Indenture dated March 1, 1982, and a Fourth
Supplemental Indenture dated as of July 31, 1992, by and between the Company and
The First National Bank of Boston as Trustee, pursuant to which the Company
issued its Series A, B, C, D, E, F and G First Mortgage Bonds. Series A, B, C,
D, E and F have been

                                  Page 11 of 26
<PAGE>   12
paid and retired. The payment of Series G bonds, in the aggregate outstanding
principal amount of $9,000,000 as of December 31, 1996, is secured by a first
mortgage of substantially all of the Company's property.

Item 3.  Legal Proceedings.

      The Company is not a party to any material pending legal proceedings.

Item 4.    Submission of Matters to a Vote of Security Holders.

      No matter was submitted to a vote of the security holders since the last
annual meeting of the Company.

                                  Page 12 of 26
<PAGE>   13
                                    PART II


Item 5.  Market for the Registrant's Common Stock and Related
         Stockholder Matters.

      The approximate number of record holders of the Company's Common Stock as
of February 14, 1997 was 688. There is no active trading market in the Company's
Common Stock. The prices at which stock of the Company is traded are, however,
presented through the NASDAQ OTC Bulletin Board trading system using the symbol
"WBTL". The prices quoted herein are based on information obtained from the
NASDAQ OTC Bulletin Board. Also listed herein is the frequency and amount of
dividends paid during the last two years.
<TABLE>
<CAPTION>
                                                                  DIVIDENDS
                                                                    PAID
                       PRICE OF COMMON STOCK                      PER SHARE
                       High            Low           Close
<S>                    <C>             <C>           <C>            <C> 
1995:
First Quarter          $26 1/4         $23           $23            $.38
Second Quarter         $25             $22 1/2       $22 3/4        $.38
Third Quarter          $24 1/2         $23           $24 1/2        $.38
Fourth Quarter         $27             $23 3/4       $25            $.38

1996:
First Quarter          $26 3/8         $24           $24 1/2        $.38
Second Quarter         $26 3/8         $23 3/8       $26 3/8        $.38
Third Quarter          $28 1/2         $24 1/4       $28 1/2        $.38
Fourth Quarter         $39 1/2         $26 3/4       $38 1/2        $.38
</TABLE>

      The Company, as a regulated public utility, is allowed to earn and pay a
return on the investment by its shareholders. Though there is no assurance as to
future dividends, the Company has paid dividends every quarter since 1951 and
expects to continue to pay dividends in the foreseeable future. The Company's
ability to pay dividends is limited by the terms of an Indenture of Mortgage and
Deed of Trust dated February 1, 1973, as amended, pursuant to which the Company
issued first mortgage bonds having an aggregate principal amount outstanding of
$9,000,000 as of December 31, 1996 such that dividends and restricted
investments after January 1, 1992 may not exceed $3,000,000 plus 100% of the
cumulative net income after January 1, 1992 (reduced for any net losses after
such date). As of December 31, 1996, approximately $6,080,579 of retained
earnings is available for dividends. The Company currently has no restricted
investments.

                                  Page 13 of 26
<PAGE>   14
Item 6.    Selected Financial Data.
<TABLE>
<CAPTION>
===========================================================================================================
                                  1996           1995             1994            1993            1992
-----------------------------------------------------------------------------------------------------------
<S>                           <C>             <C>             <C>             <C>             <C>
Operating Revenues            $14,342,596     $12,592,857     $12,038,143     $11,457,557     $11,422,319
-----------------------------------------------------------------------------------------------------------
Net income                      2,641,253       1,831,810       1,624,177       1,302,518       1,526,030
-----------------------------------------------------------------------------------------------------------
Long-term debt                  9,000,000       9,000,000       9,000,000       9,000,000       9,000,000
-----------------------------------------------------------------------------------------------------------
Total assets                   29,028,822      27,323,156      28,083,937      26,994,308      26,609,485
-----------------------------------------------------------------------------------------------------------
Per share of Common Stock
-----------------------------------------------------------------------------------------------------------
  Net Income                         3.43            2.38            2.11            1.69            1.98
-----------------------------------------------------------------------------------------------------------
  Cash dividends                     1.52            1.52            1.52            1.52            1.52
===========================================================================================================
</TABLE>

Item 7.    Management's Discussion and Analysis of Financial
           Condition and Results of Operations.

OPERATIONS:

           Total operating revenues increased by $1,749,739 (13.9%) in 1996
compared to 1995, and by $554,714 (4.6%) in 1995 compared to 1994. Local service
revenues increased by $281,356 (9.1%) in 1996 compared to 1995, and by $191,968
(6.6%) in 1995 compared to 1994 due primarily to increases in the customer base
for the periods of 6.7% and 4.1% respectively. Network service revenues
increased by $1,467,070 (17.1%) in 1996 compared to 1995, and by $370,215 (4.5%)
in 1995 compared to 1994. Increased customer use of the network to make calls
beyond the local calling area contributed to the increase in each period.

           Total operating expenses increased by $432,994 (4.7%) in 1996
compared to 1995, and by $347,171 (3.9%) in 1995 compared to 1994. Maintenance
expenses decreased by $33,633 (1.2%) in 1996 compared to 1995, and increased by
$136,866 (5.2%) in 1995 compared to 1994 as certain personnel were re-assigned
from corporate operations to plant operations. Depreciation and amortization
expense increased by $112,343 (4.0%) in 1996 compared to 1995, and by $190,362
(7.3%) in 1995 compared to 1994. The increase in both years reflects a greater
investment in telephone plant necessary to provide service to an increased
number of customers. General office expenses increased by $313,090 (22.1%) in
1996 compared to 1995. The increase is due mainly to legal and other costs,
totaling approximately $280,000, incurred in connection with the proposed
transaction with SNET. General office expenses in 1995 were comparable to 1994.

           Other income decreased by $210,265 (43.1%) in 1996 compared to 1995.
Included in the 1996 amount is a loss of $121,968 on Internet services, which
the Company began offering

                                  Page 14 of 26
<PAGE>   15
on July 1, 1996. Also in 1996, the Company experienced a decline in sales of key
system equipment of approximately $48,700 compared to 1995, as well as a decline
in revenues from rented telephone equipment of approximately $24,000. Other
income increased by $188,535 (63.0%) in 1995 compared to 1994. In 1994, there
was a charge to income (reduction) of approximately $80,000 for the removal from
inventory of obsolete rental equipment and repair parts.

           As a result of the above, net income increased by $809,444 (44.2%) in
1996 compared to 1995, and by $207,633 (12.8%) in 1995 compared to 1994.

LIQUIDITY AND CAPITAL RESOURCES

           Expenditures to purchase telephone plant and equipment and other
property were approximately $3,813,000 in 1996, $2,076,000 in 1995, and
$3,536,000 in 1994. In all three years, cash provided by operating activities
was adequate to meet the financing of capital expenditures.

