Applied Signal Technology, Inc.
Announces Fourth Quarter Fiscal 2001 Operating Results and Receives $7 Million
in New Orders During November 2001

Sunnyvale, CA. December 19, 2001 — Applied Signal Technology, Inc. (NASDAQ - APSG) announced its operating results for the fourth quarter of fiscal year 2001 and for year ended October 31, 2001. In addition, the Company announced that it received approximately $7 million in new orders during the month of November 2001 related to signal reconnaissance requirements.

New orders received during the fourth quarter of fiscal 2001 were $24,993,000, up 19% from the $21,038,000 of orders received during the same period in fiscal 2000. Orders for fiscal 2001 were $75,946,000 compared with $74,048,000 of orders received during fiscal 2000. The increase in orders received during the fourth quarter of fiscal 2001 when compared to the same period of fiscal 2000 is due, in part, to receiving delayed product orders and, in part, to an increase in orders for the Company’s standard products and engineering services as a result of the September 11, 2001 terrorist attacks.

Revenues for the fourth quarter of fiscal year 2001 were $18,806,000, representing a 27% decrease compared with revenues of $25,607,000 recorded during the fourth quarter of fiscal year 2000. Revenues for fiscal year 2001 were $73,489,000, down 30% from revenues of $104,595,000 recorded during fiscal year 2000. The decline in revenues for the fourth quarter and fiscal year 2001 is due primarily to a lower average backlog from which to generate revenues during fiscal year 2001 when compared to fiscal year 2000.

Net income for the fourth quarter of fiscal year 2001 was $328,000 or $0.03 per fully diluted share compared to a net loss of $193,000 or $0.02 per share for the same period of fiscal year 2000. The net loss for fiscal year 2001 was $12,383,000 or $1.31 per share compared to net income of $3,677,000 or $0.41 per fully diluted share for the year ended October 31, 2000. The pre-tax loss of $883,000 for the fourth quarter of fiscal year 2001 is due, in part, to certain restructuring charges, and, in part, to anticipated losses on a major development contract which were favorably offset by an adjustment to the benefit income tax rate. The fiscal year 2001 net loss is primarily attributable to restructuring costs; to absorbing indirect costs contributed by the Company to lower its billing rates and to investing approximately $5.8 million in research and development spending that was not reimbursed through the billing rates; and to subsidiary losses of approximately $7 million.

Regarding fiscal 2002 new orders, Mr. James Doyle, the Company’s Vice President of Finance and Chief Financial Officer said, “The order activity during November was very strong and better than expected. Over the last five years, the Company has received $1 to $3 million in new orders during November with $2.4 million received in November 2000. November is still early in the government fiscal year and orders are usually slow at this time because of the cyclical nature of government defense spending. The $7 million in new orders received during November plus the strong proposal activity the Company is currently experiencing are very encouraging signs of the potential for good order growth in fiscal 2002.”

Regarding the operating results, Mr. Gary Yancey, President and Chief Executive Officer of the Company commented, “The fiscal 2001 results were, as expected, due to the uncertainties in priorities for intelligence gathering throughout the U.S. Government prior to September 11, 2001. We have discussed these issues throughout the year and the restructuring that was required as a result of these issues. Our return to profitability in the fourth quarter supports our belief that we are now structured properly for fiscal 2002 such that we will continue profitable operations in line with our normal business model.”

Mr. Yancey went on to say, “We are still uncertain as to the magnitude of the impact that the September 11th terrorist attacks will have on our business although we believe the impact will result in increased orders. Recent discussions in Washington D.C. with senior management in the Intelligence Community, the Military, and Congressional staff members has been very encouraging. It is obvious that counter-terrorism is a top U.S. priority into the foreseeable future and that Human Intelligence (HUMINT) and Signal Intelligence (SIGINT) to support it is a major ingredient to counter-terrorism. We have been told repeatedly that APSG is a critically needed resource for SIGINT.”

“What has become apparent to us is that the budget allocation process is very involved and when supplemental budgets ­ both the June, 2001 supplemental and the $40 billion September, 2001 counter-terrorism supplemental ­ must be allocated to governmental agencies, it takes some time. Allocations are happening now, and indeed, some of our most recent orders are from the counter-terrorism supplement. Congressional staff members have told us that the majority of the allocations to the governmental agencies should occur in January 2002. It then remains to be seen how timely these agencies execute orders.”

Mr. Yancey completed his comments by saying, “These discussions and the counter-terrorism actions taken to date make me confident that our business outlook is becoming much better and should remain strong for many years into the future. All indications are that this campaign and its related SIGINT requirements will be very long lived.”

Applied Signal Technology, Inc., designs, develops, manufactures and markets advanced digital signal processing equipment to collect and process a wide range of telecommunications signals for signal reconnaissance applications. For additional Company-related information, visit the Company’s website at www.appsig.com.