10-Q

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

FORM 10-Q

(Mark one)
ý	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For Quarter Ended March 31, 2004
or
o	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Owens-Illinois, Inc.
(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)	1-9576 (Commission File No.)	22-2781933 (IRS Employer Identification No.)
One SeaGate, Toledo, Ohio		43666
(Address of principal executive offices)		(Zip Code)
419-247-5000 (Registrant's telephone number, including area code)

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

        Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

        Owens-Illinois, Inc. $.01 par value common stock—148,870,365 shares at April 30, 2004.

Part I—FINANCIAL INFORMATION

Item 1. Financial Statements.

        The Condensed Consolidated Financial Statements presented herein are unaudited but, in the opinion of management, reflect all adjustments necessary to present fairly such information for the periods and at the dates indicated. Since the following unaudited condensed consolidated financial statements have been prepared in accordance with Article 10 of Regulation S-X, they do not contain all information and footnotes normally contained in annual consolidated financial statements; accordingly, they should be read in conjunction with the Consolidated Financial Statements and notes thereto appearing in the Registrant's Annual Report on Form 10-K for the year ended December 31, 2003.

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OWENS-ILLINOIS, INC.
CONDENSED CONSOLIDATED RESULTS OF OPERATIONS
(Dollars in millions, except per share amounts)

		Three months ended March 31,
		2004		2003
Revenues:
	Net sales	$	1,545.4	$	1,386.4
	Royalties and net technical assistance		7.7		6.7
	Equity earnings		5.6		5.8
	Interest		3.3		7.8
	Other		5.2		5.2
			1,567.2		1,411.9
Costs and expenses:
	Manufacturing, shipping, and delivery		1,260.1		1,140.1
	Research and development		10.3		9.9
	Engineering		9.4		10.2
	Selling and administrative		90.5		83.6
	Interest		114.4		111.0
	Other		4.2		2.6
			1,488.9		1,357.4
Earnings before items below			78.3		54.5
Provision for income taxes			23.4		17.2
Minority share owners' interests in earnings of subsidiaries			5.9		2.9
Net earnings		$	49.0	$	34.4
Basic net earnings per share of common stock		$	0.30	$	0.20
Weighted average shares outstanding (thousands)			147,042		146,853
Diluted net earnings per share of common stock		$	0.29	$	0.20
Weighted diluted average shares (thousands)			148,120		147,518

See accompanying notes.

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OWENS-ILLINOIS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions, except per share amounts)

			March 31, 2004			Dec. 31, 2003			March 31, 2003
Assets
Current assets:
	Cash, including time deposits		$	159.0		$	163.4		$	128.5
	Short-term investments, at cost which approximates market			22.4			26.8			20.2
	Receivables, less allowances for losses and discounts ($49.8 at     March 31, 2004, $52.0 at December 31, 2003, and $51.9 at     March 31, 2003)			868.0			769.7			797.2
	Inventories			989.8			1,010.1			956.6
	Prepaid expenses			139.4			151.8			138.8
		Total current assets		2,178.6			2,121.8			2,041.3
Investments and other assets:
	Equity investments			146.8			145.3			195.4
	Repair parts inventories			200.7			201.0			198.6
	Prepaid pension			973.1			967.1			937.9
	Deposits, receivables, and other assets			446.2			428.9			674.1
	Goodwill			2,287.6			2,280.2			2,744.6
		Total other assets		4,054.4			4,022.5			4,750.6
Property, plant, and equipment, at cost				6,442.6			6,411.7			6,112.3
Less accumulated depreciation				3,116.9			3,024.7			2,751.9
	Net property, plant, and equipment			3,325.7			3,387.0			3,360.4
Total assets			$	9,558.7		$	9,531.3		$	10,152.3
Liabilities and Share Owners' Equity
Current liabilities:
	Short-term loans and long-term debt due within one year		$	122.0		$	92.4		$	84.6
	Current portion of asbestos-related liabilities			175.0			175.0			190.0
	Accounts payable and other liabilities			1,066.2			1,096.0			1,005.3
		Total current liabilities		1,363.2			1,363.4			1,279.9
Long-term debt				5,387.4			5,333.1			5,479.6
Deferred taxes				122.4			119.6			287.9
Nonpension postretirement benefits				283.2			284.8			288.4
Other liabilities				645.1			637.2			624.7
Asbestos-related liabilities				578.3			628.7			307.5
Commitments and contingencies Minority share owners' interests				153.9			161.1			139.6
Share owners' equity:
	Convertible preferred stock, par value $.01 per share, liquidation     preference $50 per share, 9,050,000 shares authorized, issued     and outstanding			452.5			452.5			452.5
	Common stock, par value $.01 per share 250,000,000 shares     authorized, 161,190,446 shares issued and outstanding, less     12,914,262 treasury shares at March 31, 2004 (160,768,191 issued     and outstanding, less 12,914,262 treasury shares at December 31, 2003     and 160,663,006 issued and outstanding, less 12,914,262 treasury     shares at March 31, 2003)			1.6			1.6			1.6
	Capital in excess of par value			2,232.9			2,229.3			2,226.8
	Treasury stock, at cost			(247.6	)		(247.6	)		(247.6	)
	Retained deficit			(1,145.8	)		(1,189.3	)		(148.1	)
	Accumulated other comprehensive loss			(268.4	)		(243.1	)		(540.5	)
		Total share owners' equity		1,025.2			1,003.4			1,744.7
Total liabilities and share owners' equity			$	9,558.7		$	9,531.3		$	10,152.3

See accompanying notes.

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OWENS-ILLINOIS, INC.
CONDENSED CONSOLIDATED CASH FLOWS
(Dollars in millions)

			Three months ended March 31,
			2004			2003
Cash flows from operating activities:
	Net earnings		$	49.0		$	34.4
	Non-cash charges (credits):
		Depreciation		123.3			114.2
		Amortization of intangibles and other deferred items		8.1			8.6
		Amortization of finance fees		4.9			5.6
		Deferred tax provision		10.0			7.4
		Other		(23.1	)		(21.3	)
	Change in non-current operating assets			(10.9	)		5.6
	Asbestos-related payments			(50.4	)		(55.1	)
	Asbestos-related insurance proceeds			0.4			4.7
	Change in non-current liabilities			(6.9	)
	Change in components of working capital			(85.0	)		(169.0	)
		Cash provided by (used in) operating activities		19.4			(64.9	)
Cash flows from investing activities:
	Additions to property, plant, and equipment			(82.5	)		(119.4	)
	Net cash proceeds from divestitures and asset sales			14.6			7.8
		Cash utilized in investing activities		(67.9	)		(111.6	)
Cash flows from financing activities:
	Additions to long-term debt			182.4			260.6
	Repayments of long-term debt			(143.7	)		(51.6	)
	Increase in short-term loans			28.2			5.7
	Net payments for debt-related hedging activity			(6.9	)		(33.2	)
	Payment of finance fees			(3.1	)
	Convertible preferred stock dividends			(5.4	)		(5.4	)
	Issuance of common stock and other			2.6			1.1
		Cash provided by financing activities		54.1			177.2
Effect of exchange rate fluctuations on cash				(10.0	)		1.4
(Decrease) increase in cash				(4.4	)		2.1
Cash at beginning of period				163.4			126.4
Cash at end of period			$	159.0		$	128.5

See accompanying notes.

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OWENS-ILLINOIS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Tabular data dollars in millions,
except share and per share amounts

1.     Earnings Per Share

        The following table sets forth the computation of basic and diluted earnings per share:

			Three months ended March 31,
			2004			2003
Numerator:
	Net earnings		$	49.0		$	34.4
	Convertible preferred stock dividends			(5.4	)		(5.4	)
		Numerator for basic earnings per share—income available to common share owners	$	43.6		$	29.0
Denominator:
	Denominator for basic earnings per share—weighted average shares outstanding			147,041,505			146,853,426
	Effect of dilutive securities:
		Stock options and other		1,078,254			664,996
		Denominator for diluted earnings per share—adjusted weighted average shares outstanding		148,119,759			147,518,422
Basic earnings per share			$	0.30		$	0.20
Diluted earnings per share			$	0.29		$	0.20

        The convertible preferred stock was not included in the computation of diluted earnings per share for the three months ended March 31, 2004 and 2003 since the result would have been antidilutive. Options to purchase 7,135,909 and 7,237,090 weighted average shares of common stock that were outstanding during the three months ended March 31, 2004 and 2003, respectively, were not included in the computation of diluted earnings per share because the options' exercise price was greater than the average market price of the common shares.

2.     Inventories

        Major classes of inventory are as follows:

	March 31, 2004		Dec. 31, 2003		March 31, 2003
Finished goods	$	802.9	$	789.4	$	757.7
Work in process		7.7		9.1		6.3
Raw materials		109.5		137.9		124.2
Operating supplies		69.7		73.7		68.4
	$	989.8	$	1,010.1	$	956.6

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3.     Long-Term Debt

        The following table summarizes the long-term debt of the Company:

			March 31, 2004		Dec. 31, 2003		March 31, 2003
Secured Credit Agreement:
	Revolving Credit Facility:
		Revolving Loans	$	76.3	$	—	$	2,051.5
	Term Loans:
		A1 Term Loan		460.0		460.0
		B1 Term Loan		840.0		840.0
Senior Secured Notes:
	8.875%, due 2009			1,000.0		1,000.0		1,000.0
	7.75%, due 2011			450.0		450.0
	8.75%, due 2012			625.0		625.0		625.0
Senior Notes:
	7.85%, due 2004			36.5		36.5		300.0
	7.15%, due 2005			350.0		350.0		350.0
	8.10%, due 2007			305.6		301.3		300.0
	7.35%, due 2008			254.7		248.8		250.0
	8.25%, due 2013			447.7		450.0
Senior Debentures:
	7.50%, due 2010			255.9		248.3		250.0
	7.80%, due 2018			250.0		250.0		250.0
Other				101.1		137.0		133.1
				5,452.8		5,396.9		5,509.6
	Less amounts due within one year			65.4		63.8		30.0
		Long-term debt	$	5,387.4	$	5,333.1	$	5,479.6

        On March 15, 2004, the Company's subsidiary borrowers entered into the Second Amended and Restated Secured Credit Agreement (the "Agreement"). The previous Amended and Restated Secured Credit Agreement was amended and restated in order to provide financing for the previously announced acquisition of BSN Glasspack, S.A. The Agreement provides for up to $3.27 billion of U.S. dollar borrowings and 52 million Euro borrowings, of which $1.37 billion and 52 million Euros are not available until the closing of the BSN transaction. The Agreement includes a $600 million revolving credit facility and a $460 million A1 term loan, each of which has a final maturity date of April 1, 2007. The Agreement also includes an $840 million B1 term loan, a $1,095 million U.S. dollar and 52 million Euro C term loans and a $275 million D term loan, each of which has a final maturity date of April 1, 2008.

        At March 31, 2004, the Company's subsidiary borrowers had unused credit of $343.4 million available under the Agreement.

        The weighted average interest rate on borrowings outstanding under the Agreement at March 31, 2004 was 3.95%. Including the effects of cross-currency swap agreements related to borrowings under the Agreement by the Company's Australian and Canadian subsidiaries, as discussed in Note 10, the weighted average interest rate was 6.71%.

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4.     Supplemental Cash Flow Information

	Three months ended March 31,
	2004		2003
Interest paid in cash	$	74.2	$	83.6
Income taxes paid in cash		27.5		7.6

        The increase in cash taxes paid is the result of higher international earnings.

5.     Comprehensive Income

        The components of comprehensive income are: (a) net earnings; (b) change in fair value of certain derivative instruments; (c) adjustment of minimum pension liabilities; and (d) foreign currency translation adjustments. Total comprehensive income for the three month periods ended March 31, 2004 and 2003 amounted to $23.7 million and $77.5 million, respectively.

6.     Stock Options

        The Company has three nonqualified stock option plans. The Company has adopted the disclosure-only provisions (intrinsic value method) of Statement of Financial Accounting Standards (FAS) No. 123, "Accounting for Stock-Based Compensation." All options have been granted at prices equal to the market price of the Company's common stock on the date granted. Accordingly, the Company recognizes no compensation expense related to the stock option plans.

        If the Company had elected to recognize compensation cost based on the fair value of the options granted at grant date as allowed by FAS No. 123, pro forma net income and earnings per share would have been as follows:

		Three months ended March 31,
		2004			2003
Net income:
	As reported	$	49.0		$	34.4
	Total stock-based employee compensation expense determined under fair value based     method, net of related tax effects		(1.6	)		(2.2	)
	Pro forma	$	47.4		$	32.2
Basic earnings per share:
	As reported	$	0.30		$	0.20
	Pro forma		0.29			0.18
Diluted earnings per share:
	As reported		0.29			0.20
	Pro forma		0.28			0.18

        The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:

	2004		2003
Expected life of options	5 years		5 years
Expected stock price volatility	74.0	%	72.7	%
Risk-free interest rate	2.7	%	3.1	%
Expected dividend yield	0.0	%	0.0	%

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7.     Contingencies

        The Company is one of a number of defendants in a substantial number of lawsuits filed in numerous state and federal courts by persons alleging bodily injury (including death) as a result of exposure to dust from asbestos fibers. From 1948 to 1958, one of the Company's former business units commercially produced and sold approximately $40 million of a high-temperature, calcium-silicate based pipe and block insulation material containing asbestos. The Company exited the pipe and block insulation business in April 1958. The traditional asbestos personal injury lawsuits and claims relating to such production and sale of asbestos material typically allege various theories of liability, including negligence, gross negligence and strict liability and seek compensatory and in some cases, punitive damages in various amounts (herein referred to as "asbestos claims").

        As of March 31, 2004, the Company has determined that it is a named defendant in asbestos lawsuits and claims involving approximately 31,000 plaintiffs and claimants. Based on an analysis of the claims and lawsuits pending as of December 31, 2003, approximately 92% of the plaintiffs and claimants either do not specify the monetary damages sought or, in the case of court filings, claim an amount sufficient to invoke the jurisdiction of the trial court. Fewer than 4% of the plaintiffs specify the maximum of their damages claim to be between $10 million and $33 million, while approximately 4% of the plaintiffs claim specific damage amounts ranging between $6 million to $122 million. A single suit pending since 1991 involving fewer than 0.1% of the plaintiffs and approximately 60 defendants, claims damages of $11 billion.

        As indicated by the foregoing summary, modern pleading practice permits considerable variation in the assertion of monetary damages. This variability, together with the actual experience discussed further below of litigating or resolving through settlement hundreds of thousands of asbestos claims and lawsuits over an extended period, demonstrates that the monetary relief which may be specified in a lawsuit or claim bears little relevance to its merits or disposition value. Rather, the amount potentially recoverable for a specific claimant is determined by other factors such as the claimant's severity of disease, product identification evidence against specific defendants, the defenses available to those defendants, the specific jurisdiction in which the claim is made, the claimant's history of smoking or exposure to other possible disease-causative factors, and the various other matters discussed further below.

        In addition to the pending claims set forth above, the Company has claims-handling agreements in place with many plaintiffs' counsel throughout the country. These agreements require evaluation and negotiation regarding whether particular claimants qualify under the criteria established by such agreements. The criteria for such claims include verification of a compensable illness and a reasonable probability of exposure to a product manufactured by the Company's former business unit during its manufacturing period ending in 1958. Some plaintiffs' counsel have historically withheld claims under these agreements for later presentation while focusing their attention on active litigation in the tort system. The Company believes that as of March 31, 2004 there are no more than 21,000 of such preexisting but presently unasserted claims against the Company that are not included in the total of pending claims set forth above. The Company further believes that the bankruptcies of additional co-defendants, as discussed below, resulted in an acceleration of the presentation and disposition of a number of these previously withheld preexisting claims under such agreements, which claims would otherwise have been presented and disposed of over the next several years. This acceleration is reflected in an increased number of pending asbestos claims and, to the extent disposed, contributed to additional asbestos-related payments.

        The Company is also a defendant in other asbestos-related lawsuits or claims involving maritime workers, medical monitoring claimants, co-defendants and property damage claimants. Based upon its past experience, the Company believes that these categories of lawsuits and claims will not involve any

9

material liability and they are not included in the above description of pending matters or in the following description of disposed matters.