           Current assets exceeded current liabilities by $3,830,905 at December
31, 1996 compared to $3,616,636 at December 31, 1995. Additional liquidity is
provided, if needed, by a short-term line of credit of $750,000, which expires
May 31, 1997. Management expects it will be able to finance this arrangement for
another year.

Item 8.  Financial Statements and Supplementary Data.

      The response to Item 8 is submitted as a separate section of this report.
Additional financial information, which is qualified in its entirety by the
Company's financial statements, is contained in the Financial Data Schedule
attached as Exhibit 27 hereto.

Item 9.    Changes in and Disagreements with Accountants on
           Accounting and Financial Disclosure.
      None.

                                  Page 15 of 26
<PAGE>   16
                                    PART III

Item 10.  Directors and Executive Officers of the Registrant.

      (a)  Directors; Executive Officers.

                               CLASS I DIRECTORS
                        WHOSE TERM WILL EXPIRE IN 1999
<TABLE>
<CAPTION>
                             Business Experience,
                             Principal Occupation
                             and Employment During
                             Past Five years and                   Director
Name of Director             Other Directorships                      Since
----------------             -------------------                      -----
<S>                          <C>                                       <C>
Harmon L. Andrews            Mr. Andrews is the Business               1973
      Age 66                 Administrator for the Board
                             of Education of Orange, CT,
                             a position he has held since
                             1986.  Mr. Andrews served
                             as the Company's Chairman
                             of the Board of Directors from
                             1981 to 1992.  Mr. Andrews
                             currently serves as the Secretary
                             of the Company.

John A. Michaels             Mr. Michaels is the Chief                 1977
      Age 54                 Executive Officer of Michaels
                             Enterprises, Inc. (a holding
                             company for retail jewelry stores)
                             and Irving Michaels & Co.
                             (distributor, importer and
                             consultant to retail jewelry
                             stores).  He has served as a
                             director of the Jewelers Mutual
                             Insurance Company since July, 1996.

Walter F. Torrance, Jr.      Mr. Torrance currently holds an           1969
      Age 69                 "of counsel" position with
                             the law firm of Carmody & Torrance, after
                             being a partner with that firm from 1992 to
                             1995. He retired in July, 1992 from
                             Northeast Utilities after serving as its
                             Senior Vice President, Secretary and General
                             Counsel.
</TABLE>

                                  Page 16 of 26
<PAGE>   17
-------------------------------------------------------------------------------

                              CLASS II DIRECTORS
                            WHOSE TERM EXPIRE IN 1997

<TABLE>
<CAPTION>
<S>                          <C>                                 <C>
                             Business Experience,
                             Principal Occupation
                             and Employment During
                             Past Five Years and                Director
Name of Director             Other Directorships                 Since
----------------             -------------------                 -----

William C. Bassett           Mr. Bassett is the President        1978
      Age 52                 of W. E. Bassett Co., a
                             manufacturer of Trim manicure
                             implements located in Derby,
                             Connecticut.

William T. Drakeley          Mr. Drakeley worked for the         1991
      Age 57                 State of Connecticut in various
                             capacities beginning in 1963, and
                             held the position of Deputy
                             Executive Director of the Division
                             of Special Revenue of the State of
                             Connecticut from 1983 to 1991. He
                             is currently self-employed as an
                             antiques dealer.

Michael Phelan               Mr. Phelan is currently Vice        1996
     Age 50                  President - Network Marketing
                             and Sales of The Southern New
                             England Telephone Company ("SNET"),
                             a position he has held since 1994.
                             Prior to that time and since 1977,
                             he has worked in various capacities
                             for SNET and its affiliates,
                             including holding the positions of
                             Assistant Vice President Regulatory
                             Planning and Vice President -
                             Network Finance, respectively,
                             prior to his current position and
                             acting as President and Chief
                             Executive Officer of SNET Credit,
                             Inc. from 1991 to 1993.
</TABLE>

                                Page 17 of 26
<PAGE>   18
        ----------------------------------------------------------------

                               CLASS III DIRECTORS
                         WHOSE TERM WILL EXPIRE IN 1998
<TABLE>
<CAPTION>
                             Business Experience,
                             Principal Occupation
                             and Employment During
                             Past Five Years and                  Director
Name of Director             Other Directorships                     Since
----------------             -------------------                     -----
<S>                          <C>                                      <C>
Joyce M. Davis               Ms. Davis is an Executive                1978
      Age 58                 Assistant for the Goelet
                             Corp., a real estate company
                             located in New York, New York.

J. Garry Mitchell            Mr. Mitchell retired from                1969
      Age 68                 the Company in 1993 after having
                             been principally employed by it
                             since 1948. He acted as its
                             President from 1976 to 1993, and
                             its Chief Executive Officer from
                             1992 to 1993. In 1992, he also
                             became the Company's Chairman of
                             the Board of Directors, a position
                             that he still holds.

Donald E. Porter             Mr. Porter is the Chief                  1993
      Age 47                 Executive Officer, President
                             and Treasurer of the Company. He
                             has been principally employed by
                             the Company since 1972, acting as
                             its Treasurer since 1976 and as its
                             Chief Executive Officer and
                             President since 1993. Mr. Porter
                             also served as a Vice President of
                             the Company from 1991 to 1993, and
                             as its Chief Operating Officer from
                             1992 to 1993.
</TABLE>

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

      SNET has a contractual right to be represented by one director on the
Company's Board of Directors. Michael Phelan has acted in that capacity since
January, 1996. No other director or executive officer serves pursuant to any
arrangement or understanding between such person and any other person(s).

                                  Page 18 of 26
<PAGE>   19
      (b) Compliance with Section 16(a) of the Exchange Act. To the best of the
Company's knowledge, based on its review of forms submitted during the year
ended December 31, 1996, no officer, director or beneficial owner of more than
ten percent (10%) of the Company's Common Stock failed to file or was delinquent
in filing any report required to be filed in accordance with Section 16(a) of
the Securities Exchange Act of 1934.

Item 11.  Executive Compensation.

      The following table sets forth all remuneration during the fiscal year
ending December 31, 1996, for the Company's chief executive officer (there being
no other executive officers or any employees receiving remuneration in excess of
$100,000):


                  SUMMARY COMPENSATION TABLE(1)


<TABLE>
<CAPTION>
                           Annual Compensation
                       ---------------------------
   (a)           (b)        (c)          (d)        (e)

                                        Other
Name and                                Annual       All Other
Principal                            Compensation(2) Compensation(3)
Position         Year    Salary($)       ($)           ($) 
-----------------------------------------------------------------
<S>              <C>    <C>           <C>          <C>
Chief Executive  1996   $97,846.18    $3,000.00    $11,093.09
Officer          1995    92,923.16     2,500.00     10,496.47
Donald E. Porter 1994    90,300.12        0          9,903.25
</TABLE>


      NOTES TO SUMMARY COMPENSATION TABLE

      1.   The Company did not award or pay to, nor did any executive officer
           whose compensation is subject to disclosure earn any bonus or
           long-term compensation, including restricted stock awards, stock
           options, stock appreciation rights or long-term incentive plan.

