424B3 1 PROS SUPP This Supplement to the Prospectus dated May 2, 1995 is filed pursuant to Rule 424(c) promulgated under the Securities Act of 1933, as amended. SCIENCE APPLICATIONS INTERNATIONAL CORPORATION ------------------------------------------------------------ THE FOLLOWING SUPPLEMENT TO THE PROSPECTUS IS BEING PROVIDED PURSUANT TO REQUIREMENTS SET FORTH BY THE SECURITIES DIVISION OF THE STATE OF INDIANA AND THE SECURITIES DIVISION OF THE STATE OF MARYLAND FOR RESIDENTS OF THOSE TWO STATES. THE COMPANY HAS DECIDED TO PROVIDE THIS PROSPECTUS SUPPLEMENT TO OFFEREES IN ALL STATES. Defined terms used herein shall have the same meaning as such terms have in the Prospectus -------------------------------------------------------------------------------- RISK FACTORS PRIOR TO PURCHASING THE CLASS A COMMON STOCK OFFERED IN THE PROSPECTUS, PURCHASERS SHOULD CAREFULLY CONSIDER ALL OF THE INFORMATION CONTAINED IN THE PROSPECTUS AND IN PARTICULAR SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS: CONCENTRATION OF REVENUE/DEPENDENCE ON GOVERNMENT CONTRACTS Revenues generated from the sale of Technical Services and Products to the U.S. Government as a prime contractor or subcontractor accounted for 86%, 88% and 88% of revenues in fiscal years 1995, 1994 and 1993, respectively. Although the Company has made some progress in its efforts to diversify into non-governmental business, it is still heavily dependent upon business with the U.S. Government. See "The Company." EARLY TERMINATION OF GOVERNMENT CONTRACTS Many of the U.S. Government programs in which the Company participates as a contractor or subcontractor may extend for several years; however, such programs are normally funded on an annual basis. All U.S. Government contracts and subcontracts may be modified, curtailed or terminated at the convenience of the government if program requirements or budgetary constraints change. Termination or curtailment of major programs or contracts of the Company could have a material adverse effect on the results of the Company's operations. Although such contract and program terminations have not had a material adverse effect on the Company in the past, no assurance can be given that curtailments or terminations of U.S. Government programs or contracts will not have a material adverse effect on the Company in the future. See "Government Contracts." AUDITS FOR GOVERNMENT CONTRACTS Contract costs for services or products supplied to the U.S. Government, including allocated indirect costs, are subject to audit and adjustments by negotiations between the Company and U.S. Government representatives. The majority of the Company's indirect contract costs have been agreed upon through the fiscal year ended January 31, 1991 and substantially all of the Company's indirect costs have been agreed upon through the fiscal year ended January 31, 1990. Contract revenues for subsequent years have been recorded in amounts which are expected to be realized upon final settlement. However, no assurance can be given that audits and adjustments for subsequent years will not result in decreased revenues or profits for those years. See "Government Contracts." FIXED PRICE CONTRACT EXPOSURE During the fiscal years ended January 31, 1995, 1994 and 1993, approximately 13%, 12% and 16%, respectively, of the Technical Services revenues were from firm fixed-price type contracts, while the majority of Products revenues in these three years were derived from such contracts. Because the Company assumes the risk of performing a firm fixed-price contract at the stipulated price, the failure to accurately estimate ultimate costs or to control costs during performance of the work could result, and in some instances has resulted, in losses. See "Government Contracts." 1 AT RISK COSTS Any costs incurred by the Company prior to the execution of a contract or contract amendment are incurred at the Company's risk, and it is possible that such costs will not be reimbursed by the customer. Although the Company expects to recover substantially all such costs, no assurance can be given that the contracts or contract amendments will be received or that the related costs will be recovered. See "Government Contracts." LEGAL PROCEEDING The Company is involved in a lawsuit in which the U.S. Government is investigating whether the Company made false statements and false claims to the Department of Defense in connection with three contracts being performed by the SAIT operating unit of the Company, and whether the Company committed conspiracy to commit such offenses. At this stage of the proceedings, the Company is unable to assess the impact, if any, of this investigation and lawsuit on its consolidated financial position, results of operations or ability to conduct business. See "Government Contracts." ABSENCE OF A PUBLIC MARKET There is no public market for the Common Stock. The Company and the trustees of the Company's employee benefit plans are currently authorized, but not obligated, to purchase shares of Class A Common Stock in the Limited Market on any Trade Date, but only if and to the extent that they, in their discretion, determine to make such purchases. To the extent that purchases by the trustees of the Company's employee benefit plans or by the Company are not sufficient, the ability of stockholders to resell their shares in the Limited Market will likely be adversely affected. No assurance can be given that a stockholder desiring to sell all or a portion of his or her shares of the Company's Class A Common Stock in any trade will be able to do so. See "Market Information -- The Limited Market." FORMULA PRICE The offering price and the price at which the Class A Common Stock trades in the Limited Market are, and subsequent prices will be, determined by means of a formula and valuation process as described in the Prospectus. See "Market Information -- Price Range of Class A Common Stock and Class B Common Stock." NO CASH DIVIDENDS The Company has never declared or paid any cash dividends on its capital stock and no cash dividends on the Class A Common Stock or Class B Common Stock are contemplated in the foreseeable future. The Company's present intention is to retain any future earnings for use in its business. See "Dividend Policy." RESTRICTIONS ON CLASS A COMMON STOCK All of the shares of Class A Common Stock presently outstanding are, and all shares of Class A Common Stock offered hereby will be, subject to certain restrictions (including restrictions on their transferability) set forth in the Company's Certificate of Incorporation. See "Description of Capital Stock -- Common Stock -- Restrictions on Class A Common Stock." ANTI-TAKEOVER EFFECTS Certain provisions of the Company's Certificate of Incorporation and Bylaws may discourage, delay, or prevent attempts to acquire control of the Company that are not negotiated with the Company's Board of Directors. The provisions may, individually or collectively, have the effect of discouraging takeover attempts that some stockholders might deem to be in their best interests, including tender offers in which stockholders might receive a premium for their shares over the Formula Price available in the Limited Market, as well as making it more difficult for individual stockholders or a group of stockholders to elect directors. However, the Board of Directors believes that these provisions are in the best interests of the Company and its stockholders, because such provisions may encourage potential acquirors to negotiate directly with the Board of Directors, which is in the best position to act on behalf of all stockholders. See "Description of Capital Stock -- Anti-Takeover Effects." 2