UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x                              QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2005

OR

o                                 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                   to                   

Commission file number 1-12139

SEALED AIR CORPORATION

(Exact name of registrant as specified in its charter)

Registrant’s Telephone Number, including Area Code: (201) 791-7600

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 x  NO o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES x  NO o

There were 82,874,223 shares of the registrant’s common stock, par value $0.10 per share, issued and outstanding as of July 31, 2005.

SEALED AIR CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS

2

PART I
FINANCIAL INFORMATION
SEALED AIR CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
For the Three and Six Months Ended June 30, 2005 and 2004
(In millions of dollars, except per share data)
(Unaudited)

See accompanying Notes to Condensed Consolidated Financial Statements.

3

SEALED AIR CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
June 30, 2005 and December 31, 2004
(In millions of dollars, except share data)
(Unaudited)

See accompanying Notes to Condensed Consolidated Financial Statements.

4

SEALED AIR CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
June 30, 2005 and December 31, 2004 (Continued)
(In millions of dollars, except share data)
(Unaudited)

See accompanying Notes to Condensed Consolidated Financial Statements.

5

SEALED AIR CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2005 and 2004
(In millions of dollars)
(Unaudited)

See accompanying Notes to Condensed Consolidated Financial Statements.

6

SEALED AIR CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
For the Three and Six Months Ended June 30, 2005 and 2004
(In millions of dollars)
(Unaudited)

See accompanying Notes to Condensed Consolidated Financial Statements.

7

SEALED AIR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in millions, except per share data)
(Unaudited)

(1)   Basis of Consolidation

The condensed consolidated financial statements include the accounts of Sealed Air Corporation and its subsidiaries, or the Company. All significant intercompany transactions and balances have been eliminated in consolidation. In management’s opinion, all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of the condensed consolidated balance sheet as of June 30, 2005 and the condensed consolidated results of operations for the three and six months ended June 30, 2005 and 2004 have been made. The results set forth in the condensed consolidated statement of operations for the three and six months ended June 30, 2005 are not necessarily indicative of the results to be expected for the full year. All amounts are approximate due to rounding. Where appropriate, prior period amounts have been reclassified to conform to the current year’s presentation. Most significantly, in the condensed consolidated statement of cash flows, the Company has reclassified the purchases and sales of auction rate securities as investing cash flows. These reclassifications had no impact on the results of operations of the Company. See Note 3, “Short-Term Investments—Available-for-Sale Securities” below.

The condensed consolidated financial statements were prepared following the requirements of the Securities and Exchange Commission, or the SEC, for interim reporting. As permitted under those rules, annual footnotes and other financial information that are normally required by accounting principles generally accepted in the United States of America, or GAAP, can be condensed or omitted.

The Company is responsible for the unaudited condensed consolidated financial statements included in this document. As these are condensed financial statements, they should be read in conjunction with the consolidated financial statements and notes included in the Company’s latest Annual Report on Form 10-K and with the information contained in the Company’s other publicly-available filings with the SEC.

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SEALED AIR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in tables in millions, except per share data)
(Unaudited)

(2)   Business Segment Information

(1)          The three and six months ended June 30, 2005 include a $0.1 and $0.5 charge, respectively, related to Food Packaging and a $0.1 and $0.7 charge, respectively, related to Protective Packaging.

In accordance with Statement of Financial Accounting Standards, or SFAS, No. 131, “Disclosures about Segments of an Enterprise and Related Information,” and because the Company’s management views goodwill as a corporate asset, the Company has allocated all of its goodwill to the corporate level rather than to the individual segments. However, in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” the Company has allocated goodwill to each reportable segment in order to perform its annual impairment review of goodwill, which it does during the fourth quarter of each year. The allocation of goodwill in accordance with SFAS No. 142 as of June 30, 2005 was as follows:

(3)   Short-Term Investments—Available-for-Sale Securities

At June 30, 2005, the Company held no available-for-sale securities. At December 31, 2004 the Company’s available-for-sale securities consisted of auction rate securities for which interest or dividend rates are generally re-set for periods of up to 90 days. The auction rate securities held at December 31, 2004 were investments in preferred stock. In the fourth quarter of 2004, the Company reclassified its

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SEALED AIR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in tables in millions, except per share data)
(Unaudited)

(3)   Short-Term Investments—Available-for-Sale Securities (Continued)

auction rate securities from cash and cash equivalents to short-term investments—available-for-sale securities.

