Sunnyvale, CA. February 28, 2006 – Applied Signal Technology, Inc. (NASDAQ – APSG) announced its operating results for the first quarter of fiscal year 2006 ended January 27, 2006.

New orders received during the first quarter of fiscal year 2006 were $33,006,000 compared to fiscal year 2005 first quarter new orders of $11,126,000. The significant increase is due to new orders received for certain airborne signal intelligence requirements.

Revenues for the first quarter of fiscal year 2006 were $33,553,000 compared with revenues of $30,110,000 recorded during the first quarter of fiscal year 2005 representing an 11% increase. During the first quarter of fiscal year 2006, we incurred approximately $2.5 million of precontract costs that we anticipate will convert to revenue during fiscal year 2006. Precontract costs represent costs incurred in anticipation of specific expected future contract awards and costs incurred in connection with ongoing contracts for which contract modifications have not been defined. Precontract costs are recorded on the balance sheet as a component of prepaid and other current assets until the contract award or modification is received.

Operating income for the first quarter of fiscal year 2006 was $2,526,000 compared with operating income of $3,272,000 recorded during the first quarter of fiscal year 2005. Net income for the first quarter of fiscal year 2006 was $1,312,000 or $0.11 per diluted share compared with net income of $2,027,000 or $0.17 per diluted share recorded during the first quarter of fiscal year 2005. The decrease in both operating and net income is due to the impact of the adoption of Statement of Financial Accounting Standard (SFAS) No. 123R, “Share-Based Payment.” The stock-based compensation expense and reduction to operating income for the first quarter of fiscal year 2006 due to the adoption of SFAS 123R was approximately $1,141,000. Our effective tax rate for fiscal year 2006 is estimated to be 48.5% compared to our fiscal year 2005 effective tax rate of 40.3%. This increase in the estimated effective tax rate is due to the effect of SFAS 123R.

Regarding the first quarter operating results, Mr. Gary Yancey, President and Chief Executive Officer of the Company, commented, “We had anticipated the orders for our airborne signal intelligence program to be booked in the fourth quarter of fiscal year 2005. The contracting was delayed slightly and the orders booked in the first quarter of fiscal year 2006. There is minimal impact to the overall airborne program although in order to minimize the impact, we did incur precontract costs on certain delivery orders.”

“We are continuing to observe emphasis on Intelligence, Surveillance, and Reconnaissance (ISR) for global security. The Company is recognized as a major resource for ISR solutions and I feel that our marketplace will remain strong into the foreseeable future as we deliver these solutions.”

The Company will host a conference call on February 28, 2006 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 28, 2006 at 5:00 p.m. eastern time/2:00 p.m. pacific time. 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. 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 from those expected. Statements as to the Company’s ability to hire qualified employees to be able to meet all our commitments; and future orders for additional equipment are forward-looking statements. The risks and uncertainties associated with these statements include whether precontract costs will be recovered, 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 qualified staff as needed; 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, 2005.

Applied Signal Technology, Inc.
Condensed Statements of Income
for the Periods Ending January 27, 2006 and January 28, 2005
(Unaudited)
(in thousands except per share data)

Applied Signal Technology, Inc.
Condensed Balance Sheets
(in thousands)