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United States Securities and Exchange Commission

Washington, D. C. 20549

Form 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2004

Commission file number 0-20165

• • •

STERIS Corporation

(Exact name of registrant as specified in its charter)

• • •

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

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

None

• • •

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

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

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

The aggregate market value of the voting stock held by non-affiliates of the Registrant, computed by reference to the closing price of such stock as of September 30, 2003: $1,591,282,339

The number of Common Shares outstanding as of May 31, 2004: 68,866,792

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the 2004 Annual Meeting — Part III

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TABLE OF CONTENTS

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PART I

ITEM 1. BUSINESS

Reference to “STERIS Corporation,” “STERIS,” or the “Company” refers to STERIS Corporation and its subsidiaries, except where the context makes it clear the reference is to STERIS Corporation itself and not to its subsidiaries.

Description of Business

STERIS Corporation, an Ohio corporation organized in 1987, develops, manufactures, and markets infection prevention, contamination control, microbial reduction, and surgical and critical care support products and services for healthcare, scientific, research, industrial, and government customers throughout the world. STERIS is focused on helping customers address today’s needs primarily in the healthcare and pharmaceutical industries. The healthcare industry continues to change as a result of a number of developments, including minimally invasive surgical and diagnostic procedures; heightened public and professional awareness and concern for the increasing number of transmittable and antibiotic-resistant infectious diseases; and the overall need to reduce the cost of healthcare delivery. These developments have expanded the demand for rapid, safe, and efficient infection prevention systems for critical tasks such as the sterile processing of devices. The pharmaceutical industry is also expanding to meet increased demand for new and generic drugs. Pharmaceutical, biotech, medical device, and other manufacturers are under increasing pressure to adhere to stricter guidelines for the validation and control of their antimicrobial processes, as well as global standardization of protocols.

As of March 31, 2004, the Company had approximately 5,100 employees worldwide, with approximately 2,300 involved in direct sales, service, and field support. Customer support and training facilities are located in many major global market centers, and production and manufacturing operations are found in the United States, Canada, Germany, Finland, Sweden, and Switzerland.

Segment Information

As of April 1, 2003, the Company realigned its single operating segment into three market-focused business segments to more effectively capture growth opportunities. These segments include: Healthcare, Life Sciences, and STERIS Isomedix Services. Segment information for years prior to April 1, 2003 has been reclassified to conform to the fiscal 2004 segment structure. Information regarding the Company’s fiscal 2004 segment structure, including comparative segment net revenues, comparative segment operating income, and comparative other financial information for each of the three years in the period ending March 31, 2004 is presented in Note 12 to the Company’s consolidated financial statements, “Business Segment Information,” and in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in the “Principal Products and Services” section below.

Principal Products and Services

STERIS is a leader in low temperature sterilization, high temperature sterilization, washing and decontamination systems, surgical tables, surgical lights, and associated consumables and service. The Company is a multi-industry, global organization that serves healthcare, pharmaceutical manufacturing, life sciences research, industrial, and government customers. Principal products and services by business segment are as follows:

Healthcare Segment. The Healthcare segment provides an integrated offering of equipment, consumables, and services to hospitals and alternative sites, enabling them to improve the safety, efficiency, and effectiveness of ambulatory and acute care environments. The portfolio includes infection prevention

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processing systems, specialty chemical products used for cleaning, disinfecting, sterilizing and drying medical instruments and hard surfaces. STERIS systems support cost containment, productivity increases, and risk reduction in a wide variety of healthcare settings through process standardization, automatic monitoring and documentation, processing site flexibility, and reduction in processing time.

Equipment. The Healthcare segment utilizes three sterilization technologies for decontaminating medical devices and instruments: low temperature liquid, steam, and ethylene oxide. STERIS SYSTEM 1^® Low Temperature Liquid Sterile Processing System is used for just-in-time sterile processing at or near the site of patient care. SYSTEM 1^® sterile processors enable healthcare professionals to economically sterilize immersible surgical and diagnostic devices between patient procedures in approximately thirty minutes. Customers are able to sterilize delicate, expensive, heat-sensitive devices and instrument sets many times per day, while reducing the risk of re-contamination and eliminating time-consuming transportation to and from central processing sites.