        Since receiving its first asbestos claim, the Company, as of March 31, 2004, has disposed of the asbestos claims of approximately 310,000 plaintiffs and claimants at an average indemnity payment per claim of approximately $6,000. Certain of these dispositions have included deferred amounts payable over periods ranging up to seven years. Deferred amounts payable totaled approximately $90 million at March 31, 2004 ($87 million at December 31, 2003) and are included in the foregoing average indemnity payment per claim. The Company's indemnity payments for these claims have varied on a per claim basis, and are expected to continue to vary considerably over time. As discussed above, a part of the Company's objective is to achieve, where possible, resolution of asbestos claims pursuant to claims-handling agreements. Under such agreements, qualification by meeting certain illness and exposure criteria has tended to reduce the number of claims presented to the Company that would ultimately be dismissed or rejected due to the absence of impairment or product exposure evidence. The Company expects that as a result, although aggregate spending may be lower, there may be an increase in the per claim average indemnity payment involved in such resolution. In this regard, although the average of such payments has been somewhat higher following the implementation of the claims-handling agreements in the mid-1990s, the annual average amount has not varied materially from year to year in recent years.

        The Company believes that its ultimate asbestos-related liability (i.e., its indemnity payments or other claim disposition costs plus related legal fees) cannot be estimated with certainty. Beginning with the initial liability of $975 million established in 1993, the Company has accrued a total of $2.7 billion through 2003, before insurance recoveries, for its asbestos-related liability. The Company's ability to reasonably estimate its liability has been significantly affected by the volatility of asbestos-related litigation in the United States, the expanding list of non-traditional defendants that have been sued in this litigation and found liable for substantial damage awards, the continued use of litigation screenings to generate new lawsuits, the large number of claims asserted or filed by parties who claim prior exposure to asbestos materials but have no present physical impairment as a result of such exposure, and the growing number of co-defendants that have filed for bankruptcy.

        The Company has continued to monitor trends which may affect its ultimate liability and has continued to analyze the developments and variables affecting or likely to affect the resolution of pending and future asbestos claims against the Company. The Company expects that the total asbestos-related cash payments will be moderately lower in 2004 compared to 2003 and will continue to decline thereafter as the preexisting but presently unasserted claims withheld under the claims handling agreements are presented to the Company and as the number of potential future claimants continues to decrease. The material components of the Company's accrued liability are based on amounts estimated by the Company in connection with its comprehensive review and consist of the following: (i) the reasonably probable contingent liability for asbestos claims already asserted against the Company, (ii) the contingent liability for preexisting but unasserted asbestos claims for prior periods arising under its administrative claims-handling agreements with various plaintiffs' counsel, (iii) the contingent liability for asbestos claims not yet asserted against the Company, but which the Company believes it is reasonably probable will be asserted in the next several years, to the degree that an estimation as to future claims is possible, and (iv) the legal defense costs likely to be incurred in connection with the foregoing types of claims.

        The significant assumptions underlying the material components of the Company's accrual are:

a)

the extent to which settlements are limited to claimants who were exposed to the Company's asbestos-containing insulation prior to its exit from that business in 1958;



b)

the extent to which claims are resolved under the Company's administrative claims agreements or on terms comparable to those set forth in those agreements;

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c)

the extent of decrease or increase in the inventory of pending serious disease cases;



d)

the extent to which the Company is able to successfully defend itself at trial;



e)

the extent of actions by courts to eliminate, reduce or permit the diversion of financial resources for unimpaired claimants and so-called forum shopping;



f)

the extent to which additional defendants with substantial resources and assets are required to participate significantly in the resolution of future asbestos lawsuits and claims;



g)

the number and timing of co-defendant bankruptcies; and



h)

the extent to which the resolution of co-defendant bankruptcies divert resources to unimpaired claimants.

        The Company expects to conduct a comprehensive review of its asbestos-related liabilities and costs annually in connection with finalizing and reporting its annual results of operations, unless significant changes in trends or new developments warrant an earlier review. If the results of an annual comprehensive review indicate that the existing amount of the accrued liability is insufficient to cover its estimated future asbestos-related costs, then the Company will record an appropriate charge to increase the accrued liability.

        In April 1999, Crown Cork & Seal Technologies Corporation ("CCS") filed suit against Continental PET Technologies, Inc. ("CPT"), a wholly-owned subsidiary of the Company, in the United States District Court for the District of Delaware alleging that certain plastic containers manufactured by CPT, primarily multi-layer PET containers with barrier properties, infringe CCS's U.S. Patent 5,021,515 relating to an oxygen-scavenging material. CCS is a party to an agreement with Chevron Philips Chemical Company ("Chevron") under which Chevron has rights to sublicense certain CCS patents, including, Chevron believed, the patent involved in the suit against CPT. To avoid the cost of litigation, CPT took a sublicense from Chevron under the patent in suit and other patents. Chevron then entered the suit to defend and assert its right to sublicense the patent in suit to CPT. In November 2002, the Delaware District Court concluded that Chevron did not have the rights it purported to sublicense to CPT and entered a judgment to that effect on March 31, 2003.

        In connection with the initial public offering of Constar International Inc. ("Constar"), CCS contributed to Constar the patent involved in the suit against CPT. As a result, Constar was substituted for CCS as the plaintiff in the suit. The Court's judgment will allow Constar to pursue its lawsuit against CPT, which is in its initial stages and had been stayed pending resolution of the Chevron claims. In the lawsuit, Constar seeks certain monetary damages and injunctive relief. CPT will continue to pursue all defenses available to it. However, if the Court were to reach conclusions adverse to CPT on the claims for monetary damages asserted by Constar, the Company believes such determination would not have a material adverse effect on the Company's consolidated results of operations and financial position, and any such damages could be covered in part by third-party indemnification. Additionally, an adverse decision with respect to Constar's request for injunctive relief is not likely to have a material adverse effect on the Company because it believes that it can pursue alternative technologies for the manufacture of multi-layer PET containers with barrier properties.

        Other litigation is pending against the Company, in many cases involving ordinary and routine claims incidental to the business of the Company and in others presenting allegations that are nonroutine and involve compensatory, punitive or treble damage claims as well as other types of relief.

        The ultimate legal and financial liability of the Company with respect to the lawsuits and proceedings referred to above, in addition to other pending litigation, cannot be estimated with certainty. The Company's reported results of operations for 2003 were materially affected by the $450 million fourth-quarter charge for asbestos-related costs and asbestos-related payments continue to be substantial. Any possible future additional charge would likewise materially affect the Company's

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results of operations in the period in which it might be recorded. Also, the continued use of significant amounts of cash for asbestos-related costs has affected and will continue to affect the Company's cost of borrowing and its ability to pursue global or domestic acquisitions. However, the Company believes that its operating cash flows and other sources of liquidity will be sufficient to pay its obligations for asbestos-related costs and to fund its working capital and capital expenditure requirements on a short-term and long-term basis.

8.     Segment Information

        The Company operates in the rigid packaging industry. The Company has two reportable product segments within the rigid packaging industry: (1) Glass Containers and (2) Plastics Packaging. The Glass Containers segment includes operations in North America, Europe, the Asia Pacific region, and South America. The Plastics Packaging segment consists of two business units—consumer products (plastic containers and closures) and prescription products.

        The Company currently evaluates performance and allocates resources based on earnings before interest income, interest expense, provision for income taxes and minority share owners' interests in earnings of subsidiaries ("EBIT") excluding amounts related to certain items that management considers not representative of ongoing operations ("Segment EBIT"). EBIT for product segments includes an allocation of some corporate expenses based on both a percentage of sales and direct billings based on the costs of specific services provided. For the Company's U.S. pension plans, net periodic pension cost (credit) has been allocated to product segments.

        Financial information for the three-month periods ended March 31, 2004 and 2003 regarding the Company's product segments is as follows:

		Glass Containers		Plastics Packaging		Total Product Segments		Eliminations and Other Retained Items			Consolidated Totals
Net sales:
	2004	$	1,062.3	$	483.1	$	1,545.4				$	1,545.4
	2003		930.6		455.8		1,386.4					1,386.4
Segment EBIT:
	2004	$	165.1	$	55.9	$	221.0	$	(31.6	)	$	189.4
	2003		126.4		51.1		177.5		(19.8	)		157.7

        The reconciliation of Segment EBIT to earnings before income taxes and minority share owners' interests in earnings of subsidiaries for the three-month periods ended March 31, 2004 and 2003 is as follows:

	2004			2003
Segment EBIT for reportable segments	$	221.0		$	177.5
Eliminations and other retained items		(31.6	)		(19.8	)
Interest expense		(114.4	)		(111.0	)
Interest income		3.3			7.8
Total	$	78.3		$	54.5

9.     New Accounting Standards

        FIN No. 46 (Revised). In January 2003, the FASB issued FASB Interpretation ("FIN") No. 46, "Consolidation of Variable Interest Entities". FIN No. 46 sets forth the criteria used in determining

12

whether an investment in a variable interest entity ("VIE") should be consolidated and is based on the general premise that a company that controls another entity through interests other than voting interests should consolidate the controlled entity. FIN No. 46 is effective for periods ending after December 15, 2003 for companies that have interest in structures that are commonly referred to as special-purpose entities. FIN No. 46 is effective for all other types of variable interest entities for periods ending after March 15, 2004. The Company does not have an interest in any structure that would be considered a special-purpose entity and therefore, FIN No. 46 was adopted by the Company on March 31, 2004 with no impact on the Company's results of operations or financial position.

10.   Derivative Instruments

        The terms of the Second Amended and Restated Secured Credit Agreement require that borrowings under the Agreement be denominated in U.S. dollars except for the C term loan which allows for 52 million Euro borrowings. In order to manage the exposure to fluctuating foreign exchange rates created by U.S. dollar borrowings by the Company's international subsidiaries, certain subsidiaries have entered into currency swaps for the principal amount of their borrowings under the Agreement and for their interest payments due under the Agreement.

        During 2003, the Company's subsidiary in Australia entered into a number of agreements that swap a total of U.S. $666 million of borrowings into 1,050 million Australian dollars. These derivative instruments swap both the interest and principal from U.S. dollars to Australian dollars and also swap the interest rate from a U.S.-based rate to an Australian-based rate. These agreements have various maturity dates ranging from April 2004 through May 2005.

        The Company's subsidiaries in Australia, Canada, the United Kingdom and several other European countries have also entered into short term forward exchange contracts which effectively swap additional intercompany and external borrowings by each subsidiary into its local currency. These contracts swap both the interest and principal amount of borrowings in excess of amounts covered by the swap contracts described above.

        The Company recognizes the above derivatives on the balance sheet at fair value, and the Company accounts for them as fair value hedges. Accordingly, the changes in the value of the swaps are recognized in current earnings and are expected to substantially offset any exchange rate gains or losses on the related U.S. dollar borrowings. For three months ended March 31, 2004, the amount not offset was immaterial.

        In the fourth quarter of 2003 and the first quarter of 2004, the Company entered into a series of interest rate swap agreements with a total notional amount of $1.3 billion that mature from 2007 through 2013. The swaps were executed in order to: (i) convert a portion of the senior notes and senior debentures fixed-rate debt into floating-rate debt; (ii) maintain a capital structure containing appropriate amounts of fixed and floating-rate debt; and (iii) reduce net interest payments and expense in the near-term.

        The Company's fixed-to-variable interest rate swaps are accounted for as fair value hedges. Because the relevant terms of the swap agreements match the corresponding terms of the notes, there is no hedge ineffectiveness. Accordingly, as required by FAS No. 133 the Company recorded the fair market values of the swaps as a net other long-term asset along with a corresponding net increase to the hedged debt.

        Under the swaps the Company receives fixed rate interest amounts (equal to interest on the corresponding note hedged) and pays interest at a six month U.S. LIBOR rate (set in arrears) plus a margin spread (see table below). The interest rate differential on each swap is recognized as an adjustment of interest expense over the term of the agreement.

13

        The following selected information relates to fair value swaps at March 31, 2004 (based on a projected U.S. LIBOR rate of 1.212%):

	Amount Hedged		Average Receive Rate		Average Spread		Asset (Liability) Recorded
Senior Notes due 2007	$	300.0	8.10	%	4.5	%	$	5.6
Senior Notes due 2008		250.0	7.35	%	3.5	%		4.7
Senior Debentures due 2010		250.0	7.50	%	3.2	%		5.9
Senior Notes due 2013		450.0	8.25	%	3.7	%		(2.3	)
Total	$	1,250.0					$	13.9

        The Company also uses commodity futures contracts related to forecasted natural gas requirements. The objective of these futures contracts is to limit the fluctuations in prices paid for natural gas and the potential volatility in earnings or cash flows from future market price movements. The Company continually evaluates the natural gas market with respect to its future usage requirements. The Company generally evaluates the natural gas market for the next twelve to eighteen months and continually enters into commodity futures contracts in order to hedge a portion of its usage requirements through the next twelve to eighteen months. At March 31, 2004, the Company had entered into commodity futures contracts for approximately 75% (approximately 13,500,000 MM BTUs) of its expected North American natural gas usage for the full year of 2004 and approximately 4% (approximately 960,000 MM BTUs) for the full year of 2005.

        The Company accounts for the above futures contracts on the balance sheet at fair value. The effective portion of changes in the fair value of a derivative that is designated as, and meets the required criteria for, a cash flow hedge is recorded in accumulated other comprehensive income ("OCI") and reclassified into earnings in the same period or periods during which the underlying hedged item affects earnings. The ineffective portion of the change in the fair value of a derivative designated as a cash flow hedge is recognized in current earnings.

        The above futures contracts are accounted for as cash flow hedges at March 31, 2004. Hedge accounting is only applied when the derivative is deemed to be highly effective at offsetting anticipated cash flows of the hedged transactions. For hedged forecasted transactions, hedge accounting will be discontinued if the forecasted transaction is no longer probable to occur, and any previously deferred gains or losses will be recorded to earnings immediately.

        At March 31, 2004, an unrealized net gain of $5.8 million, after tax of $3.1 million, related to these commodity futures contracts was included in OCI. There was no ineffectiveness recognized during the three months ended March 31, 2004 and 2003.

        The Company's international subsidiaries may enter into short-term forward exchange agreements to purchase foreign currencies at set rates in the future. These foreign currency forward exchange agreements are used to limit exposure to fluctuations in foreign currency exchange rates for all significant planned purchases of fixed assets or commodities that are denominated in a currency other than the subsidiaries' functional currency. Subsidiaries may also use forward exchange agreements to offset the foreign currency risk for receivables and payables not denominated in their functional currency. The Company records these short-term forward exchange agreements on the balance sheet at fair value and changes in the fair value are recognized in current earnings.

11.   Restructuring Accruals

        In August 2003, the Company announced the permanent closing of its Hayward, California glass container factory. Production at the factory was suspended in June following a major leak in its only

14

glass furnace. As a result, the Company recorded a capacity curtailment charge of $28.5 million ($17.8 million after tax) in the third quarter of 2003.

        The closing of this factory resulted in the elimination of approximately 170 jobs and a corresponding reduction in the Company's workforce. The Company expects to save approximately $12 million per year by closing this factory and moving the production to other locations. The Company anticipates that it will pay out approximately $15 million in cash related to severance, benefits, lease commitments, plant clean-up, and other plant closing costs. The Company expects that a substantial portion of these costs will be paid out by the end of 2005.

        In November 2003, the Company announced the permanent closing of its Milton, Ontario glass container factory. This closing was part of an effort to bring capacity and inventory levels in line with anticipated demand. As a result, the Company recorded a capacity curtailment charge of $20.1 million ($19.5 million after tax) in the fourth quarter of 2003.

        The closing of this factory in November 2003 resulted in the elimination of approximately 150 jobs and a corresponding reduction in the Company's workforce. The Company eventually expects to save approximately $8.5 million per year by closing this factory and moving the production to other locations. The Company anticipates that it will pay out approximately $8.0 million in cash related to severance, benefits, plant clean-up, and other plant closing costs. The Company expects that the majority of these costs will be paid out by the end of 2005.

        In December 2003, the Company announced the permanent closing of its Perth, Australia glass container factory. This closing was part of an effort to reduce overall capacity in Australia and bring inventory levels in line with anticipated demand. The Perth plant's western location and small size contributed to the plant being a higher cost facility that was no longer economically feasible to operate. As a result, the Company recorded a capacity curtailment charge of $23.9 million ($17.4 million after tax) in other costs and expenses in the results of operations for 2003.

