Raytheon - Applied Signal Technology, Inc.

Applied Signal Technology, Inc. Reports Fourth Quarter 2009

-- Fourth Quarter 2009 EPS grows 35% to $0.27 –
-- Fourth Quarter 2009 Operating Income increases 36% to $5.9 million –
-- Fourth Quarter Orders increase 74% to $69.5 million --

Sunnyvale, CA. December 17, 2009 - Applied Signal Technology, Inc. (NASDAQ - APSG) today announced operating results for the fourth quarter and fiscal 2009, which ended October 31, 2009.

The Company reported revenues for the fourth quarter of $54,231,000 an increase of 12.1% compared to the year-ago quarter’s revenues of $48,374,000. Revenue growth was primarily due to continued strength in the Company’s broadband communications business. The Company’s operating income for the fourth quarter of fiscal 2009 increased by 36.0% to $5,923,000, a margin of 10.9%, as compared to $4,354,000, a margin of 9.0%, in the fourth quarter of fiscal year 2008. This increased margin was driven by a heavier mix of fixed-price contracts, improved profitability on certain development contracts, and a reduction in stock-based compensation expense.

The significant year-over-year margin improvement enabled the Company to grow earnings per share during the fourth quarter to $0.27, an increase of 35% versus the year-ago level of $0.20 per share.

Revenues for fiscal year 2009 increased 8.7% to $202,615,000, compared to revenues of $186,331,000 for fiscal year 2008. Operating income for fiscal 2009 increased by 78.9% to $22,870,000 as compared to $12,787,000 in the prior year. Net income for fiscal year 2009 increased by 81.2% to $14,529,000 or $1.11 per diluted share compared to the year-ago level of $8,017,000 or $0.63 per diluted share.

New orders received during the fourth quarter of fiscal year 2009 were $69,475,000 compared to new orders of $39,825,000 during the fourth quarter of fiscal year 2008. New orders for fiscal year 2009 were $210,285,000, a 13.6% increase compared to new orders of $185,139,000 received during fiscal year 2008. New orders growth for fiscal 2009 was primarily driven by increased demand for the Company’s sensor systems and broadband communications contracts and was partially offset by order declines for tactical SIGINT programs. The Company noted it has definitized the seven separate ISR program awards mentioned when it reported its third quarter financial results.

Mr. William Van Vleet, President and Chief Executive Officer of Applied Signal Technology commented, “We are pleased that we continued to execute well for our customers during the fourth quarter. Our recent contract awards have given us increased visibility and confidence in the strength of our broadband, sensors and services business areas. We are especially pleased with our recent acquisition of Pyxis Engineering which has anchored our network intelligence initiative and is creating a range of new business opportunities.”

Mr. Van Vleet continued, “In our core business, improvements in operations initiated last year are resulting in sustainable gains in program level profitability. As we move forward, we expect to leverage our strong cash flow and considerable financial resources to continue to grow both organically and through acquisition. It remains our goal to become the leader in the intelligence, reconnaissance, and surveillance business.”

Attached to this news release are condensed, consolidated statements of income, balance sheets and statements of cash flows for the fourth quarter and fiscal year 2009 ended October 31, 2009.

Conference Call
The Company will host a conference call on December 17, 2009 to discuss fourth quarter fiscal 2009 results. If you wish to participate in the conference call, please dial 1-877-407-8031 for domestic callers or 1-201-689-8031 for international callers on December 17, 2009 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 at the Web site www.InvestorCalendar.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 intelligence, surveillance and reconnaissance (ISR) products, systems and services to enhance global security. For further information about Applied Signal Technology 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. Statements as to the increased visibility and confidence in the strength of our broadband, sensors and services business areas, sustainable program level profitability, future organic and new complimentary growth opportunities, the order opportunities available to AST in the rapidly developing intelligence, surveillance and reconnaissance (ISR) and cyber-security markets, the ability of the acquisition of Pyxis to create a range of new business opportunities are all forward-looking statements. The risks and uncertainties associated with these statements include AST’s ability to capture organic growth opportunities, the ability to sustain gains in program level profitability, the ability to utilize the strategic advantages of a strong capital position, the ability to execute the acquisition of Pyxis and realize the expected benefits of the acquisition whether orders will be issued by procurers, including the U. S. Government; the timing of any orders placed by procurers; whether AST will be successful in obtaining contracts for these orders if they are forthcoming; whether any contracts obtained by AST will be performed well and be profitable and whether any such contracts might be terminated prior to completion; whether AST will be able to hire qualified staff as needed; and other risks detailed from time to time in our SEC reports including the latest Form 10-K filed for the fiscal year ended October 31, 2008. The Company assumes no obligation to update the information provided in this news release.