At December 31, 2004, the fair value of the available-for-sale securities held by the Company was equal to their cost. The proceeds from the sales of available-for-sale securities were $187.3 million and $138.1 million for the six months ended June 30, 2005 and 2004, respectively. Purchases of available-for-sale securities were $133.2 million and $221.4 million for the six months ended June 30, 2005 and 2004, respectively. There were no gross realized gains or losses from the sale of available-for-sale securities in 2005 and 2004.

(4)   Accounts Receivable Securitization

The Company’s $125.0 million receivables facility has an expiration date of December 7, 2007. The receivables facility contains financial covenants relating to interest coverage and debt leverage. The Company was in compliance with these ratios at June 30, 2005.

The Company’s receivables funding subsidiary did not sell any receivables interests under the receivables facility during the first six months of 2005 and 2004, and therefore the Company did not remove any related amounts from the assets reflected on its condensed consolidated balance sheet at June 30, 2005.

The costs associated with the receivables facility are reflected in other income, net, in the Company’s condensed consolidated statements of operations for the three and six months ended June 30, 2005 and 2004. These costs primarily relate to program and commitment fees and other associated costs, which were $0.1 million for each of the three months ended June 30, 2005 and 2004, and $0.2 million for each of the six months ended June 30, 2005 and 2004.

(5)   Inventories

At June 30, 2005 and December 31, 2004, the Company determined the value of non-equipment U.S. inventories by the last-in, first-out, or LIFO, inventory method. The value of U.S. inventories determined by that method amounted to $146.2 million and $138.9 million at June 30, 2005 and December 31, 2004, respectively. If the Company had used the first-in, first-out, or FIFO, inventory method, which approximates replacement value, for these inventories, they would have been $33.2 million and $24.9 million higher at June 30, 2005 and December 31, 2004, respectively.

10

SEALED AIR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in tables in millions, except per share data)
(Unaudited)

(6)   Goodwill and Identifiable Intangible Assets

Goodwill:

At June 30, 2005 and December 31, 2004, the Company had unamortized goodwill in the amount of $1,947.4 million and $1,953.4 million, respectively. See Note 2, “Business Segment Information,” for the allocation of goodwill by business segment.

Identifiable Intangible Assets:

At June 30, 2005 and December 31, 2004, the Company had identifiable intangible assets with definite useful lives with a gross carrying value of $76.8 million and $77.2 million, respectively, less accumulated amortization of $63.2 million and $61.6 million, respectively. Identifiable intangibles, other than goodwill, individually and in the aggregate, comprise less than 5% of the Company’s consolidated assets and therefore are immaterial to the Company’s condensed consolidated balance sheets.

Amortization of identifiable intangible assets was approximately $3.3 million for the six months ended June 30, 2005. Assuming no change in the gross carrying value of identifiable intangible assets from the value at June 30, 2005, the estimated amortization for future periods is as follows: remainder of 2005—$2.3 million, 2006—$3.2 million, 2007—$2.6 million, 2008—$1.7 million; and 2009—$1.1 million. These assets are reflected in “other assets” in the Company’s condensed consolidated balance sheets. At June 30, 2005 and December 31, 2004, there were no identifiable intangible assets, other than goodwill, with indefinite useful lives as defined by SFAS No. 142.

(7)   Income Taxes

The Company’s effective income tax rate was 33.3% and 32.4% for the three months ended June 30, 2005 and 2004, respectively, and 33.3% and 34.3% for the six months ended June 30, 2005 and 2004, respectively.