        The closing of this factory in December 2003 resulted in the elimination of approximately 107 jobs and a corresponding reduction in the Company's workforce. The Company expects to save approximately $9 million per year by closing this factory and eventually moving the production to other locations. The Company anticipates that it will pay out approximately $10 million in cash related to severance, benefits, plant clean-up, and other plant closing costs. The Company expects that the majority of these costs will be paid out by third quarter of 2004.

        Selected information related to the above glass container factory closings is as follows:

	Hayward			Milton			Perth			Total
Accrual balance as of December 31, 2003	$	12.2		$	12.0		$	5.4		$	29.6
Net cash paid		(0.9	)		(2.2	)		(2.0	)		(5.1	)
Other, principally translation					(0.4	)		0.3			(0.1	)
Remaining accruals related to plant closing charges as of March 31, 2004	$	11.3		$	9.4		$	3.7		$	24.4

15

12.   Pensions

        The components of the net pension expense (credit) for the three months ended March 31, 2004 and 2003 were as follows:

			2004			2003
Service cost			$	13.7		$	12.0
Interest cost				46.5			44.3
Expected asset return				(70.3	)		(68.3	)
Amortization:
	Prior service cost			1.6			1.7
	Loss			8.8			2.6
		Net amortization		10.4			4.3
Net expense (credit)			$	0.3		$	(7.7	)

        The Company previously disclosed in its financial statements for the year ended December 31, 2003, that it expected to contribute $33.9 million to its pension plans in 2004. As of March 31, 2004, $9.1 million of contributions have been made. The Company presently does not expect its projected contributions for the full year of 2004 to be significantly different from the $33.9 million previously projected.

13.   Postretirement Benefits Other Than Pensions

        The components of the net postretirement benefit cost for the three months ended March 31, 2004 and 2003 were as follows:

			2004			2003
Service cost			$	1.1		$	0.9
Interest cost				5.7			5.8
Amortization:
	Prior service credit			(1.2	)		(3.2	)
	Loss			1.2			0.9
		Net amortization		—			(2.3	)
Net postretirement benefit cost			$	6.8		$	4.4

        During January 2004, the FASB issued FASB Staff Position ("FSP") 106-1, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the "Act")", which permits a sponsor of a postretirement health care plan that provides a prescription drug benefit to make a one-time election to defer accounting for the effects of the Act. The guidance in this FSP is effective for interim or annual financial statements of fiscal years ending after December 7, 2003. The election to defer accounting for the Act is a one-time election that must be made before net periodic postretirement benefit costs for the period that includes the Act's enactment date are first included in reported financial information pursuant to the requirements of FAS No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions". In accordance with FSP 106-1, the Company has elected to defer accounting for the effects of the Act and, accordingly, the measures of net postretirement benefit cost shown above do not reflect the effects of the Act on the postretirement benefits. The Company has not determined the impact of the Act on these benefits.

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14.   Financial Information for Subsidiary Guarantors and Non-Guarantors

        The following presents condensed consolidating financial information for the Company, segregating: (1) Owens-Illinois, Inc., the issuer of six series of senior notes and debentures (the "Parent"); (2) the two subsidiaries which have guaranteed the senior notes and debentures on a subordinated basis (the "Guarantor Subsidiaries"); and (3) all other subsidiaries (the "Non-Guarantor Subsidiaries"). The Guarantor Subsidiaries are wholly-owned direct and indirect subsidiaries of the Company and their guarantees are full, unconditional and joint and several. They have no operations and function only as intermediate holding companies.

        Wholly-owned subsidiaries are presented on the equity basis of accounting. Certain reclassifications have been made to conform all of the financial information to the financial presentation on a consolidated basis. The principal eliminations relate to investments in subsidiaries and inter-company balances and transactions.

		March 31, 2004
		Parent			Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations			Consolidated
Balance Sheet
Current assets:
	Accounts receivable	$	—		$	—	$	868.0	$	—		$	868.0
	Inventories							989.8					989.8
	Other current assets		61.3					259.5					320.8
Total current assets			61.3			—		2,117.3		—			2,178.6
Investments in and advances to subsidiaries			2,947.9			1,511.4				(4,459.3	)		—
Goodwill								2,287.6					2,287.6
Other non-current assets			5.2					1,761.6					1,766.8
Total other assets			2,953.1			1,511.4		4,049.2		(4,459.3	)		4,054.4
Property, plant and equipment, net								3,325.7					3,325.7
Total assets		$	3,014.4		$	1,511.4	$	9,492.2	$	(4,459.3	)	$	9,558.7
Current liabilities:
	Accounts payable and accrued liabilities	$	—		$	—	$	1,066.2	$	—		$	1,066.2
	Current portion of asbestos liability		175.0										175.0
	Short-term loans and long-term debt due within one year		36.5					122.0		(36.5	)		122.0
Total current liabilities			211.5			—		1,188.2		(36.5	)		1,363.2
Long-term debt			1,400.0					5,387.4		(1,400.0	)		5,387.4
Asbestos-related liabilities			578.3										578.3
Other non-current liabilities and minority interests			(200.6	)				1,405.2					1,204.6
Capital structure			1,025.2			1,511.4		1,511.4		(3,022.8	)		1,025.2
Total liabilities and share owners' equity		$	3,014.4		$	1,511.4	$	9,492.2	$	(4,459.3	)	$	9,558.7

17

		December 31, 2003
		Parent			Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations			Consolidated
Balance Sheet
Current assets:
	Accounts receivable	$	—		$	—	$	769.7	$	—		$	769.7
	Inventories							1,010.1					1,010.1
	Other current assets		61.3					280.7					342.0
Total current assets			61.3			—		2,060.5		—			2,121.8
Investments in and advances to subsidiaries			2,957.0			1,522.1				(4,479.1	)		—
Goodwill								2,280.2					2,280.2
Other non-current assets			5.6					1,736.7					1,742.3
Total other assets			2,962.6			1,522.1		4,016.9		(4,479.1	)		4,022.5
Property, plant and equipment, net								3,387.0					3,387.0
Total assets		$	3,023.9		$	1,522.1	$	9,464.4	$	(4,479.1	)	$	9,531.3
Current liabilities:
	Accounts payable and accrued liabilities	$	—		$	—	$	1,096.0	$	—		$	1,096.0
	Current portion of asbestos liability		175.0										175.0
	Short-term loans and long-term debt due within one year		36.5					92.4		(36.5	)		92.4
Total current liabilities			211.5			—		1,188.4		(36.5	)		1,363.4
Long-term debt			1,398.4					5,333.1		(1,398.4	)		5,333.1
Asbestos-related liabilities			628.7										628.7
Other non-current liabilities and minority interests			(218.1	)				1,420.8					1,202.7
Capital structure			1,003.4			1,522.1		1,522.1		(3,044.2	)		1,003.4
Total liabilities and share owners' equity		$	3,023.9		$	1,522.1	$	9,464.4	$	(4,479.1	)	$	9,531.3

		March 31, 2003
		Parent			Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations			Consolidated
Balance Sheet
Current assets:
	Accounts receivable	$	—		$	—	$	797.2	$	—		$	797.2
	Inventories							956.6					956.6
	Other current assets		66.5					221.0					287.5
Total current assets			66.5			—		1,974.8		—			2,041.3
Investments in and advances to subsidiaries			3,763.2			2,063.2				(5,826.4	)		—
Goodwill								2,744.6					2,744.6
Other non-current assets			7.5					1,998.5					2,006.0
Total other assets			3,770.7			2,063.2		4,743.1		(5,826.4	)		4,750.6
Property, plant and equipment, net								3,360.4					3,360.4
Total assets		$	3,837.2		$	2,063.2	$	10,078.3	$	(5,826.4	)	$	10,152.3
Current liabilities:
	Accounts payable and accrued liabilities	$	—		$	—	$	1,005.3	$	—		$	1,005.3
	Current portion of asbestos liability		190.0										190.0
	Short-term loans and long-term debt due within one year							84.6					84.6
Total current liabilities			190.0			—		1,089.9		—			1,279.9
Long-term debt			1,700.0					5,479.6		(1,700.0	)		5,479.6
Asbestos-related liabilities			307.5										307.5
Other non-current liabilities and minority interests			(105.0	)				1,445.6					1,340.6
Capital structure			1,744.7			2,063.2		2,063.2		(4,126.4	)		1,744.7
Total liabilities and share owners' equity		$	3,837.2		$	2,063.2	$	10,078.3	$	(5,826.4	)	$	10,152.3

18

		Three months ended March 31, 2004
		Parent		Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations			Consolidated
Results of Operations
Net sales		$	—	$	—	$	1,545.4	$	—		$	1,545.4
External interest income							3.3					3.3
Intercompany interest income			27.8		27.8				(55.6	)		—
Equity earnings from subsidiaries			49.0		49.0				(98.0	)		—
Other equity earnings							5.6					5.6
Other revenue							12.9					12.9
	Total revenue		76.8		76.8		1,567.2		(153.6	)		1,567.2
Manufacturing, shipping, and delivery							1,260.1					1,260.1
Research, engineering, selling, administrative, and other							114.4					114.4
External interest expense			27.8				86.6					114.4
Intercompany interest expense					27.8		27.8		(55.6	)		—
	Total costs and expense		27.8		27.8		1,488.9		(55.6	)		1,488.9
Earnings before items below			49.0		49.0		78.3		(98.0	)		78.3
Provision for income taxes							23.4					23.4
Minority share owners' interests in earnings of subsidiaries							5.9					5.9
Net income		$	49.0	$	49.0	$	49.0	$	(98.0	)	$	49.0

		Three months ended March 31, 2003
		Parent		Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations			Consolidated
Results of Operations
Net sales		$	—	$	—	$	1,386.4	$	—		$	1,386.4
External interest income							7.8					7.8
Intercompany interest income			33.1		33.1				(66.2	)		—
Equity earnings from subsidiaries			34.4		34.4				(68.8	)		—
Other equity earnings							5.8					5.8
Other revenue							11.9					11.9
	Total revenue		67.5		67.5		1,411.9		(135.0	)		1,411.9
Manufacturing, shipping, and delivery							1,140.1					1,140.1
Research, engineering, selling, administrative, and other							106.3					106.3
External interest expense			33.1				77.9					111.0
Intercompany interest expense					33.1		33.1		(66.2	)		—
	Total costs and expense		33.1		33.1		1,357.4		(66.2	)		1,357.4
Earnings before items below			34.4		34.4		54.5		(68.8	)		54.5
Provision for income taxes							17.2					17.2
Minority share owners' interests in earnings of subsidiaries							2.9					2.9
Net income		$	34.4	$	34.4	$	34.4	$	(68.8	)	$	34.4

19

	Three months ended March 31, 2004
	Parent			Guarantor Subsidiaries		Non- Guarantor Subsidiaries			Eliminations		Consolidated
Cash Flows
Cash provided by (used in) operating activities	$	(50.0	)	$	—	$	69.4		$	—	$	19.4
Cash used in investing activities							(67.9	)				(67.9	)
Cash provided by financing activities		50.0					4.1					54.1
Effect of exchange rate change on cash							(10.0	)				(10.0	)
Net change in cash		—			—		(4.4	)		—		(4.4	)
Cash at beginning of period							163.4					163.4
Cash at end of period	$	—		$	—	$	159.0		$	—	$	159.0

	Three months ended March 31, 2003
	Parent			Guarantor Subsidiaries		Non- Guarantor Subsidiaries			Eliminations		Consolidated
Cash Flows
Cash used in operating activities	$	(50.4	)	$	—	$	(14.5	)	$	—	$	(64.9	)
Cash used in investing activities							(111.6	)				(111.6	)
Cash provided by financing activities		50.4					126.8					177.2
Effect of exchange rate change on cash							1.4					1.4
Net change in cash		—			—		2.1			—		2.1
Cash at beginning of period							126.4					126.4
Cash at end of period	$	—		$	—	$	128.5		$	—	$	128.5

20

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

Results of Operations—First Quarter 2004 compared with First Quarter 2003

Net Sales

        The Company's net sales by segment (dollars in millions) for the first quarter of 2004 and 2003 are presented in the following table. For further information, see Segment Information included in Note 8 to the Condensed Consolidated Financial Statements.

	2004		2003
Glass Containers	$	1,062.3	$	930.6
Plastics Packaging		483.1		455.8
Segment and consolidated net sales	$	1,545.4	$	1,386.4

        Consolidated net sales for the first quarter of 2004 increased $159.0 million, or 11.5%, to $1,545.4 million from $1,386.4 million in the first quarter of 2003.

        Net sales of the Glass Containers segment increased $131.7 million, or 14.2%, over the first quarter of 2003. In North America, sales in the first quarter of 2004 were $12.1 million higher than sales in the first quarter of 2003. The higher sales were attributable to increased pricing and overall increased shipments (up approximately 2%) compared to the first quarter of 2003. Shipments of beer containers increased approximately 6% from the first quarter of 2003 primarily due to overall warmer weather conditions in the U.S. and Canada during the first quarter of 2004 as compared to the first quarter of 2003. Shipments of containers for food were higher for the first quarter of 2004; however, lower shipments of containers for tea, juice, liquor and wine more than offset the increase in food shipments. The combined U.S. dollar sales of the segment's operations outside of North America increased $119.6 million over the first quarter of 2003. The increase resulted from a number of factors, including; (1) a 7% increase in unit shipments, higher selling prices and a better product sales mix in the European businesses; (2) a 23% increase in unit shipments and a better product sales mix in South America, particularly in Venezuela; and (3) a 5% increase in unit shipments and higher prices in most of the Asia Pacific region, particularly New Zealand and China. Most of the quarter over quarter increase in South American shipments related to the non-recurrence of the national strike in Venezuela that began in early December 2002 and continued into the first quarter of 2003. The strike caused energy supply curtailments which forced the Company to temporarily idle its two plants in that country during the first quarter of 2003. The effects of changing foreign currency exchange rates increased reported U.S. dollar sales of the segment's operations in Europe and the Asia Pacific region by approximately $72 million. The reported U.S. dollar sales of the segment's operations in South America were not significantly affected by the effects of changing foreign currency exchange rates compared to the prior year first quarter.

        Net sales of the Plastics Packaging segment increased $27.3 million, or 6.0%, over the first quarter of 2003. Unit shipments increased by approximately 10% overall, led by increased shipments of plastic containers for health care, water and juices, and closures for beverages, health care, food and juices. These increases were mostly offset by lower selling prices for certain of the segment's container products and the absence of sales from certain closures assets that were divested in the fourth quarter of 2004. The effects of higher resin cost pass-throughs increased sales in the first quarter of 2004 by approximately $14 million compared to the first quarter of 2003. In addition, the effects of changing foreign currency exchange rates increased reported U.S. dollar sales of the segment's operations in Europe and the Asia Pacific region by approximately $12 million.

21

EBIT

        The Company evaluates performance and allocates resources based on EBIT, excluding amounts related to certain items that management considers not representative of ongoing operations ("Segment EBIT").

        The Company's Segment EBIT results (dollars in millions) for the first quarter of 2004 and 2003 are presented in the following table. For further information, see Segment Information included in Note 8 to the Condensed Consolidated Financial Statements.

	2004			2003
Glass Containers	$	165.1		$	126.4
Plastics Packaging		55.9			51.1
Eliminations and other retained items		(31.6	)		(19.8	)

        Segment EBIT of the Glass Containers segment for the first quarter of 2004 increased $38.7 million, or 30.6%, to $165.1 million, compared with Segment EBIT of $126.4 million in the first quarter of 2003. In North America, EBIT for the first quarter of 2004 increased $3.8 million from the first quarter of 2003. The increase resulted from higher unit shipments, particularly beer containers, increased selling prices, higher capacity utilization, lower maintenance and repair expense, and fixed cost savings resulting from two plant closings in the last half of 2003. These increases were partially offset by lower pension income of approximately $4.6 million. The combined U.S. dollar EBIT of the segment's operations outside North America increased $34.9 million over the first quarter of 2003. The increase was partially attributed to overall increased unit shipments in Europe, South America, and the Asia Pacific region. Higher selling prices and a better product sales mix in the European businesses, the absence of the national strike in Venezuela as discussed below and higher prices in most of the Asia Pacific region also contributed to the increase. South American operations in the first quarter of 2004 compared favorably to the prior year because of the non-recurrence of the national strike in Venezuela that began in early December 2002 and continued into the first quarter of 2003. The strike caused energy supply curtailments which forced the Company to temporarily idle its two plants in that country during the first quarter of 2003. These increases were partially offset by increased energy costs totaling approximately $6 million in Europe, South America and the Asia Pacific region. The effects of changing foreign currency exchange rates increased reported U.S. dollar EBIT of the segment's operations in Europe and the Asia Pacific region by approximately $12 million. The reported U.S. dollar EBIT of the segment's operations in South America was not significantly affected by the effects of changing foreign currency exchange rates compared to the prior year first quarter.

