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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

Commission file number 1-12139

SEALED AIR CORPORATION
(Exact name of registrant as specified in its charter)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ý    No o

        The aggregate market value of the registrant's Common Stock held by non-affiliates of the registrant on June 30, 2004 was approximately $4,398,000,000.

        The number of outstanding shares of the registrant's Common Stock as of February 28, 2005 was 83,706,288.

        DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant's definitive proxy statement for its 2005 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K.

SEALED AIR CORPORATION AND SUBSIDIARIES
Table Of Contents

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PART I

Item 1.    Business

        Sealed Air Corporation (the "Company"), operating through its subsidiaries, manufactures and sells a wide range of food and protective packaging products.

        The Company conducts substantially all of its business through two direct wholly-owned subsidiaries, Cryovac, Inc. and Sealed Air Corporation (US). These two subsidiaries directly and indirectly own substantially all of the assets of the business and conduct operations themselves and through subsidiaries around the globe. References herein to the Company include, collectively, the Company and its subsidiaries, except where the context indicates otherwise.

Segments

        The Company operates in two reportable business segments: (i) Food Packaging and (ii) Protective Packaging, described more fully below. Information concerning the Company's reportable segments appears in Note 3 of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K, which information is incorporated herein by reference.

Food Packaging Products

        The Company's principal food packaging products are flexible materials, associated packaging equipment systems, rigid containers and absorbent pads. These products package a broad range of perishable foods and are marketed globally. The Company primarily sells the products in this segment to food processors, distributors, supermarket retailers and food service businesses.

Flexible Materials and Related Systems

        The Company produces a variety of high-performance proprietary flexible bags, films and laminates, and associated packaging equipment systems, marketed and sold primarily under the Cryovac® trademark. Customers use these products to package a broad range of perishable foods such as fresh meat and poultry, smoked and processed meat, cheese, produce, seafood, baked goods, and processed and prepared foods such as soups, condiments and sauces for restaurants and institutions.

        The Company's principal food packaging materials offerings are bags, films and laminates. The bags and films are co-extruded, multi-layered materials that, when exposed to heat, mold themselves to the shape of the product. Laminated films are multi-layered, generally non-shrinkable plastic materials used to package perishable foods and shelf-stable products such as syrups and toppings. The Company generally produces films and bags in barrier and permeable forms, depending on the extent to which customers want oxygen or other gases to pass through the material. For fresh-cut produce, the Company produces films that permit gases to pass through at various rates, matching the varying respiration rates of different vegetables, thereby extending shelf life. The Company also offers films, tubing and connectors for use in manufacturing containers and pouches for a wide variety of medical applications. These medical packaging products are manufactured using technology comparable to that used to manufacture the Company's food packaging products and are similar in form to those products.

        The Company's principal food packaging equipment offerings are rotary chamber vacuum systems, vertical form-fill-seal systems, dispensing equipment, manual and automated loading units, shrink tunnels, bagging systems and auxiliary equipment. This equipment may be installed to package foods in shrink, vacuum or vacuum skin packages, which can utilize the Company's films and bags. Form-fill-seal units are used to package foods in pouches, which can be made using the Company's films and laminates. The Company markets systems to the food processing industry under the Cryovac® trademark and other trademarks. The Company's case ready packaging customers, principally meat and poultry processors, purchase trays and pads as discussed below, specially designed films, and packaging

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equipment to package consumer cuts of meat and poultry products at a central location prior to shipment to the supermarket. Case ready packages are ready for the meat case upon arrival at the retail store.

Rigid Packaging and Absorbent Pads

        The Company sells foam and solid plastic trays and containers that customers use to package a wide variety of food products. The Company manufactures such products in its own facilities in various regions or has them fabricated by other manufacturers. Food processors and supermarkets use these products to protect and display fresh meat, poultry, dairy, produce and other food products. The Company also manufactures and sells absorbent pads used for food packaging, such as its Dri-Loc® absorbent pads.

Protective Packaging Products

        The Company's principal protective packaging products provide cushioning, surface protection and void fill. The Company sells its protective packaging products and systems to distributors and manufacturers in a wide variety of industries. The products in this segment enable end users to provide a high degree of protection in packaging their items by means of cushioning or surface protection, or a combination thereof, as well as void fill.

Cushioning and Surface Protection Products

        The Company manufactures and markets Bubble Wrap® and AirCap® air cellular packaging materials, which consist of air encapsulated between two layers of plastic film, each containing a barrier layer to retard air loss. This material forms a pneumatic cushion to protect products from damage through shock or vibration during shipment. A recent product offering is the Company's Inflatable Bubble Wrap® packaging system, which provides on-site, on-demand packaging. Another recent innovation is the Company's PriorityPak™ System, a high-speed product containment and protective packaging solution with advanced sensor technology. Also, the Company sells performance shrink films under the Cryovac®, Opti® and CorTuff® trademarks for product display and merchandising applications. Customers use these films to "shrink-wrap" a wide assortment of industrial and consumer products. The Company offers Shanklin® and Opti® shrink packaging systems for these applications. The Company's Instapak® polyurethane foam packaging systems (which consist of proprietary blends of polyurethane chemicals, high performance polyolefin films and specially designed dispensing equipment) provide protective packaging for a wide variety of products. The Company generally sells CelluPlank® plank foams and Stratocell® laminated polyethylene foams to fabricators and converters for packaging and non-packaging applications. The Company also manufactures thin polyethylene foams in roll and sheet form under the trademarks Cell-Aire® and Cellu- Cushion®. Korrvu® packaging is the Company's suspension and retention packaging offering. In addition, the Company makes insulation products with foil-laminated air cellular materials.

        The Company manufactures and markets Jiffy® protective mailers and other durable mailers and bags in several standard sizes. The Company's principal protective mailers are lightweight, tear-resistant mailers marketed under various trademarks, including Jiffylite®, Mail Lite™ and TuffGard®, lined with air cellular cushioning material, as well as the widely used Jiffy® padded mailers made from recycled kraft paper padded with macerated recycled newspaper. The Company's durable mailers and bags, composed of multi-layered polyolefin film, are lightweight, water-resistant and puncture-resistant and are available in tamper-evident varieties. The Company markets these mailers and bags under the ShurTuff®, Trigon®, Lab Pak®, and Keepsafe® trademarks and other brands. The Company also manufactures and sells paper packaging products under the trademarks Kushion Kraft®, Custom Wrap™, Jiffy Packaging™ and Void Kraft™.

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        The Company also offers inflatable packaging systems. Its Fill-Air® inflatable packaging system converts rolls of polyethylene film into continuous perforated chains of air-filled cushions. The Company's Fill-Air® RF system consists of a compact, portable inflator and self-sealing inflatable plastic bags. The Company produces and markets converting systems that convert some of the Company's packaging materials, such as air cellular cushioning materials, thin polyethylene foam and paper packaging materials, into sheets of a pre-selected size and quantity or, for the Company's recycled kraft paper, into paper dunnage material.

Other Products

        The Company manufactures and sells a number of other products, such as specialty adhesive tapes, solar collectors and covers for swimming pools, and products related to the elimination and neutralization of static electricity. The Company also manufactures recycled kraft paper and loose-fill polystyrene packaging.

Foreign Operations

        The Company operates in the United States and in 50 other countries, and its products are distributed in those countries as well as in other parts of the world. In maintaining its foreign operations, the Company faces risks inherent in these operations, such as those of currency fluctuations. Information on currency exchange risk appears in Part II, Item 7A of this Annual Report on Form 10-K, which information is incorporated herein by reference. Financial information about geographic areas setting forth net sales and total long-lived assets for each of the years in the three-year period ended December 31, 2004 appears in Note 3 of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K, which information is incorporated herein by reference.

Marketing, Distribution and Customers

        The Company's global sales and marketing staff numbers approximately 2,600 employees, who sell and market the Company's products to and through a large number of distributors, fabricators and converters, as well as directly to end users such as food processors, food service businesses, and manufacturers.

        To support its food packaging customers, the Company operates food science laboratories that assist customers in identifying the appropriate food packaging materials and systems to meet their needs. The Company also offers customized graphic design services to its customers.

        To assist its marketing efforts for its protective packaging products and to provide specialized customer services, the Company operates packaging laboratories in many of its facilities. These laboratories are staffed by professional packaging engineers and equipped with drop-testing and other equipment used to develop and test cost-effective package designs to meet the particular protective packaging requirements of each customer.

        The Company has no material long-term contracts for the distribution of its products. In 2004, no customer or affiliated group of customers accounted for 10% or more of the Company's consolidated net sales.

        Although net sales of both food packaging products and protective packaging products tend to be slightly higher in the fourth quarter, the Company does not consider seasonality to be material to its consolidated business.

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Competition

        Competition for most of the Company's packaging products is based primarily on packaging performance characteristics, service and price. Since competition is also based upon innovations in packaging technology, the Company maintains ongoing research and development programs to enable it to maintain technological leadership. There are other companies producing competing products that are well established and may have greater financial resources than the Company.

        There are other manufacturers of food packaging products, some of which are companies offering similar products that operate on a global basis and others that operate in a region or single country. Competing manufacturers produce a wide variety of food packaging based on plastic, paper, metals and other materials. The Company believes that it is one of the leading suppliers of flexible food packaging materials and related systems in the principal geographic areas in which it offers those products and one of the leading suppliers of absorbent pads for food products to supermarkets and to meat and poultry processors in the United States.

        The Company's protective packaging products compete with similar products made by other manufacturers and with a number of other packaging materials that customers use to provide protection against damage to their products during shipment and storage. Among the competitive materials are various forms of paper packaging products, expanded plastics, corrugated die cuts, loosefill packaging materials, strapping, envelopes, reinforced bags, boxes and other containers, and various corrugated materials. The Company's Instapak® packaging and its plank and laminated foam products also compete with various types of molded foam plastics, fabricated foam plastics, mechanical shock mounts, and wood blocking and bracing systems. The Company believes that it is one of the leading suppliers of air cellular cushioning materials containing a barrier layer, shrink films for industrial and commercial applications, protective mailers, polyethylene foam and polyurethane foam packaging systems in the principal geographic areas in which it sells these products.

Raw Materials

        The raw materials for the Company's products generally have been readily available on the open market and in most cases are available from several suppliers. Some materials used in the Company's protective packaging products are reprocessed from scrap generated in the Company's manufacturing operations or obtained through participation in recycling programs. The principal raw materials used in both of the Company's reportable business segments are polyolefin and other petrochemical-based resins and films, and paper and wood pulp products. The Company also purchases corrugated materials, cores for rolls of products such as films and Bubble Wrap® cushioning, inks for printed materials, and blowing agents used in the expansion of foam packaging products. In addition, the Company offers a wide variety of specialized packaging equipment, some of which it manufactures or has manufactured to its specifications, some of which it assembles and some of which it purchases from other suppliers.

Product Development

        The Company maintains a continuing effort to develop new products and to improve its existing products and processes, including developing new packaging and non-packaging applications for its products. From time to time, the Company also acquires and commercializes new packaging designs or techniques developed by others. The Company has joint research and development projects combining the technical capabilities of its food packaging operations and its protective packaging operations. The Company spent $73.2 million for Company-sponsored research and development in 2004, compared with $69.0 million during 2003, and $59.3 million during 2002.