For the three months ended June 30, 2005 and the six months ended June 30, 2005 and 2004, the effective income 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 the effect of state income taxes. The effective income tax rate for the three months ended June 30, 2004 reflects the effect of cumulatively adjusting the Company’s effective income tax rate for the six months ended June 30, 2004 to 34.3% from 36.0% for the three months ended March 31, 2004.

On October 22, 2004, the American Jobs Creation Act, known as the AJCA, became law. The AJCA provides for 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 continues to evaluate the effects of the repatriation provision in accordance with FASB Staff Position No. FAS 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004” and expects to complete this evaluation by the end of the third quarter or the beginning of the fourth quarter of 2005. During the evaluation, the Company is principally considering global cash management objectives, its overall tax position and restrictions on the use of

11

SEALED AIR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in tables in millions, except per share data)
(Unaudited)

(7)   Income Taxes (Continued)

repatriated cash. Pending completion of this evaluation, the Company cannot reasonably estimate the range of potential income tax effects of repatriating funds. If the Company determines to repatriate funds in reliance upon the AJCA, it must complete the repatriation by the end of 2005.

The AJCA also provides for a deduction for qualified production activities in accordance with FASB Staff Position No. FAS 109-1, “Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004.” The qualified production activities deduction, while favorable, is not expected to have a material impact on the Company’s 2005 effective income tax rate.

(8)   Restructuring and Other Charges

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 principal effect of these plans will be to reduce the number of employees and consolidate or relocate operations in both of the Company’s reportable business segments.

At December 31, 2004, the Company expected to eliminate 473 full-time positions, of which 65 positions had been eliminated prior to December 31, 2004. During the first six months of 2005, the Company revised the number of expected full-time positions to be eliminated to 479. In addition, 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 positions is expected to be approximately 379. Through June 30, 2005, the Company eliminated 296 positions. These actions affect principally production workers and members of the Company’s sales force, primarily in Europe. The Company expects to complete this reduction in headcount by June 2006.

The components of the restructuring charges, spending and other activity through June 30, 2005 and the remaining accrual balance at June 30, 2005 were as follows:

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SEALED AIR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in tables in millions, except per share data)
(Unaudited)

(8)   Restructuring and Other Charges (Continued)

The Company expects that $5.8 million of the remaining accrual balance at June 30, 2005 will be paid through the remainder of 2005 and $4.8 million will be paid in 2006 and thereafter.

For the first six months of 2005, the Company recorded restructuring charges of $1.2 million. This amount includes an additional $0.5 million of costs related to the relocation of employees and assets from closed facilities and a $0.7 million adjustment to the restructuring liability reflected in the table above.

(9)   Defined Benefit Pension Plans

U.S. Pension Plans:

The Company contributed $3.6 million to its U.S. defined benefit pension plans during the year ended December 31, 2004. The Company expects to contribute $0.3 million to its U.S. defined benefit plans in 2005.

Non-U.S. Pension Plans:

The Company contributed $11.4 million to its non-U.S. defined benefit pension plans during the year ended December 31, 2004. The Company expects to contribute $4.1 million to its non-U.S. defined benefit plans in 2005.

13

SEALED AIR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in tables in millions, except per share data)
(Unaudited)

(10)   Debt

Revolving Credit Facilities:

In July 2005, the Company entered into a new $500 million senior unsecured multi-currency revolving credit facility due 2010, known as the 2010 facility. The 2010 facility replaces the Company’s $350 million revolving credit facility due 2006, known as the 2006 facility. The 2010 facility is available for general corporate purposes including payment of a portion of the $512.5 million cash payment, including accrued interest, required to be paid upon the effectiveness of an appropriate plan of reorganization in the W. R. Grace & Co. bankruptcy. The Company may re-borrow amounts repaid under the 2010 facility from time to time prior to the expiration or earlier termination of the 2010 facility. Facility fees are payable at the rate of 0.125% per annum on the total amounts available under the 2010 facility. The 2010 facility provides for changes in facility fees based on the Company’s long-term senior unsecured debt ratings.

The Company’s obligations under the 2010 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 2010 facility provides for changes in borrowing margins based on the Company’s long-term senior unsecured debt ratings.