      2.   Other annual compensation consists of a cash bonuses paid to Mr.
           Porter in 1995 and 1996, respectively.

      3.   Other compensation consists of contributions by the Company on behalf
           of the named executive under the WTC Management 401(k) Plan
           maintained by the Company ("WTC Management 401(k) Plan"), which
           includes a salary reduction plan under the provisions of Section
           401(k) of the Internal Revenue Code. The WTC Management 401(k) Plan
           covers eligible employees except those covered by collective
           bargaining agreements. Under the salary reduction plan, income tax is
           deferred on amounts which employees elect to have contributed to the
           WTC

                                  Page 19 of 26
<PAGE>   20
           Management 401(k) Plan from their salaries. The WTC Management 401(k)
           Plan permits an eligible employee to reduce up to 15% of his
           compensation for contribution to the plan and the Company
           contributes, on a matching basis, an amount determined according to
           the following formula: the Company contributes an amount equal to
           each percent contributed by each employee for salary reductions up to
           3% and, thereafter, one-half (1/2) of each percent contributed by
           each employee for salary reductions up to 7%, with no matching
           occurring for salary reductions in excess of 7%. Also, under the
           terms of the WTC Management 401(k) Plan, the Company must contribute
           to the plan 6% of the compensation for each eligible employee without
           reference to contributions made by such employees. In addition, the
           Board of Directors may elect to contribute amounts to the WTC
           Management 401(k) Plan which all eligible employees would share in
           proportion to their annual compensation (exclusive of bonuses and
           overtime) without reference to salary reduction contributions. No
           such elective contribution was made in 1996.

      Pursuant to the Change in Control Agreement dated June 24, 1996, between
the Company and Donald E. Porter, President and Chief Executive Officer of the
Company (the "Change in Control Agreement"), Mr. Porter is entitled to certain
payments if a "Fundamental Change" occurs in connection with a "Change in
Control" (as such terms are defined in the Change in Control Agreement, a copy
of which is attached as Exhibit 4 hereto).

      Under the Change in Control Agreement, a Fundamental Change occurs if
there is a change in Mr. Porter's status, title, position or responsibilities; a
reduction in his compensation; a relocation of his principal office; termination
of his employment other than for cause or as a result of his death, disability
or retirement. (Mr. Porter, however, may be terminated for cause, as defined in
the Change in Control Agreement, in which event he is not entitled to any
benefits thereunder.)

      Pursuant to the Change in Control Agreement, a Change in Control occurs
when a person obtains more than 10 percent of the voting power of the Company
(or, in the case of SNET, SNET acquires additional shares of the Company's
Common Stock (see Item 12 below regarding SNET's ownership of the Company's
Common Stock)); or the Company's shareholders approve a merger effecting
material changes in the composition of the Company's Board of Directors, a sale
of substantially all of the Company's assets, or a plan of liquidation of the
Company; or there are certain material changes in the composition of the
Company's Board of Directors; or the Company files a plan to merge or engage in
a similar transaction with the DPUC.

                                  Page 20 of 26
<PAGE>   21
      In order for Mr. Porter to receive benefits under the Change in Control
Agreement, a Fundamental Change must have occurred within 6 months prior to, or
24 months after, a Change in Control. If a Fundamental Change occurs within such
a period, Mr. Porter may terminate his employment with the Company within 12
months after the occurrence of the Fundamental Change, in which case Mr. Porter
has the right to be paid the lesser of 220 percent of his then current annual
compensation or 299 percent of the average of his annual compensation for the
preceding five years. Notwithstanding the foregoing, if the Fundamental Change
which occurs is the Company's termination of Mr. Porter's employment other than
for cause, Mr. Porter is entitled to the foregoing payment without having to
take any affirmative action. In either case, Mr. Porter may designate payment in
a lump sum or in equal monthly installments.

      The Company's obligations under the Change in Control Agreement terminate
as of the end of the month after Mr. Porter's death, disability or retirement
following a Change in Control.

      Under the Change in Control Agreement, Mr. Porter is entitled to the
payment described above if a Fundamental Change occurs within 24 months after
each of the filing by the Company and SNET with the DPUC seeking approval of the
Merger, the approval of the Merger by the Company's shareholders, SNET's
acquisition of the Company's Common Stock in connection with the Merger, or the
occurrence of any subsequent event that constitutes a Change in Control. See
Item 12 below for a description of the Merger.

      The foregoing description of certain information regarding the Change in
Control Agreement is not intended to be a summary of all material information
relating thereto and is qualified in its entirety by reference to the Change in
Control Agreement, a copy of which is attached as Exhibit 4 hereto.

      As a group (consisting of nine persons), executive officers and directors
earned $229,008.80 during the fiscal year ended December 31, 1996. Directors of
the Company who are not salaried officers receive an annual retainer of $4,500.
Directors also are compensated at the rate of $350 (increased from $300 after
April 1, 1996) for attendance at each meeting of the Board of Directors and each
committee meeting of the Board of Directors. The chairman of the Audit Committee
is paid $500 annually in addition to all other fees. In lieu of the annual
retainer and meeting fees for standing committees, Messrs. Mitchell and Andrews
received a salary for serving as Chairman of the Board and Secretary,
respectively, and each was paid $350 (increased from $300 after April 1, 1996)
for each committee meeting attended. During 1996, Mr. Mitchell was paid a salary
(including standing committee attendance fees) of $26,662.50 and received
$13,500 pursuant to an employment agreement with the Company

                                  Page 21 of 26
<PAGE>   22
entered into in 1991. Mr. Mitchell also received a $180 payment for telephone
allowance provided to all retired employees of the Company. During 1996, Mr.
Andrews was paid a salary of $12,786.03 and received $2,700 for attending
committee meetings.


Item 12.   Security Ownership of Certain Beneficial Owners and
           Management.

      (a) Security Ownership of Certain Beneficial Owners. The following table
sets forth as of February 14, 1997, the only beneficial owner known to the
Company of more than 5% of the Common Stock of the Company.
<TABLE>
<CAPTION>
                                                         (3)
        (1)                     (2)                Amount & Nature         (4)
       Title              Name & Address            of Beneficial        Percent
        of                 of Beneficial              Ownership            of
      Class                   Owner                  (Shares)            Class
-----------------------------------------------------------------------------------
<S>                  <C>                           <C>                    <C>
Common Stock,        Southern New                      280,645            36.5%
$2.50 par            England                        (sole voting
value                Telecommuni-                  and investment
                     cations                           power)
                     Corporation,
                     227 Church Street,
                     New Haven,
                     Connecticut
</TABLE>


      (b)  Security Ownership of Management.  The following table
sets forth the beneficial ownership as of February 14, 1997 of
all directors, nominees and executive officers of the Company.
<TABLE>
<CAPTION>
                                                         (3)
     (1)                                           Amount & Nature         (4)
    Title                    (2)                    of Beneficial        Percent
      of                   Name of                    Ownership            of
    Class              Beneficial Owner               (Shares)*           Class
-----------------------------------------------------------------------------------
<S>             <C>                                  <C>                <C>
Common          Harmon L. Andrews                        973              0.13%
Stock,          William C. Bassett                       350              0.04%
$2.50 par       Joyce M. Davis                           200              0.03%
value           William T. Drakeley                     1820              0.24%
                John A. Michaels                         500              0.06%
                J. Garry Mitchell                       5884              0.77%
                Michael Phelan                           100              0.01%
                Donald E. Porter                         231              0.03%
                Walter F. Torrance, Jr.                  500              0.06%
                                                     --------           ------

All directors and executive                           10,583 **           1.37%
officers as a group (9 persons)                      ========           ======
</TABLE>


                                  Page 22 of 26
<PAGE>   23
      *Pursuant to the Certificate of Incorporation, all directors of the
Company must be shareholders of the Company.

