APPLIED SIGNAL TECHNOLOGY, INC.
ANNOUNCES FISCAL YEAR 2003 OPERATING RESULTS, RECORD ORDER LEVELS AND A DIVIDEND INCREASE FOR SHAREHOLDERS

Sunnyvale, CA. December 16, 2003 - Applied Signal Technology, Inc. (NASDAQ - APSG) announced its operating results for the fourth quarter of fiscal year 2003 and the fiscal year ended October 31, 2003. The Company also announced that it received a record $139.8 million in new orders during fiscal year 2003 and has received an additional $55 million in new orders since the beginning of fiscal year 2004. The Board of Directors increased the annual dividend payments to shareholders to $0.50 per share.

Results of Operations
Revenues for the fourth quarter of fiscal year 2003 were $29,123,000, representing a 26% increase compared with revenues of $23,162,000 recorded during the fourth quarter of fiscal year 2002. Revenues for fiscal year 2003 were $95,384,000, up 25% from revenues of $76,184,000 recorded during fiscal year 2002. The increase in revenues recorded during the fourth quarter and fiscal year 2003, when compared to the same periods of fiscal year 2002, is primarily due to an increase in engineering development efforts designed to provide a variety of signal intelligence solutions to the United States Government.

Net income for the fourth quarter of fiscal year 2003 was $2,923,000 or $0.26 per diluted share compared to net income for the fourth quarter of fiscal year 2002 of $819,000 or $0.08 per diluted share. Net income for fiscal year 2003 was $8,665,000 or $0.80 per diluted share compared to net income of $3,921,000 or $0.39 per diluted share for fiscal year 2002. The increase in net income for the fourth quarter and fiscal year 2003, when compared to the same periods of fiscal year 2002, is due, in part, to the growth in revenues and, in part, because operating expenses did not increase proportionately with revenue growth.

New Orders
New orders received during the fourth quarter of fiscal year 2003 were $67,242,000, up 108% compared to orders received during the fourth quarter of fiscal year 2002 of $32,322,000. Order levels for fiscal year 2003 were $139,796,000, up 60% when compared to the $87,122,000 reported for the same period of fiscal year 2002. The increase in new orders during the fourth quarter and fiscal year 2003, when compared to the same periods of fiscal year 2002, is due to what the Company believes to be increased spending by the U.S. Government on signal intelligence solutions.

In addition, during the period November 1, 2003 through December 12, 2003, the Company has received $55 million in new orders. The majority of these new orders are related to the modification of the Company's largest single contract. This modification extends the contract through January 2005.

Dividend
The Company also increased its current dividend and announced a $0.50 per share annual dividend payable to shareholders over the next twelve months. The dividend is payable quarterly at the rate of $0.125 per share. The quarterly dividends will be payable on February 13, 2004, May 14, 2004, August 13, 2004 and November 12, 2004 to shareholders of record at January 30, 2004, April 30, 2004, July 30, 2004, and October 31, 2004, respectively.

Management Commentary
Mr. Gary Yancey, President and Chief Executive Officer of the Company, commented, "We are obviously very pleased with our fiscal 2003 performance and believe it demonstrates that the Company has returned to a healthy state. The U.S. Government's continued emphasis on anti-terrorism and defense spending in general should provide a marketplace in which we can maintain a position of good financial performance and growth."

"The current state of world affairs and the U.S. Government's emphasis upon protecting U.S. citizens has caused our government to put renewed emphasis upon intelligence gathering. The Company's performance during the 1990's demonstrates that it can grow in an environment where there is importance placed upon intelligence gathering even if the government is otherwise reducing its overall defense budget. We believe the government will continue to place emphasis on intelligence gathering."

"We are now at a level of revenue that our cost structure allows us to be fairly cost competitive. As we continue to grow, we believe we can continue to bring our costs even more in line with the industry."

Mr. Yancey concluded with, "The Board of Directors evaluated the Company's financial condition and strong cash balance attendant with no long term debt and concluded that an obvious way to increase shareholder value was to increase the dividend. Therefore, we decided to increase the dividend starting with the February 13, 2004 payment. We do not believe this increased dividend will impact our current growth options, including possible acquisitions."