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Patents and Trademarks

        The Company is the owner or licensee of a number of United States and foreign patents, patent applications, trademarks and trademark registrations that relate to many of its products, manufacturing processes and equipment. The Company believes that its patents and trademarks collectively provide a competitive advantage. Neither of the Company's reportable segments, however, is dependent upon any single patent or trademark alone. Rather, the Company believes that its success depends primarily on its marketing, engineering and manufacturing skills and on its ongoing research and development efforts. The Company believes that the expiration or unenforceability of any of its patents, applications, licenses or trademark registrations would not be material to the Company's business or financial position.

Environmental Matters

        As a manufacturer, the Company is subject to various laws, rules and regulations in the countries, jurisdictions and localities in which it operates covering the release of materials to the environment, regarding standards for the treatment, storage and disposal of solid and hazardous wastes or otherwise relating to the protection of the environment. The Company reviews environmental laws and regulations pertaining to its operations and believes that compliance with current environmental laws and regulations has not had a material effect on the Company's capital expenditures or financial position.

        In some jurisdictions in which the Company's packaging products are sold or used, laws and regulations have been adopted or proposed that seek to regulate, among other things, recycled or reprocessed content and sale or disposal of packaging materials. In addition, customer demand continues to evolve for packaging materials that are viewed as being "environmentally sound" and that minimize the generation of solid waste. While these issues can be a competitive factor in the marketplace for packaging materials, the Company maintains programs designed to comply with these laws and regulations, to monitor their evolution, and to meet this customer demand. These issues can be a competitive advantage for the Company given the inherent source reduction benefits of many of its processes and products. One advantage inherent in many of the Company's products is that thin, lightweight packaging solutions reduce customer waste in comparison to available alternatives.

        The Company also supports its customers' interest in eliminating waste by offering or participating in collection programs for some of the Company's products or product packaging and for materials used in some of the Company's products. When possible, materials collected through these programs are reprocessed and either reused in the Company's protective packaging operations or offered to other manufacturers for use in other products.

Employees

        As of December 31, 2004, the Company had approximately 17,600 employees worldwide. Approximately 8,200 of those employees were in the U.S., with approximately 490 of those covered by collective bargaining agreements. Of the approximately 9,400 Company employees who were outside the U.S., approximately 6,700 were covered by collective bargaining agreements. Outside of the U.S., many of the covered employees are represented by works councils or industrial boards, as is customary in the jurisdictions in which they are employed. The Company believes that its employee relations are satisfactory.

Available Information

        The Company's Internet address is www.sealedair.com. The Company makes available, free of charge, on or through its web site at www.sealedair.com, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or

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furnished under Section 13 or 15(d) of the Securities Exchange Act of 1934, known as the Exchange Act, as soon as reasonably practicable after the Company electronically files these materials with, or furnishes them to, the Securities and Exchange Commission.

Item 2.    Properties

        As of December 31, 2004, the Company produced products in 121 manufacturing facilities, with 21 of those facilities serving both its Food Packaging and Protective Packaging business segments. The Company produced food packaging products in 49 manufacturing facilities, of which 15 were in North America, 15 in the European region, 7 in Latin America, 10 in the Asia Pacific region, and 2 in Africa. The Company produced protective packaging products in 93 manufacturing facilities, of which 39 were in North America, 26 in the European region, 11 in Latin America, 15 in the Asia Pacific region, and 2 in Africa. The Company occupies other facilities containing sales, distribution, technical, warehouse or administrative functions at a number of locations in the United States and in various foreign countries.

        In the United States, the Company manufactures food packaging products at facilities in Arkansas, Indiana, Iowa, Mississippi, Missouri, New York, North Carolina, Pennsylvania, South Carolina and Texas. It manufactures protective packaging products at facilities in California, Connecticut, Florida, Illinois, Indiana, Massachusetts, Mississippi, Missouri, New Jersey, New York, North Carolina, Pennsylvania, South Carolina, Texas and Washington. Because of the light but bulky nature of the Company's air cellular, polyethylene foam and protective mailer products, the Company realizes significant freight savings by locating manufacturing facilities for these products near its customers and distributors.

        The Company owns the large majority of its manufacturing facilities. Some of these facilities are subject to secured or other financing arrangements. The Company also leases sites for warehouse and office needs, as well as for the balance of its manufacturing facilities, which are generally smaller sites. The Company's manufacturing facilities are usually located in general purpose buildings that house the Company's specialized machinery for the manufacture of one or more products. The Company believes that its manufacturing, warehouse and office facilities are well maintained, suitable for their purposes and adequate for the Company's needs.

Item 3.    Legal Proceedings

        The information set forth in Part II, Item 8 of this Annual Report on Form 10-K in Note 19 under the captions "Cryovac Transaction" and "Contingencies Related to the Cryovac Transaction" is incorporated herein by reference.

        At December 31, 2004, the Company was a party to, or otherwise involved in, several federal, state and foreign environmental proceedings and private environmental claims for the cleanup of "Superfund" sites under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 and other sites. The Company may have potential liability for investigation and cleanup of some of these sites. It is the Company's policy to accrue for environmental cleanup costs if it is probable that a liability has been incurred and if the Company can reasonably estimate an amount or range of costs associated with various alternative remediation strategies, without giving effect to any possible future insurance proceeds. As assessments and cleanups proceed, the Company reviews these liabilities periodically and adjusts its reserves as additional information becomes available. At December 31, 2004, environmental related reserves were not material to the Company's financial condition or results of operations. While it is often difficult to estimate potential liabilities and the future impact of environmental matters, based upon the information currently available to the Company and its experience in dealing with these matters, the Company believes that its potential future liability with respect to these sites is not material to the Company's consolidated results of operations or consolidated balance sheets.

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        The Company is also involved in various other legal actions incidental to its business. The Company believes, after consulting with counsel, that the disposition of these other legal proceedings and matters will not have a material effect on the Company's consolidated results of operations or consolidated balance sheets.

Item 4.    Submission of Matters to a Vote of Security Holders

        No matters were submitted to a vote of the Company's stockholders during the fourth quarter of 2004.

Executive Officers of the Registrant

        The information appearing in the table below sets forth the current position or positions held by each executive officer of the Company, the officer's age as of February 28, 2005, the year in which the officer was first elected to the position currently held with the Company or with the former Sealed Air Corporation, now known as Sealed Air Corporation (US) and a wholly-owned subsidiary of the Company, and the year in which such person was first elected an officer thereof (as indicated in the footnote to the table).

        All of the Company's officers serve at the pleasure of the Board of Directors. The Company or its subsidiaries have employed all officers for more than five years except for Mr. Kelsey, who first was elected an officer of the Company effective January 1, 2002, and Mr. Crosier, who was first elected an officer effective October 1, 2004. Previously, Mr. Kelsey was, since 1998, Vice President and Chief Financial Officer of Oglebay Norton Company, a public company that mines, processes, transports and markets aggregates and industrial minerals. Mr. Crosier was previously Partner—Supply Chain, Logistics, Operations Practice of C.F.A. & Associates, a privately-held advisor to small/medium sized businesses on domestic and international growth opportunities, from January 2002 through July 2004, and prior to that was Executive Vice President, Supply Chain Management and Logistics, for Staples Inc., a public company and retailer of office supplies, furniture, technology and services, from June 1998 until December 2001.

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        There are no family relationships among any of the Company's officers or directors.

*

All persons listed in the table who were first elected officers before 1998 were executive officers of the former Sealed Air Corporation, now known as Sealed Air Corporation (US), prior to the Cryovac transaction in March 1998. Mr. Hickey was first elected President in 1996, first elected Chief Executive Officer in 2000 and first elected a director in 1999. Mr. Kelsey was first elected Senior Vice President in 2003 and first elected Chief Financial Officer in 2002. Ms. White was first elected Vice President in 2003, first elected General Counsel in 1998, and first elected Secretary in 1996.

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Part II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

        The Company's Common Stock is listed on the New York Stock Exchange under the trading symbol SEE. The table below sets forth the quarterly high and low sales prices of the Common Stock for 2003 and 2004 as reported in the New York Stock Exchange composite listing. No dividends were paid on the Common Stock in either year. The Company does not currently intend to begin paying dividends on its Common Stock. As of February 28, 2005, there were approximately 8,701 holders of record of the Company's Common Stock.

        As of December 31, 2004 and 2003, there were no shares of Series A convertible preferred stock authorized or outstanding, due to the redemption of all of the Company's outstanding shares of the preferred stock on July 18, 2003 at their redemption price of $51.00 per share, plus dividends of $0.0944 per share accrued on these shares from July 1, 2003 through July 17, 2003. The preferred stock was listed on the New York Stock Exchange prior to its redemption under the trading symbol SEE PrA. The table below sets forth the quarterly high and low sales prices for the preferred stock for 2003 as reported in the New York Stock Exchange composite listing. The Company paid quarterly dividends of $0.50 per share on the preferred stock for each quarter through the second quarter of 2003.

Common Stock

Preferred Stock

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Issuer Purchases of Equity Securities

        The table below sets forth the total number of shares of the Company's common stock, par value $0.10 per share, that the Company repurchased in each month of the quarter ended December 31, 2004. As indicated below, the Company did not repurchase any shares during that quarter as part of publicly announced plans or programs. The maximum number of shares that may yet be purchased under the Company's plans or programs is set forth below.

(1)

The Company did not purchase any shares during the quarter ended December 31, 2004 pursuant to its publicly announced program (described below and under the caption "Repurchases of Capital Stock" in "Management's Discussion and Analysis of Financial Position and Results of Operations"). Pursuant to the repurchase option provision of its contingent stock plan, during the months of October, November and December 2004, the Company repurchased 250, 500 and 1,500 shares, respectively, of the Company's common stock. Pursuant to the provision of its contingent stock plan which permits tax withholding obligations or other legally required charges to be satisfied by having the Company withhold shares from an award under the plan, the Company withheld 917 and 3,784 shares in October and December 2004, respectively.

(2)

The price calculations in this column represent the closing prices of the Company's common stock as reported in the New York Stock Exchange composite listing on the respective dates the relevant shares were withheld in accordance with the tax-withholding provision of the Company's contingent stock plan. The price calculations do not include the above-mentioned shares of the Company's common stock repurchased by the Company pursuant to the repurchase option provision of its contingent stock plan. In accordance with the repurchase option, the Company repurchased those shares at the issue price of the shares, which was $1.00 per share.

(3)

On June 29, 1998, the Company announced that its Board of Directors had authorized the purchase of up to five percent of the Company's then issued and outstanding capital stock on an as-converted basis. On April 14, 2000, the Company announced that its Board of Directors had authorized the purchase of up to an additional five percent of the Company's issued and outstanding capital stock as of March 31, 2000 on an as-converted basis. On November 3, 2000, the Company announced that its Board of Directors had authorized the purchase of up to an additional five percent of the Company's issued and outstanding capital stock as of October 31, 2000 on an as-converted basis. At the time of these authorizations, the Company's capital stock comprised its common stock and its Series A convertible preferred stock. Prior to its redemption in July 2003, each share of the Company's Series A convertible preferred stock was convertible

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into 0.885 shares of the Company's common stock. These authorizations compose a single program, which has no set expiration date. As of the close of business on December 31, 2004, approximately 16,977,000 shares of the Company's common stock were authorized to be repurchased under this program, approximately 11,897,000 shares had been repurchased (including preferred shares on an as-converted basis), leaving approximately 5,080,000 shares of common stock authorized for repurchase under the program.