Applied Signal Technology, Inc.
Condensed Consolidated Statements of Income
(in thousands except per share data)

	—— Three Months Ended ——		—— Nine Months Ended ——
	October 31, 2009	October 31, 2008	October 31, 2009	October 31, 2008
Revenues from contracts	$53,221	$46,955	$196,371	$181,147
Revenues from royalties	1,010 ---------	1,419 ---------	6,244 ---------	5,184 ---------
Total revenues	54,231	48,374	202,615	186,331
Operating expenses:
Contract costs	38,355	34,400	142,722	129,835
Research and development	3,853	2,630	14,482	13,116
General and administrative	6,100 ---------	6,990 ---------	22,541 ---------	30,593 ---------

Total operating expenses	48,308 ---------	44,020 ---------	179,745 ---------	173,544 ---------

Operating income	5,923	4,354	22,870	12,787
Interest income/(expense), net	1 ---------	223 ---------	223 ---------	761 ---------

Income before provision for income taxes	5,924	4,577	23,093	13,548
Provision for income taxes	2,314 ---------	2,028 ---------	8,564 ---------	5,531 ---------

Net income	$3,610 ========	$2,549 ========	$14,529 ========	$8,017 ========

Net income per share – basic	$0.28	$0.20	$1.13	$0.64
Average shares – basic	13,005	12,622	12,890	12,475

Net income per share – diluted	$0.27	$0.20	$1.11	$0.63
Average shares – diluted	13,268	12,844	13,146	12,681

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

	October 31, 2009	October 31, 2008
ASSETS

Current assets:
Cash and cash equivalents	$4,102	$4,668
Short term investments	43,454 ---------	45,045 ---------
Cash, cash equivalents, and short term investments	47,556	49,713
Accounts receivable	47,063	40,115
Inventory	8,378	8,141
Other current assets	10,517 ---------	10,155 ---------
Total current assets	113,514	108,124

Property and equipment, at cost	70,400	65,773
Accumulated depreciation and amortization	(55,405) ---------	(50,660) ---------
Net property and equipment	14,995	15,113

Goodwill	33,158	19,964

Intangible assets, net	1,904	162

Long-term deferred tax asset, net	4,196	4,410
Long term investment	2,129	9,381
Other assets	1,104 ---------	865 ---------

Total assets	$171,000 ========	$158,019 ========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable, accrued payroll and benefits	$22,158	$20,070
Notes payable	1,429	1,429
Income taxes payable	444	498
Other accrued liabilities	2,298 ---------	3,513 ---------
Total current liabilities	26,329	25,510

Long-term liabilities:

Long-term notes payable	2,500	3,929
Other long-term liabilities	3,146 ---------	3,847 ---------
Total long-term liabilities	$5,646	$7,776

Shareholders' equity	139,025 ---------	124,733 ---------

Total liabilities and shareholders' equity	$171,000 ========	$158,019 ========

Applied Signal Technology, Inc.
Condensed Statements of Cash Flows
Increase (decrease) in cash (in thousands)

	YTD October 2009	YTD October 2008
Operating activities:

Net Income	$14,529	$8,017

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	6,361	6,138
Stock-based compensation	2,236	4,779
Excess tax benefits from stock-based payment arrangements	(384)	(37)

Adjustments to reconcile net income to net cash provided
Accounts receivable	(2,914)	4,361
Refundable income taxes	—	752
Inventory, prepaids, and other current assets	507	(2,697)
Other assets	(25)	519
Accrued lease incentives	—	877
Accounts payable, taxes payable and accrued liabilities	(3,141) ---------	5,454 ---------
Net cash provided by operating activities	17,169	28,163

Investing activities:

Cash paid for business acquired, net	(15,943)	—
Purchase of available-for-sale securities	(63,687)	(109,964)
Maturity of available-for-sale securities	71,776	88,935
Additions to property and equipment	(5,415) ---------	(3,800) ---------
Net cash (used in) investing activities	(13,269)	(24,829)

Financing Activities:

Issuance of Common Stock	3,995	4,044
Shares repurchased for tax withholding of vested restricted stock awards	(284)	(279)
Excess Tax Benefits From Stock-based Payment Arrangements	384	37
Term Loans	(2,054)	(1,428)
Dividends Paid	(6,507) ---------	(6,290) ---------
Net cash (used in) financing activities	(4,466)	(3,916)


Net (decrease) in cash	(566)	(582)
Cash, beginning of period	4,668 ---------	5,250 ---------
Cash, end of period	$4,102 ========	$4,668 ========


Supplemental disclosure of cash flow information:
Interest paid	281	382
Income taxes paid	8,668	7,005