      **The individual directors have sole investment and voting power with
respect to the shares owned by them except for 5684, 450 and 300 shares owned by
Messrs. Mitchell, Andrews and Michaels, respectively, and all of the shares
owned by Mr. Drakeley, as to which each of them share voting and investment
power with their respective wives.

      (c) Changes in Control. The Company, SNET and SAS are parties to the
Merger Agreement pursuant to which, among other things, SAS will merge with and
into the Company and each outstanding share of the Company's Common Stock
(excluding any shares with respect to which dissenters' rights have been
perfected and excluding shares of Common Stock held by SNET) will be converted
into the right to receive a number of shares of common stock of SNET, par value
$1.00 per share, together with accompanying rights, as more particularly
described in the Merger Agreement.

      All of the conditions to the consummation of the Merger, including,
without limitation, the approval of the Company's shareholders and the DPUC,
have not yet been satisfied. Upon satisfaction of such conditions and the
consummation of the Merger, SNET will own 100% of the Common Stock.

      The foregoing description of certain information regarding the Merger is
not intended to be a summary of all material information relating to the Merger
and is qualified in its entirety by reference to the Merger Agreement, a copy of
which is attached as Exhibit 2 hereto.

Item 13. Certain Relationships and Related Transactions. Mr. Phelan, a director
of the Company since January 31, 1996, is employed by SNETCo, as its Vice
President - Network Marketing and Sales. SNET, the parent company of SNETCo,
owns 36.5% of the Common Stock of the Company, and under the Merger Agreement
described in Item 12 above, has agreed to acquire the remaining 63.5% of the
Common Stock. Mr. Phelan acts as SNET's representative on the Company's Board of
Directors.

      In the normal course of business the Company has several operating
agreements with SNETCo. These agreements, which are common to small independent
telephone companies, relate to operator services, directories, directory
advertising, record maintenance and consulting services, and are necessary to
provide adequate and complete service to the Company's customers. They are
reviewed periodically as to fairness and cost to the Company and are negotiated
without regard by the Company or SNETCo to the ownership by SNET of the
Company's Common Stock. The Company believes that the cost of purchasing these
services is less than

                                  Page 23 of 26
<PAGE>   24
the cost of providing them directly, to the extent it is able to do so. The
aggregate amount billed by SNETCo to the Company during 1996 in connection with
these arrangements was $170,082. The Company carries accounts receivable and
accounts payable with respect to the relationships described above.

      In addition, the Company, SNET Springwich, Inc., a wholly-owned subsidiary
of SNET, and certain other carriers are parties to an agreement pursuant to
which the Company holds a 1% investment interest in Springwich, a limited
partnership providing cellular telephone service. The Company's profits and
losses regarding its investment in Springwich are determined without regard to
any other agreements between the Company and SNETCo or the ownership by SNET of
the Company's Common Stock.

      Mr. Torrance, a director of the Company since 1969, became a partner in
the law firm of Carmody & Torrance in 1992 and currently holds an "of counsel"
position with that firm. The Company has retained Carmody & Torrance as its
legal counsel since 1971, and members of such firm generally advise the Company
in all legal matters. The fees paid by the Company to Carmody & Torrance in 1996
did not exceed 5% of such firm's gross revenues during that year.

                                  Page 24 of 26
<PAGE>   25
                                     PART IV

Item 14.     Exhibits, Financial Statement Schedules and Reports on
             Form 8-K.

      (a)(1) and (2)         The response to this portion of Item 14
                             is submitted as a separate section of
                             this report.

      (3)  Listing of Exhibits*:

                       Amended and Restated Agreement and
                             Plan of Merger
                       The Company's Bylaws
                       Change in Control Agreement
                       Financial Data Schedule

      (b)  Reports on Form 8-K filed in the fourth quarter of 1996:

                       Form 8-K dated November 4, 1996 (pertaining
                       to the Merger with SNET)**

      (c)  Exhibits:

                       (2)   Amended and Restated Agreement and
                             Plan of Merger
                       (3)(ii)   The Company's Bylaws
                       (4)   Change in Control Agreement
                       (27)  Financial Data Schedule

      (d)  Financial Statement Schedules - The response to this portion of Item
           14 is submitted as a separate section of this report.

      An index to the Exhibits filed or incorporated by reference immediately
precedes such Exhibits.

-------------
      * The Company's previously filed Certificate of Organization (amended to
September 15, 1988) is incorporated by reference to the Company's Form 10-K for
the year ended December 31, 1993, attached as Exhibit 3(i) thereto. The
Company's Fourth Supplemental Indenture of Trust dated July 31, 1992 is
incorporated by reference to the Company's Form 10-K for the year ended December
31, 1992, attached as Exhibit 4 thereto.

      ** The Company's previously filed Form 8-K dated November 4, 1996
disclosed the existence of a letter of intent entered into on October 21, 1996
between the Company and SNET. The Amended and Restated Agreement and Plan of
Merger attached as Exhibit 2 hereto effected and superseded that letter of
intent.

                                  Page 25 of 26
<PAGE>   26
                                   Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

             March 6, 1997

                                    THE WOODBURY TELEPHONE COMPANY


                                    By s/J. Garry Mitchell
                                       -------------------------------
                                        J. Garry Mitchell
                                       Its Chairman of the Board
                                        of Directors


                                    By s/Donald E. Porter
                                       -------------------------------
                                       Donald E. Porter
                                       Its Chief Executive Officer,
                                        President and Treasurer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.


