Applied Signal Technology, Inc. Announces Plans to Acquire Dynamics Technology, Inc. and Second Quarter Operating Results

Business Wire, May 24, 2005

SUNNYVALE, Calif. -- Applied Signal Technology, Inc. (NASDAQ:APSG) announced it has entered into a definitive agreement to acquire Dynamics Technology, Inc. ("DTI"), a privately-held company headquartered in Torrance, California with offices in Anaheim, California and Arlington, Virginia. DTI is a world-class provider of advanced sensor and signal processing products for advanced space-based, airborne, terrestrial and undersea sensor technologies. The combined company will be a provider of signal processing products and services in support of intelligence, surveillance and reconnaissance for global security.

Applied Signal Technology also announced its operating results for the second quarter of fiscal year 2005 ended April 29, 2005.

Acquisition Plans

Applied Signal Technology has entered into a definitive agreement to acquire DTI for $30 million in cash subject to adjustment based upon DTI's closing balance sheet, plus all cash received by DTI prior to the closing from the exercise of options to acquire DTI common stock. Applied Signal Technology will fund the purchase price from its current investments and from a $10 million term loan from Wells Fargo Bank. The acquisition is expected to close on or about July 1, 2005 subject to DTI shareholder approval.

Regarding the acquisition, Mr. Gary Yancey, President and Chief Executive Officer of Applied Signal Technology, commented, "The acquisition of Dynamics Technology is a first for our company. It fits in with our strategic plan as we believe that diversification into other areas of defense electronics will provide better stability for our company and opportunity for more growth. DTI has a rich technology development pipeline and this acquisition will expand our support of Department of Defense and intelligence community missions, while providing entry to emerging homeland defense missions with practical technology and advanced systems solutions.

"Of course, we started this diversification at the beginning of fiscal year 2005 when we formed the Electronic Systems Division in Allen, Texas to pursue opportunities in Electronics Intelligence or ELINT. We are pleased with the progress we are making with our investments in this ELINT marketplace.

"In our strategic plan, we have set an aggressive goal to enter into new defense electronics business areas that may become a key aspect of our future revenues. Our goal has been to find a business that has opportunities in a marketplace to which our core competencies could enhance growth.

"We believe that, with this acquisition, we are on our way to meeting these strategic goals. DTI brings very good technical solutions to certain intelligence requirements and with our ability to bring state-of-the-art technological signal processing solutions to practical solutions, we believe that DTI's solutions can become fielded solutions."

Mr. Yancey concluded with, "There are no redundancies in staff, facilities, or capital and no restructuring will be required. Both companies are in a growth mode that is anticipated to continue and therefore we anticipate continued growth for the new APSG."

Mr. William Van Vleet, President and Chief Executive Officer of Dynamics Technology, who plans on joining Applied Signal Technology as the Executive Vice-President of the Sensor Signal Processing Group said he sees this acquisition as fulfilling what had been planned in the company's evolution. "We believe this acquisition increases the value to our customers by ensuring sustained access to key technology innovation and enhancing our ability to deliver integrated hardware and software products. APSG has the mature engineering design, development, production and support services to successfully transition our advanced technologies to the user community."

Operating Results

Revenues for the second quarter of fiscal year 2005 were $32,053,000 compared with revenues of $36,811,000 for the second quarter of fiscal year 2004. Revenues for the first six months of fiscal year 2005 were $62,163,000 compared to revenues of $65,105,000 for the first six months of fiscal year 2004. The decrease in revenues for the second quarter and the first six months of fiscal year 2005 when compared to the same period of fiscal year 2004 is due, in part, to less product sales and in part, to a reduction in revenues from our largest contract primarily as a result of the stop work notice we received on a portion of the contract during fiscal year 2004.

Operating income for the second quarter of fiscal year 2005 was $3,727,000 compared with operating income of $4,712,000 for the second quarter of fiscal year 2004. The operating income for the first six months of fiscal year 2005 was $6,999,000 compared with operating income of $7,888,000 for the first six months of fiscal year 2004. The decrease in operating income during the second quarter and the first six months of fiscal year 2005 when compared with the same periods in fiscal year 2004 is due, in part, to a decrease in revenues and in part, to greater program profitability generated from the completion of certain production programs during the second quarter of fiscal year 2004.