The Company’s thermal sterilization systems, sold under the Amsco^® brand name, use saturated steam to sterilize items through a combination of heat, moisture, and pressure. Thermal sterilizers are offered in a number of sizes based on customer throughput requirements, and are designed for use in centralized and decentralized processing environments. The product line includes a versatile microprocessor-based control system that provides the customer a permanent record of important cycle information.

In addition, the Company manufactures low temperature ethylene oxide (“EO”) gas sterilizers, which provide customers the ability to sterilize heat sensitive medical devices in a controlled processing environment.

STERIS also manufactures a variety of automated washer/disinfector systems under the Amsco^® Reliance^® brand that are typically used as a processing step before thermal sterilization. These systems clean, disinfect, and dry a wide range of items from rolling instrument carts and other large healthcare equipment to the smallest surgical instruments.

The Company’s Healthcare equipment also includes general and specialty surgical tables, surgical and examination lights, operating room storage cabinets, warming cabinets, scrub sinks, and other complementary products and accessories for hospitals and other healthcare facilities. The Company produces and sells a line of related accessories and also sells accessories manufactured by outside sources.

The Company’s lights and equipment management systems are designed for a wide variety of locations where diagnostic and therapeutic procedures are performed, including the emergency room, general surgery suite, OB/GYN suite, ICU/CCU suite, and ambulatory surgery suite. The Company’s products range from major surgical lights to small examination lights, and include the Harmony^® Equipment Management Systems line of ceiling management products for the hospital operating room, emergency and critical care, and ambulatory surgery markets.

Consumables. The Healthcare segment also offers infection prevention consumables and supplies that are used to prevent the spread of infectious diseases and to monitor sterilization and decontamination processes. STERIS consumable products offer quality choices for infection and contamination prevention, including products used in instrument cleaning and decontamination systems and hard surface disinfectants. Within the Healthcare Segment is Applied Infection Control, a business unit focused on skin care solutions for high risk and routine applications and surgical scrubs. STERIS quality assurance products used to monitor sterilization processes include biological monitoring systems, barrier wraps, integrator/indicator monitoring systems, and record-keeping systems.

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Service. The Healthcare segment also provides various equipment maintenance programs to support effective operation of Healthcare equipment over its lifetime. STERIS provides sterilization management services for healthcare facilities and is developing comprehensive service solutions to meet the instrument reprocessing needs of hospitals and healthcare facilities.

STERIS field service personnel are available worldwide to install, maintain, upgrade, repair, and troubleshoot equipment. Additionally, STERIS offers general sterilization consulting services and other support services such as facility planning, engineering support, device testing, cleaning, evaluation, and customer education.

Life Sciences Segment. The STERIS Life Sciences segment is a global provider of integrated and validated equipment, chemistries, and service solutions aiding developers and manufacturers of pharmaceutical and bio-pharmaceutical products to maximize uptime, enhance productivity, and protect process integrity within aseptic and other critical environments. The offerings include contamination prevention and control systems, products and services for pharmaceutical, biotechnology, critical research, and laboratory research customers. These products and services assist customers in following the stringent sterility assurance and microbial reduction processes demanded by the United States Food and Drug Administration (“FDA”), as well as worldwide regulatory and compliance agencies.

The Life Sciences business unit of the Life Sciences segment offers a broad range of systems and products that includes several of the most trusted brand names in the industry: Finn-Aqua^® and Amsco^® sterilizers, Reliance^® and Basil^® washers, Detach^™ automated cage and bedding processing systems, VHP^® (Vaporized Hydrogen Peroxide) bio-decontamination systems, Finn-Aqua^® high-purity water systems, and Lyovac^® freeze dryers, research and pharmaceutical washing systems, as well as an extensive line of consumable products for contamination prevention, surface cleaning, and sterility assurance. With this broad product offering, the Life Sciences segment has the capability to follow a drug through the research, discovery, and manufacturing phases.