By s/J. Garry Mitchell                   By s/Donald E. Porter          
   ------------------------                 --------------------------
   Chairman of the Board                           A Director
   of Directors                              Donald E. Porter
   J. Garry Mitchell                    
                                        
Date:  March 6, 1997                    Date:  March 6, 1997
   ------------------------                 --------------------------
                                        
                                        
By s/Michael Phelan                      By s/Joyce M. Davis
   ------------------------                 --------------------------
   A Director                               A Director
   Michael Phelan                           Joyce M. Davis
                                        
                                        
Date:  March 6, 1997                    Date:  March 6, 1997
     ---------------------                   -----------------------
                                        
                                          By s/John A. Michaels
                                             -------------------------
                                             A Director
                                             John A. Michaels
                                        
                                         Date:  March 6, 1997
                                               -------------------------
                                        
                                  Page 26 of 26
<PAGE>   27
                           Annual Report on Form 10-K

                                     Item 8

                  Financial Statements and Accompanying Notes

                          Year Ended December 31, 1996

                         The Woodbury Telephone Company

                             Woodbury, Connecticut
<PAGE>   28
                REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

Shareholders
The Woodbury Telephone Company

We have audited the accompanying balance sheets of The Woodbury Telephone
Company as of December 31, 1996 and 1995, and the related statements of income
and retained earnings, and cash flows for each of the three years in the period
ended December 31, 1996. Our audits also included the financial statement
schedule listed in the index at item 14(a). These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on our
audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Woodbury Telephone Company
at December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.

                                                      ERNST & YOUNG LLP

Hartford, Connecticut
February 6, 1997
<PAGE>   29
                         THE WOODBURY TELEPHONE COMPANY

                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                 DECEMBER 31
                                                            1996             1995
                                                      -------------------------------
<S>                                                    <C>               <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents                              $  2,102,768      $  2,238,782
Accounts receivable, less allowance for losses of
$80,000 in 1996 and $60,000 in 1995                       1,875,990         1,589,030
Other receivables                                         1,515,580         1,254,484
Materials and supplies--at cost                             664,629           421,306
Prepaid expenses                                             53,191            51,689
Recoverable income taxes                                    198,665
                                                      -------------------------------
TOTAL CURRENT ASSETS                                      6,410,823         5,555,291


TELEPHONE PLANT AND OTHER PROPERTY:
In service                                               43,432,833        41,145,132
Plant under construction                                    789,058            34,706
Accumulated depreciation (deduction)                    (22,992,930)      (20,857,711)
                                                      -------------------------------
                                                         21,228,961        20,322,127

Other property                                              222,414            76,717
                                                      -------------------------------
                                                         21,451,375        20,398,844

OTHER ASSETS:
1% Investment in Springwich Cellular Limited
Partnership                                                 535,068           535,068
Deferred charges, less accumulated amortization of
$847,127 in 1996 and $703,698 in 1995                       336,780           480,209
Regulatory asset                                            294,776           353,744
                                                      -------------------------------
                                                          1,166,624         1,369,021
                                                      -------------------------------
                                                       $ 29,028,822      $ 27,323,156
                                                      ===============================
</TABLE>
<PAGE>   30
<TABLE>
<CAPTION>
                                                                DECEMBER 31
                                                            1996            1995
                                                    -------------------------------
<S>                                                     <C>             <C>
LIABILITIES AND SHAREHOLDERS' EQUITY 
CURRENT LIABILITIES:
Accounts payable                                        $ 1,944,593     $ 1,281,373
Advance billings and customers' deposits                    297,825         286,640
Accrued interest                                            337,500         337,500
Income taxes payable                                                         33,142
                                                    -------------------------------
TOTAL CURRENT LIABILITIES                                 2,579,918       1,938,655

LONG-TERM DEBT                                            9,000,000       9,000,000

DEFERRED CREDITS:
Income taxes                                              1,710,146       2,044,044
Investment tax credits                                      204,114         276,114
Regulatory liability                                        703,411         808,735
                                                    -------------------------------
                                                          2,617,671       3,128,893

OTHER LIABILITIES                                           557,286         453,872

SHAREHOLDERS' EQUITY:
Common stock, par value $2.50 per share, authorized
1,250,000 shares, issued and outstanding 769,107
shares                                                    1,922,768       1,922,768
Additional paid-in capital                                1,475,394       1,475,394
Retained earnings                                        10,875,785       9,403,574
                                                    -------------------------------
                                                         14,273,947      12,801,736

                                                    -------------------------------
                                                        $29,028,822     $27,323,156
                                                    ===============================
</TABLE>


See accompanying notes.
<PAGE>   31
                         THE WOODBURY TELEPHONE COMPANY

                   STATEMENTS OF INCOME AND RETAINED EARNINGS

<TABLE>
<CAPTION>
                                                             YEAR ENDED DECEMBER 31
                                                    1996              1995              1994
                                               ------------------------------------------------
<S>                                            <C>               <C>               <C>
Operating revenues:
  Local service                                $  3,372,114      $  3,090,758      $  2,898,790
  Network service                                10,058,206         8,591,136         8,220,921
  Other                                             929,208           970,328           955,917
  Provision for uncollectibles (deduction)          (16,932)          (59,365)          (37,485)
                                               ------------------------------------------------
                                                 14,342,596        12,592,857        12,038,143
Operating expenses:
  Maintenance                                     2,718,441         2,752,074         2,615,208
  Depreciation and amortization                   2,903,948         2,791,605         2,601,243
  General office                                  1,731,669         1,418,579         1,410,010
  Commercial                                      1,400,319         1,377,052         1,398,643
  Other                                             924,849           906,922           873,957
                                               ------------------------------------------------
                                                  9,679,226         9,246,232         8,899,061
                                               ------------------------------------------------
                                                  4,663,370         3,346,625         3,139,082

Other income:
  Rental of telephone equipment and other,
   net                                              146,172           358,759           204,574
  Interest                                          131,485           129,163            94,813
                                               ------------------------------------------------
                                                    277,657           487,922           299,387
                                               ------------------------------------------------
                                                  4,941,027         3,834,547         3,438,469

Interest expense                                    838,835           827,011           821,562
                                               ------------------------------------------------
Income before income taxes                        4,102,192         3,007,536         2,616,907

Income taxes                                      1,460,939         1,175,726           992,730
                                               ------------------------------------------------

NET INCOME (per share: 1996--$3.43; 1995--
$2.38; 1994--$2.11)                               2,641,253         1,831,810         1,624,177

Retained earnings at beginning of year            9,403,574         8,740,806         8,285,671
                                               ------------------------------------------------
                                                 12,044,827        10,572,616         9,909,848

Dividends ($1.52 per share)                       1,169,042         1,169,042         1,169,042
                                               ------------------------------------------------
RETAINED EARNINGS AT END OF YEAR               $ 10,875,785      $  9,403,574      $  8,740,806
                                               ================================================

Average number of shares of Common Stock
outstanding                                         769,107           769,107           769,107
                                               ================================================
</TABLE>


See accompanying notes.
<PAGE>   32
                         THE WOODBURY TELEPHONE COMPANY

