Applied Signal Technology, Inc. Announces Third Quarter Operating Results.

Business Editors/High-Tech Writers

SUNNYVALE, Calif.--(BUSINESS WIRE)--Aug. 22, 2001

Applied Signal Technology, Inc. (Nasdaq:APSG) announced its operating results for the third quarter of fiscal 2001 ended August 3, 2001.

Revenues for the third quarter of fiscal year 2001 were $15,396,000 representing a 39% decrease compared with revenues of $25,173,000 recorded during the third quarter of fiscal year 2000. The net loss for the third quarter of fiscal year 2001 was $6,764,000 or $0.71 per share compared to a net loss of $549,000 or $0.06 per share for the same period of fiscal year 2000.

Revenues for the first nine months of fiscal year 2001 were $54,683,000 down 31% from revenues of $78,988,000 recorded during the first nine months of fiscal year 2000. The net loss for the first nine months of fiscal year 2001 was $12,711,000 or $1.36 per share compared to net income of $3,870,000 or $0.43 per share for the same period of fiscal year 2000.

The decline in revenues for the third quarter and the first nine months of fiscal 2001 is due to a lower order flow during fiscal year 2000 and year-to-date 2001 when compared to the same periods in fiscal 1999. This created a lower average backlog during the first nine months of fiscal 2001 compared to the same period in fiscal 2000 from which to generate revenues.

The net loss for the third quarter of fiscal 2001 is primarily due to absorbing approximately $6 million of anticipated unrecoverable indirect costs resulting from slower than anticipated revenue generation. The year-to-date net loss is primarily attributable to absorbing these anticipated unrecoverable indirect costs during the third quarter and to subsidiary losses of approximately $6.5 million.

From the middle of April 2001 through the third quarter of fiscal year 2001, the Company recognized restructuring costs of approximately $2,320,000. These restructuring costs are primarily attributable to severance pay of approximately $1,215,000 and to expensing leasehold improvements of approximately $1,105,000. The leasehold improvements related to two facilities were expensed in the current period because the Company has returned one of its Sunnyvale buildings to the landlord and will return a second Sunnyvale building by October 1, 2001.

New orders received during third quarter of fiscal year 2001 were $9,522,000, down 50% from the $19,033,000 of orders received during the third quarter of fiscal year 2000. Order levels for the first nine months of fiscal year 2001 were $50,953,000, down 4% compared to the $53,010,000 reported for the same period of fiscal year 2000. Included in the third quarter and year-to-date order levels was the de-obligation of approximately $5.2 million of orders on two major contracts. The decrease in new engineering orders during the third quarter is due, in part, to this de-obligation and, in part, to what the Company believes to be continued delays in the awarding of certain engineering efforts. The decrease in product orders is due to a decline in the demand for the Company's standard products.

Regarding the operating results, Mr. Gary Yancey, President and Chief Executive Officer of the Company commented, "The severity of our third quarter and therefore fiscal year losses could have been reduced if we had started the reductions in operating costs at the beginning of the fiscal year. All indicators to management at the beginning of the year were that order flow would increase significantly in the March-to-April time frame and we would need substantially all the infrastructure we had at the beginning of the year. Therefore, our decision was to incur some of these costs in the first half of fiscal 2001 in order to be positioned to meet the requirements of these anticipated new orders.

As has been stated in previous press releases, these anticipated orders continued to slip and on two significant programs we received contract closure notifications. As these phenomena started occurring, we realized that we would need to down size our infrastructure. As we have also said in previous press releases, the downsizing consists of eliminating some real property, turning back some leased buildings, reducing capital spending, reducing research and development spending and reducing staff."

