APPLIED SIGNAL TECHNOLOGY, INC. ANNOUNCES
THIRD QUARTER OPERATING RESULTS

Sunnyvale, CA. August 27, 2002 – Applied Signal Technology, Inc. (NASDAQ: APSG) announced its operating results for the third quarter and first nine months of fiscal year 2002 ended August 2, 2002.

Revenues for the third quarter of fiscal year 2002 were $18,207,000, representing an 18% increase compared with revenues of $15,396,000 recorded during the third quarter of fiscal year 2001. The increase in revenues in the third quarter of fiscal year 2002 when compared to the third quarter of fiscal year 2001 was primarily due to an increase in the Company’s engineering development work related to signal intelligence efforts for the U.S. Government. Revenues for the first nine months of fiscal year 2002 were $53,022,000, a decrease of 3% from revenues of $54,683,000 recorded during the first nine months of fiscal year 2001. The fiscal year 2002 year-to-date revenue decrease is primarily due 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 third quarter of fiscal year 2002 was $110,000 or $0.01 per diluted share compared to a net loss for the third quarter of fiscal year 2001 of $6,764,000 or $0.71 per share. Net income for the first nine months of fiscal year 2002 was $3,102,000 or $0.31 per diluted share compared to a net loss of $12,711,000 or $1.36 per share for the first nine months of fiscal year 2001. The net income for the third quarter and the first nine 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 Company’s fiscal year 2001 restructuring activities and, in part, to the absence of losses incurred by the Company¹s reintegrated subsidiary corporations.

New orders received during the third quarter of fiscal year 2002 were $24,419,000, up 156% compared to new orders received during the third quarter of fiscal year 2001 of $9,522,000. Order levels for the first nine months of fiscal year 2002 were $54,800,000, up 8% compared to orders of $50,953,000 reported for the same period of fiscal year 2001. The increase in orders for the third quarter and the first nine months of fiscal year 2002 when compared to the same periods of fiscal year 2001 is primarily due to what the Company believes to be a renewed interest in signal intelligence spending by the U.S. Government.

The Company projects fiscal year 2002 revenues to be consistent with fiscal year 2001 revenues and anticipates that fiscal year 2002 orders will grow approximately 15% over fiscal year 2001. The Company recently revised its fiscal year 2002 net income estimate to approximately 4% of annual revenues instead of the 6% net income estimate provided at the end of the second quarter of fiscal year 2002. The estimated annual net income for fiscal year 2002 declined because the Company elected to increase research and development spending and maintain its current cost structure in anticipation of future revenue growth.

Regarding the third quarter operating results, Mr. Gary Yancey, President and Chief Executive Officer of Applied Signal Technology, commented, “We remain encouraged by the solicitation activity from our traditional government customers as well as customers that are new to APSG. This solicitation activity along with the increased order level supports our belief that the signal intelligence (SIGINT) marketplace will provide growth opportunities for the foreseeable future.”

Mr. Yancey went on to say, “We made the decision to increase our investment in research and development, that resulted in lower earnings, in order to pursue two strategic efforts. This decision was made as we evaluated some unique wireless SIGINT opportunities as well as an ultra low power SIGINT opportunity. With each opportunity, time-to-market seemed paramount and justified trading net income for these future growth opportunities. Our strong balance sheet allowed us to make this investment in our research and development efforts and still maintain a healthy financial condition. Our outlook for fiscal year 2003 remains optimistic and we anticipate revenue and earnings growth over fiscal year 2002.”

The Company will host a conference call on Wednesday, August 28, 2002 to discuss third quarter results and its projections for fiscal year 2002. If you wish to participate in the conference call, please dial 1-877-407-8035 for domestic callers or 1-201-689-8035 for international callers on August 28, 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.