                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                           YEAR ENDED DECEMBER 31
                                                   1996             1995             1994
                                               ----------------------------------------------
<S>                                            <C>              <C>              <C>
OPERATING ACTIVITIES
Net income                                     $ 2,641,253      $ 1,831,810      $ 1,624,177
Adjustments to reconcile net income to net
 cash provided by operating activities:
   Depreciation                                  2,760,519        2,648,172        2,457,914
   Amortization of deferred charges                143,429          143,433          143,329
   Provision for losses on accounts
     receivable                                     16,932           59,365           37,485
   Deferred income taxes (benefit)                (380,254)        (410,293)        (287,815)
   Amortization of deferred investment tax
     credits                                       (72,000)         (72,000)         (72,000)
   Changes in operating assets and
    liabilities:
      (Increase) decrease in accounts
        receivable and other
        receivables                               (564,988)         122,613         (502,655)
      (Increase) decrease in other
        current assets                            (443,490)          99,746           39,282
      Increase (decrease) in accounts
        payable                                    663,220         (702,651)         634,840
      Increase in advance billings and
        customers' deposits                         11,185            5,722           13,986
      Increase in other liabilities                103,414           94,255           91,690
      (Decrease) increase in income
         taxes payable                             (33,142)        (279,615)         312,757
                                                --------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES        4,846,078        3,540,557        4,492,990

INVESTING ACTIVITIES
Expenditures for telephone plant                (3,813,050)      (2,075,657)      (3,535,521)
                                                --------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES           (3,813,050)      (2,075,657)      (3,535,521)
</TABLE>
<PAGE>   33
                        THE WOODBURY TELEPHONE COMPANY

                     STATEMENTS OF CASH FLOWS (CONTINUED)

<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31
                                                        1996             1995            1994
                                                   ---------------------------------------------
<S>                                                <C>              <C>              <C>
FINANCING ACTIVITIES
Dividends paid                                     $(1,169,042)     $(1,169,042)     $(1,169,042)
                                                   ---------------------------------------------
NET CASH USED BY FINANCING ACTIVITIES               (1,169,042)      (1,169,042)      (1,169,042)
                                                   ---------------------------------------------
(DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS                                           (136,014)         295,858         (211,573)

Cash and cash equivalents at beginning of year       2,238,782        1,942,924        2,154,497
                                                   ---------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR           $ 2,102,768      $ 2,238,782      $ 1,942,924
                                                   =============================================

SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Income tax payments                                $ 1,580,000      $ 1,405,000      $ 1,137,003
                                                   =============================================

Interest paid                                      $   838,835      $   827,011      $   821,326
                                                   =============================================
</TABLE>


See accompanying notes.
<PAGE>   34
                         THE WOODBURY TELEPHONE COMPANY

                          NOTES TO FINANCIAL STATEMENTS

                                DECEMBER 31, 1996


1. BUSINESS AND ACCOUNTING POLICIES

The Woodbury Telephone Company (the Company) derives substantially all of its
revenues from providing local exchange telephone services, intrastate toll
services, and access to interstate long-distance telephone services to customers
in Woodbury, Southbury and Bethlehem, Connecticut. The Company's business could
be significantly affected by recent regulatory and legislative developments
including the Federal Telecommunications Act, (the Act) which was enacted in
February 1996. Such effects could include increased competition and, as a
result, decreasing revenues and profitability.

The financial statements of the Company have been prepared in conformity with
generally accepted accounting principles applicable to rate-regulated utilities.
Such accounting principles are consistent in all material respects with
accounting principles prescribed by the Federal Communications Commission (the
FCC).

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Management believes the estimates and related assumptions in these financial
statements are reasonable and adequate. However, actual results could differ
from those estimates.

REVENUE RECOGNITION

Operating revenues are recognized when services are provided to customers.
Certain network revenues are recognized based on estimates of pooled revenue
earnings from the National Exchange Carrier Association (NECA), of which the
Company is a member. NECA negotiates interstate access charge tariff agreements
with the FCC. NECA also accumulates and distributes pooled revenues derived from
such agreements to its members.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents approximate fair value. Cash equivalents consist of
highly liquid debt instruments with a maturity date of three months or less when
purchased.

TELEPHONE PLANT

Telephone plant is stated on the basis of cost. Depreciation is computed by the
straight-line method. Lives used for calculating depreciation are in accordance
with the rules of the FCC and are based on the estimated economic useful lives
of the assets.
<PAGE>   35
                         THE WOODBURY TELEPHONE COMPANY

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)




1. BUSINESS AND ACCOUNTING POLICIES (CONTINUED)

Normally, when telephone plant assets are retired or otherwise disposed of, the
cost of the asset is removed from assets and charged to accumulated
depreciation. Further, the cost of removal and salvage proceeds are charged and
credited, respectively, to accumulated depreciation. Consequently, for normal
retirements, no gain or loss is recognized upon disposition.

1% INVESTMENT IN SPRINGWICH CELLULAR LIMITED PARTNERSHIP

The 1% Investment in Springwich Cellular Limited Partnership is stated at cost;
related distributions, if applicable, are recorded as income when received.

DEFERRED CHARGES

Amounts included in deferred charges consisting of gross revenue taxes related
to legislation enacted January 1, 1990 and the unrecovered cost of certain
central office equipment retired and replaced with upgraded equipment are being
amortized by the straight-line method over ten and five year periods,
respectively, in accordance with applicable regulatory accounting regulations.
The deferred debt expense amount in deferred charges is being amortized by the
straight-line method over the term of the related debt.

BENEFIT PLANS

The Company has contributory defined contribution benefit plans covering
substantially all employees. Contributions under these plans are based on
specified percentages of employee compensation, as defined, plus additional
amounts determined at the discretion of the Company's Board of Directors.

The Company also sponsors a postretirement medical plan and a postretirement
life insurance plan. All employees who retire from the Company after age 59 1/2
with 15 years of service are eligible for benefits. The retiree must pay the
premium for benefits before age 65. After age 65, the Company pays the full cost
of the life insurance benefits, and shares the cost of the Medicare supplemental
benefits with the employee. The Company-paid portion of the premium varies by
years of service and is subject to a "cap." The employee pays the remaining
portion of the premium. Neither plan is funded. Effective January 1, 1993 the
Company adopted Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" (SFAS No. 106).
Under SFAS No. 106, the Company recognizes the cost of providing the
aforementioned postretirement benefits on an accrual basis during the period
such benefits are earned by the employees. Under applicable regulatory
requirements the Company is recognizing the transition obligation on a
prospective basis over 20 years.
<PAGE>   36
                         THE WOODBURY TELEPHONE COMPANY

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)




1. BUSINESS AND ACCOUNTING POLICIES (CONTINUED)

INCOME TAXES

Effective January 1, 1993 the Company adopted Statement of Financial Accounting
Standards No. 109 (SFAS 109), "Accounting for Income Taxes." In connection with
adopting SFAS 109 under applicable regulatory guidelines, a regulatory asset and
a regulatory liability were recognized for the future increases (decreases) in
income taxes that will be received or settled through future rate revenues. The
regulatory asset and liability are being amortized over the prescribed term
which approximates 13 years.

Deferred income taxes are provided on the temporary differences between the tax
and financial reporting bases of assets and liabilities.