Item 6.    Selected Financial Data

(1)

In November 2002, the Company reached an agreement in principle with the appropriate parties to resolve all current and future asbestos-related claims made against it and its affiliates in connection with the Cryovac transaction. The parties signed a definitive settlement agreement as of November 10, 2003 consistent with the terms of the agreement in principle. In connection with this settlement, the Company recorded a pre-tax charge of $850.1 million in the consolidated statement of operations in 2002, which resulted in the Company's net loss for the year ended December 31, 2002. See Note 19 to the Consolidated Financial Statements.

(2)

Beginning January 1, 2002, in accordance with Statement of Financial Accounting Standards ("SFAS") No. 142, the Company stopped recording amortization expense related to goodwill. Goodwill amortization expense was $57.0 million in 2001 and $51.8 million in 2000. See Note 8 to the Consolidated Financial Statements.

(3)

In the fourth quarter of 2004, the Company incurred restructuring and other charges of $33.0 million relating to global profit improvement initiatives implemented to improve the Company's operating efficiencies and cost structure. In 2001, the Company recorded restructuring charges of $32.8 million. See Note 11 to the Consolidated Financial Statements.

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(4)

In July 2003, the Company issued a total of $1,281.3 million of senior notes. On July 18, 2003, the Company used the net proceeds from these offerings and additional cash on hand, approximately $1,298.1 million in the aggregate, to redeem its Series A convertible preferred stock at the redemption price of $51.00 per share. See Note 16 to the Consolidated Financial Statements.

(5)

The Company has retroactively applied EITF Issue No. 04-08, "The Effect of Contingently Convertible Debt on Diluted Earnings per Share," which requires that the dilutive effect of contingent convertible debt, such as the Company's 3% convertible senior notes due June 2033, which were issued in July 2003, be included in dilutive earnings per common share regardless of whether the contingency permitting holders to convert the debt into shares has been satisfied. See Note 18 to the Consolidated Financial Statements.

(6)

In December 2001, the Company and a group of its U.S. subsidiaries entered into a U.S. accounts receivable securitization facility and sold $95.6 million of interests in U.S. accounts receivable to the financial institutions participating in this facility. This amount was removed from the consolidated balance sheet and the proceeds were used to pay down outstanding borrowings. As of December 31, 2004, 2003 and 2002, these financial institutions held no interests in accounts receivable under this facility. See Note 4 to the Consolidated Financial Statements.

(7)

EBIT is defined as earnings (loss) before interest expense and provisions for income taxes. EBITDA is defined as EBIT plus depreciation and amortization. EBIT and EBITDA do not purport to represent net earnings or net cash provided by operating activities, as those terms are defined under generally accepted accounting principles, and should not be considered as an alternative to such measurements or as indicators of the Company's performance. The Company's definitions of EBIT and EBITDA may not be comparable with similarly-titled measures used by other companies. EBIT and EBITDA are among the indicators used by the Company's management to measure the performance of the Company's operations and thus the Company's management believes such information may be useful to investors. Such measures are also among the criteria upon which performance-based compensation may be based. The following is a reconciliation of net earnings (loss) to EBIT and EBITDA:

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Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

        The information in "Management's Discussion and Analysis of Financial Condition and Results of Operations" should be read together with the Company's consolidated financial statements and related notes set forth in Item 8 of Part II of this Annual Report on Form 10-K. All amounts and percentages are approximate due to rounding.

Introduction

        The Company manufactures and sells a wide range of food and protective packaging products, operating in the United States and in 50 other countries, with products distributed in those countries and in other parts of the world.

        The Company operates in two reportable business segments, Food Packaging and Protective Packaging. The Company's principal food packaging products are flexible materials, associated packaging equipment systems, rigid containers and absorbent pads. These products, many of which bear the Cryovac trademark, package a broad range of perishable foods. The Company primarily sells the products in this segment to food processors, distributors, supermarket retailers and food service businesses.

        The Company's principal protective packaging products provide cushioning, surface protection and void fill. The Company primarily sells its protective packaging products and systems to distributors and manufacturers in a wide variety of industries.

        The Company's global sales and marketing staff numbered approximately 2,600 employees in the countries in which it operates, who sell and market the Company's products through a large number of distributors, fabricators and converters, as well as directly to end users such as food processors, food service businesses, and manufacturers. The Company has no material long-term contracts for the distribution of its products. In 2004, no customer or affiliated group of customers accounted for 10% or more of the Company's consolidated net sales. Although net sales of both food packaging products and protective packaging products have tended to be slightly higher in the fourth quarter, the Company does not consider seasonality to be material to its consolidated business.

        Competition for most of the Company's packaging products is based primarily on packaging performance characteristics, service and price. Competition is also based upon innovations in packaging technology and, as a result, the Company maintains ongoing research and development programs to enable it to maintain technological leadership.

        The Company's net sales are sensitive to developments in its customers' business or market conditions, changes in the global economy, and the effects of foreign currency translation. Its costs can vary significantly with changes in petrochemical-related costs, which are not within the Company's control. Consequently, the Company's management focuses on reducing those costs that the Company can control and using petrochemical-based raw materials as efficiently as possible. The Company also believes that its global presence helps to insulate it from localized changes in business conditions that may more strongly affect some of its competitors.

        As is discussed below, the Company's business generates substantial cash flow. The Company believes that this cash flow will permit it to continue to spend significantly on innovative research and development and to invest in its business by means of acquisitions and capital expenditures for property and equipment. Moreover, its ability to generate substantial cash flow should provide the Company with the flexibility to modify its capital structure as the need or opportunity arises. The Company also believes that this cash flow will enable the Company to make the settlement payment, including interest, that will be required of the Company upon consummation of a plan of reorganization in the W. R. Grace & Co. bankruptcy, as discussed below.

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        Highlights for the Company's year 2004 compared with 2003 and 2002 were:

        Effective January 1, 2004, the Company renamed its two reportable business segments "Food Packaging" and "Protective Packaging." This change reflects the Company's decision to include its medical films, tubing and connectors, which are used with a variety of medical applications, in the segment also containing its food packaging products. These specialty medical products had previously been a part of the segment containing the Company's protective packaging products. In addition, commencing as of January 1, 2004, the Company has allocated the expenses related to the implementation of its global information systems to its reportable business segments rather than reflecting them in unallocated corporate operating expenses. Prior periods have been adjusted to conform to the 2004 presentation.

        For the year ended December 31, 2004, the Company included the amortization of capitalized senior debt issuance costs in interest expense. Previously, the amortization expense was included in administrative expenses. Prior periods have been adjusted to conform to the 2004 presentation.

Net Sales

        The principal factors contributing to changes in net sales in the three years ended December 31, 2004 were changes in unit volume, added net sales of acquired businesses, changes in product mix and average selling prices, and foreign currency translation.

        Net sales in 2004 increased 8% to $3,798.1 million compared with $3,531.9 million in 2003. The components of the increase in net sales for 2004 were as follows (dollars in millions):

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        Net sales for 2003 increased 10% to $3,531.9 million compared with $3,204.3 million in 2002. The components of the increase in net sales for 2003 were as follows (dollars in millions):

        Foreign currency translation had a favorable impact on net sales of $159.4 million in 2004. Excluding the positive effect of foreign currency translation, net sales would have increased 3% compared with 2003. The favorable foreign currency translation impact on net sales in 2004 was primarily due to the strengthening of foreign currencies in Europe and the Asia Pacific region against the U.S. dollar.

        Foreign currency translation had a favorable impact on net sales of $189.5 million in 2003. Excluding the positive effect of foreign currency translation, net sales would have increased 4% compared with 2002. The favorable foreign currency translation impact on net sales in 2003 was primarily due to the strengthening of foreign currencies in Europe and the Asia Pacific region against the U.S. dollar, partially offset by the weakness of the Brazilian real.

        Net sales of the Company's food packaging segment, which consists primarily of the Company's Cryovac® food packaging products, constituted 62%, 63% and 62% of net sales in 2004, 2003 and 2002, respectively.

        The Company's protective packaging segment contributed the balance of net sales. This segment aggregates the Company's protective packaging products and shrink packaging products, all of which are used principally for non-food packaging applications.

Food Packaging Segment Sales

        Net sales of food packaging products increased 6% in 2004 to $2,346.9 million compared with $2,218.6 million in 2003 and increased 12% in 2003 compared with $1,988.0 million in 2002. Foreign currency translation had a favorable impact on this segment of $109.8 million in 2004. Excluding the positive foreign currency translation effect, net sales for this segment would have increased 1% in 2004. Excluding the positive foreign currency translation effect of $129.6 million, net sales for this segment would have increased 5% in 2003.

        In 2004, unit volumes increased in Latin America and to a lesser extent, in Asia Pacific and Europe, partially offset by a decrease in North America. The decrease in North America was due to import restrictions imposed by several countries on U.S. beef products, which adversely affected the sales of food packaging products to the Company's customers that process U.S. beef for export, and challenging U.S. beef market conditions.

17

        Among the classes of products in the food packaging segment, in 2004 net sales of flexible packaging materials and related systems increased 6% to $1,976.5 million compared with $1,868.0 million in 2003 and increased 11% in 2003 compared with 2002 sales of $1,687.1 million. The components of the increase in net sales for 2004 and 2003 were as follows (dollars in millions):

        Foreign currency translation had a favorable impact of approximately $90.5 million in 2004 for flexible materials and related systems. Excluding the positive foreign currency translation effect, net sales for flexible packaging materials and related systems would have increased 1% in 2004. Foreign currency translation had a favorable impact of $109.5 million in 2003 for flexible materials and related systems. Excluding the positive foreign currency translation effect, net sales for flexible packaging materials and related systems would have increased 4% in 2003.

        Net sales of rigid packaging and absorbent pads increased 6% to $370.4 million compared with $350.6 million in 2003 and increased 17% in 2003 compared with 2002 sales of $300.9 million. The Company sells foam and solid plastic trays and containers that customers use to package a wide variety of food products. The Company manufactures such products in its own facilities in various regions or has them fabricated by other manufacturers. The Company's net sales of such products fabricated by other manufacturers were $83.0 million, $70.3 million and $45.1 million in 2004, 2003 and 2002, respectively. The components of the increase in net sales for 2004 and 2003 were as follows (dollars in millions):

        Excluding the $19.3 million positive foreign currency translation effect, net sales of rigid packaging and absorbent pads would have remained flat in 2004 compared with 2003. Foreign currency translation had a favorable impact of $20.1 million in 2003 for rigid packaging and absorbent pads. Excluding the positive effect of foreign currency translation, net sales of rigid packaging and absorbent pads would have increased 10% in 2003.

Protective Packaging Segment Sales

        Net sales of protective packaging products increased 11% to $1,451.2 million in 2004 compared with $1,313.3 million in 2003 and increased 8% in 2003 compared with 2002 sales of $1,216.3 million. Unit volumes increased in 2004 in all regions of the world, with the U.S and Europe having the primary impact. In 2003, unit volumes increased primarily in Europe and the Asia Pacific region, partially offset by a decrease in unit volumes in the U.S. Foreign currency translation had a favorable impact of $49.6 million in 2004 for this segment. Excluding the positive foreign currency translation

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effect, net sales for the protective packaging segment would have increased 7% in 2004. Foreign currency translation had a favorable impact of $59.9 million in 2003 for this segment. Excluding the positive foreign currency translation effect, net sales for the protective packaging segment would have increased 3% in 2003.

