Sunnyvale, CA. December 17, 2002 – Applied Signal Technology, Inc. (NASDAQ: APSG) announced its operating results for the fourth quarter of fiscal year 2002 and for the fiscal year ended October 31, 2002.

Revenues for the fourth quarter of fiscal year 2002 were $23,162,000, representing a 23% increase compared with revenues of $18,806,000 recorded during the fourth quarter of fiscal year 2001. The increase in revenues in the fourth quarter of fiscal year 2002 when compared to the fourth quarter of fiscal year 2001 is primarily due to an increase in the revenues generated by the Company’s engineering development contracts related to signal intelligence efforts for the U.S. Government. Revenues for fiscal year 2002 were $76,184,000, an increase of 4% from revenues of $73,489,000 recorded during fiscal year 2001. The increase in revenues during fiscal year 2002 when compared to fiscal year 2001 is primarily due to an increase in the sale of the Company’s standard products.

Net income for the fourth quarter of fiscal year 2002 was $819,000 or $0.08 per diluted share compared to net income for the fourth quarter of fiscal year 2001 of $328,000 or $0.03 per diluted share. The increase in net income for the fourth quarter of fiscal year 2002 when compared to the fourth quarter of fiscal year 2001 is primarily due to increased revenues. Net income for fiscal year 2002 was $3,921,000 or $0.39 per diluted share compared to a net loss of $12,383,000 or $1.31 per share for the fiscal year 2001. The increase in net income for fiscal year 2002 when compared to 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 Company’s reintegrated subsidiary corporations.

New orders received during the fourth quarter of fiscal year 2002 were $32,322,000, up 29% compared to new orders received during the fourth quarter of fiscal year 2001 of $24,993,000. Order levels for fiscal year 2002 were $87,122,000, up 15% compared to orders of $75,946,000 reported for the same period of fiscal year 2001. The increase in orders for the fourth quarter and 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 to respond to the threat of increased terrorist activities and the war against terrorism.

Regarding the operating results, Mr. Gary Yancey, President and Chief Executive Officer of Applied Signal Technology, commented, “As management has stated in previous fiscal year 2002 quarterly earnings announcements, the restructuring we performed in fiscal year 2001 has allowed us to return to a nominal operating margin. We believe the increase in orders in fiscal year 2002 compared to fiscal year 2001 should allow sufficient revenue growth in fiscal year 2003 such that the Company can return more closely to its historic operating margin.”

Mr. Yancey went on to say, “We have experienced increased order activity in the recent months and continue to respond to numerous inquiries from our customers. We believe this increased activity is directly related to the on-going counter-terrorism campaign.”

The Company will host a conference call on Tuesday, December 17, 2002 to discuss the operating results 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 December 17, 2002 at 5:00 p.m. EST/2:00 p.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.