2006 Annual Report - Telular

THENTelular Corporation2006 Annual ReportNOW

Twenty years ago Telular Corporation was founded basedon the concepts of a new revolutionary wireless alarmsystem called Telguard ® . Since then through creativeengineering and design we have expanded our product lineto include a full suite of fixed cellular devices. All theexperience gained, which includes world-class engineering,volume manufacturing and global distribution channelshas once again positioned us for delivering a revolutionarynew alarm system calledTelguard ®Digital.

1986–19961986:Telular was founded byMr. William De Nicolo toestablish an alternative towireline security systems.1987:Telular acquires a key patentcovering the concept ofconnecting standard alarmsystems and telephones tocellular networks.1993:Motorola makes a significantinvestment in Telular.Telular acquires amanufacturer of wirelesssecurity devices and theTELGUARD ® brand emerges.1994:Telular completes it’s initialpublic offering and beginstrading on the NASDAQ underthe ticker symbol “WRLS.”Dear Shareholders,Fiscal year 2006 was an exciting year of both growthand transformation for Telular, as we have positionedthe Company to capitalize on a number of fast-growingmarket opportunities for our products. Revenuesincreased 78% over last year, driven by the rapidexpansion of our higher value Telguard ® product line,and we believe we have made important progress towardour goal of reaching sustainable profitability in 2007.During the year, we made great headway in our strategyto focus on the fast-growing security market, and arequickly rolling out new Telguard products and expandingour addressable market opportunity in the securitysector. Additionally, we are making targeted investmentsthroughout our wireless terminal business which webelieve can give us a complementary growth opportunityby leveraging our strong ties with wireless operatorsworld-wide. Our fixed cellular phone business alsogrew notably in 2006 and we continue to transformthis segment into a cash flow generating business unit.Importantly, we are very pleased with the strongreception we have experienced in the digital wirelessalarm market and are looking to capitalize on thecontinued strong demand from our distributionchannels. Revenues in Telguard wireless alarm businessreached $32.7 million, an increase of over 110%from fiscal 2005. With the rapid expansion of theTelguard market, we are investing in expanding ourproduct line, introducing several new products this year,and continuing to expand sales channels. We serve anew exciting and rapidly expanding segment of thismarket, called the cellular alarm communicator market.We develop wireless solutions and services that transmitdata from all types of security and fire systems tocentral stations using the nationwide GSM digitalcellular market. Telguard’s cellular solution is used toprovide primary or back-up communications to alarmmonitoring centers when the telephone line has beendisrupted, compromised by intruders, or if no wirelineservice is used. Currently, we believe we have majoritymarket share and are uniquely positioned in that we arethe only company that works on all the major differenttechnology platforms used by security companies.As we continue to improve design costs and increasemanufacturing efficiencies, we expect to see expandingmargins and a positive bottom line impact.

1997–19991997:Telular acquires WirelessDomain, a radio developerthat specializes in the designof digital cellular products.1998:Telular enters the telephonyfixed cellular terminal marketwith AMPS and digital TDMAproducts.1999:Telular introduces itsTELGUARD DataBurst andMicroBurst, with small packetdata messaging service.Telular signs a global agreementfor TDMA Fixed WirelessTerminals with EricssonTo capitalize on the vast opportunities for Telguardand terminals, we are committing additional resourcesinto this segment at the same time that we leverageexisting relationships with leading wireless operators.Complementing our investments in the fixed cellularterminal business, we also will continue to invest ona highly targeted basis in our phone business, withthe primary goal for this business unit to be generatinga positive cash flow. We believe that scale achievedthrough organic and non-organic growth and the plannedcost reductions taking effect over the next few quarterswill enable us to realize this goal.Technological Change Opens New Markets andNecessitates Wireless Alarm SolutionsSince we introduced the first GSM products into thealarm industry, we have seen a dramatic increase indemand driven in part by the compelling value propositionthat our products have brought to the market.Our introduction of digital GSM technology has morethan cut in half the cost of both wireless productsand ongoing services. Additionally, the FCC has issueda mandate that allows wireless carriers to no longersupport their older analog networks beyond February2008 which is driving security companies to replacedeployed analog wireless solutions with digital solutions.One leading security company recently projected thatthis deadline will necessitate the installation of 62,500cellular units per month just to meet the FCC mandatenot including new installations. To put this in perspective,we have achieved best-ever performance forTelguard units shipped in the fourth quarter of this year,but only shipped one third of the amount that would berequired to meet the above conversion projection.And this is only one of the major growth driverson the segment. Historically, 90% of our business hasbeen commercial, and with the introduction of TelguardDigital, the residential, small business, and home officemarkets are all now new opportunities. We expect therising number of cell-only households and increasinguse of VoIP technology, most requiring a wireless alarmconnection, to further support continued growth of themarket for our products. Additionally, we are planning toexpand internationally based on our technology platform,which already works on the GSM standard that is thefoundation of most of the world’s wireless operators.