Conference Call
The Company will host a conference call on December 16, 2003 to discuss the operating results for fiscal year 2003. 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 16, 2003 at 2:00 p.m. PST/5:00 p.m. EST. There is no pass code required. This call may be listened to simultaneously over the Internet through PrecisionIR's Investor Distribution Network, 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 the Company's belief that the U.S. Government has increased spending on signal intelligence solutions; the future spending by the U.S. Government on intelligence gathering; the future emphasis the U.S. Government may place on signal intelligence gathering relative to the overall defense budget; the Company's plans for the future, including the steps it may take and the programs it will emphasize; the Company's beliefs concerning marketplace opportunities for its products and services; and beliefs concerning contractual opportunities for orders are forward-looking statements. The risks and uncertainties associated with these statements include whether orders will be issued by procurers, including the U. S. Government; the timing of any orders placed by procurers; whether the Company will be successful in obtaining contracts for these orders if they are forthcoming; whether any contracts obtained by the Company will be profitable and whether any such contracts might be terminated prior to completion; whether the Company will be able to hire additional qualified staff as needed; the ability to successfully enter new marketplaces; the Company's ability to maintain profitability; 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, 2002.

APPLIED SIGNAL TECHNOLOGY 
CONDENSED CONSOLIDATED BALANCE SHEETS 
(in thousands)

ASSETS

                                                           October 31,   October 31, 
                                                              2003          2002
                                                           -----------   -----------
     Current assets: 
       Cash and cash equivalents                            $ 5,372      $ 11,715 
       Short Term Investments                                34,747        13,212 
       Accounts receivable                                   26,562        24,627 
       Inventory                                              6,875         7,259 
       Prepaids and other current assets                      3,545         2,083 
                                                           --------      --------
         Total current assets                                77,101        58,896 



     Property and equipment, at cost                         59,138        57,446 
     Accumulated depreciation and amortization              (46,897)      (42,932) 
                                                           --------      --------
     Net property and equipment                              12,241        14,514 



     Other assets                                               605           414 

                                                           --------      --------


     Total assets                                          $ 89,947      $ 73,824

                          LIABILITIES AND SHAREHOLDERS' EQUITY 

     Current liabilities: 
       Accounts payable, accrued payroll and benefits      $ 10,579      $ 6,701 
       Other accrued liabilities                              2,833        2,004 
       Income taxes payable                                     134            — 
                                                           --------      ------- 
         Total current liabilities                           13,546        8,705 

       Other liabilities                                        183          146 

     Shareholders' equity                                    76,218       64,973 
                                                           --------      -------
     Total liabilities and shareholders' equity            $ 89,947     $ 73,824
                                                           ========     ========

            

APPLIED SIGNAL TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME 
FOR THE PERIODS ENDING OCTOBER 31, 2003 AND OCTOBER 31, 2002 
(In thousands except per share data) 

                                        Three Months Ended         Twelve Months Ended 
                                      October 31,  October 31,    October 31,  October 31,
                                         2003         2002           2003         2002
                                      -----------  -----------    -----------  -----------

Revenues from contracts               $ 29,123     $ 23,162       $ 95,384     $ 76,184 
Operating expenses: 
  Contract costs                        20,385       15,877         63,335       49,067 
  Research and development               1,644        2,097          7,526        8,798 
  General and administrative             4,343        4,430         15,337       15,160 
                                      --------     --------       --------     -------- 
    Total operating expenses            26,372       22,404         86,198       73,025 
                                      --------     --------       --------     -------- 

Operating income                         2,751          758          9,186        3,159
Interest income, net                       190           86            510           34
                                      --------     --------       --------     -------- 

Income before provision (benefit) 
 for income taxes                        2,941          844          9,696        3,193
Provision (benefit) for income taxes        18           25          1,031         (728)
                                      --------     --------       --------     -------- 

Net income                             $ 2,923        $ 819        $ 8,665      $ 3,921
                                      ========     ========       ========     ========

Net income per share - basic             $0.27        $0.09          $0.83        $0.40 
Average shares - basic                  10,735       10,055         10,459        9,889

Net Income per share - diluted           $0.26        $0.08          $0.80        $0.39 
Average shares - diluted                11,307       10,222         10,863       10,061