The Life Sciences segment, through its Defense and Industrial business unit offers proprietary services, technologies and products that meet challenges from a diverse array of situations and environments. This business unit addresses the emerging threat of biological or chemical contamination and has focused primarily on securing collaborative research agreements with various U.S. government agencies. Future applications may span industries such as mass transportation, food and food processing facilities, private sector and government office buildings, defense bases and, defense and first response vehicles. This is an example of the Company’s strategy to utilize its proven technologies to meet the needs of new markets.

STERIS Isomedix Services Segment. STERIS Isomedix Services is a provider of contract sterilization, microbial reduction, and materials modification services to medical supply, consumer, and industrial customers. This business provides services to manufacturers of pre-packaged products, such as single-use medical devices. STERIS has a network of 16 contract sterilization facilities in the U.S., Canada, and Puerto Rico with available gamma irradiation, ethylene oxide, and electron beam processing technologies. STERIS Isomedix Services facilities network provides customers with high-quality processing and logistical support to minimize the time it takes to move a product from the factory to its final destination.

Manufacturing

The Company, as of March 31, 2004, manufactures, assembles, and packages products in Erie, Pennsylvania; Mentor, Ohio; Montgomery, Alabama; St. Louis, Missouri; Cologne, Germany; Helsinki, Finland; Pieterlen, Switzerland, Quebec City, Canada; and Stockholm, Sweden. Each of the production facilities are dedicated facilities, each focusing on particular processes and products. The majority of the Company’s equipment manufacturing facilities throughout the world are ISO 9001 certified. These facilities supply products to both Healthcare and Life Sciences customers.

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Raw materials, sub-assemblies, and other components essential to the Company’s business are generally available within the lead times specified to vendors. While some raw materials are sole sourced, the supply of such raw materials has posed no significant problem in the operation of the Company’s business.

International Operations

The Company has operations outside of the United States. These operations are conducted through the Company’s subsidiaries and involve the same business segments as the Company’s domestic operations – Healthcare, Life Sciences, and STERIS Isomedix Services. Net revenues from operations outside of the United States amounted to $244.5 million, or 22.5%, of the Company’s total net revenue for the year ended March 31, 2004. Net revenues from operations in North America, Europe, and other countries amounted to $884.2 million, $160.7 million, and $42.1 million, respectively, for fiscal 2004. The United States was the only individual country to contribute more than 10% of total revenue.

For a geographic breakdown of net revenues and changes in net revenues for the three years ended March 31, 2004, see Note 12 to the Company’s consolidated financial statements, “Business Segment Information,” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

The Company’s operations are subject, in varying degrees, to a number of inherent risks. These include, among other things, foreign currency fluctuations, exchange controls and currency restrictions, changes in local economic conditions, unsettled political, regulatory or business conditions, and government-sponsored boycotts and tariffs on the Company’s products or services.

Depending on the direction of change relative to the U.S. dollar, foreign currency values can increase or reduce the reported dollar value of the Company’s net assets and results of operations. Foreign exchange favorably impacted net revenues by 2.3% during fiscal 2004. The Company cannot predict with certainty future changes in foreign exchange rates or the effect they will have on the Company.

Customers and Methods of Distribution

As of March 31, 2004, STERIS employed approximately 1,170 direct field sales and service representatives in North America. The representatives generally reside in metropolitan market areas throughout the United States and Canada. Sales and service activities are supported by a staff of regionally based clinical specialists, systems planners, corporate account managers, and in-house customer service and field support departments.

The Company has generally employed direct sales, service, and support personnel in developed international markets while contracting with distributors in other selected markets. STERIS currently has sales offices in Belgium, Brazil, Canada, Costa Rica, UK, Finland, France, Germany, Italy, Japan, Korea, Singapore, Spain, Sweden, Switzerland, and the United States. STERIS has distribution agreements with medical supply distributors in Australia and various countries in North and South America, Asia, and Europe.

Customer training is an important aspect of STERIS’s business. In addition to training at customer locations, STERIS provides a variety of courses for customers at the Company’s training and education centers and over the internet. The programs enable customer representatives to understand the science, technology, and operation of STERIS products. Many of the Operator Training Programs are approved by professional certifying organizations for continuing education credits to eligible course participants.

