APPLIED SIGNAL TECHNOLOGY, INC.
ANNOUNCES SECOND QUARTER OPERATING RESULTS

Sunnyvale, CA. May 21, 2002 – Applied Signal Technology, Inc. (NASDAQ: APSG) announced its operating results for the second quarter of fiscal year 2002 ended May 3, 2002.

Revenues for the second quarter of fiscal year 2002 were $18,584,000 representing a 6% increase compared with revenues of $17,590,000 recorded during the second quarter of fiscal year 2001. Revenues for the six months of fiscal year 2002 were $34,815,000 down 11% from revenues of $39,287,000 recorded during the first six months of fiscal year 2001. The increase in revenues in the second quarter of fiscal year 2002 when compared to the second quarter of fiscal year 2001 was primarily due to an increase in the sale of the Company’s standard products. The reduction in revenues recorded during the first six months of fiscal year 2002 when compared to the first six months of fiscal year 2001 is due, in part, to a reduction in labor required to satisfy the Company’s contractual commitments under its engineering development contracts and, in part, to approximately $2.5 million of additional revenues, generated during the first quarter of fiscal year 2001, as a result of certain contract modifications.

Net income for the second quarter of fiscal year 2002 was $1,301,000 or $0.13 per diluted share compared to a net loss for the second quarter of fiscal year 2001 of $3,128,000 or $0.33 per share. Net income for the first six months of fiscal year 2002 was $2,992,000 or $0.30 per diluted share compared to a net loss of $5,947,000 of $0.64 per share for the first six months of fiscal year 2001. The net income for the second quarter and the first six months of fiscal year 2002 when compared to the net loss incurred during the same periods of fiscal year 2001 is due, in part, to the lower operating cost structure that resulted from the fiscal year 2001 restructuring activities and, in part, to the absence of losses incurred by the Company’s reintegrated subsidiary corporations.

New orders received during second quarter of fiscal year 2002 were $17,219,000, down 41% compared to orders received during the second quarter of fiscal year 2001 of $29,113,000. Order levels for the first six months of fiscal year 2002 were $30,381,000, down 27% compared to the $41,431,000 reported for the same period of fiscal year 2001. The reduction in orders during the first six months of fiscal year 2002 when compared to the same period of fiscal year 2001 was due primarily to what the Company believes to be timing-related issues in the awarding of certain follow-on contracts.

The Company recently revised its financial projections for fiscal year 2002, and currently projects that revenues will be consistent with fiscal year 2001 while orders will grow approximately 15% over fiscal year 2001. The Company also currently projects fiscal year 2002 net income of approximately 6% of annual revenues compared to the net loss experienced in fiscal year 2001.

Regarding the second quarter operating results, Mr. Gary Yancey, President and Chief Executive Officer of the Company, commented, “We are still very much in a wait-and-see situation to determine the impact to our business of the September 11, 2001 attack and the subsequent U.S. Government war on terrorism. As we have stated before, there were many price and delivery inquiries from customers immediately following September 11th and it seemed that an attendant increase of the defense budget would be available for contracting early in the U.S. Government’s fiscal year 2002.”

“It appears that the tasks at hand consumed Congress and the Administration in such a way as to actually slow down the budget appropriation process from normal years. President Bush did not sign the defense budget, which is typically approved by November, into law until the middle of January 2002. It also appears that spending allocations then started with expendables such as missiles and munitions. There is now more of an emphasis by the Administration on intelligence gathering.

Mr. Yancey went on to say, “ Although Applied Signal Technology was tasked with some orders immediately following September 11th and our equipment and intellectual prowess have been a key asset to the counter-terrorism campaign, any significant positive impact to our business is yet to come. It is obvious that the Bush Administration and the current international political climate are placing much pressure on our Government’s state of defense and intelligence gathering. We are still optimistic that this will bode well for our marketplace into the foreseeable future.”

The Company will host a conference call on Wednesday, May 22, 2002 to discuss second quarter results and its revised projections for fiscal year 2002. If you wish to participate in the conference call, please dial 1-800-633-8556 for domestic callers or 1-212-346-6601 for international callers on May 22, 2002 at 11:00 a.m. EST/8:00 a.m. PST. There is no pass code required. This call may be listened to simultaneously over the Internet through World Investor Links ’ Vcall Website, located at www.vcall.com. A rebroadcast of the call will be available upon its completion and will remain available for a limited time.

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.

Except for historical information contained herein, matters discussed in this news release may contain forward-looking statements that involve risks and uncertainties. Statements as to beliefs concerning potential contract options, the Company’s ability to successfully complete the initial contract to position it to win future phases, whether or not the U.S. Government decides to procure subsequent phases, potential synergistic effects from working with other companies, and beliefs concerning contractual opportunities for further orders are forward-looking statements. These risks and uncertainties include whether these potential orders will be issued by the U. S. Government; whether the Company will be successful in obtaining contracts for these orders if they are forthcoming and when such orders may be forthcoming and awarded; whether the Company can successfully complete the initial contract and any options, if awarded; and other risks detailed from time to time in the Company’s SEC reports including its latest Form 10-K filed for the fiscal year ended October 31, 2001.