2000–20062000:Telular introduces its firstdigital TDMA Dual Band/DualMode (Tri-Mode) fixed cellularterminal.2002:Telular introduces the newGSM family of fixed cellularproducts – the first fixed cellularterminals with high speedGPRS packet data.2004:Telular introduces its newfamily of fixed cellular desktopphones for CDMA.2005:Telular announces its firstTelguard ® Digital product forcommercial use.Telular enters the fixed cellularphone market and signs$67 million contract withTelcel Mexico.2003:Telular granted CDMAdevelopment license fromQualcomm.2006:Telular announces its firstTelguard ® Digital product forresidential use.Competing Effectively in the Phone SegmentAs we have mentioned before, the FCP market isextremely competitive, and we are adapting to suchconditions by focusing on differentiated phone productsand features that carry higher margins by leveragingour strong carrier relationships world-wide. Revenuesin this segment for fiscal year 2006 grew 99% fromlast year, enabling us to make progress toward our goalto be cash flow positive in the segment by the end of2007. We believe that our investment in new products,combined with our robust distribution channel, highquality services and vigorous customer support, positionus well for continued achievement in this market.On the pages that follow, we will review the newproducts we have introduced and communicate thecompelling market opportunity at hand in both of oursegments. We are extremely pleased with our 2006revenue growth and feel we have made great stridesin improving operations and growing our business.On behalf of the Telular team, I would like to expressour utmost gratitude to all of our investors, employees,partners, and customers for your steadfast commitmentand support. We look forward to updating you on ourprogress toward achieving our goals throughout 2007.Michael J. BoylePresident andChief Executive Officer

security / terminalTHENIn 1986 landline based securitywas unreliable and vulnerable.

NOWOur Telguard family of fixed wireless terminals are stateof the art. They provide instant and uninterruptedmonitoring for commercial and residential applications.

fixed cellular terminal marketSay goodbye to analog and hello to full digitalTelguard has evolved through the years to becomethe premier terminal security product that it is today,contributing considerably to the success of Telular.In 2006 the terminals division had an increase in salesof 59% over last year and we anticipate continuedstrong growth in 2007. Telular has taken security datatransmission to a new level with its Telguard ® Digital.This advanced next generation of UL listed productstransmit and receive data from virtually all securityand fire systems to central stations using the nationwideGSM cellular network. With the FCC not requiringwireless carriers to support older analog networksbeyond February 18, 2008, Telular is providing theleadership, solutions and support for customers tomake the transition from analog to Telguard Digital.In the communications terminals arena, thiscoming year we will ship new terminals that operate on3G networks and create a wireless broadband networkvirtually anywhere. These next generation terminalshave unique cellular features like voice, data and faxcapability and provide “wire-line like” performancein a total wireless solution. Telular fixed cellularterminals meet the demands of these services andexpand wireless connectivity for standard telephones,fax machines and computer equipment across awide range of business and residential applications.TG-9 cellular communicatorTelular advances cellular data transmissionwith the versatile Telguard ® Digital summary datamodel TG-9. This economical product featuresboth cellular alarm communication and eventmonitoring in one convenient, easy to use device.