        The classes of products within the protective packaging segment are cushioning and surface protection products and other products. Other products within the protective packaging segment represented approximately 1% of consolidated net sales in 2004, 2003 and 2002.

Sales by Geographic Region

        The components of the increase in net sales by geographic region for 2004 were as follows (dollars in millions):

        Net sales from operations in the United States represented 49% and 52% of net sales in 2004 and 2003, respectively. Net sales from U.S. operations remained flat in 2004 at $1,851.8 million compared with $1,844.8 million in 2003. Net sales from international operations increased 15% in 2004 to $1,946.3 million compared with $1,687.1 million for 2003. Excluding the $159.4 million positive foreign currency translation effect, international net sales would have increased 6% compared with 2003.

        The components of the increase in net sales by geographic region for 2003 were as follows (dollars in millions):

        Net sales from operations in the United States represented 52% and 55% of net sales in 2003 and 2002, respectively. Net sales from U.S. operations increased 5% in 2003 to $1,844.8 million compared with $1,758.8 million in 2002. Net sales from international operations increased 17% in 2003 to $1,687.1 million compared with $1,445.5 million for 2002. Excluding the $189.5 million positive foreign currency translation effect, international net sales would have increased 4% compared with 2002.

Costs and Margins

        Gross profit as a percentage of net sales was 30.6% in 2004, 31.5% in 2003 and 33.0% in 2002. The decrease in 2004 compared with 2003 was due to petrochemical-related raw material cost increases and reduced sales volumes in the Company's North American food packaging business due to import restrictions on U.S. beef products. The decrease in 2003 compared with the 2002 period was primarily due to increased petrochemical-based raw material costs.

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        Marketing, administrative and development expenses increased 9% in 2004 and 6% in 2003. The increase in 2004 was primarily due to the effects of foreign currency translation, expenses associated with the upgrade of the Company's information technology platform, and expenses to support the higher volume of net sales. The increase in 2003 was primarily due to the impact of foreign currency translation and the impact of increased sales volumes, partially offset by the absence of corporate projects completed during 2002. Marketing, administrative and development expenses as a percentage of net sales were 16.5% in 2004, 16.2% in 2003 and 16.9% in 2002.

2004 Restructuring Program

        During the fourth quarter of 2004, the Company announced a series of separate profit improvement plans in various geographic regions in order to complement the Company's long-term growth programs and financial goals and to improve the Company's operating efficiencies and lower its overall cost structure. The plans will principally reduce the number of employees and consolidate or relocate operations in both of the Company's reportable business segments. The Company expects to eliminate 473 full-time employees, of which 50 employees had been eliminated prior to December 31, 2004. However, with the prospective addition of approximately 100 positions in connection with the Company's realignment or relocation of certain manufacturing activities, the net reduction in headcount positions is expected to be approximately 373. These actions affected principally production workers and members of the Company's sales force. The Company expects to complete these activities by June 2006. These charges consisted of the following:

        The long-lived asset impairment of $10.3 million consisted of write-downs and write-offs of property and equipment. The impairments related to decisions to rationalize and realign production of some of the Company's smaller product lines and to close several smaller scale European manufacturing facilities. Since the undiscounted cash flows, including estimated salvage value, were less than the carrying values of these assets, they were written down to their estimated fair value. The Company plans to dispose of these facilities and much of the equipment by mid-2005.

        The components of the restructuring charges, spending and other activity through December 31, 2004 and the remaining accrual balance at December 31, 2004 were as follows:

        The Company estimates that it will realize approximately $25.0 to $30.0 million in annualized cost savings on a full year run rate basis by the end of 2006.

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Operating Profit

        Operating profit decreased 7% in 2004 and increased 5% in 2003. The decrease in operating profit in 2004 was due to $33.0 million of restructuring and other charges, $53.7 million of higher marketing, administrative and development expenses, an increase in petrochemical-related raw material costs, reduced sales volumes in the Company's North American food packaging business, offset by an increase in total net sales, all of which are discussed above. The 5% increase in 2003 was primarily due to increased net sales offset by increased cost and expenses associated with higher sales volumes, increased raw material costs and the impact of foreign currency translation. As a percentage of net sales, operating profit was 13.2% in 2004, 15.3% in 2003 and 16.1% in 2002.

        Operating profit by business segment for 2004, 2003 and 2002 was as follows (dollars in millions):

        The food packaging segment contributed 59%, 65% and 61% of the Company's operating profit in 2004, 2003 and 2002, respectively, before taking into consideration unallocated corporate operating expenses and restructuring and other (charges) credits. The Company's protective packaging segment contributed the balance of operating profit.

        The decrease in the food packaging segment's operating profit in 2004 was due to higher raw material costs and reduced sales volumes in North America due to import restrictions on U.S. beef products. Although the protective packaging segment was also impacted by higher raw materials costs, operating profit increased for the protective packaging segment in 2004 due to higher unit volumes, benefits from ongoing productivity initiatives and price increases implemented to help offset rising raw material costs.

Asbestos Settlement and Related Costs

        On November 27, 2002, the Company reached an agreement in principle with the appropriate parties to resolve all current and future asbestos-related claims made against the Company and its affiliates in connection with the Cryovac transaction. The settlement will also resolve the fraudulent transfer claims, as well as indemnification claims by Fresenius Medical Care Holdings, Inc. and affiliated companies, that had been made against the Company in connection with the Cryovac transaction. On December 3, 2002, the Company's Board of Directors approved the agreement in principle. The Company received notice that both of the Committees had approved the agreement in principle as of December 5, 2002. For a description of the Cryovac transaction, asbestos-related claims and the parties involved, see Note 19 of the Notes to the Consolidated Financial Statements under the captions "Cryovac Transaction" and "Contingencies Related to the Cryovac Transaction."

        The Company recorded a charge of $850.1 million as a result of the asbestos settlement in its consolidated statement of operations for the year ended December 31, 2002. The charge consisted of the following items:

•

a non-cash charge of $512.5 million covering a cash payment that the Company will be required under the settlement to make upon the effectiveness of a plan of reorganization in the Grace bankruptcy. Because the Company cannot predict when a plan of reorganization may become

21

effective, the Company recorded this liability as a current liability on the consolidated balance sheet at December 31, 2002. Under the terms of the settlement, this amount accrues interest at a 5.5% annual rate from December 21, 2002 to the date of payment. The Company has recorded this interest in interest expense in the consolidated statement of operations and in other current liabilities in the consolidated balance sheets. The accrued interest, which is compounded annually, was $58.9 million and $29.0 million at December 31, 2004 and 2003, respectively.

•

a non-cash charge of $321.5 million representing the fair market value at the date the Company recorded the charge of nine million shares of the Company's common stock expected to be issued under the settlement upon the effectiveness of Grace's plan of reorganization. These shares are subject to customary anti-dilution provisions that adjust for the effects of stock splits, stock dividends and other events affecting the Company's common stock. The fair market value of the Company's common stock was $35.72 per share as of the close of business on December 5, 2002. The Company recorded this amount in its consolidated balance sheet at December 31, 2002, as follows: $0.9 million representing the aggregate par value of these shares in common stock reserved for issuance related to the asbestos settlement, and the remaining $320.6 million, representing the excess of the aggregate fair market value over the aggregate par value of these common shares, in additional paid-in capital. The December 31, 2004 and 2003 diluted earnings per common share calculation reflects the shares of common stock reserved for issuance related to the asbestos settlement.



•

$16.1 million of legal and related fees as of December 31, 2002.

        Asbestos settlement and related costs in 2004 and 2003 reflect legal and related fees for asbestos-related matters of $2.0 million and $2.8 million, respectively.

Interest Expense and Other Income, net

        Interest expense (which includes the effects of interest rate swaps and the amortization of capitalized senior debt issuance costs, bond discount and terminated treasury locks) was $153.7 million in 2004, $136.0 million in 2003 and $65.9 million in 2002. The increase in interest expense in 2004 compared with 2003 was primarily due to the following:

•

an increase of $37.2 million of interest expense in 2004 due to the Company's issuance of approximately $300.0 million of senior notes in April 2003 and $1.3 billion of senior notes and convertible senior notes in July 2003 as discussed below, partially offset by:



•

a decrease of $16.4 million of interest expense due to the repurchase of $172.5 million face amount of senior notes in the fourth quarter of 2003 and the senior note redemption and repurchases completed in the fourth quarter of 2004 discussed below.

        The increase in interest expense in 2003 compared with 2002 was primarily due to:

•

an increase of $27.3 million of interest expense in 2003 on the portion of the asbestos settlement to be paid in cash; and



•

an increase of $43.6 million of interest expense in 2003 due to the Company's issuance of the senior notes and convertible senior notes in April and July 2003.

        Other income, net, was $7.8 million in 2004, $8.4 million in 2003 and $7.1 million in 2002. Included in these amounts are primarily interest and dividend income of $7.7 million, $6.8 million, and $3.1 million and net foreign exchange transaction losses of $9.0 million, $2.8 million and $4.0 million in 2004, 2003 and 2002, respectively.

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Income Taxes

        The Company's effective income tax rate was an expense of 33.3% in 2004 and 36.2% in 2003. In 2002, the Company recorded a benefit of 21.1%. The decrease in the 2004 effective tax rate compared with 2003 was primarily due to improved tax efficiencies resulting from reorganizing the Company's international subsidiaries, tax effects from debt retirement, state taxes and a change in foreign tax law, partially offset by some of the 2004 business restructuring expenses which were not able to be recognized for tax purposes.

        The change in the effective tax rate from 2003 to 2002 was primarily due to the improved tax efficiency in 2003 resulting from reorganizing the Company's international subsidiaries during 2002 and the effect of the estimated tax benefit for the asbestos settlement and related costs in 2002.

        In 2004, the effective tax rate was lower than the statutory U.S. federal income tax rate primarily due to the lower net effective tax rate on foreign earnings, partially offset by state income taxes. In 2003, the effective tax rate was higher than the statutory U.S. federal income tax rate primarily due to state income taxes and non-deductible expenses, partially offset by the lower net effective tax rate on foreign earnings. In 2002, the effective tax rate was lower than the statutory U.S. federal income tax rate primarily due to the effect of the estimated tax benefit for the asbestos settlement.

        On October 22, 2004, the American Jobs Creation Act, known as the AJCA, became law. The AJCA provides a deduction of 85% of qualifying foreign earnings that the Company repatriates, as defined in the AJCA, in 2005. This deduction produces the equivalent of a 5.25% effective tax rate on the repatriated earnings. The Company qualifies to repatriate up to approximately $500 million.

        The Company is evaluating the effects of the repatriation provision. During the evaluation, the Company is principally considering global cash management objectives, its overall tax position and restrictions on the use of repatriated cash. Pending completion of this evaluation, a range of potential income tax effects of repatriating cannot be reasonably estimated. If the Company determines to repatriate funds in reliance upon the AJCA, the repatriation must be completed by the end of 2005.

        The AJCA also provides a deduction for qualified production activities. The impact of the qualified production activities deduction on the Company's taxable income is currently being evaluated. While the implications of this provision vary based on transition rules and the future income mix, the Company expects the provision will provide a favorable impact on its effective tax rate in the future.

        The Company currently expects an effective tax rate of approximately 33.3% for 2005, excluding the impact of any repatriation under the AJCA.