INVESTMENT TAX CREDITS

Investment tax credits which arose prior to 1986 were deferred and are being
amortized over the service lives of the assets which gave rise to such credits.

RECLASSIFICATIONS

Certain amounts in the 1995 and 1994 financial statements have been reclassified
to conform with 1996 presentation.

2. MERGER AGREEMENT

An Amended and Restated Agreement and Plan of Merger was entered into between
the Company and Southern New England Telecommunications Corporation, ("SNET
Corporation") on December 6, 1996. Upon shareholder approval of such Agreement
and Plan of Merger, each outstanding share of the Company's common stock,
excluding any shares with respect to which dissenter's rights have been
perfected and excluding shares of the Company's outstanding shares held by SNET
Corporation, will be converted into the right to receive a number of shares of
common stock, par value $1.00 per share, together with certain SNET
Corporation's rights, which will be equal to the product of one share of SNET
Corporation common stock times a fraction, (the numerator of which is to $43.00
and the denominator of which is to be equal to the average closing prices of one
share of SNET Corporation common stock as reported on the New York Stock
Exchange for the ten trading days ending on the fifth business day prior to the
effective time of the Merger). If the average closing price is less than $30.00
or more than $49.00, the merger consideration shall be determined using these
amounts, as applicable, subject to approval of the Company and SNET Corporation,
respectively.
<PAGE>   37
                         THE WOODBURY TELEPHONE COMPANY

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)




3. DEFERRED CHARGES

Deferred charges consist of:

<TABLE>
<CAPTION>
                                                  DECEMBER 31
                                                 1996        1995
                                           -------------------------
<S>                                            <C>         <C>     
Deferred debt expense                          $130,751    $143,105
Gross revenue taxes                             206,029     274,672
Retired central office equipment                             62,432
                                           -------------------------
                                               $336,780    $480,209
                                           =========================
</TABLE>

4. CREDIT ARRANGEMENTS

Long-term debt consists of First Mortgage Bonds, Series G payable in increasing
annual installments ranging from $500,000 commencing August 1, 1999 to
$3,250,000 on August 1, 2007 plus interest at 9%. Virtually all telephone plant
and miscellaneous physical property are pledged as collateral. In addition,
among other covenants, the Company is required to maintain certain financial
ratios. Further, new borrowings and the payment of dividends are restricted. At
December 31, 1996 $6,080,579 of retained earnings was available for the payment
of dividends.

Under a line of credit arrangement with a bank, the Company may borrow up to
$750,000 with interest, adjusted monthly, at the lower of the bank's base rate
or the one-month LIBOR plus 1.5%. There were no borrowings under this
arrangement in 1996 or 1995. A commitment fee of 1/8% per annum is payable on
the unadvanced portion of the bank's commitment. The arrangement expires May 31,
1997.
<PAGE>   38
                         THE WOODBURY TELEPHONE COMPANY

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)




5. OTHER LIABILITIES

Other liabilities consist of:

<TABLE>
<CAPTION>
                                                                                DECEMBER 31
                                                                              1996       1995
                                                                            -------------------
<S>                                                                         <C>        <C>     
Self-insurance for catastrophic event (A)                                   $200,000   $200,000
Accrued postretirement medical and life insurance benefits cost              357,286    253,872
                                                                            -------------------
                                                                            $557,286   $453,872
                                                                            ===================
</TABLE>


(A) At the direction of the Department of Public Utility Control of the State of
    Connecticut (DPUC), the Company established a $200,000 noncurrent liability
    in 1987 for a portion of the potential effects of a catastrophic event on
    the Company's transmission and distribution facilities for which external
    insurance coverage is unavailable.

6. OPERATING LEASE COMMITMENT

The Company has an operating lease for a maintenance center. Under the lease,
the Company is obligated to pay for insurance, taxes and maintenance costs
applicable to the property. The lease expires in December 2005. At December 31,
1996, future minimum monthly lease payments of $16,893 are required through
December 1997. Thereafter, such payments are adjusted annually to reflect
changes in the consumer price index. The lease may be renewed for two
consecutive five-year periods at fair rental value, as defined. Rent expense
under this lease was $215,693 in 1996, $210,363 in 1995 and $186,958 in 1994.
The Company has an option to purchase the leased property between June 2004 and
December 2004 at its then fair market value.
<PAGE>   39
                         THE WOODBURY TELEPHONE COMPANY

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)




7. BENEFIT PLANS

Amounts recognized in the accompanying balance sheets for postretirement medical
and life insurance benefits follow:

<TABLE>
<CAPTION>
                                                        DECEMBER 31
                                                      1996         1995
                                                 ---------------------------
<S>                                                <C>           <C>      
 Accumulated unfunded postretirement benefit
  obligation:
    Retirees                                       $  253,064    $ 259,874
    Active employees                                  814,742      723,396
                                                 ---------------------------
                                                    1,067,806      983,270
 Less:
    Unrecognized transition obligation               (528,624)    (561,662)
    Unrecognized net loss                            (129,837)    (131,735)
                                                 ---------------------------
 Accrued cost                                      $  409,345    $ 289,873
                                                 ===========================

 Accrued cost included in:
    Current liabilities                            $   38,213    $  36,001
   Noncurrent liabilities                             357,286      253,872
                                                 ---------------------------
                                                   $  395,499    $ 289,873
                                                 ===========================
</TABLE>


Net periodic postretirement benefit cost included these components:

<TABLE>
<CAPTION>
                                                         YEAR ENDED DECEMBER 31
                                                     1996         1995         1994
                                                 ----------------------------------
<S>                                              <C>          <C>          <C>     
     Service cost                                $ 38,045     $ 36,233     $ 34,497
     Interest cost                                 70,646       66,339       66,502
     Amortization of transition obligation         33,038       33,038       33,038
     Amortization of unrecognized net loss          1,898        1,230        5,561
                                                 ----------------------------------
     Net postretirement benefit cost             $143,627     $136,840     $139,598
                                                 ==================================
</TABLE>
<PAGE>   40
                         THE WOODBURY TELEPHONE COMPANY

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)



7. BENEFIT PLANS (CONTINUED)

For measurement purposes, a 10.4% annual rate of increase in the per capita cost
of covered health care benefits was used for 1996 (10.9% in 1995); the rate was
assumed to decrease gradually to 5% (both 1996 and 1995) in 2013 and remain at
that level thereafter. The health care cost trend rate assumption affects the
medical benefit portion of the postretirement amounts reported; increasing the
assumed health care cost trend rate one percentage point would increase the
accumulated unfunded postretirement obligation as of December 31, 1996 and 1995
by approximately $50,000 and $46,000, respectively, and the aggregate of the
service and interest cost components of the net periodic postretirement benefit
cost for 1996, 1995 and 1994 by approximately $6,000 in each year.

The weighted-average discount rate used in determining the accumulated
postretirement benefit obligations was 7% in 1996 and 1995.

Expense recognized under the Company's defined contribution benefit plans was
$235,063 in 1996, $233,322 in 1995 and $221,915 in 1994.