        Segment EBIT of the Plastics Packaging segment for the first quarter of 2004 increased $4.8 million, or 9.4%, to $55.9 million compared with Segment EBIT of $51.1 million in the first quarter of 2003. The increase is primarily attributable to improved manufacturing performance and higher unit shipments. Unit shipments increased by approximately 10% overall, led by increased shipments of plastic containers for health care, water and juices, and closures for beverages, health care, food and juices. These increases were partially offset by the change in product mix and lower selling prices for certain of the segment's container products, reducing EBIT by $11.9 million compared to the first quarter of 2003. Other factors that unfavorably affected EBIT in the first quarter of 2004 compared to the first quarter of 2003 were the absence of sales from certain closures assets that were divested in the fourth quarter of 2004 and lower pension income of approximately $1.4 million.

        Eliminations and other retained items for the first quarter of 2004 were $11.8 million higher than the first quarter of 2003. A $1.0 million reduction in pension income, higher legal and professional services costs resulting in part from compliance with the Sarbanes-Oxley Act of 2002 and higher retention of property and casualty losses were the primary reasons for the increase.

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Interest Expense

        Interest expense increased to $114.4 million in the first quarter of 2004 from $111.0 million in the first quarter of 2003. The $3.4 million increase in 2004 is mainly due to the issuance of fixed rate notes totaling $900 million in May 2003. The proceeds from the notes were used to repay lower cost, variable rate debt borrowed under the Company's Secured Credit Agreement. Partially offsetting the higher fixed rate interest were savings from the December 2003 repricing of the Secured Credit Agreement and approximately $5 million in interest savings as a result of the Company's fixed-to-floating interest rate swap on a portion of its fixed-rate debt.

Minority Share Owners' Interest in Earnings of Subsidiaries

        Minority share owners' interest in earnings of subsidiaries for the first quarter of 2004 was $5.9 million compared to $2.9 million for the first quarter of 2003. The increase is primarily attributed to higher earnings from the Company's operations in Venezuela.

Provision for Income Taxes

        The Company's effective tax rate in the first quarter of 2004 was 29.9% compared with 29.0% for the full year 2003 (excluding separately taxed items).

Pending Acquisition

        On March 16, 2004, the Company announced that it has entered into a definitive agreement to acquire BSN Glasspack, S.A., the second largest glass container manufacturer in Europe, a company controlled by investment funds advised by CVC Capital Partners Europe.

        Closing of the transaction is subject to the parties securing all necessary regulatory approvals and is expected to occur in the second quarter of 2004.

        Total consideration for the acquisition amounts to approximately 1,160 million euros (US$1,460 million), including the assumption of approximately $590 million of debt.

        The Company has amended the Secured Credit Agreement to allow additional borrowings to fund the balance of the total consideration and provide for seasonal working capital needs.

Plastic Container Strategic Review

        In the fourth quarter of 2003, the Company retained advisors to conduct a strategic review of certain of its blow-molded plastics operations in North America, South America and Europe. This review is aimed at exploring all options to maximize investor value, including a possible decision to sell the blow-molded plastics operations. The Company has completed the initial stage of this process and has invited potential acquirers to submit a formal indication of interest which would include, among other things, a preliminary range of value. Depending on the level of interest expressed and other factors, the Company expects to reach a decision regarding possible divestiture sometime during the second quarter of 2004.

Capital Resources and Liquidity

        The Company's total debt at March 31, 2004 was $5.51 billion, compared to $5.43 billion at December 31, 2003 and $5.56 billion at March 31, 2003.

        On March 15, 2004, the Company's subsidiary borrowers entered into the Second Amended and Restated Secured Credit Agreement (the "Agreement"). The previous Amended and Restated Secured Credit Agreement was amended and restated in order to provide financing for the BSN acquisition discussed previously. The Agreement provides for up to $3.27 billion of U.S. dollar borrowings and

23

52 million Euro borrowings, of which $1.37 billion and 52 million Euros are not available until the closing of the BSN transaction. The Agreement includes a $600 million revolving credit facility and a $460 million A1 term loan, each of which has a final maturity date of April 1, 2007. The Agreement also includes an $840 million B1 term loan, a $1,095 million U.S. dollar and 52 million Euro C term loans and a $275 million D term loan, each of which has a final maturity date of April 1, 2008. At March 31, 2004, the Company had available credit totaling $1.9 billion under the Agreement, of which $343.4 million had not been utilized.

        Following the expected acquisition of BSN, the Company's cash interest payments will increase substantially as a result of the additional borrowings and assumed debt. The amount of such additional payments will depend partially on future interest rates, however, based on rates in effect at the end of the quarter, the Company expects cash interest payments to increase by approximately $94 million on an annual basis.

        Cash provided by (utilized in) operating activities was $19.4 million for the first quarter of 2004 compared to $(64.9) million for the first quarter of 2003, an improvement of $84.3 million. Cash required for working capital in the first quarter of 2004 was $84.0 million less than the prior year first quarter. Inventories in North American glass and plastic container operations were lower than prior year as a result of higher shipments. Inventory levels in the Australian and European glass container operations were also lower, as compared to the prior year.

        During May 2003, a subsidiary of the Company issued Senior Secured Notes totaling $450 million and Senior Notes totaling $450 million. The issuance of these notes was part of the Company's plan to improve financial flexibility by issuing long-term fixed rate debt. While this strategy extended the maturity of the Company's debt, long-term fixed rate debt increases the cost of borrowing compared to shorter term, variable rate debt.

        The Company anticipates that cash flow from its operations and from utilization of credit available under the Agreement will be sufficient to fund its operating and seasonal working capital needs, debt service and other obligations on a short-term and long-term basis. The Company expects that its total asbestos-related payments in 2004 will be moderately lower than 2003. Based on the Company's expectations regarding future payments for lawsuits and claims and also based on the Company's expected operating cash flow, the Company believes that the payment of any deferred amounts of previously settled or otherwise determined lawsuits and claims, and the resolution of presently pending and anticipated future lawsuits and claims associated with asbestos, will not have a material adverse effect upon the Company's liquidity on a short-term or long-term basis.

Critical Accounting Estimates

        The Company's analysis and discussion of its financial condition and results of operations are based upon its consolidated financial statements that have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"). The preparation of financial statements in conformity with U.S. 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. The Company evaluates these estimates and assumptions on an ongoing basis, including but not limited to those related to pension benefit plans, contingencies and litigation, goodwill, and deferred tax assets. Estimates and assumptions 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 certain 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. The impact and any associated risks related to estimates and assumptions are discussed within Management's Discussion and Analysis of Financial Condition and Results of

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Operations, as well as in the Notes to the Condensed Consolidated Financial Statements, if applicable, where estimates and assumptions affect the Company's reported and expected financial results.

        The Company believes that accounting for pension benefit plans, contingencies and litigation, goodwill, and deferred tax assets involves the more significant judgments and estimates used in the preparation of its consolidated financial statements.

Pension Benefit Plans

        The Company recorded pension expense totaling approximately $0.3 million for the first quarter of 2004 and pretax pension credits of $7.7 million for the first quarter of 2003 from its principal defined benefit pension plans. The 2004 decrease in pretax pension credits is attributed to several factors discussed below.

        The determination of pension obligations and the related pension credits involves significant estimates. The most significant estimates are the discount rate used to calculate the actuarial present value of benefit obligations and the expected long-term rate of return on assets used in calculating the pension credits for the year. The Company uses discount rates based on yields of highly rated fixed income debt securities at the end of the year. At December 31, 2003, the weighted average discount rate for all plans was 6.1%. The Company uses an expected long-term rate of return on assets that is based on both past performance of the various plans' assets and estimated future performance of the assets. Past performance of the Company's pension plan assets has been particularly volatile in the last four years. Investment returns exceeded 20% during 2003 but were negative in each of the years 2000-2002. The Company refers to average historical returns over longer periods (up to 10 years) in setting its rates of return because short-term fluctuations in market value do not reflect the rates of return the Company expects to achieve based upon its long-term investing strategy. For 2004, the Company is using a weighted average expected long-term rate of return on pension assets of approximately 8.8% compared to 8.7% for the year ended December 31, 2003. The lower pretax credits to earnings in 2004 are principally attributable to a lower asset base, higher amortization of previous actuarial losses and generally lower discount rates (6.10% for 2004 compared with 6.52% for 2003). Depending on international exchange rates, the Company expects to record less than one million of pension expense for the full year of 2004, compared with credits to earnings of $29.9 million in 2003.

        Future effects on reported results of operations depend on economic conditions and investment performance. For example, a one-half percentage point change in the actuarial assumption regarding the expected return on assets would result in a change of approximately $16 million in pretax pension credits for the full year 2004. In addition, changes in external factors, including the fair values of plan assets and the discount rates used to calculate plan liabilities, could result in possible future balance sheet recognition of additional minimum pension liabilities.

        If the Accumulated Benefit Obligation ("ABO") of the Company's principal pension plans in the U.S. and Australia exceeds the fair value of their assets at the next measurement date of December 31, 2004, the Company will be required to write off the related prepaid pension asset and record a liability equal to the excess of the ABO over the fair value of the assets. The noncash charge would result in a decrease in the Accumulated Other Comprehensive Income component of share owners' equity that

25

would significantly reduce net worth. Amounts related to the Company's U.S. and Australian plans as of December 31, 2003 were as follows (millions of dollars):

	U.S. Salary		U.S. Hourly		Australian Plans		Total
Fair value of assets	$	796.2	$	1,496.4	$	97.3	$	2,389.9
Accumulated benefit obligations		748.7		1,358.9		83.9		2,191.5
Excess	$	47.5	$	137.5	$	13.4	$	198.4
Prepaid pension asset	$	354.5	$	590.4	$	22.2	$	967.1

        Even if the fair values of the U.S. plans' assets are less than ABO at December 31, 2004, however, the Company believes it will not be required to make cash contributions to the U.S. plans for at least several years.

Contingencies and Litigation

        The Company believes that its ultimate asbestos-related liability (i.e., its indemnity payments or other claim disposition costs plus related legal fees) cannot be estimated with certainty. The Company's ability to reasonably estimate its liability has been significantly affected by the volatility of asbestos-related litigation in the United States, the expanding list of non-traditional defendants that have been sued in this litigation and found liable for substantial damage awards, the continued use of litigation screenings to generate new lawsuits, the large number of claims asserted or filed by parties who claim prior exposure to asbestos materials but have no present physical impairment as a result of such exposure, and the growing number of co-defendants that have filed for bankruptcy. The Company believes that the bankruptcies of additional co-defendants have resulted in an acceleration of the presentation and disposition of a number of claims, which would otherwise have been presented and disposed of over the next several years. The Company continues to monitor trends which may affect its ultimate liability and continues to analyze the developments and variables affecting or likely to affect the resolution of pending and future asbestos claims against the Company.

        The Company completed a comprehensive review of its asbestos-related liabilities and costs in connection with finalizing and reporting its results for 2003, and expects to conduct a comprehensive review annually thereafter, unless significant changes in trends or new developments warrant an earlier review. If the results of the annual comprehensive review indicate that the existing amount of the accrued liability is insufficient to cover its estimated costs, then the Company will record an appropriate charge to increase the accrued liability.

        The Company's estimates are based on a number of factors as described further in Note 7 to the Condensed Consolidated Financial Statements.

Goodwill

        As required by FAS No. 142, "Goodwill and Other Intangibles," the Company evaluates goodwill annually (or more frequently if impairment indicators arise) for impairment. The Company conducts its evaluation as of October 1 of each year. Goodwill impairment testing is performed using the business enterprise value ("BEV") of each reporting unit which is calculated as of a measurement date by determining the present value of debt-free, after tax future cash flows, discounted at the weighted average cost of capital of a hypothetical third-party buyer. This BEV is then compared to the book value of each reporting unit as of the measurement date to assess whether an impairment exists.

        During the fourth quarter of 2003, the Company completed its annual impairment testing and determined that an impairment existed in the goodwill of its consumer products reporting unit.

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Following a review of the valuation of the unit's identifiable assets, the Company recorded an impairment charge of $670.0 million to reduce the reported value of its goodwill.

        If the Company's projected debt-free, after tax cash flows were substantially lower, or if the assumed weighted average cost of capital were substantially higher, the testing performed as of October 1, 2003, may have indicated an impairment of one or more of the Company's other reporting units and, as a result, the related goodwill would also have been written down. However, based on the Company's testing as of that date, modest changes in the projected cash flows or cost of capital would not have created impairment in other reporting units. For example, if projected debt-free, after tax cash flows had been decreased by 5%, or alternatively if the weighted average cost of capital had been increased by 5%, the resulting lower BEV's would still have exceeded the book value of each reporting unit by a significant margin in all cases except for the Asia Pacific Glass reporting unit. Because the BEV for the Asia Pacific Glass reporting unit exceeded its book value by approximately 5%, the results of the impairment testing could be negatively affected by relatively modest changes in the assumptions and projections. At December 31, 2003, the goodwill of the Asia Pacific Glass reporting unit accounted for approximately $960 million of the Company's consolidated goodwill. The Company will monitor conditions throughout 2004 that might significantly affect the projections and variables used in the impairment test to determine if a review prior to October 1 may be appropriate. If the results of impairment testing confirm that a write down of goodwill is necessary, then the Company will record a charge in the fourth quarter of 2004, or earlier if appropriate. In the event the Company would be required to record a significant write down of goodwill, the charge would have a material adverse effect on reported results of operations and net worth.

Deferred Tax Assets

        FAS No. 109, "Accounting for Income Taxes," requires that a valuation allowance be recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are determined separately for each tax jurisdiction in which the company conducts its operations or otherwise incurs taxable income or losses. In the United States, the Company has recorded significant deferred tax assets, the largest of which relate to the accrued liability for asbestos-related costs that are not deductible until paid and to its net operating loss carryforwards. The deferred tax assets are partially offset by deferred tax liabilities, the most significant of which relates to the prepaid pension balance. The Company has recorded a valuation allowance for its U.S. tax credit carryforwards, however, it has not recorded a valuation allowance for the balance of its net U.S. deferred tax assets. The Company believes that its projected taxable income in the U.S., along with a number of prudent and feasible tax planning strategies, will be sufficient to utilize the net operating losses prior to their expiration. If the Company is unable to generate sufficient income from its U.S. operations or implement the required tax planning strategies, or if the Company is required to eliminate deferred tax liabilities in connection with a write off of its pension balance, then a valuation allowance will have to be provided. It is not possible to estimate the amount of the adjustment that may be required, however, based on recorded deferred taxes at December 31, 2003, the related non-cash tax charge could range from approximately $90 million to $425 million. The Company will assess the need to provide a valuation allowance annually or more frequently, if necessary.

        Deferred tax assets and liabilities are calculated by applying existing statutory tax rates to the temporary differences between amounts reported in the financial statements and those reported in the tax return and to the pretax amount of loss carryforwards. During 2003, legislation was proposed in the U.S. that would, among other things, reduce the rate of tax on corporate income. If such legislation is enacted, the Company will be required to revalue its deferred tax assets and liabilities using lower rates. Because the deferred tax accounts are in a net asset position, the result would be a charge to earnings through an increase in the provision for taxes. Based on the Company's U.S. net deferred tax

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asset position at December 31, 2003, a 1% decrease in the corporate income tax rate would require an increase in the tax provision of approximately $1 million.

Item 3.    Quantitative and Qualitative Disclosure About Market Risk.

        On March 15, 2004, the Company's subsidiary borrowers entered into the Second Amended and Restated Secured Credit Agreement. The Agreement provides for up to $3.27 billion of U.S. dollar borrowings and 52 million Euro borrowings, of which $1.37 billion and 52 million Euros are not available until the closing of the BSN transaction. The Agreement includes a $600 million revolving credit facility and a $460 million A1 term loan, each of which has a final maturity date of April 1, 2007. The Agreement also includes an $840 million B1 term loan, a $1,095 million U.S. dollar and 52 million Euro C term loans and a $275 million D term loan, each of which has a final maturity date of April 1, 2008. Interest on all borrowings under the Agreement is determined by reference to short-term rates.

