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11/13/2006
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CSC: We've Blown $80 Million At Sears And Want Our Money Back

CSC says it has sunk $80 million into building and operating a computing backbone for Sears, but that Sears now wants out of the 10-year outsourcing agreement.

Why wait for the post-holiday rush to get a refund from Sears? Computer Sciences Corp., the nation's third largest tech services provider, said Monday in a regulatory filing that an ongoing dispute with the retailer over a failed outsourcing agreement may force it to take a significant charge against earnings if it can't recover its investments into the deal.

In a document filed with the Securities and Exchange Commission, CSC disclosed that it has sunk $80 million into building and operating a computing backbone for Sears as of September, 2006. The problem: CSC may not recover all of that investment as Sears wants out of the outsourcing agreement, which the companies signed in 2004 to begin what was supposed to have been a 10 year relationship. The deal would have been worth $1.6 billion to CSC.

Last year, Sears sued CSC in an effort to extricate itself from the contract following its merger with Kmart.

Sears and CSC are now trying to work out a settlement, and CSC is continuing to provide the retailer with IT services until that's done. However, it's not certain whether CSC will recoup all or part of the money it's spending on software, hardware and labor while running Sears' technology operations.

"The company will vigorously pursue recovery for its associated assets and commitments. While the company expects full recovery of its investments associated with this agreement, if unsuccessful, the company may experience a charge, which could be material, associated with the impairment of these assets," CSC said in Monday's filing.

Sears' outsourcing contract with CSC was authored in 2004 by former Sears CIO Gerald Kelly. Kelly, however, was ousted in 2005 following the merger of Sears and Kmart. Kmart CIO Karen Austin was given the top technology post at the combined company.

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