GSM fixed cellular terminalA communicator that provides voice, data andfaxing capability. This is the perfect solutionfor the wireless home or small business thatneeds a fully functional communications devicein a remote or urban scenario. Available inGPRS and HSDPA.CDMA2000-1X fi xed cellular terminalA solution for voice, data and faxing requirementsof the home office or small business. Much likeits GSM counterpart this unit also enables satellite,digital video recorders or cable boxes to communicateto the service provider. Available in EVDOand CDMA2001X.

communicationsTHENIn 1986 the cellular network was at itsinfancy. Phone connections for the few thatcould afford the technology, was unreliable.

NOWAffordable fixed wireless phones are theideal communication solution for the growingAsia and Latin America markets.

fixed cellular phone marketSix years of challenges bring about major innovationsThe phone business began just 6 years ago and hasbecome a major contributor to the growth and successof Telular. Through organic and non-organic growthour phones group have positioned Telular as a premierprovider of fixed cellular with products in over130 countries. We have been able to capitalize onour broad engineering experience in GSM phonesby duplicating the technology to become the first tomarket with digital Telguard ® products. Today ourphones segment is focusing its efforts on our largestcarrier customers with new advanced designs andfeatures that are recognized in the markets we serveas higher value than historical phone products.Innovations in 2007 will give our phones adistinct look much different than those of the past.For example the new SX7P desktop phone has noexternal antenna, a more attractive look and is reducedin size compared to its predecessor. The focus onform allows our product to fit well in both office andhome environments. Feature evolution is also a keyto success within our markets, such as our PublicCalling Office (PCO) application. This feature enablesconsumers to use pre-paid phone cards as a form ofpayment while using one of our phones in a publicsetting. Some other features of the SX7P are a largerdisplay for easy reading of messages and an FMradio so users can listen to music or a sporting eventwhile working in the home office or getting a mealready in the kitchen.SX6P-300C Fixed Cellular PhoneIdeal for deployments into wireless networkswhere voice is the primary service for customers.It features a large display and buttons with abacklit keypad.

CX7P-415G Fixed Cellular PhoneThis feature rich phone was designed forPCO applications and is being sold by carriersfor that particular feature.SX7P-300G Fixed Cellular PhoneTop of the line phone that is changing thelandscape of how next generation phonesshould look. This newest phone has an internalantenna and features a large backlit displayand FM radio.

Corporate InformationBoard ofDirectorsOfficersInvestorInformationContactInformationJohn E. BerndtChairman of the BoardFormer PresidentSprint InternationalSprint CorporationLawrence S. BarkerPresident and CEOVisual Networks, Inc.Michael J. BoyleTelular CorporationDaniel D. GiacopelliTelular CorporationBrian J. ClucasVice PresidentAudit ServicesIllinois Tool Works, Inc.Larry J. FordFormer Senior Vice PresidentADC Telecommunications, Inc.Kevin J. WileyFormer Vice PresidentCable & Wireless plcMichael J. BoyleChief Executive Officerand PresidentDaniel D. GiacopelliExecutive Vice President andChief Technology OfficerJeffrey L. HerrmannExecutive Vice President,Chief Operating Officer,Chief Financial Officer,SecretaryGeorge S. BrodySenior Vice Presidentand General Manager ofTerminals SegmentRobert L. DeeringController, Treasurer andChief Accounting OfficerCorporate Headquarters647 North Lakeview ParkwayVernon Hills, Illinois 60061www.telular.comRegistrar and Transfer AgentComputershare InvestorServices2 North LaSalle StreetChicago, Illinois 60602Stock Exchange ListingNasdaq: WRLSInvestor RelationsBlueshirt Group456 Montgomery Street,11th FloorSan Francisco, California 94104phone: 415-217-7722Telular CorporationJeffrey L. HerrmannAnalyst Inquiriesphone: +1-847-247-9400Please e-mail all Investor Relationsquestions to investor@telular.comTelular CorporationCorporate Headquartersphone: +1-847-247-9400email: sales@telular.comLatin Americaphone: +1-954-217-0522email: miami@telular.comAsia/Pacifi cphone: +65-735-7728email: singapore@telular.comTelguard Security Productsphone: +1-800-229-2326email: TelguardSales@telular.comO’CONNOR DESIGN GLEN ELLYN, IL

647 North Lakeview ParkwayVernon Hills, Illinois 60061www.telular.com