        Currently all borrowings under the Agreement, including borrowings by foreign subsidiaries, are denominated in U.S. dollars. As described in Note 10 to the financial statements, certain amounts borrowed under the Agreement by foreign subsidiaries have been swapped into the subsidiaries' functional currencies.

        During May 2003, a subsidiary of the Company issued Senior Secured Notes totaling $450 million and Senior Notes totaling $450 million. The issuance of these notes was part of the Company's plan to improve financial flexibility by issuing long-term fixed rate debt. While this strategy extended the maturity of the Company's debt, long-term fixed rate debt increases the cost of borrowing compared to shorter term, variable rate debt.

Forward Looking Statements

        This document contains "forward looking" statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933. Forward-looking statements reflect the Company's current expectations and projections about future events at the time, and thus involve uncertainty and risk. It is possible the Company's future financial performance may differ from expectations due to a variety of factors including, but not limited to the following: (1) the timing of the acquisition of BSN, (2) foreign currency fluctuations relative to the U.S. dollar, (3) changes in capital availability or cost, including interest rate fluctuations, (4) the general political, economic and competitive conditions in markets and countries where the Company has operations, including disruptions in the supply chain, competitive pricing pressures, inflation or deflation, and changes in tax rates and laws, (5) consumer preferences for alternative forms of packaging, (6) fluctuations in raw material and labor costs, (7) availability of raw materials, (8) costs and availability of energy, (9) transportation costs, (10) consolidation among competitors and customers, (11) the ability of the Company to integrate operations of acquired businesses and achieve expected synergies, (12) unanticipated expenditures with respect to environmental, safety and health laws, (13) the performance by customers of their obligations under purchase agreements, and (14) the timing and occurrence of events that are beyond the control of the Company, including events related to asbestos-related claims. It is not possible to foresee or identify all such factors. Any forward looking statements in this document are based on certain assumptions and analyses made by the Company in light of its experience and perception of historical trends, current conditions, expected future developments, and other factors it believes are appropriate in the circumstances. Forward-looking statements are not a guarantee of future performance and actual results or developments may differ materially from expectations. While the Company continually reviews trends and uncertainties affecting the Company's results of operations and financial condition, the Company does not intend to update any particular forward looking statements contained in this document.

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Item 4.    Controls and Procedures

        The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Also, we have investments in certain unconsolidated entities. As we do not control or manage these entities, our disclosure controls and procedures with respect to such entities are necessarily substantially more limited than those we maintain with respect to our consolidated subsidiaries.

        As required by SEC Rule 13a-15(b), the Company carried out an evaluation, under the supervision and with the participation of management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of the end of the quarter covered by this report. Based on the foregoing, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective at the reasonable assurance level.

        There has been no change in the Company's internal controls over financial reporting during the Company's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal controls over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

        For further information on legal proceedings, see Note 7 to the Condensed Consolidated Financial Statements, "Contingencies," that is included in Part I of this Report and is incorporated herein by reference.

Item 6. Exhibits and Reports on Form 8-K.

(a)

Exhibits:

Exhibit 4.1	Second Amended and Restated Secured Credit Agreement, dated as of March 15, 2004, by and among the Borrowers named therein, Owens-Illinois General, Inc., as Borrower's Agent, Deutsche Bank Trust Company Americas, as Administrative Agent, and the other Agents, Arrangers and Lenders named therein (filed as Exhibit 4.1 to Owens-Illinois Group, Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004).
Exhibit 4.2	First Amendment to Amended and Restated Intercreditor Agreement, dated as of March 15, 2004, by and among Deutsche Bank Trust Company Americas, as administrative agent for the lenders party to the Credit Agreement (as defined therein) and Deutsche Bank Trust Company Americas, as Collateral Agent (as defined therein) and any other parties thereto (filed as Exhibit 4.2 to Owens-Illinois Group, Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004).
Exhibit 4.3	First Amendment to Amended and Restated Pledge Agreement, dated as of March 15, 2004, between Owens-Illinois Group, Inc., Owens-Brockway Packaging, Inc., and Deutsche Bank Trust Company Americas, as Collateral Agent (as defined therein) and any other parties thereto (filed as Exhibit 4.3 to Owens-Illinois Group, Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004).
Exhibit 4.4	First Amendment to Amended and Restated Security Agreement, dated as of March 15, 2004, between Owens-Illinois Group, Inc., each of the direct and indirect subsidiaries of Owens-Illinois Group, Inc. signatory thereto and Deutsche Bank Trust Company Americas, as Collateral Agent (as defined therein) (filed as Exhibit 4.4 to Owens-Illinois Group, Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004).
Exhibit 10.1	Employment agreement between Owens-Illinois, Inc. and Steven R. McCracken dated March 31, 2004.
Exhibit 10.2	Restricted Stock Agreement under the Amended and Restated 1997 Equity Participation Plan of Owens-Illinois, Inc. between Owens-Illinois, Inc. and Steven R. McCracken.
Exhibit 10.3	Non-Qualified Stock Option Agreement under the Amended and Restated 1997 Equity Participation Plan of Owens-Illinois, Inc. between Owens-Illinois, Inc. and Steven R. McCracken.

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Exhibit 12	Computation of Ratio of Earnings to Fixed Charges and Earnings to Combined Fixed Charges and Preferred Stock Dividends
Exhibit 31.1	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1*	Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350
Exhibit 32.2*	Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350

(b)

Reports on Form 8-K:

        On January 28, 2004, the Registrant filed a Form 8-K (Items 5 and 12) which included a press release dated January 27, 2004 setting forth its results of operations for the fiscal year ended December 31, 2003.

        On February 18, 2004, the Registrant filed a Form 8-K (Item 5) which included a press release dated February 18, 2004 announcing that the Company had entered into exclusive negotiations to acquire BSN Glasspack, S.A.

        On February 24, 2004, the Registrant furnished a Form 8-K (Item 9) which stated that the management of the Company had met with senior leaders on February 20, 2004 to discuss the amendments to its subsidiaries' credit facilities in connection with the proposed acquisition of BSN Glasspack and that the Company's presentation at that meeting is available on the Company's website.

        On March 16, 2004, the Registrant filed a Form 8-K (Item 5) which included a press release dated March 16, 2004 announcing that the Company had entered into a definitive agreement to acquire BSN Glasspack, S.A.

        On March 22, 2004, the Registrant filed a Form 8-K (Item 5) which included a press release dated March 22, 2004 announcing the appointment of Steven R. McCracken to the position of President and Chief Executive Officer of the Company and accepting the resignation of Edward A. Gilhuly as a Class II director, effective April 1, 2004.

*

This exhibit shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

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SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	OWENS-ILLINOIS, INC.
Date: May 10, 2004	By:	/s/  EDWARD C. WHITE Edward C. White Senior Vice President of Finance and Administration and Controller (Principal Accounting Officer)

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INDEX TO EXHIBITS

Exhibits
4.1	Second Amended and Restated Secured Credit Agreement, dated as of March 15, by and among the Borrowers named therein, Owens-Illinois General, Inc., as Borrower's Agent, Deutsche Bank Trust Company Americas, as Administrative Agent, and the Agents, Arrangers and Lenders named therein (filed as Exhibit 4.1 to Owens-Illinois Group, Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004).
4.2	First Amendment to Amended and Restated Intercreditor Agreement, dated as of March 15, 2004, by and among Deutsche Bank Trust Company Americas, as administrative agent for the lenders party to the Credit Agreement (as defined therein) and Deutsche Bank Trust Company Americas, as Collateral Agent (as defined therein) and any other parties thereto (filed as Exhibit 4.2 to Owens-Illinois Group, Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004).
4.3	First Amendment to Amended and Restated Pledge Agreement, dated as of March 15, 2004, between Owens-Illinois Group, Inc., Owens-Brockway Packaging, Inc., and Deutsche Bank Trust Company Americas, as Collateral Agent (as defined therein) and any other parties thereto (filed as Exhibit 4.3 to Owens-Illinois Group, Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004).
4.4	First Amendment to Amended and Restated Security Agreement, dated as of March 15, 2004, between Owens-Illinois Group, Inc., each of the direct and indirect subsidiaries Owens-Illinois Group, Inc. signatory thereto and Deutsche Bank Trust Company Americas, as Collateral Agent (as defined therein) (filed as Exhibit 4.4 to Owens-Illinois Group, Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004).
10.1	Employment agreement between Owens-Illinois, Inc. and Steven R. McCracken dated March 31, 2004.
10.2	Restricted Stock Agreement under the Amended and Restated 1997 Equity Participation Plan of Owens-Illinois, Inc. between Owens-Illinois, Inc. and Steven R. McCracken.
10.3	Non-Qualified Stock Option Agreement under the Amended and Restated 1997 Equity Participation Plan of Owens-Illinois, Inc. between Owens-Illinois, Inc. and Steven R. McCracken.
12	Computation of Ratio of Earnings to Fixed Charges and Earnings to Combined Fixed Charges and Preferred Stock Dividends
31.1	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*	Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350
32.2*	Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350

*

This exhibit shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

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Part I—FINANCIAL INFORMATION

Item 1. Financial Statements.

OWENS-ILLINOIS, INC. CONDENSED CONSOLIDATED RESULTS OF OPERATIONS (Dollars in millions, except per share amounts)
OWENS-ILLINOIS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in millions, except per share amounts)
OWENS-ILLINOIS, INC. CONDENSED CONSOLIDATED CASH FLOWS (Dollars in millions)
OWENS-ILLINOIS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Tabular data dollars in millions, except share and per share amounts

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosure About Market Risk.
Item 4. Controls and Procedures

PART II—OTHER INFORMATION
SIGNATURES
INDEX TO EXHIBITS

EX-10.1

Exhibit  10.1

WORLD OPERATIONS

March 31, 2004

Mr. Steve McCracken

296 Old Kennett Road

Kennett Square, PA 19348

Dear Steve:

We are delighted to confirm that you will join us as Chairman and Chief Executive Officer on the terms set forth below.

1.Position.  President and Chief Executive Officer and a member of the Board of Directors of Owens-Illinois, Inc. (the “Board” and the “Company,” respectively), effective April 1, 2004.  Chairman of the Board following the Company’s 2004 Annual Meeting of Shareholders.

2.Base Salary.  $700,000 per year, plus such increases, if any, as may be determined from time to time by the Board (“Base Salary”).

3.Annual Bonus.  You will participate in the Company’s Senior Management Incentive Plan, as amended from time to time (or any successor plan).  Your target bonus will be 150% of Base Salary (the “Target Bonus”).  Your annual bonus can reach 300% of Base Salary if you exceed target annual incentives by up to 20%.  Your annual bonus for 2004 will be not less than $350,000.

4.Equity Arrangements.

a.Purchased Equity.  As soon as practicable following the date hereof, but in no event later than April 9, 2004, you will purchase from the Company a number of shares of the Company’s common stock, par value $0.01 per share (the “Common Stock”), for an aggregate purchase price of $750,000, with the number of shares calculated by dividing (x) that aggregate purchase price, by (y) the per-share closing price of the Common Stock on the New York Stock Exchange (the “Fair Market Value”) on the trading day immediately preceding the date of purchase.

b.Initial Restricted Share Award.  On April 1, 2004, you will be granted an award of restricted shares in respect of 155,000 shares (“Restricted Shares”) of Common Stock under the Company’s Amended and Restated 1997 Equity Participation Plan (the

“Equity Participation Plan”).  Subject to your continued employment with the Company, 50% of the Restricted Shares will vest on the second anniversary of the date of grant, 25% on the third anniversary of the date of grant, and the remaining 25% on the fourth anniversary of the date of grant.

c.Initial Stock Option.  On April 1, 2004, you will be granted a non-qualified stock option to purchase 335,000 shares of Common Stock (the “Stock Option”) under the Equity Participation Plan.  The Stock Option will have a per-share exercise price equal to the Fair Market Value on the trading day immediately preceding the date of grant, and will expire ten years and one day following the date of grant subject to earlier expiration in accordance with the terms of the standard non-qualified stock option agreement under the Equity Participation Plan.  Subject to your continued employment with the Company, 50% of the Stock Option will become exercisable on the 5^th anniversary of the date of grant, and the remaining 50% will become exercisable on the 6^th anniversary of the date of grant.  The Stock Option will, however, become exercisable on an accelerated basis, as indicated below, after the first anniversary of the date of grant if the average Fair Market Value per share for any period of 20 consecutive trading days (commencing after such first anniversary) is at least equal to the product of the Fair Market Value per share on the date of grant times the amount shown below under “Stock Price Multiple.”

Stock Price Multiple	Exercisable Percentage
112.0%	25	%
134.5%	50	%
160.5%	75	%
192.5%	100	%

d.Future Equity-Incentive Awards.  You will be eligible for future equity-incentive awards in the sole discretion of the Board.

5.Employee Benefits and Perquisites.  You will participate in the Company’s employee benefit plans (except for severance or incentive plans) as in effect from time to time, including its health plan and life insurance plan (collectively, the “Employee Benefits”), on the same basis as those benefits are generally made available to other senior executives of the Company.  You will be provided with four weeks (20 days) per year of paid vacation.  You will have use of a Company car and will be reimbursed for reasonable fees paid for financial consulting.  You will participate in the Company’s supplemental retirement plan, with accelerated vesting in order to meet the service requirements after five years of service, and we intend to work with you to coordinate your pension benefits with those you earned from your former employer.

6.Relocation.  The Company will reimburse you for reasonable and customary relocation expenses (including temporary living expenses and the 5% brokerage commission on the sale of your home in Kennett Square, Pennsylvania) under its policies incurred by you in connection with the relocation of your primary residence (and personal belongings).  The

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Company also will pay you an amount up to $300,000 in the event the sale of your home in Kennett Square, Pennsylvania results in a loss to you (i.e., the amount received by you, net of any unreimbursed brokerage commissions, is less than $1,500,000).

7.Miscellaneous.

a.Governing Law.  This letter agreement (“Letter Agreement”) will be governed by and construed in accordance with the laws of the State of Ohio, without regard to conflicts of laws principles thereof.

b.Entire Agreement/Amendments.  This Letter Agreement and the provisions of Appendix A contain the entire understanding of the parties with respect to your employment by the Company.  Appendix A is made a part of this Letter Agreement and is incorporated by reference.  This Letter Agreement (including Appendix A) may not be amended except by written instrument signed by the parties hereto.  This Letter Agreement replaces and supercedes any prior agreements between the parties, whether written or oral.

c.No Waiver.  The failure of the Company or you to insist upon strict adherence to any term of this Letter Agreement will not be considered a waiver of such party’s rights or deprive such party of the right thereafter to insist upon strict adherence to that term or any other term of this Letter Agreement.

d.Executive Representation.  You represent to the Company that the execution of this Letter Agreement by you and the performance by you of your duties to the Company will not constitute a breach of, or otherwise contravene, the terms of any employment agreement or other agreement or policy to which you are a party or otherwise bound.

e.Withholding Taxes.  The Company may withhold from the amounts payable under this Letter Agreement any amounts required by law.

f.Counterparts.  This Letter Agreement may be signed in counterparts, each of which will be an original.

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Steve, we look forward with great pleasure to working with you.  Please counter-sign this Letter Agreement in the space indicated below, and return an original to my attention.

	Sincerely,
	/s/James W. Baehren
	By: James W. Baehren
	Its:  Senior Vice President
Acknowledged and Agreed:
STEVE MCCRACKEN
/s/Steven R. McCracken

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— Appendix A —

Provisions Relating to Termination of Employment and Restrictive Covenants

This Appendix A forms a part of the Letter Agreement between Owens-Illinois, Inc. and Steve McCracken, dated March 31, 2004, to which this Appendix A is attached.  Capitalized terms used herein will have the meaning set forth in the Letter Agreement, unless otherwise defined below.

Paragraph 1.Termination of Employment.

a.By the Company Without Cause.  Your employment may be terminated by the Company at any time without Cause (as defined below, but which does not include termination due to your disability), in which case you will receive:

(i)the Accrued Rights (as defined below);

(ii)subject to your continued compliance with the provisions of Paragraphs 2 and 3 of this Appendix A, an amount equal to two times the sum of (x) your Base Salary, and (y) your Target Bonus, payable in equal monthly installments over a period of 24 months after termination of employment; and

(iii)continued coverage under the Company’s health plan in which you participated at the time of your termination of employment for a period of up to 24 months, subject to your payment of the same premiums you would have paid as an active employee; provided that this continued coverage will terminate if you become covered under a subsequent employer’s health plan.

