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The good news for



investors is that the company didn't drop any accounting bombshells Wednesday.

Yes, CEO Edward Breen slashed fourth-quarter earnings guidance by 30% and warned of a $2.5 billion writedown. He also said the company is looking for ways to bridge a funding shortfall that looms on the horizon, and that Tyco plans to grow organically, rather than via acquisition, as it seeks to put its past behind it.

But Tyco investors, rattled by endless reports of insider looting and fears that an internal probe will unearth evidence of accounting shenanigans, shrugged off the dismal projections. They instead embraced the absence of new scandals, pushing the stock up 43 cents to $14.02. Most notable to the bulls' way of thinking, Tyco said an in-depth investigation had yet to uncover any material accounting problems. The probe is about 40% done, Tyco said, adding that it expects to complete the inquiry by late fall.

"We've already gone through the major transactions," attorney David Boies told investors Wednesday. "If there was something in there that was going to be very serious and material, I think we would have an indication of that by now."

Rumbling Bears

Some industry observers shared little of the market's relief, however, saying that investors now appear all too eager to believe that the troubled conglomerate enjoys a clean slate.

One Wall Street analyst said he believes that the 40%-complete figure -- the source of much of Wednesday's optimism -- refers not to the company's probe of its accounting but to a much broader internal inquiry. That umbrella investigation includes both the closely watched accounting probe and Boies' report, released last week, on the details of millions of dollars the company forked out to the discredited former management led by Dennis Kozlowski.

"The forensic accounting investigation has just begun," the analyst warned. "There are a lot of 'ifs' and 'buts' still out there."

In the meantime, Tyco is scrambling to address a $1.5 billion funding gap before next year. Breen said he's been in regular contact with Tyco's bankers and expressed confidence that a funding solution will be reached.

On that score as well, some bears are questioning Tyco's likelihood of success. Absent a refinancing, they say, Tyco will be faced with the expensive proposition of issuing new debt with a subinvestment grade rating. Or it can unload some of its larger assets and face massive writedowns -- and possible covenant violations -- as a result.

In its latest quarterly report, Tyco listed $33 billion worth of goodwill and intangible assets on its books. That figure represents nearly half of the company's assets in total.

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If Tyco were to unload its plastics division, for example, it could face a $5 billion write-off that would materially increase its debt-to-capitalization ratio.

"The company clearly states, in its regulatory filings, that ... a goodwill impairment charge could put them in violation of bank agreements," said Peter Cohan, a Massachusetts author and investment strategist with no stake in the company.

Troubled Tycom

Already, Tyco has announced a massive writedown related to the restructuring of Tycom, its troubled underwater cable operation.

That charge, ranging from $2 billion to $2.5 billion, will whack away at fourth-quarter numbers. But Breen assured analysts that Tyco is in no danger of violating its bank covenants.

"We have about $11 billion of cushion, with cash on hand," Breen said. "We have a lot of room.

"We've looked at other impairments, but we don't feel that any big

ones are coming up -- this quarter."

Lower Guidance

Even before the charge, Tyco expects fourth-quarter numbers to be weak.

The company has lowered its earnings guidance to between 30 cents and 33 cents a share, shaving nearly one-third from earlier projections of 45 cents and 47 cents a share. Breen blamed most of the shortfall on a higher tax rate, which climbed from 18% to 22% and cost Tyco 8 cents a share for the year. He attributed the remaining reduction to growing weakness in Tyco's electronics division, particularly in telecommunications, and an intentional cutback in the security dealer division that was taken to preserve cash.

Breen offered no specific guidance for 2003, saying only that earnings -- sapped even more by higher taxes next year -- should top $1.50 share. Analysts were expecting $2.11 a share.

Going forward, Breen expects Tyco to generate virtually all of its earnings -- at least in the short term -- through organic growth instead of rapid-fire acquisitions. Toward the end of its run, the Kozlowski-led management team was widely criticized on Wall Street for its dependence on acquisitions and the lack of clarity afforded by the company's accounting for those deals.

But the new management's message has consistently been that that's all in the past now. Indeed, Breen expressed confidence that the company, and its stock price, will recover in time.

"I'm in this for the long haul," he said. "We're going to grow this company. And the stock will take care of itself."