Applied Signal Technology, Inc. Reports Fourth Quarter 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						Twelve Months Ended
			October 31,			October 31,			October 31,			October 31,
			2009			2008			2009			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)
ASSETS
			October 31,				October 31,
			2009				2008
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 OCT 09			YTD OCT 08
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