The 2010 facility contains other terms and conditions that are substantially the same as those contained in the 2006 facility. The terms include a requirement 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 (see Note 14, “Commitments and Contingencies” under the captions “Asbestos Settlement and Related Costs” and “Cryovac Transaction; Contingencies Related to the Cryovac Transaction” for further discussion), the Company would be required to repay any amounts outstanding under the 2010 facility, or refinance the facility, within 60 days.

The Company did not borrow under the 2010 facility at closing, and no borrowings were outstanding under the 2006 facility prior to its termination.

ANZ Facility:

The Company has not borrowed under its 170.0 million Australian dollar facility, equivalent to U.S. $129.6 million at June 30, 2005, that expires in March 2010.

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. Both the 2006 facility and the 2010 facility contain 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 in Note 14. 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

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SEALED AIR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in tables in millions, except per share data)
(Unaudited)

(10)   Debt (Continued)

subsidiaries of the Company that are borrowers under the facility. The Company was in compliance with these limitations, as applicable, at June 30, 2005.

Lines of Credit:

At June 30, 2005, the Company had lines of credit available of $686.6 million, of which $652.6 million were unused. The available lines of credit included committed lines of $479.6 million and uncommitted lines of $207.0 million. These credit lines include amounts available under the 2006 facility and the ANZ facility as well as other lines of credit available to various subsidiaries. The Company is not subject to any material compensating balance requirements in connection with its lines of credit.

Senior Notes:

During the six months ended June 30, 2005, the Company recorded adjustments to the fair value of its 5.375% senior notes due April 2008 as a result of the Company’s interest rate hedging related to these notes. See Note 11, “Derivatives and Hedging Activities.”

(11)   Derivatives and Hedging Activities

Foreign Currency Forward Contracts:

The Company is exposed to market risk, such as fluctuations in foreign currency exchange rates. The Company’s subsidiaries have foreign currency exchange exposure from buying and selling in currencies other than their functional currencies. The primary purpose of the Company’s foreign currency hedging activities is to manage the potential changes in value associated with the amounts receivable or payable on transactions denominated in foreign currencies. At June 30, 2005, the Company was party to foreign currency forward contracts with an aggregate notional amount of $337.2 million maturing through December 2005. 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 a net receivable of $0.6 million and approximately zero at June 30, 2005 and December 31, 2004, respectively. These contracts qualified and were designated as cash flow hedges and had original maturities of less than twelve months.

Interest Rate Swaps:

2005:

From time to time, the Company may use interest rate swaps to manage its mix of fixed and floating rates on its outstanding indebtedness. At June 30, 2005, the Company had outstanding interest rate swaps with a total notional amount of $300.0 million that qualified and were designated as fair value hedges. The Company entered into these interest rate swaps to effectively convert its 5.375% senior notes due April 2008 into floating rate debt. At June 30, 2005, the Company recorded a mark to market adjustment to record a decrease of $9.2 million in the fair value of the 5.375% senior notes due April 2008 due to changes in interest rates and an offsetting increase to other liabilities to record the fair value of the related

15

SEALED AIR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in tables in millions, except per share data)
(Unaudited)

(11)   Derivatives and Hedging Activities (Continued)

interest rate swaps. There was no ineffective portion of the hedges recognized in earnings during the period.

In 2005, under the terms of the $300.0 million outstanding interest rate swap agreements, the Company received interest at a fixed rate and paid interest at variable rates that were based on six-month LIBOR. Interest expense increased by $0.4 million in the three months ended June 30, 2005 due to increases in six-month LIBOR. For the six months ended June 30, 2005, the outstanding interest rate swaps did not cause an increase or decrease to interest expense.

2004:

At June 30, 2004, the Company had outstanding interest rate swaps with a total notional amount of $400.0 million that qualified and were designated as fair value hedges. The Company entered into these interest rate swaps in order to effectively convert a portion of the 5.375% senior notes and 8.75% senior notes, that were redeemed in November 2004, into floating rate debt.