Following such termination of employment, except as set forth in this Paragraph 1(a), you will have no further rights to any other compensation or benefits under the Letter Agreement and this Appendix A.

b.By the Company For Cause or by Your Resignation For Any Reason.  Your employment may be terminated by the Company at any time for Cause and will terminate automatically upon your resignation for any reason.  If your employment is terminated by the Company for Cause, or if you resign, you will receive the Accrued Rights. Following such termination of employment, except as set forth in this Paragraph 1(b), you will have no further rights to any other compensation or benefits under the Letter Agreement and this Appendix A.

c.Certain Definitions.

(i)“Cause” means (A) your continued failure substantially to perform your duties to the Company or any of its subsidiaries or affiliates (other than as a result of total or partial incapacity due to physical or mental illness) for a period of 10 days following written notice by the Company to you of such failure, (B) your commission of a felony under the laws of the United States or any state thereof or a misdemeanor involving moral turpitude, (C) your willful malfeasance or willful misconduct in connection with your duties to the Company, its subsidiaries or affiliates, or any act or omission which is

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injurious to the financial condition or business reputation of the Company or any of its subsidiaries or affiliates, or (D) your breach of the provisions of Paragraphs 2 or 3 of this Appendix A.

(ii)“Accrued Rights” means: (A) the Base Salary through the date of termination; (B) any annual bonus earned but unpaid for any previously completed fiscal year; (C) such Employee Benefits as to which you may be entitled; and (D) any supplemental retirement plan vesting as to which you may be entitled under Section 5 of the Letter Agreement.

d.Release.  Your receipt of any amounts under this Paragraph 1 (other than the Accrued Rights) will be subject to and conditioned on your execution and non-revocation of a general release on terms reasonably satisfactory to the Company.

Paragraph 2.Non-Competition.

a.You acknowledge and recognize the highly competitive nature of the businesses of the Company and its affiliates and accordingly agree as follows:

(i)While employed and for a period of one year thereafter, you will not, directly or indirectly: (A) engage in, invest in, or enter into the employ of or otherwise render any services to, any business that competes with the business of the Company or its affiliates (including, without limitation, businesses which the Company or its affiliates have specific plans to conduct in the future and as to which you are aware of such planning) in any geographical area where the Company or its affiliates manufactures, produces, sells, leases, rents, licenses or otherwise provides its products or services (a “Competitive Business”); or (B) interfere with, or attempt to interfere with, business relationships (whether formed before, on or after the date of the Letter Agreement) between the Company or any of its affiliates and customers, clients, suppliers, or investors of the Company or its affiliates.  Notwithstanding anything to the contrary in this Letter Agreement, you may own up to 2% of the securities of any person engaged in the business of the Company or its affiliates that are publicly traded.

(ii)While employed by the Company and for a period of two years thereafter, you will not, directly or indirectly: (A) solicit or encourage any employee of the Company or its affiliates to leave the employment of the Company or its affiliates; or (B) hire any employee who was employed by the Company or its affiliates within one year prior to termination of your employment.

b.It is expressly understood and agreed that, although you and the Company consider the restrictions contained in this Paragraph 2 to be reasonable, if a final judicial determination is made by a court of competent jurisdiction that the time or territory or any other restriction contained in this Appendix A is an unenforceable restriction against you, the provisions of this Appendix A will not be rendered void but will be deemed amended to apply as

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to such maximum time and territory and to such maximum extent as such court may judicially determine or indicate to be enforceable.  Alternatively, if any court of competent jurisdiction finds that any restriction contained in this Appendix A is unenforceable, and such restriction cannot be amended so as to make it enforceable, such finding will not affect the enforceability of any of the other restrictions contained herein.

Paragraph 3.Confidentiality.  You may not disclose to any person outside the Company any non-public, proprietary or confidential information concerning the business of the Company, and its subsidiaries and affiliates, unless such information is required by law to be disclosed.

Paragraph 4.Specific Performance.  You acknowledge and agree that the Company’s remedies at law for a breach or threatened breach of any of the provisions of Paragraph 2 or Paragraph 3 would be inadequate and the Company would suffer irreparable damages as a result of such breach or threatened breach.  Accordingly, you agree that, in the event of such a breach or threatened breach, in addition to any remedies at law, the Company, without posting any bond, will be entitled to cease making any payments or providing any benefit otherwise required by the Letter Agreement and/or Appendix A and obtain equitable relief in the form of specific performance, temporary restraining order, temporary or permanent injunction or any other equitable remedy which may then be available.

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EX-10.2

Exhibit 10.2

OWENS-ILLINOIS

1997 EQUITY PARTICIPATION PLAN

RESTRICTED STOCK AGREEMENT

THIS RESTRICTED STOCK AGREEMENT, dated as of April 1, 2004 is made by and between Owens-Illinois, Inc., a Delaware corporation (the “Company”) and Steven R. McCracken, an employee of the Company or a Parent Corporation or a Subsidiary (the “Employee”):

WHEREAS, the Company has established the Owens-Illinois 1997 Equity Participation Plan (the “Plan”); and

WHEREAS, the Plan provides for the issuance of shares of the Company’s Common Stock , subject to certain restrictions thereon and to other conditions stated herein; and

WHEREAS, pursuant to the terms of a certain letter agreement dated March 31, 2004 between the Company and the Employee (the “Letter Agreement”), the Company agreed to issue the shares of Restricted Stock provided for herein to the Employee; and

NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto do hereby agree as follows:

ARTICLE I.

DEFINITIONS

Whenever the following terms are used in this Agreement, they shall have the meaning specified below, unless the context clearly indicates to the contrary.  Capitalized terms not otherwise defined herein shall have the meanings set forth in the Plan.  The masculine pronoun shall include the feminine and neuter and the singular the plural, where the context so indicates.

Section 1.1.Cause

“Cause” shall mean (A) the Employee’s continued failure substantially to perform your duties to the Company or any of its Subsidiaries or affiliates (other than as a result of total or partial incapacity due to physical or mental illness) for a period of ten (10) days following written notice by the Company to the Employee of such failure, (B) the Employee’s commission of a felony under the laws of the United States or any state thereof or a misdemeanor involving moral turpitude, (C) the Employee’s willful malfeasance or willful misconduct in connection with his duties to the Company, its Subsidiaries or affiliates, or any act or omission which is injurious to the financial condition or business reputation of the Company or any of its Subsidiaries or affiliates, or (D) the Employee’s breach of the provisions of Paragraphs 2 or 3 of Appendix A of the Letter Agreement.

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Section 1.2.Common Stock

“Common Stock” shall mean the common stock of the Company, $.01 par value.

Section 1.3.Competing Business

“Competing Business” shall mean any business that competes with the business of the Company or its affiliates (including, without limitation, businesses which the Company or its affiliates have specific plans to conduct in the future and as to which you are aware of such planning) in any geographical area where the Company or its affiliates manufactures, produces, sells, leases, rents, licenses or otherwise provides its products or services.

Section 1.4.Exchange Act

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

Section 1.5.Fair Market Value

“Fair Market Value” of a share of the Company’s stock as of a given date shall be: (i) the closing price of a share of the Company’s stock on the principal exchange on which shares of the Company’s stock are then trading, if any, on the day previous to such date, or, if shares were not traded on the day previous to such date, then on the next preceding trading day during which a sale occurred; or (ii) if such stock is not traded on an exchange but is quoted on NASDAQ or a successor quotation system, (1) the last sales price (if the stock is then listed as a National Market Issue under the NASD National Market System) or (2) the mean between the closing representative bid and asked prices (in all other cases) for the stock on the day previous to such date as reported by NASDAQ or such successor quotation system; or (iii) if such stock is not publicly traded on an exchange and not quoted on NASDAQ or a successor quotation system, the mean between the closing bid and asked prices for the stock, on the day previous to such date, as determined in good faith by the Compensation Committee of the Board of Directors of the Company (the “Committee”); or (iv) if the Company’s stock is not publicly traded, the fair market value established by the Committee acting in good faith.

Section 1.6.Parent Corporation

“Parent Corporation” shall mean any corporation in an unbroken chain of corporations ending with the Company if each of the corporations other than the Company then owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

Section 1.7.Plan

“Plan” shall mean the Company’s 1997 Equity Participation Plan.

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Section 1.8.Restrictions

“Restrictions” shall mean the reacquisition and transferability restrictions imposed upon Restricted Stock under this Agreement.

Section 1.9.Restricted Stock

“Restricted Stock” shall mean Common Stock issued under this Agreement and subject  to the Restrictions imposed hereunder.

Section 1.10.Rule 16b-3

“Rule 16b-3” shall mean that certain Rule 16b-3 under the Exchange Act, as such Rule may be amended from time to time.

Section 1.11.Secretary

“Secretary” shall mean the Secretary of the Company.

Section 1.12.Securities Act

“Securities Act” shall mean the Securities Act of 1933, as amended.

Section 1.13.Subsidiary

“Subsidiary” shall mean any corporation in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain then owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.  “Subsidiary” shall also mean any partnership in which the Company and or any Subsidiary owns more than fifty (50%) percent of the capital or profits interests.

Section 1.14.Termination of Employment

“Termination of Employment” shall mean the time when the employee-employer relationship between the Employee and the Company, a Parent Corporation or a Subsidiary is terminated for any reason, with or without Cause, including, but not by way of limitation, a termination by resignation, discharge, death, disability or retirement; but excluding (a) terminations where there is a simultaneous reemployment or continuing employment of the Employee by the Company, a Parent Corporation or any Subsidiary, (b) terminations where the Employee continues a relationship (e.g., as a director or as a consultant) with the Company, a Parent Corporation or a Subsidiary.  The Committee, in its absolute discretion, shall determine the effect of all matters and questions relating to Termination of Employment, including, but not by way of limitation, the question of whether a Termination of Employment resulted from a discharge for good cause, and all questions of whether a particular leave of absence constitutes a Termination of Employment.  Notwithstanding any other provision of this Agreement, the

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Company or any Subsidiary has the absolute and unrestricted right to terminate the Employee’s employment at any time for any reason whatsoever, with or without Cause.

ARTICLE II.

ISSUANCE OF RESTRICTED STOCK

Section 2.1.Issuance of Restricted Stock

 In consideration of the services rendered or to be rendered to the Company, a Parent Corporation or a Subsidiary pursuant to the terms of the Letter Agreement and for other good and valuable consideration which the Committee has determined to be equal to the par value of its Common Stock, on the date hereof the Company issues to the Employee 155,000 shares of its Common Stock, upon the terms and conditions set forth in this Agreement.

Section 2.2.No Right to Continued Employment

Nothing in this Agreement or in the Plan shall confer upon the Employee any right to continue in the employee of the Company, any Parent Corporation or any Subsidiary or shall interfere with or restrict in any way the rights of the Company, any Parent Corporation or any Subsidiary, which are hereby expressly reserved, to discharge the Employee at any time for any reasons whatsoever, with or without Cause.

ARTICLE III.

RESTRICTIONS

Section 3.1.Reacquisition of Restricted Stock

Until vested, the shares of Restricted Stock issued to the Employee pursuant to this Agreement are subject to reacquisition by the Company immediately upon a Termination of Employment other than from death or total disability (as determined by the Committee in accordance with Company plans and policies), in which event all unvested shares of Restricted Stock shall immediately fully vest and all Restrictions with respect to such shares of Restricted Stock shall immediately expire.  Following any reacquisition by the Company pursuant to this Section 3.1, the Company shall promptly pay to the Employee an amount equal to the product of $.01 times the number of shares of Restricted Stock reacquired.

Section 3.2.Lapse of Restrictions.

The Restricted Stock shall vest, and all Restrictions thereon shall immediately expire as follows: (a) 50% of the Restricted Shares will vest on April 1, 2006, (b) 25% of the Restricted Shares will vest on April 1, 2007, and (c) the remaining 25% of the Restricted Shares will vest on April 1, 2008.  Upon the vesting of the shares and subject to Section 5.3, the Company shall cause new certificates to be issued with respect to such vested shares and delivered to the Employee or his legal representative, free from the legend provided for in Section 3.3 and any of

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the other Restrictions.  Such vested shares shall cease to be considered Restricted Stock subject to the terms and conditions of this Agreement.

Section 3.3.Legend.

Certificates representing shares of Restricted Stock issued pursuant to this Agreement shall, until all restrictions lapse and new certificates are issued pursuant to Section 3.2, bear the following legend:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN VESTING REQUIREMENTS AND MAY BE SUBJECT TO REACQUISTION BY THE COMPANY UNDER THE TERMS OF THAT CERTAIN RESTRICTED STOCK AGREEMENT BY AND BETWEEN OWENS-ILLINOIS, INC. (THE “COMPANY”) AND THE HOLDER OF THE SECURITIES.  PRIOR TO VESTING OF OWNERSHIP IN THE SECURITIES, THEY MAY NOT BE DIRECTLY OR INDIRECTLY, OFFERED, TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNDER ANY CIRCUMSTANCES.  COPIES OF THE ABOVE REFERENCED AGREEMENT ARE ON FILE AT THE OFFICES OF THE COMPANY AT ONE SEAGATE, TOLEDO, OHIO 43604.

Section 3.4.Merger, Consolidation, Acquisition, Liquidation or Dissolution

Notwithstanding any other provision of this Agreement, upon the merger or consolidation of the Company into another corporation, the acquisition by another corporation or person (excluding any employee benefit plan of the Company or any trustee or other fiduciary holding securities under an employee benefit plan of the Company) of all or substantially all of the Company ‘s assets or 51% or more of the Company’s then outstanding voting stock, or the liquidation or dissolution of the Company, the Committee shall then provide by resolution adopted prior to such event that, at some time prior to the effective date of such event, all shares of Restricted Stock not previously reacquired pursuant to Section 3.1 shall fully vest and all Restrictions with respect to such shares of Restricted Stock shall immediately expire.

Section 3.5.Restrictions on New Shares

In the event that the outstanding shares of the Company’s  Common Stock are hereafter changed into or exchanged for a different number of kind of shares or other securities of the Company or of another corporation pursuant to a merger of the Company into another corporation, or the exchange of all or substantially all of the assets of the Company for the securities of another corporation, or the acquisition by another corporation or person (excluding any employee benefit plan of the Company or any trustee or other fiduciary holding securities under an employee benefit plan of the Company) of 51% or more of the Company’s then outstanding voting stock, or the liquidation or dissolution of the Company, or a stock split-up or stock dividend, such new, additional or different shares or securities which are held or received by the Employee in his capacity as a holder of Restricted Stock shall be considered to be Restricted Stock and shall be subject to all of the Restrictions, unless the Committee provides,

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pursuant to Section 3.4 for the accelerated vesting and expiration of the Restrictions on the shares of Restricted Stock underlying the distribution of the new, additional or different shares or securities.

ARTICLE IV.

NON-COMPETITION/NON-SOLICITATION

Section 4.1.Covenant Not to Compete

Employee covenants and agrees that prior to Employee’s Termination of Employment and for a period of one (1) year following the Employee’s Termination of Employment, Employee will not, directly or indirectly: (a) engage in, invest in, or enter into the employ of or otherwise render any services to, any Competing Business, or (b) interfere with, or attempt to interfere with, business relationships (whether formed before, on or after the date of the Letter Agreement) between the Company or any of its affiliates and customers, clients, suppliers, or investors of the Company or its affiliates.  Notwithstanding anything to the contrary in this Agreement, the Employee may own up to 2% of the securities of any person engaged in the business of the Company or its affiliates that are publicly traded.

Section 4.2.Non-Solicitation of Employees

Employee covenants and agrees that prior to Employee’s Termination of Employment and for a period of two (2) year following the Employee’s Termination of Employment, Employee will not, directly or indirectly: (a) solicit or encourage any employee of the Company or its affiliates to leave the employment of the Company or its affiliates; or (B) hire any employee who was employed by the Company or its affiliates within one year prior to Employee’s Termination of Employment.

ARTICLE V.

