APPLIED SIGNAL TECHNOLOGY, INC.
ANNOUNCES FIRST QUARTER OPERATING RESULTS

Sunnyvale, CA. February 24, 2004 - Applied Signal Technology, Inc. (NASDAQ - APSG) announced its operating results for the first quarter of fiscal year 2004 ended January 30, 2004.

Revenues for the first quarter of fiscal year 2004 were $28,294,000 representing a 56% increase compared with revenues of $18,178,000 recorded during the first quarter of fiscal year 2003. The increase in revenues recorded during the first quarter of fiscal year 2004, when compared to the first quarter of fiscal year 2003, is due to increased revenues generated by our engineering development programs and our standard products. It is our belief that these increases are due to an emphasis by the U.S. Government on the war against terrorism.

New orders received during the first quarter of fiscal year 2004 were $64,549,000 compared to fiscal year 2003 first quarter orders of $12,044,000. The significant increase in new orders is primarily due to a major modification of our largest single contract.

Operating income for the first quarter of fiscal year 2004 was $3,176,000 representing a 59% increase when compared with operating income of $2,000,000 recorded during the first quarter of fiscal year 2003. The increase in operating income is due to a growth in revenues.

Net income for the first quarter of fiscal year 2004 was $2,156,000 or $0.19 per diluted share representing a 21% increase when compared with net income of $1,785,000 or $0.17 per diluted share recorded during the first quarter of fiscal year 2003. Net income did not grow proportionately with operating income because our tax rate increased significantly. We believe our tax rate for fiscal year 2004 could be as low as 30% provided that certain circumstances primarily related to our valuation allowance of certain deferred tax assets occur during fiscal year 2004. However, until such circumstances occur, we have recorded a 35% effective tax rate for fiscal year 2004 that is in accordance with APB Opinion No. 28, Interim Financial Reporting, as amended by FAS 109, Accounting for Income Taxes.

Regarding the first quarter operating results, Mr. Gary Yancey, President and Chief Executive Officer of the Company, commented, “We are obviously pleased with our increase in year-over-year revenue and net income as well as our current record backlog.”

“With this record backlog, a key to our revenue growth and program performance is our ability to hire qualified staff. To date, we have essentially met our current hiring requirements but we must continue to hire at an equivalent rate throughout the remainder of the year. We are cautiously of the opinion that we will meet our fiscal year 2004 hiring requirements.”

“My observation is that the U.S. Government is devoted to increasing its intelligence gathering capabilities. I believe there is currently emphasis on increasing technology and we seem to be experiencing this emphasis now with a large proportion of backlog representing research and development contracts. I also believe that there will subsequently be an emphasis placed on increasing the government's inventory of equipment which should result in orders for our standard products in subsequent years.”

The Company will host a conference call on February 24, 2004 to discuss first quarter results. 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 February 24, 2004 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 that could cause actual results to differ materially from those expected. Statements as to the Company's expected revenue growth; the Company's ability to hire qualified employees; the future spending by the U.S. Government on counter-terrorism and research and development projects; estimated tax rate; the marketplace opportunities for our products and services; and 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 we will be successful in obtaining contracts for these orders if they are forthcoming; whether any contracts obtained by us will be profitable and whether any such contracts might be terminated prior to completion; whether we will be able to hire additional qualified staff as needed; whether we will be able to successfully enter new marketplaces or maintain profitability; and other risks detailed from time to time in our SEC reports including our latest Form 10-K filed for the fiscal year ended October 31, 2003.

APPLIED SIGNAL TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In thousands except per share data)

                                           Three Months Ended
                                      January 30,  January 31,
                                         2004         2003
                                      -----------  -----------

Revenues from contracts              $  28,294    $  18,178
Operating expenses: 
  Contract costs                        18,300       11,556
  Research and development               2,137        1,701
  General and administrative             4,681        2,921
                                      --------     --------
    Total operating expenses            25,118       16,178

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

Operating income                         3,176        2,000
Interest income (expense), net             141          100

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

Income before provision
 for income taxes                        3,317        2,100
Provision for income taxes               1,161          315

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

Net income                             $ 2,156     $  1,785

                                      ========     ========

Net income per share - basic             $0.20        $0.17
Average shares - basic                  10,854       10,216


Net Income per share - diluted           $0.19        $0.17
Average shares - diluted                11,509       10,429