Many of the Company’s customers are subject to government payment, reimbursement, or funding requirements. Changes in those requirements could adversely impact the Company. STERIS believes, however, that one of its strengths is its broad customer base with no single customer accounting for more than five percent of revenue during fiscal 2004. Customers who are part of a buying group generally make independent purchasing decisions and are invoiced directly by the Company.

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Competition

The Company believes it is uniquely positioned with its combination of capital equipment, chemistries, and services. Competitors are typically focused on either capital equipment, chemistries, or services. The markets in which the Company’s business is conducted are highly competitive and often highly regulated. Such competition involves an intensive search for technological innovations and the ability to market these innovations effectively. The Company focuses significant resources on research and development and management believes that the Company is prepared to compete globally in search of technological innovations. In addition to expenditures relating to research and development, the Company continues to invest in quality control, customer programs, distribution systems, and technical and other information services.

Despite the focus that the Company devotes to developing competitive advantages, a number of competing methodologies and commercial products are available in individual product lines. Getinge AB, Advanced Sterilization Products (Johnson & Johnson), and 3M Corporation are well-known companies offering products for general sterilization and disinfection. Skytron (division of KMW Group, Inc.) and Getinge AB are competitors in providing general surgical tables. Berchtold Corporation, Getinge AB, Heraeus, and Skytron are competitors in major surgery operating room light products. Competitors in sterility assurance products include a number of different manufacturers of which the most well-known is 3M Corporation. Competitors in environmental and instrument decontamination products include Getinge AB, Ecolab Inc., and Cardinal. The Company’s high risk and routine skin care products compete against the products of Ecolab, Inc., Gojo (Provon), and Kimberly-Clark (SaniFresh). Cardinal, Becton Dickinson, Ecolab, Inc. and Purdue Frederick are competitors in providing surgical scrubs. Competitors in the original equipment manufacturing service business include local and in-hospital service groups. In contract sterilization, the Company primarily competes with Griffith Micro Science and SteriGenics International, Inc. (business units of Ion Beam Applications), and companies that sterilize products in-house. A competitor for the Company’s Life Sciences sterilization systems is Getinge AB.

In 1998, the FDA established 510(k) submission exemptions for many Class I devices, including certain surgical support products, which lessened the regulatory requirements for the introduction of these products. The lower regulatory barriers could accelerate new product introductions for the Company and its domestic competitors, as well as improve the ability of foreign competitors to introduce products into the United States market and, as a result, increase competition.

Competition for the products provided by the Company is based upon product design and quality, product innovation, price, and product serviceability that result in the greatest overall value to the customer. In addition, there is significant price competition among various instrument preparation processes and services provided by STERIS and its competitors.

STERIS anticipates that it may face increased competition in the future as new infection prevention, sterile processing, contamination control, and surgical support products and services enter the market. Numerous organizations, including several smaller early-stage companies, are believed to be working with a variety of technologies and sterilizing agents, including microwave, ozone, plasma, chlorine dioxide, peracids, and formaldehyde. In addition, a number of companies have developed disposable medical instruments and other devices designed to address the risk of contamination. There can be no assurance that new products or services developed by the Company’s competitors will not be more commercially successful than those provided or developed by STERIS or that may be developed by STERIS in the future. In addition, some of STERIS’s existing or potential competitors may have greater financial, technical, and human resources than the Company. Accordingly, the Company’s competitors may succeed in developing and commercializing products more rapidly than the Company.

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Government Regulation

Many of the Company’s products and manufacturing processes are subject to regulation by the FDA, the United States Environmental Protection Agency (“EPA”), the United States Nuclear Regulatory Commission, and other governmental authorities. Similar regulatory agencies exist in other countries with a wide variety of regulatory review processes and procedures. Many products offered for sale in Europe must meet the CE marking requirements, and must be manufactured in accordance with the Medical Devices Directive, ISO 9001, and EN 46001 Quality System Standards. The Company’s products are also subject to review or certification by various nongovernmental certification authorities, such as Underwriter’s Laboratories, Canadian Standards Association, British Standards Institute, and TUV (Germany). Compliance with the regulations and certification requirements of domestic and foreign government regulatory and certification authorities may delay or prevent product introductions, require additional studies or tests prior to product introduction, require product modification, reclassification, relabeling or recalls, or mandate cessation of production and marketing of existing products. The cost of compliance with applicable regulations represents a considerable expense, and such past, current or future regulations or their interpretation or application could have a material adverse impact on the Company.