MISCELLANEOUS

Section 5.1.Administration

The Committee shall have the power to interpret the Plan and this Agreement, and to adopt such rules for the administration, interpretation, and application of the Plan as are consistent therewith, to interpret, amend or revoke any such rules.  All action taken and all interpretations and determinations made by the Committee in good faith shall be final and binding upon the Employee, the Company and all other interested persons. In its absolute discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Committee under the Plan or this Agreement except with respect to matters which under Rule 16b-3, or any regulations or rules issued thereunder, are required to be determined in the sole discretion of the Committee.  No member of the Committee or Board shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan

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or the Restricted Stock, and all members of the Committee and the Board shall be fully protected by the Company in respect of any such action, determination or interpretation.

Section 5.2.Restricted Stock Not Transferable

No Restricted Stock or any interest or right therein or part thereof shall be liable for the debts, contracts or engagements of the Employee or his successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, hypothecation, encumbrance, assignment or any other means, whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), any attempted disposition thereof shall be null and void and of no effect; provided however, that this Section 5.2 shall not prevent transfers by will or by the applicable laws of descent and distribution.

Section 5.3.Conditions to Issuance of Stock Certificates

The Company shall not be required to issue or deliver any certificate or certificates for shares of stock pursuant to this Agreement prior to fulfillment of all of the following conditions:

(a)The admission of such shares to listing on all stock exchanges on which such class of stock is then listed; and

(b)The completion of any registration or other qualification of such shares under any state or federal law or under rulings or regulations of the Securities and Exchange Commission or of any other governmental regulatory body, which the Committee shall, in its sole discretion, deem necessary or advisable; and

(c)The obtaining of any approval or other clearance from any state or federal governmental agency which the Committee shall, in its sole discretion, determine to be necessary or advisable; and

(d)Subject to Section 5.10 the payment by the Employee of all amounts which, under federal, state or local tax law, the Company (or other employer corporation) is required to withhold upon issuance of Restricted Stock and/or the lapse or removal of any of the Restrictions; and

(e)The lapse of such reasonable period of time as the Committee may from time to time establish for reasons of administrative convenience.

Section 5.4.Escrow

The Secretary or such other escrow holder as the Committee may appoint shall retain physical custody of the certificates representing Restricted Stock, including shares of Restricted Stock issued pursuant to Section 3.5, until all of the Restrictions expire or shall have been removed; provided, however, that in no event shall the Employee retain physical custody of any certificates representing Restricted Stock issued to him.

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Section 5.5.Notices

Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of its Secretary, and any notice to be given to the Employee shall be addressed to him at the address given beneath his signature hereto.  By a notice given pursuant to this Section 5.5, either party may hereafter designate a different address for notices to be given to him.  Any notice which is required to be given to the Employee shall, if the Employee is then deceased, be given to the Employee’s personal representative if such representative has previously informed the Company of his status and address by written notice under this Section 5.5.  Any notice shall be deemed duly given when enclosed in a properly sealed envelope or wrapper addressed as aforesaid, deposited (with postage prepaid) in a post office or branch post office regularly maintained by the United States Postal Service.

Section 5.6.Rights as Stockholder

Upon delivery of the shares of Restricted Stock to the escrow holder pursuant to Section 5.4, the Employee shall have all the rights of a stockholder with respect to said shares, subject to the restrictions herein (including the provisions of Section 5.10), including the right to vote the shares and to receive all dividends or other distributions paid or made with respect to the shares.

Section 5.7.Titles

Titles are provided her in for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.

Section 5.8.Conformity to Securities Laws

The Employee acknowledges that the Plan and this Agreement is intended to conform to the extent necessary with all provisions of the Securities Act and the Exchange Act and any and all regulations and rules promulgated by the Securities and Exchange Commission thereunder, including, without limitation, the applicable exemptive conditions of Rule 16b-3.  Notwithstanding anything herein to the contrary, this Agreement shall be administered, and the Restricted Stock shall be issued only in such a manner as to conform to such laws, rules and regulations.  To the extent permitted by applicable law, this Agreement and the Restricted Stock issued hereunder shall be deemed amended to the extent necessary to conform to such laws, rules and regulations.

Section 5.9.Amendments

This Agreement and the Plan may be amended without the consent of the Employee provided that such amendment would not impair any rights of the Employee under this Agreement.  No amendment of this Agreement shall, without the consent of the Employee, impair any rights of the Employee under this Agreement.

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Section 5.10.Tax Withholding

The Company’s obligation : (i) to issue or deliver to the Employee any certificate or certificates for unrestricted shares of stock; or (ii) to pay to the Employee any dividends or make any distributions with respect to the Restricted Stock, is expressly conditioned upon receipt from the Employee, on or prior to the date reasonably specified by the Company of:

(a)Full payment (in cash or by check ) of any amount that must be withheld by the Company for federal, state and/or local tax purposes; or

(b)Subject to the Committee’s consent and Section 5.10(c), full payment by delivery to the Company of unrestricted shares of the Company’s Common Stock previously owned by the Employee duly endorsed for transfer to the company by the Employee with an aggregate Fair Market Value (determined, as applicable, as of the date of the lapse of the restrictions or vesting or as of the date of the distribution) equal to the amount that must be withheld by the Company for federal, state and/or local tax purposes; or

(c)With respect to the withholding obligation for shares of Restricted Stock that become unrestricted shares as of a certain date (the “Vesting Date”), subject to the committee’s consent, full payment by retention by the Company of a portion of such shares of Restricted Stock which become unrestricted or vested with an aggregated Fair Market Value (determined on the Vesting Date) equal to the amount that must be withheld by the Company for federal, state and/or local tax purposes; or

(d)Subject to the Committee’s consent, a combination of payments provided for in the foregoing subsections (a), (b) or (c).

Section 5.11.Governing Law

This Agreement shall be administered, interpreted and enforced under the internal laws of the State of Delaware without regard to conflicts of laws thereof.

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IN WITNESS HEREOF, this Agreement has been executed and delivered by the parties hereto.

	OWENS-ILLINOIS, INC.
	By:	/s/ James W. Baehren
		James W. Baehren, Senior Vice President
/s/ Steven R. McCracken
Steven R. McCracken

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EX-10.3

Exhibit 10.3

1997 EQUITY PARTICIPATION PLAN

OF

OWENS-ILLINOIS, INC.

NON-QUALIFIED STOCK OPTION AGREEMENT

THIS AGREEMENT, dated April 1, 2004, is made by and between Owens-Illinois, Inc., a Delaware corporation hereinafter referred to as “Company,” and Steven R. McCracken, an employee of the Company or a Subsidiary of the Company, hereinafter referred to as “Optionee”:

WHEREAS, the Company wishes to afford the Optionee the opportunity to purchase shares of its $.01 par value Common Stock (as defined hereunder); and

WHEREAS, the Company wishes to carry out the 1997 Equity Participation Plan of Owens-Illinois, Inc. (the terms of which are hereby incorporated by reference and made a part of this Agreement); and

WHEREAS, pursuant to the terms of a certain letter agreement dated March 31, 2004 between the Company and the Optionee (the “Letter Agreement”), the Company agreed to issue the Options provided for herein to the Optionee;

NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto do hereby agree as follows:

ARTICLE I

DEFINITIONS

Whenever the following terms are used in this Agreement, they shall have the meaning specified below unless the context clearly indicates to the contrary.  The masculine pronoun shall include the feminine and neuter, and the singular the plural, where the context so indicates.

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Section 1.1 - Additional Option

“Additional Option” means an Option granted to an Optionee to purchase a number of shares of Common Stock equal to the number of shares of Common Stock tendered or relinquished by the Optionee in payment of the exercise price upon exercise of the Option and/or the number of shares of Common Stock tendered or relinquished in payment of the amount required to be withheld under applicable federal, state and local income tax laws in connection with the exercise of the Option as described in Article V.

Section 1.2 - Board

“Board” shall mean the Board of Directors of the Company.

Section 1.3 - Code

“Code” shall mean the Internal Revenue Code of 1986, as amended.

Section 1.4 - Common Stock

“Common Stock” shall mean the Company’s common stock, $.01 par value.

Section 1.5 - Company

“Company” shall mean Owens-Illinois, Inc.  In addition, “Company” shall mean any corporation assuming, or issuing new employee stock options in substitution for, the Option and Incentive Stock Options (as defined in Section 1.14 of the Plan), outstanding under the Plan, in a transaction to which Section 424(a) of the Code applies.

Section 1.6 - Exchange Act

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

Section 1.7 - Fair Market Value

“Fair Market Value” of a share of the Company’s stock as of a given date shall be:  (i) the closing price of a share of the Company’s stock on the principal exchange on which shares of the Company’s stock are then trading, if any, on the day previous to such date, or, if shares were not traded on the day previous to such date, then on the next preceding trading day during which a sale occurred; or (ii) if such stock is not traded on an exchange but is quoted on NASDAQ or a successor quotation system, (1) the last sales price (if the stock is then listed as a National Market Issue under the NASD National Market System) or (2) the mean between the closing representative bid and asked prices (in all other cases) for the stock on the day previous to such date as reported by NASDAQ or such successor quotation system; or (iii) if such stock is not publicly traded

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on an exchange and not quoted on NASDAQ or a successor quotation system, the mean between the closing bid and asked prices for the stock, on the day previous to such date, as determined in good faith by the Compensation Committee of the Company’s Board of Directors (hereinafter referred to as the “Committee”); or (iv) if the Company’s stock is not publicly traded, the fair market value established by the Committee acting in good faith.

Section 1.8 - Officer

“Officer” shall mean an officer of the Company, as defined in Rule 16a-1(f) under the Exchange Act, as such Rule may be amended in the future.

Section 1.9 - Option

“Option” shall mean the Non-Qualified Option (as defined in Section 1.15 of the Plan) to purchase Common Stock of the Company under this Agreement.  This Option is a Transferable Option (as defined in Section 1.29 of the Plan).

Section 1.10 - Parent Corporation

“Parent Corporation” shall mean any corporation in an unbroken chain of corporations ending with the Company if each of the corporations other than the Company then owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

Section 1.11 - Plan

“Plan” shall mean the 1997 Equity Participation Plan of Owens-Illinois, Inc.

Section 1.12 - Rule 16b-3

“Rule 16b-3” shall mean that certain Rule 16b-3 under the Exchange Act, as such rule may be amended in the future.

Section 1.13 - Secretary

“Secretary” shall mean the Secretary of the Company.

Section 1.14 - Securities Act

“Securities Act” shall mean the Securities Act of 1933, as amended.

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Section 1.15 - Subsidiary

“Subsidiary” shall mean any corporation in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain then owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.  “Subsidiary” shall also mean any partnership in which the Company and/or any Subsidiary owns more than 50% of the capital of profits interests.

Section 1.16 -  Termination of Employment

“Termination of Employment” shall mean the time when the employee-employer relationship between the Optionee and the Company, a Parent Corporation or a Subsidiary is terminated for any reason, with or without cause, including, but not by way of limitation, a termination by resignation, discharge, death, total disability or retirement, but excluding (i) any termination where there is a simultaneous reemployment by the Company, a Parent Corporation or a Subsidiary or (ii) any termination where the Optionee continues a relationship (e.g., as a director or as a consultant) with the Company, a Parent Corporation or a Subsidiary.  The Committee, in its absolute discretion, shall determine the effect of all other matters and questions relating to Termination of Employment, including, but not by way of limitation, the question of whether a Termination of Employment resulted from a discharge for good cause, and all questions of whether particular leaves of absence constitute Terminations of Employment.  Notwithstanding any other provision of this Agreement, the Company or any of its subsidiaries has an absolute and unrestricted right to terminate the Optionee’s employment at any time for any reason whatsoever, with or without cause.

Section 1.17 - Transferee

“Transferee” shall mean any person or entity to whom or to which the Optionee has transferred all or any part of the Option in accordance with Section 6.2.

ARTICLE II

GRANT OF OPTION

Section 2.1 - Grant of Option

In consideration of the Optionee’s agreement to remain in the employ of the Company, its Parent Corporations or its Subsidiaries and for other good and valuable consideration, on the date hereof the Company irrevocably grants to the Optionee the option to purchase any part or all of an aggregate of 335,000 shares of its $.01 par value Common Stock upon the terms and conditions set forth in this Agreement.

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Section 2.2 - Purchase Price

The purchase price of the shares of stock covered by the Option shall be $14.02 per share without commission or other charge.

Section 2.3 - Consideration to Company

In consideration of the granting of this Option by the Company, the Optionee agrees to render faithful and efficient services to the Company, a Parent Corporation or a Subsidiary, with such duties and responsibilities as the Company shall from time to time prescribe, for a period of at least one year from the date this Option is granted. Nothing in this Agreement or in the Plan shall confer upon the Optionee any right to continue in the employ of the Company, any Parent Corporation or any Subsidiary or shall interfere with or restrict in any way the rights of the Company, any Parent Corporation and any Subsidiary, which are hereby expressly reserved, to discharge the Optionee at any time for any reason whatsoever, with or without cause.

Section 2.4 - Adjustments in Option

In the event that the outstanding shares of Common Stock subject to the Option are changed into or exchanged for a different number or kind of shares of the Company or other securities of the Company by reason of merger, consolidation, recapitalization, reclassification, or the number of shares is increased or decreased by reason of a stock split up, stock dividend, combination of shares or any other increase or decrease in the number of such shares of Common Stock effected without receipt of consideration by the Company (provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration”) the Committee shall make appropriate adjustments in the number and kind of shares as to which the Option, or portions thereof then unexercised, shall be exercisable, to the end that after such event the Optionee’s proportionate interest shall be maintained as before the occurrence of such event.  Such adjustment in the Option shall be made without change in the total price applicable to the unexercised portion of the Option (except for any change in the aggregate price resulting from rounding-off of share quantities or prices) and with any necessary corresponding adjustment in the Option price per share.  Any such adjustment made by the Committee shall be final and binding upon the Optionee, the Company and all other interested persons.

ARTICLE III

PERIOD OF EXERCISABILITY

Section 3.1 - Commencement of Exercisability

(a)Except as provided in Section 3.4, no Option may be exercised in whole or in part during the first year after such Option is granted.

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(b)           Except to the extent that such Option becomes exercisable sooner pursuant to Section 3.1(c), the Option shall become exercisable as to 50% of the shares covered by the Option on the fifth anniversary of the date the Option is granted and as to the remaining 50% of the shares covered by the Option on the sixth anniversary of the date the Option is granted.  Such installments shall be cumulative.

(c)The Option shall become exercisable after the first anniversary of the date the Option is granted at the time when the average Fair Market Value per share of Common Stock for any period of 20 consecutive trading days (commencing after such first anniversary) is at least equal to the product of the Fair Market Value per share on the date the Option is granted times the amount shown below under “Stock Price Multiple” as to the percentage of the shares of Common Stock initially subject to the Option shown below under “Exercisable Percentage.”

Stock Price Multiple		Exercisable Percentage
112.0	%	25	%
134.5	%	50	%
160.5	%	75	%
192.5	%	100	%

For example, a 1,000 share Option exercisable at $10.00 per share (100% of Fair Market Value at the date of Option grant) would become exercisable as to 250 shares when a 20 consecutive trading day period average price of $11.20 is achieved ($11.20 is 112% of $10.00).  Further vesting would occur if and when the next percentage multiple or multiples are achieved.

(d)Except as provided in Section 3.4, no portion of the Option which is unexercisable at Termination of Employment shall thereafter become exercisable.

Section 3.2 - Duration of Exercisability

The installments provided for in Section 3.1 are cumulative.  Each such installment which becomes exercisable pursuant to Section 3.1 shall remain exercisable until it becomes unexercisable under Section 3.3.