8. INCOME TAXES

The components of the Company's deferred income tax and related regulatory asset
and liability accounts follow:

<TABLE>
<CAPTION>
                                                                      DECEMBER 31
                                                                  1996           1995
                                                               -------------------------
<S>                                                            <C>            <C>       
Deferred tax liabilities:
  Gross revenue taxes                                          $   84,327     $  112,422
  Depreciation                                                  2,033,064      2,302,423
                                                               -------------------------
                                                                2,117,391      2,414,845

Regulatory liability                                              703,411        808,735
                                                               -------------------------
                                                                2,820,802      3,223,580

Deferred tax assets:
  1% Investment in Springwich Cellular Limited
     Partnership                                                  154,503        133,226
  Other liability--self-insurance for catastrophic event           81,860         81,860
  Other                                                           170,883        155,715
                                                               -------------------------
                                                                  407,246        370,801

Regulatory asset                                                  294,776        353,744
                                                               -------------------------
                                                                  702,022        724,545
                                                               -------------------------
Net deferred income tax and regulatory liabilities             $2,118,780     $2,499,035
                                                               =========================
</TABLE>
<PAGE>   41
                         THE WOODBURY TELEPHONE COMPANY

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)




8. INCOME TAXES (CONTINUED)

Income and other taxes consist of:

<TABLE>
<CAPTION>
                                           1996          1995         1994
                                        -------------------------------------
<S>                                     <C>           <C>           <C>      
Income taxes:
  Federal:
     Current                            $1,435,434    $1,197,251    $ 979,126
     Deferred (benefit)                   (360,420)     (360,059)    (275,705)

  State:
     Current                               477,767       460,768      373,419
     Deferred (benefit)                    (91,842)     (122,234)     (84,110)
                                        -------------------------------------
INCOME TAXES                            $1,460,939    $1,175,726    $ 992,730
                                        =====================================
</TABLE>

A reconciliation of the amount of income taxes based on the statutory federal
income tax rate to income taxes reflected in operations follows:

<TABLE>
<CAPTION>
                                             1996          1995         1994
                                         -------------------------------------
<S>                                      <C>           <C>            <C>     
Amount based on statutory federal
   income tax rate                       $1,394,745    $1,022,562     $889,748
State income taxes, less federal tax
   effect                                   280,955       223,309      198,623
Investment tax credit amortization          (72,000)      (72,000)     (72,000)
Other, including adjustments of prior
   years' estimates                        (142,761)        1,855      (23,641)
                                         -------------------------------------
INCOME TAXES                             $1,460,939    $1,175,726     $992,730
                                         =====================================
</TABLE>

9. RELATED PARTY TRANSACTIONS

The Company has an agreement with The Southern New England Telephone Company
(SNET) under which the proportionate shares of intrastate toll revenues are
divided between the companies. SNET is a subsidiary of SNET Corporation, the
owner of approximately 37% of the outstanding common stock of the Company at
December 31, 1996. Revenues reflect $4,380,845 in 1996, $4,166,584 in 1995 and
$4,393,760 in 1994 under this agreement.

In 1983, the Company entered into a limited partnership agreement with
Springwich Cellular Limited Partnership ("Springwich"). As such, the Company
owns a 1% interest in Springwich. Springwich is 97% owned by SNET Corporation.
No distributions were received for this investment by the Company for the years
ended December 31, 1996, 1995 and 1994.
<PAGE>   42
                         THE WOODBURY TELEPHONE COMPANY

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)




10. FAIR VALUE DISCLOSURES

The fair value of the Company's long-term debt at December 31, 1996 was
estimated to be approximately $9,442,000 using discounted cash flows, based on
the Company's incremental borrowing rates for similar types of borrowing
arrangements. It is not practicable to estimate the fair value of the Company's
1% investment in Springwich Cellular Limit Partnership because no current fair
value data is available.
<PAGE>   43
                           Annual Report on Form 10-K

                         Item 14(a)(1) and (2) and (d)

         List of Financial Statements and Financial Statement Schedule

                                Certain Exhibits

                          Financial Statement Schedule

                          Year Ended December 31, 1996

                         The Woodbury Telephone Company

                              Woodbury, Connecticut
<PAGE>   44
                        Form 10-K--Item 14(a)(1) and (2)

                         The Woodbury Telephone Company

         Index to Financial Statements and Financial Statement Schedule

The report of Ernst & Young LLP, independent auditors, dated February 6, 1997,
in the preceding financial statements of the Company are included in Item 8.

      Balance sheets--December 31, 1996 and 1995

      Statements of income and retained earnings--Years ended
      December 31, 1996, 1995 and 1994

      Statements of cash flows--Years ended December 31, 1996,
      1995 and 1994

      Notes to financial statements

The following financial statement schedule of the Company is included in Item
14(d):

<TABLE>
<CAPTION>
                                     Page No.
<S>                                                         <C>
Schedule II-Valuation and qualifying accounts               F-3
</TABLE>

All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
<PAGE>   45
                         The Woodbury Telephone Company

                 Schedule II--Valuation and Qualifying Accounts

<TABLE>
<CAPTION>
==============================================================================================================================
                 COL. A                    COL. B                     COL. C                 COL. D               COL. E
------------------------------------------------------------------------------------------------------------------------------
                                                                     ADDITIONS
------------------------------------------------------------------------------------------------------------------------------
               Description            Balance at         Charged to        Charged to     Deductions--        Balance at End
                                      Beginning of       Costs and         Other          Describe (1)           of Period
                                      Period             Expenses          Accounts--
                                                                           Describe
------------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>                <C>                                <C>                <C>
Allowance for doubtful accounts:
------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1996          $60,000            $16,932                            $(3,068)           $80,000
------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1995          $60,000            $59,365                            $59,365            $60,000
------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1994          $60,000            $37,485                            $37,485            $60,000
==============================================================================================================================
</TABLE>

(1) Uncollectible amounts charged off, less (recoveries). 
<PAGE>   46
                                  EXHIBIT INDEX

                             FORM 10-K ANNUAL REPORT
                     FOR FISCAL YEAR ENDED DECEMBER 31, 1996


EXHIBIT NO.

<TABLE>
<CAPTION>
<S>              <C>                                           <C>
2                Amended and Restated Agreement and            Attached
                 Plan of Merger dated December 6, 1996.

3(i)             Certificate of Organization,                  By Reference
                 amended to September 15, 1988.
                 Exhibit 3(i) to December 31, 1993 
                 Form 10-K is incorporated
                 herein by reference.

3(ii)            Bylaws, revised to January 29, 1997.          Attached

4                Change in Control Agreement dated             Attached
                 June 24, 1996.

4A               Fourth Supplemental Indenture of              By Reference
                 Trust dated July 31, 1992.
                 Exhibit 4 to December 31, 1992
                 Form 10-K is incorporated herein
                 by reference.

27               Financial Data Schedule                       Attached
</TABLE>