Net Earnings (Loss)

        As a result of the factors noted above, net earnings were $215.6 million in 2004 and $240.4 million in 2003. The Company recorded a net loss of $309.1 million in 2002, reflecting the asbestos settlement and related costs of $850.1 million.

Earnings (Loss) per Common Share

        Basic earnings (loss) per common share were $2.56 for 2004, $2.21 for 2003 and $(4.20) for 2002. Diluted earnings (loss) per common share were $2.25 for 2004, $1.97 for 2003 and $(4.30) for 2002.

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        During 2004, the EITF reached a consensus on EITF Issue No. 04-08, "The Effect of Contingently Convertible Debt on Diluted Earnings per Share," which was effective for reporting periods ending after December 15, 2004. EITF Issue No. 04-08 requires that the dilutive effect of contingent convertible debt, such as the Company's 3% convertible senior notes due June 2033, which were issued in July 2003, be included in dilutive earnings per common share regardless of whether the contingency permitting holders to convert the debt into shares of common stock had been satisfied. EITF Issue No. 04-08 is applicable retroactively and requires restatement of prior periods during which the contingent convertible debt instrument was outstanding. As a result, the 2004 and 2003 diluted earnings per common share calculations include 6.2 million additional shares of common stock and exclude the associated interest expense of $7.8 million and $3.9 million, respectively, on the contingent convertible debt, net of income tax.

        The diluted earnings per common share for 2003 include a $0.26 per common share charge related to the Company's redemption of all of its outstanding shares of Series A convertible preferred stock on July 18, 2003. The Company redeemed all of the outstanding shares of its Series A convertible preferred stock at a redemption price of $51.00 per share. The Company also paid accrued dividends on the preferred stock from July 1, 2003 through July 17, 2003 in the aggregate amount of $2.40 million. The $51.00 per share redemption price included a $1.00 per share redemption premium, or an aggregate premium of $25.5 million, and is reflected in basic earnings per common share in 2003.

        The basic earnings per common share calculations for 2003 and 2002 include gains of $0.8 million and $10.3 million, respectively, attributable to the repurchase of preferred stock. The Company did not recognize any such gains for 2004 since it had redeemed all shares of its outstanding preferred stock during the third quarter of 2003.

        For the purpose of calculating its diluted loss per common share for 2002, net earnings ascribed to common shareholders have been adjusted to exclude the gains attributable to the repurchase of preferred stock and to add back dividends attributable to such repurchased preferred stock, and the weighted average common shares outstanding also have been adjusted to reflect conversion of the shares of preferred stock repurchased during this period in accordance with the FASB's Emerging Issues Task Force Topic D-53 guidance.

        In calculating diluted earnings per common share, the Company's calculation of the weighted average number of common shares for 2004 and 2003 provides for the conversion of the Company's 3% convertible senior notes due June 2033 due to the application of EITF Issue No. 04-08, provides for the issuance of nine million shares of common stock reserved for the Company's previously announced asbestos settlement (as described above under the caption "Asbestos Settlement and Related Costs"), and provides for the exercise of dilutive stock options, net of assumed treasury stock repurchases. For 2002, the calculation of the weighted average number of common shares provides for the effect of the weighted average conversion of repurchased shares of preferred stock. The Company has not assumed the conversion of the outstanding preferred stock in the calculation of diluted loss per common share in 2002, because the treatment of the preferred stock as the common stock into which it was convertible would have been anti-dilutive, meaning the issuance would reduce the loss per common share. The Company did not reflect the shares of common stock reserved for issuance for the asbestos settlement in the calculation of diluted loss per common share in 2002, since the effect would have been anti-dilutive.

Liquidity and Capital Resources

        The discussion that follows contains:

•

a description of the Company's material commitments and contingencies,



•

a description of the Company's principal sources of liquidity,

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•

a description of the Company's outstanding indebtedness,



•

an analysis of the Company's historical cash flows,



•

a description of the Company's derivative financial instruments, and



•

a description of the Company's shareholders' equity.

Material Commitments and Contingencies

Asbestos Settlement; Commitment Related to the Cryovac Transaction

        The Company recorded a charge of $512.5 million in the fourth quarter of 2002 covering the cash payment that the Company is required to make upon the effectiveness of a plan of reorganization in the bankruptcy of W. R. Grace & Co. The Company did not use cash in 2004 or 2003 with respect to this liability, and the Company cannot predict when it will be required to make this payment. The Company currently expects to fund this payment by using a combination of accumulated cash and future cash flows from operations, and funds available under its $350.0 million unsecured multi-currency credit facility or its accounts receivable securitization program, both described below, or a combination of these alternatives.

        The Company is subject to other contingencies related to the Cryovac transaction. Note 19, "Commitments and Contingencies," of the Notes to the Consolidated Financial Statements, which is contained in Item 8 of Part II of this Annual Report on Form 10-K, describes these contingencies under "Contingencies Related to the Cryovac Transaction" and is incorporated herein by reference.

Contractual Commitments

        The following table summarizes the Company's principal contractual obligations at December 31, 2004 and sets forth the amounts of required cash outlays in 2005 and future years (amounts in millions):

(1)

Includes principal maturities (at face value) only.

(2)

This liability is reflected as a current liability due to the uncertainty of the timing of payment. Interest accrues on this amount at a rate of 5.5% per annum until it becomes due and payable.

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The asbestos settlement is described more fully in "Asbestos Settlement; Contingencies Related to the Cryovac Transaction" above.

        In addition to the obligation to pay the principal amount of the debt obligations discussed above, the Company is obligated under the terms of various operating leases covering some of the facilities that it occupies and some production equipment, most of which are accounted for as operating leases. The contractual operating lease obligations listed in the table above represent estimated future minimum annual rental commitments under non-cancelable real and personal property leases as of December 31, 2004. The long-term debt shown in the above table excludes unamortized bond discounts and interest rate swap adjustments as of December 31, 2004 and, therefore, represents the principal amount of the debt required to be repaid in each period.

        The Company has the following significant long-term contractual commitments:

•

$15.0 million remaining obligation for the purchase of equipment over a five-year period, which began in 2003, together with a potential termination fee in an amount to be determined. The Company's obligation is reduced or increased based on market price changes for the equipment and changes in the Packaging Machinery Manufacturers Index. Failure to purchase any of the minimum annual requirements in any year obligates the Company to pay an amount of 45% of such shortfall. During 2004 and 2003, the Company did not meet the minimum equipment purchase requirements and recorded a charge of $0.9 million and $1.0 million, respectively.



•

$10.5 million minimum remaining commitment for the purchase of telecommunications and network capacity and services over a four-year period that began in 2004.



•

$7.3 million to a supplier if the Company fails to purchase an additional 109.5 million pounds of specified raw materials, at the then current market price, over a ten-year period that ends in May 2012. The amount of the potential contingent payment declines in proportion to the Company's purchase of minimum quantities required under the contract. At December 31, 2004, the Company's purchases satisfied the minimum quantity requirements under the agreement.



•

$1.6 million to a supplier of equipment and consumables (declining to $0.3 million over the five-year term of the commitment) if the Company fails to purchase approximately $6.5 million of consumables per year over a five-year period that began in 2004.



•

3.1 million euros ($4.1 million at December 31, 2004) to a supplier of electricity over a two-year period that began in 2004.

Interest Payments

        During 2004 and 2003, the Company paid $141.3 million and $84.3 million, respectively, in interest payments. The Company currently expects to pay from $110.0 million to $120.0 million in interest payments in 2005, excluding the impact of interest rate swap transactions. The actual interest paid in 2005 may be different from this amount if the Company repurchases existing indebtedness, or incurs indebtedness under its existing lines of credit, or otherwise. This 2005 expected interest payment does not reflect payment of any accrued interest related to the asbestos settlement.

Income Tax Payments

        During 2004 and 2003, the Company paid $141.9 million and $161.3 million, respectively, in income taxes. The Company currently expects to pay between $160.0 million and $175.0 million in income taxes in 2005, assuming no asbestos settlement payment is made.

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Contributions to Defined Benefit Pension Plans

        The Company maintains defined benefit pension plans for a limited number of its U.S. employees and for many of its non-U.S. employees. During 2004 and 2003, the Company paid $15.0 million and $9.1 million, respectively, in employer contributions to these defined benefit pension plans.

Environmental Matters

        The Company is subject to loss contingencies resulting from environmental laws and regulations, and it accrues for anticipated costs associated with investigatory and remediation efforts when an assessment has indicated that a loss is probable and can be reasonably estimated. These accruals do not take into account any discounting for the time value of money and are not reduced by potential insurance recoveries, if any. The Company does not believe that it is reasonably possible that its liability in excess of the amounts that it has accrued for environmental matters will be material to its consolidated statements of operations, balance sheets or cash flows. Environmental liabilities are reassessed whenever circumstances become better defined or remediation efforts and their costs can be better estimated. The Company evaluates these liabilities periodically based on available information, including the progress of remedial investigations at each site, the current status of discussions with regulatory authorities regarding the methods and extent of remediation and the apportionment of costs among potentially responsible parties. As some of these issues are decided (the outcomes of which are subject to uncertainties) or new sites are assessed and costs can be reasonably estimated, the Company adjusts the recorded accruals, as necessary. The Company believes that these exposures are not material to its consolidated results of operations and balance sheets. The Company believes that it has adequately reserved for all probable and estimable environmental exposures.

Principal Sources of Liquidity

        The Company's principal sources of liquidity are accumulated cash and short-term investments, cash flows from operations and amounts available under its existing lines of credit and its accounts receivable securitization facility.

Accumulated Cash and Cash Equivalents and Short-Term Investments

        As of December 31, 2004 and 2003, the Company had accumulated cash and cash equivalents of $358.0 million and $297.8 million, respectively, and short-term investments of $54.1 million and $67.2 million, respectively.

        The Company's short-term investments consist of auction rate securities, all of which are classified as available-for-sale securities. In 2004, the Company reclassified these securities from "cash and cash equivalents" to "short-term investments—available-for-sale securities." As a result, the Company reclassified the $67.2 million of auction rate securities held at December 31, 2003 from "cash and cash equivalents" to "short-term investments—available-for-sale securities." The Company also made corresponding adjustments to its Consolidated Statements of Cash Flows. These reclassifications had no impact on the results of operations of the Company. See Note 2, "Significant Accounting Policies—Short-Term Investments—Available-for-Sale Securities," to the Company's Consolidated Financial Statements, which describes these short-term investments.

Cash Flows from Operations

        The Company expects that it will continue to generate significant cash flows from operations. See "Analysis of Historical Cash Flows" below.

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Revolving Credit Facilities

        The 2006 Facility.    On December 19, 2003, the Company entered into a $350.0 million unsecured multi-currency revolving credit facility that matures in 2006. The Company has not borrowed under the 2006 facility since its inception.

        The 2006 facility provides that the Company may borrow for working capital and general corporate purposes, including payment of a portion of the $512.5 million cash payment required to be paid upon the effectiveness of an appropriate plan of reorganization in the Grace bankruptcy. See Note 19 for further discussion of this matter. The Company may re-borrow amounts repaid under the 2006 facility from time to time prior to the expiration or earlier termination of the facility. As of December 31, 2004, facility fees were payable at the rate of 0.15% per annum on the total amounts available under the 2006 facility.

        The Company's obligations under the 2006 facility bear interest at floating rates, which are generally determined by adding the applicable borrowing margin to the base rate or the interbank rate for the relevant currency and time period. The 2006 facility provides for changes in borrowing margins based on the Company's long-term senior unsecured debt ratings.

        The 2006 facility requires that, upon the occurrence of specified events that would adversely affect the settlement agreement in the Grace bankruptcy proceedings or would materially increase the Company's liability in respect of the Grace bankruptcy or the asbestos liability arising from the Cryovac transaction, the Company would be required to repay any amounts outstanding under the 2006 facility, or refinance the facility, within 60 days.

        ANZ Facility.    In March 2002, the Company entered into an Australian dollar 175.0 million, dual-currency revolving credit facility that expired on March 12, 2005. This facility was reduced to 170.0 million Australian dollars on May 31, 2004, as scheduled under the terms of the facility. The amount available was equivalent to U.S. $129.7 million at December 31, 2004. A syndicate of banks made this facility available to a group of the Company's Australian and New Zealand subsidiaries for general corporate purposes and the refinancing of previously outstanding indebtedness. The Company could have re-borrowed amounts repaid under the ANZ facility from time to time prior to the expiration or earlier termination of the facility. No amounts were outstanding under the ANZ facility at December 31, 2004 or 2003. In March 2005, the Company renewed the facility for a 5-year period expiring March 2010, with terms and conditions that are substantially equivalent to those in the expiring facility.

Accounts Receivable Securitization Program

        Since December 2001, the Company and a group of its U.S. subsidiaries have maintained an accounts receivable securitization program with a bank and an issuer of commercial paper administered by the bank. In December 2004, the parties extended this receivables facility for an additional term of three years ending December 7, 2007. Under this facility, the Company's two primary operating subsidiaries, Cryovac, Inc. and Sealed Air Corporation (US), sell all of their eligible U.S. accounts receivable to Sealed Air Funding Corporation, an indirectly wholly-owned subsidiary of the Company. Sealed Air Funding in turn may sell undivided ownership interests in these receivables to the bank and the issuer of commercial paper, subject to specified conditions, up to a maximum of $125.0 million of receivables interests outstanding from time to time. The Company has undertaken to cause the operating subsidiaries to perform their obligations under the receivables facility.

        On April 2, 2003, the parties amended the receivables facility to provide that Sealed Air Funding could sell receivables interests aggregating up to $60.0 million, originated only by Sealed Air Corporation (US), to the bank or the issuer of commercial paper until a definitive asbestos settlement agreement, satisfactory to the bank, had been entered into. The receivables facility again became

28

available for the sale of receivables interests originated by Cryovac, Inc. as well as Sealed Air Corporation (US), up to the original maximum of $125.0 million of receivables interests provided for by the receivables facility, on January 26, 2004.

        The receivables facility contains financial covenants relating to interest coverage and debt leverage. The Company was in compliance with these ratios at December 31, 2004.

        The operating subsidiaries did not sell any receivables interests under the receivables facility during 2004 or 2003, and therefore the Company did not remove any related amounts from the consolidated assets reflected on the Company's consolidated balance sheets at December 31, 2004 or 2003.

        The receivables facility provides for a program fee of 0.375% per annum on the greater of the unpaid amount of the receivables interests sold by Sealed Air Funding and 50% of the $125.0 million purchase limit under the facility. The receivables facility also provides for a commitment fee of 0.20% per annum on the lesser of the unused portion of the facility and 50% of the purchase limit under the facility. At December 31, 2003, the receivables facility provided for a program fee of 0.45% per annum on the receivables interests sold by Sealed Air Funding, and a commitment fee of 0.40% per annum on the unused portion of the receivables facility.

        The costs associated with the receivables facility are reflected in other income, net, in the Company's consolidated statements of operations for the years ended December 31, 2004, 2003 and 2002. These costs primarily relate to the loss on the sale of the receivables interests to the bank or the issuer of commercial paper, which was zero for 2004 and 2003 and $0.4 million for 2002, and program and commitment fees and other associated costs, which were $0.5 million, $0.6 million and $0.4 million for 2004, 2003 and 2002, respectively.

        See Note 4, "Accounts Receivable Securitization," of the Notes to the Consolidated Financial Statements for additional information concerning this program.

Other Lines of Credit

        Substantially all the Company's short-term borrowings of $19.8 million and $18.2 million at December 31, 2004 and 2003, respectively, were outstanding under lines of credit available to various of the Company's U.S. and foreign subsidiaries. Amounts available under these credit lines as of December 31, 2004 and 2003 were approximately $237.9 million and $215.3 million, respectively, of which approximately $218.1 million and $197.0 million, respectively, were unused.

        At December 31, 2004 and 2003, the Company had available committed and uncommitted lines of credit, including the credit lines discussed above, of $717.6 million and $693.7 million, respectively, of which $694.2 million and $675.4 million were unused. As of December 31, 2004 and 2003, the total available lines of credit included committed lines of credit of $479.7 million and $479.2 million, respectively, and uncommitted lines of credit of $237.9 million and $214.5 million, respectively. The Company's principal credit lines were all committed and consisted of the 2006 facility and the ANZ facility. The Company is not subject to any material compensating balance requirements in connection with its lines of credit.

Debt Ratings

        The Company's cost of capital and ability to obtain external financing may be affected by its debt ratings, which are periodically reviewed by credit rating agencies. The Company's long-term senior unsecured debt is currently rated Baa3 (stable outlook) by Moody's Investors Services, Inc. and BBB (negative outlook) by Standard & Poor's Rating Services, a division of the McGraw-Hill Companies. These ratings are among the ratings assigned by each of these organizations for investment grade long-term senior unsecured debt. A security rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the rating organization. Each rating should be evaluated independently of any other rating.

29

Outstanding Indebtedness

        At December 31, 2004 and 2003, the Company's total debt outstanding consisted of the amounts set forth in the following table (amounts in millions):

(1)

The carrying value of the euro notes increased $19.3 million in 2004, as a result of the strengthening of the euro compared to the U.S. dollar during 2004.

(2)

Interest is, or in the case of the 8.75% senior notes was, payable semiannually in arrears, except for interest on the euro notes which is paid annually.

(3)

Amounts include adjustments due to interest rate swaps. See Note 14, "Derivatives and Hedging Activities," of the Notes to the Company's Consolidated Financial Statements.

(4)

The Company used the net proceeds of these offerings and additional cash on hand, an aggregate of $1,298.1 million, to redeem the outstanding shares of its Series A convertible preferred stock in 2003.

(5)

Note 13, "Debt," of the Notes to the Company's Consolidated Financial Statements describes the conversion, redemption, put and other special provisions applicable to the 3% convertible senior notes.

Senior Notes Issued in July 2003; Recapitalization

        In July 2003, the Company issued a total of $1,281.3 million principal amount of its 5.625% senior notes, 6.875% senior notes and 3% convertible senior notes in transactions exempt from registration in reliance upon Rule 144A and other available exemptions under the Securities Act of 1933, as amended. The total net proceeds from the July 2003 issuances were $1,261.1 million after deducting the initial

30

purchasers' discount, unamortized bond discount (except for the 3% convertible senior notes) and other offering expenses. The net proceeds consisted of $395.6 million from the 5.625% senior notes, $444.0 million from the 6.875% senior notes and $421.5 million from the 3% convertible senior notes.

        On July 18, 2003, the Company used the net proceeds from these offerings and additional cash on hand to redeem its Series A convertible preferred stock at the redemption price of $51.00 per share or $1,298.1 million of cash, plus an amount equal to dividends accrued from July 1, 2003 through July 17, 2003, for which the Company used $2.4 million of cash. As discussed in "Analysis of Historical Cash Flows—Repurchases of Capital Stock" below and Note 16 to the Company's Consolidated Financial Statements, the Company had repurchased an aggregate of 750,600 shares of its Series A convertible preferred stock during 2003 prior to the July 18, 2003 redemption.

Covenants

        Each issue of the Company's outstanding senior notes and the Company's outstanding euro notes imposes limitations on the Company's operations and those of specified subsidiaries. The principal limitations restrict liens, sale and leaseback transactions and mergers, acquisitions and dispositions. The 2006 facility contains financial covenants relating to interest coverage, debt leverage and minimum liquidity, and restrictions on the creation of liens, the incurrence of additional indebtedness, acquisitions, mergers and consolidations, asset sales, and amendments to the asbestos settlement agreement discussed above. The ANZ facility contains financial covenants relating to debt leverage, interest coverage and tangible net worth, and restrictions on the creation of liens, the incurrence of additional indebtedness and asset sales, in each case relating to the Australian and New Zealand subsidiaries of the Company that are borrowers under the facility. The Company was in compliance with these limitations at December 31, 2004 and 2003.

Analysis of Historical Cash Flows

Net Cash Provided by Operating Activities

        Net cash provided by operating activities was $436.2 million in 2004, $469.7 million in 2003 and $323.9 million in 2002. The decrease in 2004 compared with 2003 was primarily due to lower net earnings after adjustments for non-cash items, and to a lesser extent, changes in operating assets and liabilities in the ordinary course of business, as described below under "Changes in Working Capital."

        The increase in 2003 compared with 2002 was primarily due to the following:

•

changes in the accounts receivable facility, which is described above; and



•

changes in operating assets and liabilities in the ordinary course of business, as discussed below under "Changes in Working Capital."

        In 2001, the Company sold receivables interests totaling $95.6 million to the financial institutions participating in the Company's accounts receivable facility. Such receivables interests were not replaced with additional receivables interests in 2002. As a result, the Company recorded a reduction in net cash provided by operating activities in 2002. The financial institutions participating in the accounts receivable facility held no receivables interests at the beginning or end of 2003 or 2004. Therefore, the accounts receivables facility had no effect on net cash provided by operating activities in 2003 or 2004.

Net Cash Used in Investing Activities

        Net cash used in investing activities amounted to $91.0 million in 2004, $190.6 million in 2003 and $96.9 million in 2002. In each year, investing activities consisted primarily of capital expenditures and acquisitions, and in 2004 and 2003 also consisted of purchases and sales of available-for-sale securities. The decrease in net cash used in 2004 was primarily due to an increase in net proceeds of $80.3 million related to net purchases and sales of available-for-sale securities, and to a lesser extent, lower levels of

31

capital expenditures. The increase in net cash used in these activities in 2003 was due to net purchases of $67.2 million related to net purchases and sales of available-for-sale securities and higher capital expenditures. The Company did not hold any available-for-sale securities during 2002.

        Cash used to complete acquisitions was $6.4 million in 2004, $2.5 million in 2003 and $10.5 million in 2002. In each year, cash used for acquisitions was net of cash acquired in those acquisitions. Cash acquired in acquisitions was not material in 2004, 2003 or 2002. The Company did not assume any debt in acquisitions in 2004, 2003 or 2002.

Capital Expenditures

        Capital expenditures were $102.7 million in 2004, $124.3 million in 2003 and $91.6 million in 2002. Capital expenditures for the Company's food packaging segment amounted to $81.3 million, $95.5 million and $65.2 million and for the protective packaging segment amounted to $21.4 million, $28.8 million and $26.4 million in 2004, 2003 and 2002, respectively.

        The decrease in capital expenditures in 2004 was primarily due to the completion early in the year of two new plants in the United States and one in Eastern Europe, as well as the improved productivity of existing assets, which allowed the Company to defer spending on incremental capacity. The increase in capital expenditures in 2003 was primarily due to spending related to construction of new plants in the United States and Eastern Europe. The Company expects to continue to make capital expenditures as it deems appropriate to expand its business, to replace depreciating property, plant and equipment and to improve productivity. The Company currently anticipates that capital expenditures for the year ended December 31, 2005 will be in the range of $125 million to $150 million. The Company's projection of capital expenditures for 2005 is based upon its capital expenditure budget for 2005, the status of approved but not yet completed capital projects, anticipated future projects and historic spending trends.

Net Cash Used in Financing Activities

        Net cash used in financing activities amounted to $300.3 million in 2004, $108.9 million in 2003 and $101.5 million in 2002.

        The increase in net cash used in financing activities in 2004 compared with 2003 was primarily due to the following:

•

a decrease in proceeds from long-term debt in 2004 due to the receipt of net cash proceeds of $1,557.2 million from the issuance of the 5.375% senior notes in April 2003 and the 5.625% senior notes, the 6.875% senior notes and the 3% convertible senior notes in July 2003, as discussed above;



•

an increase of $49.5 million in cash used to repurchase the Company's capital stock, as discussed below. In 2004, the Company used $86.2 million to purchase its common stock, compared with $36.7 million used in 2003 to purchase its Series A convertible preferred stock;

        partially offset by:

•

$1,298.1 million of cash used to redeem all of the outstanding shares of Series A convertible preferred stock on July 18, 2003, as discussed above;



•

$41.9 million of cash used in 2003 to pay dividends on the Company's Series A convertible preferred stock, prior to its redemption in July 2003;

32

•

an increase of $37.9 million in net proceeds from short-term borrowings, as the Company had net proceeds of $0.6 million in 2004 compared with net payments in 2003 of $37.3 million; and



•

a decrease of $38.9 million for the payment of long-term debt, as the Company used $237.8 million of cash in 2004 compared with $276.7 million in 2003; the amounts in both periods include the cash used to redeem and repurchase long-term debt as discussed below.

        The increase in net cash used in financing activities in 2003 compared with 2002 was primarily due to the following:

•

cash of $1,298.1 million used in 2003 to redeem all of the outstanding shares of Series A convertible preferred stock on July 18, 2003, as discussed above;



•

an increase in cash used of $36.7 million for the payment of long-term debt, as the Company used $276.7 million of cash in 2003 and $240.0 million of cash in 2002 for that purpose; the amounts in 2003 include the cash used to repurchase capital market debt as discussed below;



•

an increase of $7.9 million in 2003 compared with 2002 in cash used to purchase the Company's Series A convertible preferred stock, as discussed below;

        partially offset by:

•

net cash proceeds of $1,557.2 million from issuance of the 5.375% senior notes in April 2003 and of the 5.625% senior notes, the 6.875% senior notes and the 3% convertible senior notes in July 2003, as discussed above;



•

a decrease in net payments of short-term borrowings of $39.8 million, as the Company used $37.3 million of cash in 2003 and $77.1 million in 2002 for that purpose; and



•

net proceeds of $13.9 million in 2003 from the Company's termination of U.S. Treasury lock agreements that were entered into to manage interest rate risks arising from the then-planned issuance of the 5.375% senior notes, the 5.625% senior notes and the 6.875% senior notes, as described more fully in "Derivative Financial Instruments" below.

Repurchases of Capital Stock

        The Company repurchased 1,781,000 shares of its common stock at a cost of $86.2 million in 2004, 750,600 shares of its Series A convertible preferred stock at a cost of $36.7 million in 2003 and 782,500 shares of its preferred stock at a cost of approximately $28.8 million in 2002. The average price per share of these common or preferred stock repurchases was $48.38, $48.94 and $36.85 in 2004, 2003 and 2002, respectively. As discussed in "Outstanding Indebtedness—Senior Notes Issued in July 2003; Recapitalization" above and Note 13 to the Company's Consolidated Financial Statements, in July 2003 the Company issued $1,281.3 million of senior notes. The Company used an aggregate of $1,298.1 million from the proceeds of these offerings and additional cash on hand to redeem the outstanding shares of its Series A convertible preferred stock.

        The share repurchases described above were made under a program previously adopted by the Company's Board of Directors. The share repurchase program authorized the repurchase of up to approximately 16,977,000 shares of common stock, which included Series A convertible preferred stock on an as-converted basis prior to its redemption. As of December 31, 2004, the Company had repurchased approximately 11,897,000 shares of common stock and preferred stock on an as-converted basis, and the remaining repurchase authorization covered approximately 5,080,000 shares of common stock. The Company may from time to time continue to repurchase its common stock.

33

Debt Redemption and Repurchases

2004 Debt Redemption:

        On November 26, 2004, the Company used net cash of $211.8 million to redeem the entire outstanding aggregate principal amount, $177.5 million, of its 8.75% senior notes due July 1, 2008 and terminated interest rate swaps on the 8.75% senior notes having a total notional amount of $150.0 million. The Company had issued the senior notes on June 26, 2001 under Rule 144A and Regulation S of the Securities Act of 1933. The Company determined the redemption price in accordance with the indenture governing the notes. The net cash used of $211.8 million consisted of cash used to purchase the senior notes at a premium plus accrued interest of $213.4 million and cash received of $1.6 million related to the termination of the interest rate swaps. The Company completed the redemption, funded with available cash, at a premium to the face amount of the notes, which resulted in a loss of $29.6 million, which the Company reflected in the statement of operations as "Loss on debt redemption and repurchases." The annual interest expense on the redeemed notes was approximately $15.5 million, without giving effect to any interest rate swaps and the amortization of amounts related to the senior notes.

2004 and 2003 Debt Repurchases:

        In November and December 2004, the Company used available cash of $25.2 million to repurchase in the open market $22.7 million face amount of its 6.95% senior notes due May 2009, which included accrued interest and related fees. Since the Company completed these repurchases at a premium to the face amount of the notes, it incurred a loss of $2.6 million, which the Company reflected in the statement of operations as "Loss on debt redemption and repurchases."

        In December 2003, the Company used net cash of $208.2 million to repurchase in the open market $122.5 million face amount of its 8.75% senior notes and $50.0 million face amount of its 6.95% senior notes and terminated interest rate swaps on the 8.75% senior notes with a total notional amount of $100.0 million. The net cash used of $208.2 million consisted of cash used to purchase the senior notes at a premium plus accrued interest and related fees of $208.9 million and cash received of $0.7 million related to the termination of the interest rate swaps. The Company completed these repurchases at premiums to the face amounts of the notes, which resulted in a loss of $33.6 million, which the Company reflected in the statement of operations as "Loss on debt redemption and repurchases."

        The Company may from time to time continue to repurchase or otherwise retire its outstanding indebtedness.

Changes in Working Capital

        At December 31, 2004, working capital (current assets less current liabilities) was $307.4 million compared with $280.4 million at December 31, 2003.

        The increase in the Company's working capital during 2004 arose primarily from the following changes:

•

an increase of $47.3 million in notes and accounts receivable, primarily due to $29.0 million from the effects of foreign currency translation and, to a lesser extent, an increase in net sales (excluding foreign exchange) during the fourth quarter of 2004 compared with the fourth quarter of 2003;



•

an increase of $46.7 million in inventories, primarily due to increased petrochemical-based raw materials costs from December 31, 2003, quantity increases in the ordinary course of business and $15.8 million from the effects of foreign currency translation; and

34

•

an increase in cash and cash equivalents of $60.2 million primarily due to cash flows generated from operations;

        partially offset by;

•

an increase of $56.8 million in accounts payable due to the timing of payments to vendors, the increased levels of inventory as discussed above, and to a lesser extent, $8.4 million from the effects of foreign currency translation;



•

an increase of $16.9 million in accrued restructuring costs which are described above more fully in "2004 Restructuring Program;" and



•

an increase of $22.2 million in accrued interest primarily due to $29.9 million of accrued interest related to the asbestos settlement liability, partially offset by a net decrease in accrued interest of $6.3 million related to the 8.75% senior notes that were redeemed in November 2004, as discussed above.

Current and Quick Ratios

        The ratio of current assets to current liabilities, known as the current ratio, was 1.2 at December 31, 2004 and 2003. The ratio of current assets less inventory to current liabilities, known as the quick ratio, was 0.9 at December 31, 2004 and 2003.

Derivative Financial Instruments

Interest Rate Swaps

        At December 31, 2004, the Company had interest rate swaps with a total notional amount of $300.0 million that qualify and were designated as fair value hedges. The Company entered into these interest rate swaps to convert the 5.375% senior notes into floating rate debt. At December 31, 2004, the Company recorded a reduction to long-term debt to record the fair value of the 5.375% senior notes due to changes in interest rates of $7.6 million and an offsetting adjustment to other liabilities to record the fair value of the related interest rate swaps.

        In connection with the Company's redemption of the entire outstanding principal amount, $177.5 million, of its 8.75% senior notes in November 2004, as discussed above, the Company terminated interest rate swaps with a total notional amount of $150.0 million and received net cash proceeds of $1.6 million.

        The Company also reduced interest expense by $6.2 million for the year ended December 31, 2004, due to the impact of interest rate swaps that were outstanding during the year.

Foreign Currency Forward Contracts

        At December 31, 2004, the Company was party to foreign currency forward contracts, which did not have a significant impact on the Company's liquidity.

        For further discussion about these contracts and other financial instruments, see Item 7A, "Quantitative and Qualitative Disclosures about Market Risk."

Shareholders' Equity

        The Company's shareholders' equity was $1,333.5 million at December 31, 2004, $1,123.6 million at December 31, 2003, and $813.0 million at December 31, 2002.

        Shareholders' equity increased in 2004 principally due to the following:

•

net earnings of $215.6 million;

35

•

a reduction of foreign currency translation adjustment of $69.2 million;



•

the net effect of transactions under the Company's contingent stock plan of $9.8 million;

        partially offset by:

•

repurchases of the Company's common stock in 2004 at a cost of $86.2 million.

        Shareholders' equity increased in 2003 principally due to the following:

•

net earnings of $240.4 million;



•

a reduction of foreign currency translation adjustment of $75.2 million;



•

the conversion of preferred stock into common stock of $16.9 million;



•

the net effect of transactions under the Company's contingent stock plan of $8.3 million;



•

the exercise of stock options granted prior to the Cryovac transaction under the Company's stock option plans of $4.7 million;



•

unrecognized gain on derivative instruments of $8.0 million, net of income tax, related to the termination of the Company's U.S. Treasury lock agreements discussed above; and



•

the Company's contribution of its common stock to its profit sharing plan of $9.8 million;

        partially offset by:

•

the Company's redemption of its Series A convertible preferred stock at its redemption price of $51.00 per share, which included a $1.00 per share redemption premium, or $25.5 million in the aggregate; and



•

Series A convertible preferred stock dividends of $28.6 million.

Recently Issued Statements of Financial Accounting Standards, Accounting Guidance and Disclosure Requirements

        The Company is subject to numerous recently issued statements of financial accounting standards, accounting guidance and disclosure requirements. Note 20, "New Accounting Pronouncements—Recently Issued Statements of Financial Accounting Standards, Accounting Guidance and Disclosure Requirements," of the Notes to the Consolidated Financial Statements, which is contained in Item 8 of Part II of this Annual Report on Form 10-K, describes these new accounting pronouncements and is incorporated herein by reference.