Section 3.3 - Expiration of Option

The Option may not be exercised to any extent by anyone after the first to occur of the following events:

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(a)  The expiration of ten years and one day from the date the Option was granted; or

(b)  Except as provided in clauses (c) through (h) below, the date of the Optionee’s Termination of Employment; or

(c)  In the case of an Optionee who retires after reaching the Company’s normal retirement age or who takes early retirement, the expiration of three months from the date of Optionee’s Termination of Employment by reason of such retirement, or in the case of any such retiring Optionee whose right to exercise his or her Option is extended by the Committee, which extension shall not exceed three years from the date of Optionee’s Termination of Employment, the date upon which such extension expires; or

(d)  In the case of an Optionee who is discharged not for good cause, the expiration of three months from the Optionee’s Termination of Employment unless the Optionee dies within said three-month period; or

(e)  In the case of any Optionee whose right to exercise his or her Option is extended by the Committee, which extension shall not exceed three years from the date of Optionee’s Termination of Employment, the date upon which such extension expires; or

(f)  In the case of an Optionee who is totally disabled, the expiration of one year from the date of the Optionee’s Termination of Employment by reason of his or her disability unless the Optionee dies within said one-year period; or

(g)  The expiration of one year from the date of the Optionee’s death; or

(h)  The effective date of either the merger or consolidation of the Company with or into another corporation, or the acquisition by another corporation or person (excluding any employee benefit plan of the Company or any trustee or other fiduciary holding securities under an employee benefit plan of the Company) of all or substantially all of the Company’s assets or 51% or more of the Company’s then outstanding voting stock, or the liquidation or dissolution of the Company, unless the Committee waives this provision in connection with such transaction.  At least ten days prior to the effective date of such merger, consolidation, acquisition, liquidation or dissolution, the Committee shall give the Optionee notice of such event if the Option has then neither been fully exercised nor become unexercisable under this Section 3.3.

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Section 3.4 - Acceleration of Exercisability

(a)In the event of a Termination of Employment resulting from an Optionee’s normal retirement or total disability (each as determined by the Committee in accordance with Company policies), early retirement with the consent of the Committee or death, the Option shall be exercisable as to all shares covered hereby, notwithstanding that this Option may not have become fully exercisable under Section 3.1; or

(b)In the event of the merger or consolidation of the Company with or into another corporation, or the acquisition by another corporation or person (excluding any employee benefit plan of the Company or any trustee or other fiduciary holding securities under an employee benefit plan of the Company) of all or substantially all of the Company’s assets or 51% or more of the Company’s then outstanding voting stock, or the liquidation or dissolution of the Company, the Committee shall then provide by resolution, adopted prior to such event and incorporated in the notice referred to in Section 3.3(h), that at some time prior to the effective date of such event this Option shall be exercisable as to all the shares covered hereby, notwithstanding that this Option may not yet have become fully exercisable under Section 3.1; provided, however, that this acceleration of exercisability shall not take place if:

(i)This Option becomes unexercisable under Section 3.3 prior to said effective date; or

(ii)In connection with such an event, provision is made for an assumption of this Option or a substitution therefor of a new option by an employer corporation or a parent or subsidiary of such corporation.

The Committee may make such determinations and adopt such rules and conditions as it, in its absolute discretion, deems appropriate in connection with such acceleration of exercisability, including, but not by way of limitation, provisions to ensure that any such acceleration and resulting exercise shall be conditioned upon the consummation of the contemplated corporate transaction.

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ARTICLE IV

EXERCISE OF OPTION

Section 4.1 - Person Eligible to Exercise

During the lifetime of the Optionee, only he or his Transferee, if any, may exercise the Option or any portion thereof.  After the death of the Optionee, any exercisable portion of the Option may, prior to the time when such portion becomes unexercisable under Section 3.3, be exercised by his Transferee, if any, or by his personal representative or any other person empowered to do so under the Optionee’s will or under the then applicable laws of descent and distribution.  All of the terms and conditions of this Option in the hands of the Optionee during his lifetime shall be and remain fully applicable and binding on his Transferee, if any, and on any other person who may become eligible to exercise this Option.

Section 4.2 - Partial Exercise

Any exercisable portion of the Option or the entire Option, if then wholly exercisable, may be exercised in whole or in part at any time prior to the time when the Option or portion thereof becomes unexercisable under Section 3.3; provided, however, that each partial exercise shall be for not less than one hundred (100) shares (or the minimum installment set forth in Section 3.1, if a smaller number of shares) and shall be for whole shares only.

Section 4.3 - Manner of Exercise

The Option, or any exercisable portion thereof, may be exercised solely by delivery to the Secretary or his office of all of the following prior to the time when the Option or such portion becomes unexercisable under Section 3.3:

(a)  Notice in writing signed by the Optionee or the other person then entitled to exercise the Option or portion, stating that the Option or portion is thereby exercised, such notice complying with all applicable rules established by the Committee; and

(b)(i)  Full payment (in cash or by check) for the shares with respect to which such Option or portion is exercised; or

(ii)  With the consent of the Committee, (A) shares of the Company’s Common Stock owned by the Optionee duly endorsed for transfer to the Company, or (B) shares of the Company’s Common Stock issuable to the Optionee upon exercise of the Option, with a Fair Market Value on the date of option exercise equal to the aggregate purchase price of the shares with respect to which such Option or portion is exercised; or

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(iii)  With the consent of the Committee, a full recourse promissory note bearing interest (at least such rate as shall then preclude the imputation of interest under the Code or successor provision) and payable upon such terms as may be prescribed by the Committee.  The Committee may also prescribe the form of such note and the security to be given for such note.  The Option may not be exercised, however, by delivery of a promissory note or by a loan from the Company when or where such loan or other extension of credit is prohibited by law; or;

(iv)  With the consent of the Committee, any combination of the consideration provided in the foregoing subparagraphs (i), (ii) and (iii); and

(c)  A bona fide written representation and agreement, in a form satisfactory to the Committee, signed by the Optionee or other person then entitled to exercise such Option or portion, stating that the shares of stock are being acquired for his own account, for investment and without any present intention of distributing or reselling said shares or any of them except as may be permitted under the Securities Act and then applicable rules and regulations thereunder, and that the Optionee or other person then entitled to exercise such Option or portion will indemnify the Company against and hold it free and harmless from any loss, damage, expense or liability resulting to the Company if any sale or distribution of the shares by such person is contrary to the representation and agreement referred to above.  The Committee may, in its absolute discretion, take whatever additional actions it deems appropriate to insure the observance and performance of such representation and agreement and to effect compliance with the Securities Act and any other federal or state securities laws or regulations.  Without limiting the generality of the foregoing, the Committee may require an opinion of counsel acceptable to it to the effect that any subsequent transfer of shares acquired on an Option exercise does not violate the Securities Act, and may issue stop-transfer orders covering such shares.  Share certificates evidencing stock issued on exercise of this Option shall bear an appropriate legend referring to the provisions of this subsection (c) and the agreements herein.  The written representation and agreement referred to in the first sentence of this subsection (c) shall, however, not be required if the shares to be issued pursuant to such exercise have been registered under the Securities Act, and such registration is then effective in respect of such shares; and

(d)  Full payment to the Company (or other employer corporation) of all amounts which, under federal, state or local tax law, it is required to withhold upon exercise of the Option; with the consent of the Committee, (i) shares of the Company’s Common Stock owned by the Optionee duly endorsed for transfer, or, (ii) shares of the Company’s Common Stock issuable to the Optionee upon exercise of the Option, valued at Fair Market Value as of the date of Option exercise, may be used to make all or part of such payment; and

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(e)  In the event the Option or portion shall be exercised pursuant to Section 4.1 by any person or persons other than the Optionee, appropriate proof of the right of such person or persons to exercise the Option.

Section 4.4 - - Conditions to Issuance of Stock Certificates

The shares of stock deliverable upon the exercise of the Option, or any portion thereof, may be either previously authorized but unissued shares or issued shares which have been reacquired by the Company.  Such shares shall be fully paid and nonassessable.  The Company shall not be required to issue or deliver any certificate or certificates for shares of stock purchased upon the exercise of the Option or portion thereof prior to fulfillment of all of the following conditions:

(a)  The admission of such shares to listing on all stock exchanges on which such class of stock is then listed; and

(b)  The completion of any registration or other qualification of such shares under any state or federal law or under rulings or regulations of the Securities and Exchange Commission or of any other governmental regulatory body, which the Committee shall, in its absolute discretion, deem necessary or advisable; and

(c)  The obtaining of any approval or other clearance from any state or federal governmental agency which the Committee shall, in its absolute discretion, determine to be necessary or advisable; and

(d)  The payment to the Company (or other employer corporation) of all amounts, if any, which, under federal, state or local tax law, it is required to withhold upon exercise of the Option; and

(e)  The lapse of such reasonable period of time following the exercise of the Option as the Committee may from time to time establish for reasons of administrative convenience.

Section 4.5 - Rights as Stockholder

The holder of the Option shall not be, nor have any of the rights or privileges of, a stockholder of the Company in respect to any shares purchasable upon the exercise of any part of the Option unless and until certificates representing such shares shall have been issued by the Company to such holder.

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ARTICLE V

ADDITIONAL OPTIONS

Section 5.1 - Additional Options

(a)  If, with the consent of the Committee pursuant to Section 4.3(b)(ii), an Optionee exercises the Option by tendering or relinquishing shares of Common Stock and/or when shares of Common Stock are tendered or relinquished in payment for the amount to be withheld under applicable federal, state and local income tax laws (at withholding rates not to exceed the Optionee’s applicable marginal tax rates) in connection with the exercise of the Option, the Optionee shall automatically be granted an Additional Option.  The Additional Option shall be subject to the following provisions:

(i)  The Additional Option shall cover the number of shares of Common Stock equal to the sum of (A) the number of shares of Common Stock tendered or relinquished as consideration upon the exercise of the Option and (B) the number of shares of Common Stock tendered or relinquished in payment of the amount required to be withheld under applicable federal, state and local income tax laws in connection with the exercise of the Option;

(ii)  The Additional Option will not have an Additional Option Feature (as defined in the Plan) unless the Committee directs otherwise;

(iii)  The Additional Option exercise price shall be 100% of the Fair Market Value per share on the date the employee tenders or relinquishes shares of Common Stock to exercise the Option and/or tenders or relinquishes shares of Common Stock in payment of income tax withholding on the exercise of the Option; and

(iv)  The Additional Option shall have the same termination date and other termination provisions as the Option.

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ARTICLE VI

OTHER PROVISIONS

Section 6.1 - Administration

The Committee shall have the power to interpret the Plan, this Agreement and all other documents relating to the Option and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret or revoke any such rules.  All actions taken and all interpretations and determinations made by the Committee in good faith shall be final and binding upon the Optionee, the Company and all other interested persons.  No member of the Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or the Option and all members of the Committee shall be fully protected by the Company in respect to any such action, determination or interpretation.  In its absolute discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Committee under the Plan and this Agreement except with respect to matters which under Rule 16b-3 or Section 162(m) of the Code, or any regulations or rules issued thereunder, are required to be determined in the sole discretion of the Committee.

Section 6.2 - Option Not Transferable

Neither the Option nor any interest or right therein or part thereof shall be liable for the debts, contracts or engagements of the Optionee or his successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect; provided, however, that this Section 6.2 shall not prevent:

(a) any transfer by gift, without the receipt of any consideration, of the Option or any part thereof by the Optionee, in writing and with written notice thereof to the Committee, (i) to the Optionee’s spouse; (ii) to any child or more remote lineal descendant of the Optionee or to the spouse of any such child or more remote lineal descendant; or (iii) to any trust, custodianship, or other similar fiduciary relationship maintained for the benefit of any one or more of such persons; or

(b) any transfer by will or by the applicable laws of descent and distribution.

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Section 6.3 - Shares to Be Reserved

The Company shall at all times during the term of the Option reserve and keep available such number of shares of stock as will be sufficient to satisfy the requirements of this Agreement.

Section 6.4 - Notices

Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of its Secretary, and any notice to be given to the Optionee shall be addressed to him at the address given beneath his signature hereto.  By a notice given pursuant to this Section 6.4, either party may hereafter designate a different address for notices to be given to it or him.  Any notice which is required to be given to the Optionee shall, if the Optionee is then deceased, be given to the Optionee’s personal representative if such representative has previously informed the Company of his status and address by written notice under this Section 6.4.  Any notice shall be deemed duly given when enclosed in a properly sealed envelope or wrapper addressed as aforesaid, deposited (with postage prepaid) in a post office or branch post office regularly maintained by the United States Postal Service.

Section 6.5 - Titles

Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.

Section 6.6 - Rule 16b-3

The Company shall take such actions with respect to the Plan as may be necessary to satisfy the requirements of Rule 16b-3.

Section 6.7 - Conformity to Securities Laws

This Agreement is intended to conform to the extent necessary with all provisions of the Securities Act and the Exchange Act and any and all regulations and rules promulgated by the Securities and Exchange Commission thereunder, including without limitation Rule 16b-3.  Notwithstanding anything herein to the contrary, this Agreement shall be administered, and the Option shall be granted and may be exercised, only in such a manner as to conform to such laws, rules and regulations.  To the extent permitted by applicable law, this Agreement and the Option granted hereunder shall be deemed amended to the extent necessary to conform to such laws, rules and regulations.

Section 6.8 - Amendment

This Agreement may be amended only by a writing executed by the parties hereto which specifically states that it is amending this Agreement.

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Section 6.9 - Governing Law

The laws of the State of Delaware shall govern the interpretation, validity, administration, enforcement and performance of the terms of this Agreement regardless of the law that might be applied under principles of conflicts of laws.

IN WITNESS HEREOF, this Agreement has been executed and delivered by the parties hereto.

	OWENS-ILLINOIS, INC.
	By	/s/ James W. Baehren
		James W. Baehren, Senior Vice President
/s/ Steven R. McCracken
Steven R. McCracken

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EX-12

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Exhibit 12

OWENS-ILLINOIS, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(Dollars in millions)

		Three months ended March 31,
		2004			2003
Earnings before income taxes, and minority share owners' interests		$	78.3		$	54.5
Less:	Equity earnings		(5.6	)		(5.8	)
Add:	Total fixed charges deducted from earnings		118.4			113.6
	Proportional share of pre-tax earnings of 50% owned associates		2.8			2.8
	Dividends received from equity investees		2.3			2.4
	Earnings available for payment of fixed charges	$	196.2		$	167.5
Fixed charges (including the Company's proportional share of 50% owned associates):
	Interest expense	$	109.5		$	105.4
	Portion of operating lease rental deemed to be interest		4.0			2.6
	Amortization of deferred financing costs and debt discount expense		4.9			5.6
	Total fixed charges deducted from earnings and fixed charges		118.4			113.6
Preferred stock dividends (increased to assumed pre-tax amount)			7.7			7.9
Combined fixed charges and preferred stock dividends		$	126.1		$	121.5
Ratio of earnings to fixed charges			1.7			1.5
Ratio of earnings to combined fixed charges and preferred stock dividends			1.6			1.4

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Exhibit 12

OWENS-ILLINOIS, INC. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (Dollars in millions)

EX-31.1

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EXHIBIT 31.1

CERTIFICATIONS

I, Steven R. McCracken, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of Owens-Illinois, Inc.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)

evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c)

disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or person performing the equivalent functions):

a)

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting;

Date May 10, 2004 /s/  STEVEN R. MCCRACKEN Steven R. McCracken
President and Chief Executive Officer
(Principal Executive Officer)

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EXHIBIT 31.1

CERTIFICATIONS

EX-31.2

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EXHIBIT 31.2

CERTIFICATIONS

I, Thomas L. Young, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of Owens-Illinois, Inc.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

a)

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)

evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c)

disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a)

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting;

Date May 10, 2004 /s/  THOMAS L. YOUNG Thomas L. Young
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)

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EXHIBIT 31.2

CERTIFICATIONS

EX-32.1

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EXHIBIT 32.1

Certification of Principal Executive Officer

        Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Owens-Illinois, Inc. (the "Company") hereby certifies that to such officer's knowledge:

          (i)  the Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2004 (the "Report") fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

         (ii)  the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: May 10, 2004 /s/  STEVEN R. MCCRACKEN Steven R. McCracken
President and Chief Executive Officer
Owens-Illinois, Inc.

A signed original of this written statement required by Section 906 has been provided to Owens-Illinois, Inc. and will be retained by Owens-Illinois, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

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EXHIBIT 32.1

Certification of Principal Executive Officer

EX-32.2

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EXHIBIT 32.2

Certification of Principal Financial Officer

        Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Owens-Illinois, Inc. (the "Company") hereby certifies that to such officer's knowledge:

          (i)  the Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2004 (the "Report") fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

         (ii)  the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: May 10, 2004 /s/  THOMAS L. YOUNG Thomas L. Young
Executive Vice President and
Chief Financial Officer
Owens-Illinois, Inc.

A signed original of this written statement required by Section 906 has been provided to Owens-Illinois, Inc. and will be retained by Owens-Illinois, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

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EXHIBIT 32.2

Certification of Principal Financial Officer