Sunnyvale, CA December 22, 2005 – Applied Signal Technology, Inc. (NASDAQ – APSG) announced its operating results for the fourth quarter of fiscal year 2005 and the fiscal year ended October 31, 2005. The Company announced that it generated a record $156.1 million in revenues during fiscal 2005. 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.

New Orders
New orders received during the fourth quarter of fiscal year 2005 were $72,581,000 compared to new orders of $73,478,000 received during the fourth quarter of fiscal year 2004. Orders for fiscal year 2005 were $127,663,000 compared to $202,080,000 reported for fiscal year 2004. It should be noted that new orders and backlog were reduced by approximately $12 million because the company completed negotiations of a stop-work order related to a portion of its largest contract

Results of Operations
Revenues for the fourth quarter of fiscal year 2005 were $57,615,000 representing a 46% increase compared with revenues of $39,456,000 recorded during the fourth quarter of fiscal year 2004. Revenues for fiscal year 2005 were $156,061,000, up 9% from revenues of $142,836,000 recorded during fiscal year 2004.

Operating income for the fourth quarter of fiscal year 2005 was $5,080,000 representing a 31% increase compared to operating income of $3,880,000 recorded during the fourth quarter of fiscal year 2004. The operating income for fiscal year 2005 was $14,831,000 compared to operating income of $17,370,000 recorded during fiscal year 2004. Operating income was lower for fiscal year 2005 when compared to fiscal year 2004 due to higher program fees earned in fiscal 2004; a shift in favor of engineering development contracts that do not return as high a profit margin as our production contracts; the estimated impact of absorbing approximately $986,000 of the company's unfavorable fiscal year 2005 indirect rate variance that was created, in part, as a result of approximately $2.2 million of costs associated with the internal control requirements of the Sarbanes-Oxley Act; increased unallowable expenses related to our merger and acquisition activity; and the amortization expense of approximately $265,000 related to the intangibles recorded as a result of the acquisition of Dynamics Technology, Inc.

In addition, Statement of Financial Accounting Standards (SFAS) 123(R), Share-Based Payment, took effect November 1, 2005 for Applied Signal Technology, Inc. which requires the expensing of stock options. The Company estimates that operating income could decrease by approximately 25% to 35% in future periods as a result of recording this additional expense.

Net income for the fourth quarter of fiscal year 2005 was $3,106,000 or $0.26 per diluted share compared to the fourth quarter of fiscal year 2004 net income of $2,422,000 or $0.21 per diluted share. Net income for fiscal year 2005 was $9,244,000 or $0.79 per diluted share compared to net income of $11,974,000 or $1.03 per diluted share for fiscal year 2004. Our tax rates for fiscal years 2005 and 2004 were approximately 40% and 33%, respectively.

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 10, 2006, May 12, 2006, August 11, 2006 and November 10, 2006 to shareholders of record at January 27, 2006, April 28, 2006, July 28, 2006 and October 31, 2006, respectively.

Management Commentary
Mr. Gary Yancey, President and Chief Executive Officer of Applied Signal Technology, Inc., commented, “We had a challenging year in fiscal 2005. We had to step up to some major staffing requirements after our team was awarded the large COMINT program in March 2005 and we were essentially back on track with our hiring requirements by the end of fiscal 2005. The Company executed its first acquisition in July 2005 and we feel that the integration of our 110 new employees is going quite well.”

“With these new challenges, we still achieved a 9% growth in revenue compared to fiscal 2004. Although our new orders were lower than fiscal 2004, it did include a $12 million de-booking for the portion of our contract that was affected by the stop work order. Also, some bookings associated with our airborne COMINT program slipped into fiscal 2006.”

Mr. Yancey concluded, “We are still experiencing demand for our technical expertise and our products. We are expanding our customer base in the military branches as well as the Intelligence Community. These facts lead me to believe that the Company has opportunity for growth into the foreseeable future.”

Attached to this news release are condensed statements of operations and balance sheets for the fourth quarter and fiscal year ended October 31, 2005.

Conference Call
The Company will host a conference call on Thursday, December 22, 2005 to discuss operating results for fiscal 2005. 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 22, 2005 at 5:00 p.m. Eastern (2:00 p.m. Pacific). There is no pass code required. This call is being web cast by Vcall and can be accessed at Applied Signal Technology, Inc.'s website at www.appsig.com. Investors can also access the web cast 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. provides advanced digital signal processing products, systems and services in support of intelligence, surveillance, and reconnaissance for global security. For further information about Applied Signal Technology's products and services visit our 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 the estimated reduction in operating income in future periods as a result of expensing share-based payments in accordance with SFAS 123(R), the demand for our technical expertise and products, expansion of our customer base and integration of our acquisition. 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, 2004. The Company assumes no obligation to update the information provided in this news release.

APPLIED SIGNAL TECHNOLOGY
CONDENSED BALANCE SHEETS
(in thousands)

ASSETS
	October 31, 2005	October 31, 2004
Current assets:
Cash and cash equivalents	$     18,920	$     11,227
Short term investments	10,615	32,615
	-----------	-----------
Total cash, cash equivalent, and short term        investments	29,535	43,842
Accounts receivable	48,466	43,768
Inventory	6,315	5,392
Other current assets	5,261	4,340
	-----------	-----------
Total current assets	89,577	97,342
Property and equipment, at cost	68,619	63,105
Accumulated depreciation and amortization	(52,328)	(50,682)
	-----------	-----------
Net property and equipment	16,291	12,423
Goodwill	19,785	—
Intangible assets	2,270	—
Less accumulated amortization	(265)	—
	-----------	-----------
Intangible assets, net	2,005	—
Long-Term Deferred Tax Asset, net	5,821	1,391
Other assets	844	296
	-----------	-----------
Total assets	$    134,323	$    111,452
	======	======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable, accrued payroll and benefits	$     22,719	$     18,319
Notes payable	1,429	—
Income taxes payable	633	29
Other accrued liabilities	1,608	2,335
	-----------	-----------
Total current liabilities	26,389	20,683
Long-Term Liabilities:
Long-Term notes payable	8,215	—
Other Long-Term liabilities	1,787	1,403
	-----------	-----------
Total Long-Term liabilities	$     10,002	$      1,403
Shareholders' equity	97,932	89,366
	-----------	-----------
Total liabilities and shareholders' equity	$    134,323	$    111,452
	======	======

APPLIED SIGNAL TECHNOLOGY
CONDENSED STATEMENTS OF INCOME
FOR THE PERIODS ENDING OCTOBER 31, 2005 AND OCTOBER 31, 2004
(in thousands except per share data)