In the United States, the FDA regulates the introduction, manufacturing, labeling, reclassification, record keeping, and recall requirements for medical devices and drugs. The FDA regulates the majority of the products manufactured by the Company, through marketing clearance, pre-market approvals, new drug approvals, or compliance with established monographs. The process of obtaining marketing clearance from the FDA for new products, new applications for existing products, and changes to existing products can be time-consuming and expensive. In addition, whether separate or additional approvals or marketing clearance is required under applicable regulations for any particular product is often a matter of interpretation and judgment. There is no assurance that approval or marketing clearances will be granted or maintained, that the FDA or other agencies will agree or continue to agree with all judgments made from time to time by the Company, that new marketing clearance, reclassification or relabeling will not be required for any particular new or existing product, or that review by the FDA or other agencies will not involve delays, costs or proceedings that will adversely affect the Company or its ability to commercialize additional products or existing products. Similar approvals and requirements by comparable agencies are present in most countries, and similar risks are present. International regulatory requirements may vary widely from country to country. The time required to obtain market clearance from a foreign country may be longer or shorter than that required by the FDA or other agencies, and clearance or approval or other product requirements may differ.

Even if regulatory clearances to market a product are obtained from the FDA or other international agencies, these clearances may entail limitations on the indicated uses of the product. Product clearances granted by the FDA or other agencies can also be withdrawn due to failure to comply with regulatory standards or the occurrence of other problems following initial approval. Regulatory requirements could also limit or prevent the manufacture or distribution of the Company’s products and require the post market review, reclassification, relabeling, or recall of such products. The application of these regulations depends heavily on administrative interpretation, and there can be no assurance that future interpretations made by the FDA or other regulatory bodies, with possible retroactive effect, will not adversely affect the Company. Further, additional government regulation may be established that could prevent, delay, revoke, or result in the rejection of regulatory clearance of the Company’s products. The effect of government regulation or interpretation or application thereof, which may arise from current or future legislation or administrative action cannot be predicted.

The FDA, various state agencies, and foreign regulatory agencies also have the right to inspect the Company’s facilities from time to time to determine, among other things, whether the Company is in compliance with various regulations relating to the Quality System Regulation (“QSR”). In complying with

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the QSR, manufacturers must continue to expend time, money, and effort in the areas of production and quality control to achieve regulatory compliance.

In addition, the Company is subject to regulation under local, state, federal, and foreign law regarding occupational safety, environmental protection, import/export controls, tax matters, product sales and marketing, hazardous and toxic substance control, and to other present (and possible future) local, state, federal, and foreign regulation. The cost of compliance with these regulations represents a considerable expense to the Company, and such regulations or their interpretation or application could have a material adverse impact on the Company.

Failure to comply with any applicable regulatory requirements could result in sanctions being imposed on the Company, including warning letters, injunctions, money penalties, enforcement actions, investigations, cost recovery actions, civil litigation, failure of the FDA or comparable foreign agencies to grant pre-market clearance or pre-market approval of medical devices, product recalls, operating restrictions, and/or other administrative, civil and criminal sanctions. The Company has previously received warning letters, paid civil penalties, conducted product recalls, and been subject to other regulatory sanctions. The Company believes that no such sanctions that would have a material adverse effect on the Company’s consolidated financial condition are currently outstanding. The Company believes that it is currently in conformity in all material respects with applicable regulatory requirements. However, there can be no assurance that future or current regulatory, governmental, or private legal action will not be concluded in a manner adverse to the Company. Also see the discussion of “Legal Proceedings,” Part I, Item 3.

The Company has received all material licenses and permits it believes necessary to conduct its current manufacturing and contract sterilization businesses and believes that it will be able to obtain any permits necessary for the future conduct of its manufacturing and contract sterilization businesses. The Company is committed to compliance with applicable FDA, EPA, and other governmental laws and regulations and the standards promulgated by applicable nongovernmental certification authorities. However, there can be no assurance that compliance will be maintained in all circumstances.