In 2004, under the terms of the $400.0 million outstanding interest rate swap agreements, the Company received interest at fixed rates and paid interest at variable rates that were based on six-month LIBOR. Interest expense decreased by $1.9 million and $3.8 million for the three and six months ended June 30, 2004 due to lower levels of six-month LIBOR.

(12)   Other Income, Net

(13)   Earnings Per Common Share

During 2004, the Emerging Issues Task Force, or 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 contingently convertible debt, such as the Company’s 3% convertible senior notes due June 2033, which the Company 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 was applicable retroactively and required restatement of results for prior periods during which the contingently convertible debt instrument was outstanding. As a result, 2004 diluted earnings per common share have been restated to include 6.2 million additional shares of common stock and to exclude the associated interest expense, net of income tax, of $1.9 million and

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SEALED AIR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in tables in millions, except per share data)
(Unaudited)

(13)   Earnings Per Common Share (Continued)

$3.9 million on the contingent convertible debt for the three and six months ended June 30, 2004, respectively.

In calculating diluted earnings per common share, the Company’s calculation of the weighted average number of common shares for 2005 and 2004 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, the issuance of nine million shares of common stock reserved for the Company’s previously announced asbestos settlement referred to in Note 14, “Commitments and Contingencies,” under the caption “Asbestos Settlement and Related Costs,” and the exercise of dilutive stock options, net of assumed treasury stock repurchases.

The following table sets forth the reconciliation of the basic and diluted earnings per common share computations for the three and six months ended June 30, 2005 and 2004:

(14)   Commitments and Contingencies

Asbestos Settlement and Related Costs:

On November 27, 2002, the Company reached an agreement in principle with the committees appointed to represent asbestos claimants in the W. R. Grace & Co. bankruptcy case to resolve all current and future asbestos-related claims made against the Company and its affiliates, the fraudulent transfer claims, and indemnification claims by Fresenius Medical Care Holdings, Inc. and affiliated companies in connection with the Cryovac transaction referred to below. On December 3, 2002, the Company’s Board of

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SEALED AIR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in tables in millions, except per share data)
(Unaudited)

(14)   Commitments and Contingencies (Continued)

Directors approved the agreement in principle. The Company was advised that both of the committees had approved the agreement in principle as of December 5, 2002. The parties to the agreement in principle signed a definitive settlement agreement as of November 10, 2003 consistent with the terms of the agreement in principle. 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. These matters are described more fully in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.

On June 27, 2005, the U.S. Bankruptcy Court in the District of Delaware, where the Grace bankruptcy case is pending, signed an order approving the definitive settlement agreement. Although Grace is not a party to the settlement agreement, under the terms of the order, Grace is directed to comply with the settlement agreement subject to limited exceptions. The order also provides that the Court will retain jurisdiction of any dispute involving the interpretation or enforcement of the terms and provisions of the definitive settlement agreement. The Company expects that the settlement agreement will become effective upon Grace’s emergence from bankruptcy with a plan of reorganization that is consistent with the terms of the settlement agreement. Although Grace filed a proposed plan of reorganization with the Bankruptcy Court in January 2005, the Company cannot predict when a final plan of reorganization will become effective.

On July 11, 2005, the Bankruptcy Court entered an order closing the proceeding brought in 2002 by the committees appointed to represent asbestos claimants in the Grace bankruptcy proceeding against the Company without prejudice to the Company’s right to reopen the matter and renew in its sole discretion its prior motion to vacate the July 2002 interim ruling on the legal standards to be applied relating to the fraudulent transfer claims against the Company.