Critical Accounting Policies and Estimates

        The Company's discussion and analysis of its financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America, known as US GAAP. The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Estimates and assumptions are evaluated on an ongoing basis and are based on historical and other factors believed to be reasonable under the circumstances. The results of these estimates may form the basis of the carrying value of assets and liabilities and may not be readily apparent from other sources. Actual results, under conditions and circumstances different from those assumed, may differ from estimates, and while any differences may be material to the Company's consolidated financial statements, the Company does not believe that the differences, taken as a whole, will be material.

36

        The Company believes the following accounting policies are critical to its business operations and the understanding of results of operations and affect the more significant judgments and estimates used in the preparation of its consolidated financial statements:

        Allowance for Doubtful Accounts—The Company maintains accounts receivable allowances for estimated losses resulting from the inability of its customers to make required payments. Additional allowances may be required if the financial condition of the Company's customers deteriorates.

        Commitments and Contingencies—Litigation—On an ongoing basis, the Company assesses the potential liabilities related to any lawsuits or claims brought against it. While it is typically very difficult to determine the timing and ultimate outcome of these actions, the Company uses its best judgment to determine if it is probable that it will incur an expense related to the settlement or final adjudication of these matters and whether a reasonable estimation of the probable loss, if any, can be made. In assessing probable losses, the Company makes estimates of the amount of insurance recoveries, if any. The Company accrues a liability when it believes a loss is probable and the amount of loss can be reasonably estimated. Due to the inherent uncertainties related to the eventual outcome of litigation and potential insurance recovery, it is possible that disputed matters may be resolved for amounts materially different from any provisions or disclosures that the Company has previously made.

        Impairment of Long-Lived Assets—The Company periodically reviews long-lived assets, other than goodwill, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Goodwill, in accordance with SFAS No. 142, is reviewed for possible impairment at least annually during the fourth quarter of each fiscal year. A review of goodwill may be initiated prior to conducting the annual analysis if events or changes in circumstances indicate that the carrying value of goodwill may be impaired. Assumptions and estimates used in the determination of impairment losses, such as future cash flows and disposition costs, may affect the carrying value of long-lived assets and possible impairment expense in the Company's consolidated financial statements.

        Self-Insurance—The Company retains the obligation for specified claims and losses related to property, casualty, workers' compensation and employee benefit claims. The Company accrues for outstanding reported claims, claims that have been incurred but not reported, and projected claims based upon management's estimates of the aggregate liability for uninsured claims using historical experience, insurance company estimates and the estimated trends in claim values. Although management believes it has the ability to adequately project and record estimated claim payments, actual results could differ significantly from the recorded liabilities.

        Pensions—Although the Company maintains a non-contributory profit sharing plan and contributory thrift and retirement savings plans in which most U.S. employees of the Company are eligible to participate, the Company does maintain defined benefit pension plans for a limited number of its U.S. employees and for many of its non-U.S. employees. The Company accounts for these pension plans in accordance with SFAS No. 87, "Employers' Accounting for Pensions." Under these accounting standards, assumptions are made regarding the valuation of benefit obligations and performance of plan assets. The principal assumptions concern the discount rate used to measure future obligations, the expected future rate of return on plan assets, the expected rate of future compensation increases and various other actuarial assumptions. Changes to these assumptions could have a significant impact on costs and liabilities recorded under SFAS No. 87.

        Income Taxes—The Company's deferred tax assets arise from net deductible temporary differences and tax benefit carryforwards. The Company believes that its taxable earnings during the periods when the temporary differences giving rise to deferred tax assets become deductible or when tax benefit carryforwards may be utilized should be sufficient to realize the related future income tax benefits. For those jurisdictions where the expiration date of tax benefit carryforwards or the projected taxable earnings indicate that realization is not likely, the Company provides a valuation allowance.

37

        In assessing the need for a valuation allowance, the Company estimates future taxable earnings, with consideration for the feasibility of ongoing tax planning strategies and the realizability of tax benefit carryforwards, to determine which deferred tax assets are more likely than not to be realized in the future. Valuation allowances related to deferred tax assets can be impacted by changes to tax laws, changes to statutory tax rates and future taxable earnings. In the event that actual results differ from these estimates in future periods, the Company may need to adjust the valuation allowance, which could materially impact the Company's consolidated financial statements.

Forward-Looking Statements

        Some of the statements made by the Company in this report, in documents incorporated by reference herein, and in future oral and written statements by the Company, may be forward-looking. These statements reflect the Company's beliefs and expectations as to future events and trends affecting the Company's business, its financial condition and its results of operations. These forward-looking statements are based upon the Company's current expectations concerning future events and discuss, among other things, anticipated future performance and future business plans. Forward-looking statements are identified by such words and phrases as "anticipates," "believes," "could be," "estimates," "expects," "intends," "plans to," "will" and similar expressions. Forward-looking statements are necessarily subject to risks and uncertainties, many of which are outside the control of the Company, which could cause actual results to differ materially from these statements.

        The Company recognizes that it is subject to a number of risks and uncertainties that may affect the future performance of the Company, such as:

•

economic, political, business and market conditions in the geographic areas in which it conducts business;



•

factors affecting the customers, industries and markets that use the Company's packaging materials and systems;



•

raw material availability and pricing;



•

changes in energy-related expenses or disruptions in energy supply;



•

the effects of animal and food-related health issues, such as bovine spongiform encephalopathy, also known as BSE or "mad-cow" disease, and foot-and-mouth disease, as well as other health issues affecting trade;



•

import/export restrictions;



•

competitive factors;



•

disruptions to data or voice communication networks;



•

changes in the value of foreign currencies against the U.S. dollar;



•

changes in the Company's relationships with customers and suppliers;



•

changes in tax rates, laws and regulations, interest rates, credit availability and ratings;



•

the Company's ability to hire, develop and retain talented employees worldwide;



•

the Company's development and commercialization of successful new products;



•

the Company's accomplishments in entering new markets and acquiring and integrating new businesses;



•

the Company's access to financing and other sources of capital;



•

the success of the Company's key information systems projects;

38

•

the magnitude and timing of the Company's capital expenditures;



•

the extent of exit and disposal costs and the success of restructuring programs;



•

the Company's working capital management proficiency;



•

the effect on the Company of new pronouncements by accounting authorities;



•

the approval and implementation of the settlement agreement with the Official Committee of Asbestos Personal Injury Claimants and the Official Committee of Asbestos Property Damage Claimants in the Grace bankruptcy proceeding;



•

other effects on the Company of the bankruptcy filing by Grace and its subsidiaries;



•

other legal and environmental proceedings, claims and matters involving the Company;



•

acts and effects of war or terrorism; and



•

changes in domestic or foreign laws, rules or regulations, or governmental or agency actions, including the effects of proposed federal asbestos legislation, if enacted.

        Except as required by the federal securities laws, the Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Item 7A.    Quantitative and Qualitative Disclosures about Market Risk

        The Company is exposed to market risk from changes in interest rates, foreign currency exchange rates and commodity prices, which may adversely affect its financial condition and results of operations. The Company seeks to minimize these risks through regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. The Company does not purchase, hold or sell derivative financial instruments for trading purposes.

Interest Rates

        From time to time, the Company may use interest rate swaps, collars or options to manage its exposure to fluctuations in interest rates.

        The Company's interest rate swaps are described in Note 14, "Derivatives and Hedging Activities," of the Notes to the Consolidated Financial Statements, which is contained in Item 8 of Part II of this Annual Report on Form 10-K.

        The Company reduced interest expense by $6.2 million and $4.2 million for the years ended December 31, 2004 and 2003, respectively, due to the impact of interest rate swaps that were outstanding during each year.

        At December 31, 2004 and 2003, the Company had no collars or options outstanding.

        The fair value of the Company's fixed rate debt varies with changes in interest rates. Generally, the fair value of fixed rate debt will increase as interest rates fall and decrease as interest rates rise. At December 31, 2004, the carrying value of the Company's total debt, which includes the impact of outstanding interest rate swaps, was $2,111.6 million of which $2,091.8 million was fixed-rate debt. At December 31, 2003, the carrying value of the Company's total debt, which includes the impact of outstanding interest rate swaps, was $2,280.4 million of which approximately $2,262.2 million was fixed-rate debt. The estimated fair value of the Company's total debt, including the impact of outstanding interest rate swaps, and the cost of replacing the Company's fixed rate debt with borrowings at current market rates, was $2,231.6 million at December 31, 2004 compared with $2,445.3 million at December 31, 2003. A hypothetical 10% decrease in interest rates would result in an

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increase in the fair value of the total debt balance at December 31, 2004 of $123.7 million. These changes in the fair value of the Company's fixed rate debt do not alter the Company's obligations to repay the outstanding principal amount of such debt.

Foreign Exchange Rates

        The Company may use other derivative instruments from time to time, such as foreign exchange options to manage exposure due to foreign exchange rates and interest rate and currency swaps to gain access to additional sources of international financing, while limiting foreign exchange exposure and limiting or adjusting interest rate exposure by swapping borrowings in one currency for borrowings denominated in another currency. At December 31, 2004 and 2003, the Company had no foreign exchange options or interest rate and currency swap agreements outstanding.

        The Company uses foreign currency forward contracts to fix the amount payable on transactions denominated in foreign currencies. The terms of these instruments are generally twelve months or less. At December 31, 2004 and 2003, the Company had foreign currency forward contracts with an aggregate notional amount of approximately $342.3 million and $161.9 million, respectively. The estimated fair values of these contracts, which represent the estimated net payments that would be paid or received by the Company in the event of termination of these contracts based on the then current foreign exchange rates, was zero and a net payable of $0.2 million at December 31, 2004 and 2003, respectively. A hypothetical 10% adverse change in foreign exchange rates at December 31, 2004 would have caused the Company to pay approximately $3.1 million to terminate these contracts.

        The Company's outstanding debt is generally denominated in the functional currency of the borrowing subsidiary. The amount of outstanding debt denominated in a functional currency other than the U.S. dollar was $292.0 million and $270.6 million at December 31, 2004 and 2003, respectively. The Company believes that this enables it to better match operating cash flows with debt service requirements and to better match the currency of assets and liabilities.

Commodities

        The Company uses various commodity raw materials such as plastic resins and energy products such as electric power and natural gas in conjunction with its manufacturing processes. Generally, the Company acquires these components at market prices and does not use financial instruments to hedge commodity prices. Moreover, the Company maintains minimal inventory levels of commodity raw materials and does not purchase substantial quantities in advance of its production requirements. As a result, the Company is exposed to market risks related to changes in commodity prices of these components.

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Item 8.    Financial Statements and Supplementary Data

        The following consolidated financial statements of the Company are filed as part of this report.

Sealed Air Corporation

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
Sealed Air Corporation:

        We have audited the accompanying consolidated balance sheets of Sealed Air Corporation and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of operations, shareholders' equity, cash flows and comprehensive income (loss) for each of the years in the three-year period ended December 31, 2004. In connection with our audits of the consolidated financial statements, we also have audited consolidated financial statement schedule II—valuation and qualifying accounts and reserves. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Sealed Air Corporation and subsidiaries as of December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

        We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Sealed Air Corporation's internal control over financial reporting as of December 31, 2004, based on criteria established in "Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)," and our report dated March 21, 2005 expressed an unqualified opinion on management's assessment of, and the effective operation of, internal control over financial reporting.

KPMG LLP
Short Hills, New Jersey
March 21, 2005

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SEALED AIR CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations

Years Ended December 31, 2004, 2003 and 2002

(In millions of dollars, except for per share data)