Applied Signal Technology, Inc. Announces First Quarter Operating Results

New orders received during the first quarter of fiscal year 2006were $33,006,000 compared to fiscal year 2005 first quarter new ordersof $11,126,000. The significant increase is due to new orders receivedfor 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 thefirst quarter of fiscal year 2005 representing an 11% increase. Duringthe first quarter of fiscal year 2006, we incurred approximately $2.5million of precontract costs that we anticipate will convert torevenue during fiscal year 2006. Precontract costs represent costsincurred in anticipation of specific expected future contract awardsand costs incurred in connection with ongoing contracts for whichcontract modifications have not been defined. Precontract costs arerecorded on the balance sheet as a component of prepaid and othercurrent 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 recordedduring the first quarter of fiscal year 2005. Net income for the firstquarter of fiscal year 2006 was $1,312,000 or $0.11 per diluted sharecompared with net income of $2,027,000 or $0.17 per diluted sharerecorded during the first quarter of fiscal year 2005. The decrease inboth operating and net income is due to the impact of the adoption ofStatement of Financial Accounting Standard (SFAS) No. 123R,"Share-Based Payment". The stock based compensation expense andreduction to operating income for the first quarter of fiscal year2006 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%. Thisincrease in the estimated effective tax rate is due to the effect ofSFAS 123R.

Regarding the first quarter operating results, Mr. Gary Yancey,President and Chief Executive Officer of the Company, commented, "Wehad anticipated the orders for our airborne signal intelligenceprogram to be booked in the fourth quarter of fiscal year 2005. Thecontracting was delayed slightly and the orders booked in the firstquarter of fiscal year 2006. There is minimal impact to the overallairborne program although in order to minimize the impact, we didincur precontract costs on certain delivery orders."

"We are continuing to observe emphasis on Intelligence,Surveillance, and Reconnaissance (ISR) for global security. TheCompany is recognized as a major resource for ISR solutions and I feelthat our marketplace will remain strong into the foreseeable future aswe deliver these solutions."

The Company will host a conference call on February 28, 2006 todiscuss first quarter results. If you wish to participate in theconference call, please dial 1-877-407-8035 for domestic callers or1-201-689-8035 for international callers on February 28, 2006 at 5:00p.m. eastern time/2:00 p.m. pacific time. There is no pass coderequired. This call may be listened to simultaneously over theInternet through World Investor Links' Vcall Website, located atwww.vcall.com. A rebroadcast of the call will be available upon itscompletion and will remain available for a limited time.

Applied Signal Technology, Inc. provides advanced digital signalprocessing products, systems and services in support of intelligence,surveillance, and reconnaissance for global security. For furtherinformation about Applied Signal Technology's products and servicesvisit our website at www.appsig.com.

Except for historical information contained herein, mattersdiscussed in this news release may contain forward-looking statementsthat involve risks and uncertainties that could cause actual resultsto differ materially from those expected. Statements as to theCompany's ability to hire qualified employees to be able to meet allour commitments; and future orders for additional equipment areforward-looking statements. The risks and uncertainties associatedwith these statements include whether precontract costs will berecovered, orders will be issued by procurers, including the U. S.Government; the timing of any orders placed by procurers; whether wewill be successful in obtaining contracts for these orders if they areforthcoming; whether any contracts obtained by us will be profitableand whether any such contracts might be terminated prior tocompletion; whether we will be able to hire qualified staff as needed;and other risks detailed from time to time in our SEC reportsincluding our latest Form 10-K filed for the fiscal year ended October31, 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)



Three Months Ended
-------------------------
January 27, January 28,
2006 2005
-------------------------

Revenues from contracts $ 33,553 $ 30,110
Operating expenses:
Contract costs 22,068 19,839
Research and development 3,589 3,177
General and administrative 5,370 3,822
-------------------------

Total operating expenses 31,027 26,838
-------------------------

Operating income 2,526 3,272
Interest income/(expense), net 22 163
-------------------------

Income before provision
for income taxes 2,548 3,435
Provision for income taxes 1,236 1,408
-------------------------

Net income $ 1,312 $ 2,027
=========================

Net income per share - basic $0.11 $0.18
Average shares - basic 11,617 11,293

Net income per share - diluted $0.11 $0.17
Average shares - diluted 11,919 11,863



APPLIED SIGNAL TECHNOLOGY

CONDENSED BALANCE SHEETS
(in thousands)

ASSETS



January 27, October 31,
2006 2005
------------- ------------
(unaudited)
Current assets:
Cash and cash equivalents $ 11,207 $ 18,920
Short term investments 7,403 10,615
------------- ------------
Total cash, cash equivalents,
and short term investments 18,610 29,535
Accounts receivable 48,320 48,466
Inventory 9,563 5,269
Prepaid and other current assets 7,797 6,307
------------- ------------
Total current assets 84,290 89,577

Property and equipment, at cost 69,458 68,619
Accumulated depreciation and amortization (53,278) (52,328)
------------- ------------
Net property and equipment 16,180 16,291

Goodwill 19,785 19,785

Intangible assets 2,270 2,270
Less accumulated amortization (464) (265)
------------- ------------
Intangible assets, net 1,806 2,005


Long-Term Deferred Tax Asset, net 6,081 5,821

Other assets 723 844
------------- ------------

Total assets $ 128,865 $ 134,323
============= ============

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable, accrued payroll and
benefits $ 14,284 $ 22,719
Notes payable 1,429 1,429
Income taxes payable 575 633
Other accrued liabilities 1,797 1,608
------------- ------------
Total current liabilities 18,085 26,389

Long-Term Liabilities:

Long-Term notes payable 7,857 8,215
Other Long-Term liabilities 1,805 1,787
------------- ------------
Total Long-Term liabilities $ 9,662 $ 10,002

Shareholders' equity 101,118 97,932
------------- ------------

Total liabilities and shareholders' equity $ 128,865 $ 134,323
============= ============