Cryovac Transaction; Contingencies Related to the Cryovac Transaction:

On March 31, 1998, the Company completed a multi-step transaction that brought the Cryovac packaging business and the former Sealed Air Corporation’s business under the common ownership of the Company. The Company described the Cryovac transaction, contingencies related to the Cryovac transaction, and the case of Thundersky v. The Attorney General of Canada, et al. (File No. CI04-01-39818) in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004. The Company has learned that a proceeding was filed in January 2005 in the Manitoba Court of The Queen’s Bench naming the Company and specified subsidiaries as defendants. The latter proceeding, Her Majesty the Queen in Right of the Province of Manitoba v. The Attorney General of Canada, et al. (File No. CI05-01-41069), seeks the recovery of the cost of insured health services allegedly provided by the Government of Manitoba to the members of the class of plaintiffs in the Thundersky proceeding. Grace has acknowledged that its agreement to defend, indemnify and hold harmless the Company and its affiliates in respect of any liability and expense, including legal fees and costs, in the Thundersky proceeding also applies to the proceeding brought by the Government of Manitoba.

On March 14, 2005, the Company filed a motion to dismiss the amended complaint in the Senn v. Hickey, et al. case for failure to state a claim. Briefs have been filed by both parties, and the parties

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SEALED AIR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in tables in millions, except per share data)
(Unaudited)

(14)   Commitments and Contingencies (Continued)

await the court’s decision on the motion. Although the Company currently believes that it should have no liability in this lawsuit, until the lawsuit has progressed beyond its current preliminary stage, the Company cannot estimate the potential cost of an unfavorable outcome, if any.

(15)   New Accounting Pronouncements

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections.” SFAS No. 154 replaces APB No. 20, “Accounting Changes” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements” and establishes retrospective application as the required method for reporting a change in accounting principle. SFAS No. 154 provides guidance for determining whether retrospective application of a change in accounting principle is impracticable and for reporting a change when retrospective application is impracticable. SFAS No. 154 also addresses the reporting of a correction of an error by restating previously issued financial statements. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company does not anticipate that the adoption of SFAS No. 154 will have a material impact on its consolidated financial statements.

In March 2005, the FASB issued Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations.” FIN 47 clarifies that the term “conditional asset retirement obligation” as used in SFAS No. 143, “Accounting for Asset Retirement Obligations,” refers to a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. FIN 47 is effective no later than the end of fiscal years ending after December 15, 2005. The Company is currently assessing the impact of FIN 47 on its consolidated financial statements.

In December 2004, the FASB issued SFAS No. 123 (revised), “Share-Based Payment.” SFAS No. 123 (revised) replaces SFAS No. 123, “Accounting for Stock-Based Compensation,” and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.” Statement 123 (revised) covers a wide range of share-based compensation arrangements and requires that the compensation cost related to these types of payment transactions be recognized in financial statements. Cost will be measured based on the fair value of the equity or liability instruments issued. Statement 123 (revised) becomes effective for years beginning after June 15, 2005. The adoption of SFAS No. 123 (revised) will not have an impact on the 2006 consolidated financial statements as the amounts currently recognized by the Company under the former Contingent Stock Plan of Sealed Air Corporation and under the 2005 Contingent Stock Plan of Sealed Air Corporation which was approved by the Company’s stockholders at the 2005 annual meeting, would essentially be the same.

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs,” which amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing.” This amendment clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage). SFAS No. 151 requires that those items be recognized as current-period charges regardless of whether they meet the criteria specified in ARB 43 of “so abnormal.” In addition, SFAS No. 151 requires that allocation of fixed production overheads to the costs of conversion be based on normal capacity of the production facilities. SFAS No. 151 is effective for financial statements for fiscal years beginning after June 15, 2005. The Company is currently assessing the impact of SFAS No. 151 on its consolidated financial statements.

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Item 2.                        Management’s Discussion and Analysis of Financial Condition and Results of Operations

The information in this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read together with the Company’s condensed consolidated financial statements and related notes set forth in Item 1 of Part I of this quarterly report on Form 10-Q, Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in Item 7 of Part II of the Company’s Annual Report on Form 10-K for the year ended December 31, 2004, and the Company’s consolidated financial statements and related notes set forth in Item 8 of Part II of the Company’s Annual Report on Form 10-K for the year ended December 31, 2004. All amounts and percentages are approximate due to rounding. Where appropriate, prior period amounts have been reclassified to conform to the current year’s presentation.

Introduction

Highlights for the Company’s second quarter and first six months of 2005 compared with the corresponding 2004 periods were: