Untitled Document

APPLIED SIGNAL TECHNOLOGY, INC.
ANNOUNCES FISCAL 2004 OPERATING RESULTS, RECORD ORDERS,
CONTINUATION OF DIVIDENDS AND APPOINTMENT OF OFFICERS

Sunnyvale, CA. December 21, 2004 - Applied Signal Technology, Inc. (NASDAQ - APSG) announced its operating results for the fourth quarter of fiscal year 2004 and the fiscal year ended October 31, 2004. The Company announced that it received a record $202.1 million in new orders during fiscal 2004. In addition, the Company announced that the Board of Directors has approved the continuation of the annual dividend payments to shareholders of $0.50 per share. The Company also announced the appointment of three officers.

New Orders
New orders received during the fourth quarter of fiscal year 2004 were $73,478,000 compared to new orders of $67,242,000 received during the fourth quarter of fiscal year 2003. Orders for fiscal year 2004 were $202,080,000 compared to $139,796,000 reported for fiscal year 2003. It should be noted that new orders and backlog are expected to be reduced by approximately $11 to $13 million when the company completes negotiations of a stop-work order related to a portion of it largest contract. The Company anticipates the completion of these negotiations during the first or second quarter of fiscal 2005. The Company estimates that our opportunity to generate revenues from this contract was reduced by approximately $3 to $4 million in fiscal 2004, and will be reduced by approximately $6 to $7 million during fiscal year 2005 and the balance in fiscal 2006.

Results of Operations
Revenues for the fourth quarter of fiscal year 2004 were $39,456,000 representing a 35% increase compared with revenues of $29,123,000 recorded during the fourth quarter of fiscal year 2003. Revenues for fiscal year 2004 were $142,836,000 up 50% from revenues of $95,384,000 recorded during fiscal year 2003.

Operating income for the fourth quarter of fiscal year 2004 was $3,880,000 compared to operating income of $2,751,000 recorded during the fourth quarter of fiscal year 2003. Operating income increased for the fourth quarter of fiscal year 2004 due primarily to a growth in revenues, offset in part by a charge to operating income taken by the Company in the fourth quarter as a result of disposing of approximately $811,000 of obsolete products. The operating income for fiscal year 2004 was $17,370,000 compared to operating income of $9,186,000 recorded during fiscal year 2003. The increase in operating income for fiscal year 2004 is due, in part, to a growth in revenues and, in part, to an increase in program profitability generated from the sale of certain products.

Net income for the fourth quarter of fiscal year 2004 was $2,422,000 or $0.21 per diluted share compared to the fourth quarter of fiscal year 2003 net income of $2,923,000 or $0.26 per diluted share. Net income for fiscal year 2004 was $11,974,000 or $1.03 per diluted share compared to net income of $8,665,000 or $0.80 per diluted share for fiscal year 2003. Net income did not grow proportionately with operating income for the fourth quarter and fiscal year 2004 when compared to the same periods in fiscal year 2003 because our tax rate increased significantly. Our tax rate for the fourth quarter and fiscal year 2004 was 40% and 33%, respectively, compared to 1% and 11%, respectively, for the same periods of fiscal year 2003.

Dividend
The Company announced the continuation of its current dividend. The Company will pay an annual dividend of $0.50 per share, payable quarterly at a rate of $0.125 per share, to shareholders over the next twelve months. The quarterly dividends will be payable on February 11, 2005, May 13, 2005, August 12, 2005 and November 11, 2005 to shareholders of record at January 28, 2005, April 29, 2005, July 29, 2005 and October 31, 2005.

Appointment of Officers
The Company promoted Mr. Ben Scribner to Chief Operating Officer reporting to Mr. Gary Yancey, President and Chief Executive Officer. Mr. Fred Roscher was elected Executive Vice President of the newly formed Communications Systems Group reporting to Mr. Scribner and Mr. Robert Blanchard was elected Vice President of the newly formed Electronic Systems Division also reporting to Mr. Scribner.

Management Commentary
Mr. Gary Yancey, President and Chief Executive Officer of the Company, commented, “As we reviewed our five-year strategic plan at the beginning of fiscal year 2004, we believed that our core business of communications intelligence or COMINT had strong year-over-year growth potential for the foreseeable future. As a result, we felt that we had an opportunity to diversify into other areas of signal intelligence to complement our core business. We felt that one area of signal intelligence in which the U.S. Government will be budgeting increased investments was electronic intelligence or ELINT. Since ELINT and COMINT involve similar processing technologies, we felt that this diversification would be synergistic with our core competencies.”

Mr. Yancey concluded his remarks, “To better manage our investment in the future, we promoted Ben Scribner to Chief Operating Officer responsible for all technical operations. We formed the Communications Systems Group, managed by Fred Roscher, as Executive Vice President, to continue to grow our core COMINT business area. We formed the Electronic Systems Division managed by Bob Blanchard as Vice President to expand our SIGINT business into ELINT. Fred has over seventeen years tenure with the Company, most recently as deputy General Manager of the Technical Operations Group. He has over twenty-five years experience in COMINT and I am confident he will lead his group to continued growth. Bob has over twenty years experience in the ELINT business and founded Plano Microwave in 1992 to provide ELINT equipments. He joined Applied Signal Technology on November 22, 2004. His division will be located in Plano, Texas. I am very optimistic about the continued success of our core COMINT business area and the opportunities provided by our move into the ELINT business area. I believe that diversifying into other areas of SIGINT and potentially other areas of defense electronics will be beneficial to the Company and its shareholders in the future.”

Attached to this news release are audited condensed statements of operations and balance sheets for the fourth quarter and fiscal year ended October 31, 2004.

Conference Call
The Company will host a conference call on Tuesday, December 21, 2004 to discuss operating results for fiscal 2004. 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 21, 2004 at 5:00 p.m. EST/2:00 p.m. PST. There is no pass code required. This call may be listened to over 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 that could cause actual results to differ materially. Forward-looking statements discussed in this release include statements concerning the magnitude of the stop work order and our ability to negotiate a favorable outcome, the potential future year over year growth of our COMINT business, U.S. investment into the ELINT business, the continued success of our COMINT business and opportunities provided by our entry into the ELINT business, and the benefits of this diversification to our shareholders. 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 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; the ability to successfully enter new marketplaces; 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, 2003. The Company assumes no obligation to update the information provided in this news release.