Mr. Yancey went on to say, "We feel the reductions are adequate to support our return to profitable operations next fiscal year and we are anticipating growth into the foreseeable future. Much of this anticipated growth will be supported by our expansion into the tactical signal reconnaissance marketplace." 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, including statements as to beliefs concerning delays in awarding contracts, the impact of such order delays, anticipated revenue reductions, the impact of fiscal year 2001 cost reductions, the Company's return to profitability, including the steps it may take, the programs and markets it will emphasize, when a return to profitability might occur, where the Company will be at year end, and beliefs concerning expansion into the tactical signal reconnaissance marketplace are forward-looking statements. These risks and uncertainties include whether engineering development orders will be issued by procurers, including the U. S. Government, whether the Company will be successful in obtaining contracts for these orders if they are forthcoming and when such orders may be forthcoming and awarded; the effect that staff reductions will have on the Company's costs; the effect that contract closeout notifications will have on future programs or contracts; the Company's ability to return to profitability in fiscal year 2002; the Company's ability to experience revenue growth in fiscal year 2002 and what the rate of any revenue growth might be; the ability to develop and commercialize new products; whether the Company will be able to expand into the tactical signal reconnaissance marketplace; 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, 2000.

                       APPLIED SIGNAL TECHNOLOGY
                 CONDENSED CONSOLIDATED BALANCE SHEETS
                            (in thousands)
ASSETS
                                 August 3,  October 31,
                                   2001        2000
                                (unaudited)
Current assets:
  Cash                          $   5,385  $  14,478
  Short term investments             --        2,029
  Accounts receivable              24,441     32,223
  Inventory                        10,476     10,376
  Refundable Income Taxes           2,472       --
  Prepaids and other
   current assets                   3,618      3,474
                                ---------  ---------
         Total current assets      46,392     62,580

Property and equipment,
 at cost                           58,238     54,385
Accumulated depreciation
 and amortization                 (37,623)   (33,871)
                                ---------  ---------
Net property and equipment         20,615     20,514

Long Term Investments                --        1,997
Other assets                          298         58

Total assets                    $  67,305  $  85,149
                                =========  =========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Accounts payable, accrued
   payroll and benefits         $   5,894  $  9,352
  Other accrued liabilities         2,368     2,464
  Income taxes payable                 --     2,506
                                ---------  --------
   Total current liabilities        8,262    14,322

Deferred income taxes                  70        70

Shareholders' equity               58,973    70,757
                                ---------  --------
Total liabilities and
 shareholders' equity           $  67,305  $ 85,149
                                =========  ========

                    APPLIED SIGNAL TECHNOLOGY, INC.
              CONDENSED CONSOLIDATED STATEMENTS OF INCOME
        FOR THE PERIODS ENDING AUGUST 3, 2001 AND JULY 28, 2000
                              (Unaudited)
                 (In thousands except per share data)

                          Three Months Ended        Nine Months Ended
                           August 3,   July 28,    August 3,  July 28,
                            2001         2000        2001       2000

Revenues from contracts   $ 15,396    $ 25,173   $  54,683    $ 78,988
Operating expenses:
 Contract costs             16,234      19,290      43,810      52,493
 Research and
  development                3,426       4,133      12,741       9,688
 General and
  administrative             3,618       4,212      13,855      12,684
 Reorganization Costs        1,584        --         2,261        --
                          --------    --------    --------    --------
Total operating expenses    24,862      27,635      72,667      74,865
                          --------    --------    --------    --------

Operating income (loss)     (9,466)     (2,462)    (17,984)      4,123
Interest income/
 (expense), net                 71         233         330         775
                          --------    --------    --------    --------
Income (loss) before
 provision for taxes
 on income (loss)           (9,395)     (2,229)    (17,654)      4,898
Provision for taxes
 on income (loss)           (2,631)     (1,680)     (4,943)      1,028
                          --------    --------    --------    --------

Net income (loss)         $ (6,764)   $   (549)   $(12,711)   $  3,870
                          ========    ========    ========    ========
Earnings per share
  - basic           *     ($  0.71)   ($  0.06)   ($  1.36)   $   0.44
Average shares
  - basic                    9,520       8,889       9,359       8,730

Earnings per share
 - diluted         **     ($  0.71)   ($  0.06)   ($  1.36)   $   0.43
Average shares
 - diluted                   9,520       8,889       9,359       9,028


* - "Basic " earnings per share is calculated by dividing net income
(loss) applicable to common shares by weighted average common shares
outstanding.

** - "Diluted" earnings per share is calculated by dividing net income
(loss) by weighted common shares outstanding plus the dilutive effect
of common shares issuable upon exercise or conversion of outstanding
options, warrants, and convertible securities.