Effects of Environmental Laws

The Company is subject to various laws and government regulations concerning environmental matters and employee safety and health in the United States and other countries. The Company has made and intends to continue to make necessary expenditures for compliance with these laws and regulations. While the Company cannot predict with certainty future capital expenditures or operating costs associated with environmental law and regulation compliance, the Company does not believe they will have a material effect on the Company’s capital expenditures, results of operation, cash flows, or competitive position.

Employees

As of March 31, 2004, the Company had approximately 5,100 employees. Management considers its relations with employees, including employees covered under collective bargaining agreements, to be good.

Intellectual Property and Research and Development

The Company protects its technology and products by, among other means, filing United States and foreign patent applications that it considers important to its business. There can be no assurance, however, that any patent will provide adequate protection for the technology, system, product, service, or process it covers. In addition, the process of obtaining and protecting patents can be long and expensive. The Company also relies upon trade secrets, technical know-how, and continuing technological innovation to develop and maintain its competitive position.

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As of March 31, 2004, the Company held 262 United States patents and 590 foreign patents and had 111 United States patents and 210 foreign patents pending. Patents for individual products extend for varying periods according to the date of patent filing or grant and legal term of patents in various countries where patent protection is obtained. The actual protection afforded by a patent, which can vary from country to country, depends upon the type of patent, the scope of its coverage, and the availability of legal remedies in the country.

The Company’s products are sold around the world under various brand names and trademarks. The Company considers its trademarks to be valuable in the marketing of its products. As of March 31, 2004, the Company had a total of 778 trademark registrations in the United States and in various foreign countries in which the Company conducts business.

Seasonality

The Company’s financial results have been from time to time subject to seasonal patterns. Sales and profitability of certain of the Company’s acquired and consolidated product lines have generally been weighted toward the latter part of each quarter and toward the latter part of each year. A number of factors have contributed to this seasonality, including sales promotion and compensation programs, customer buying patterns of capital equipment, and international business practices. There can be no assurance that such patterns or trends will continue.

Backlog

As of March 31, 2004, the Company maintained backlog orders in the amount of $129.6 million, of which, $57.0 million and $72.6 million related to the Company’s Healthcare segment and Life Sciences segment, respectively. As of March 31, 2003, the Company maintained backlog orders in the amount of $147.5 million, of which, $68.0 million and $79.5 million related to the Company’s Healthcare segment and Life Sciences segment, respectively. The majority of orders in both years were expected to ship in the subsequent fiscal year.

Subsequent Events

As of June 10, 2004, the Company had purchased 1,265,100 of its Common Shares during the first quarter of fiscal 2005, at an average price of $22.25 per Common Share leaving 973,700 Common Shares authorized for purchase.

Availability of Securities and Exchange Commission Filings

The Company files annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, amendments to those reports, and other information with the Securities and Exchange Commission (“SEC”). Copies of these materials can be obtained by visiting the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, D.C. 20549 or by accessing the SEC’s website at http://www.sec.gov. Information may be obtained by calling the SEC at 1-800-SEC-0330. In addition, as soon as reasonably practicable, after such materials are filed with or furnished to the SEC, the Company makes copies available to the public, free of charge, on or through the investor relations section of its website at http://www.steris.com. Also available on the Company’s website are the Company’s Corporate Governance Guidelines, Director Code of Ethics, and Code of Business Conduct, as well as Charters of the Company’s Audit and Financial Policy Committee, Compensation and Corporate Governance Committee, and the Compliance Committee of the Company’s Board of Directors. Information on the Company’s website is not incorporated into this report.

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ITEM 2. PROPERTIES

The following table sets forth the principal plants and other materially important properties of the Company and its subsidiaries as of March 31, 2004. The Company believes that its facilities are adequate for operations and are maintained in good condition. The Company is confident that, if needed, it will be able to acquire additional facilities at commercially reasonable rates.

In the table below, “Contract Sterilization” refers to locations of the STERIS Isomedix Services segment, “Sterilization Services” refers to locations of the Healthcare segment and “Manufacturing/Warehousing” and “Sales Offices” refer to locations serving both the Healthcare and Life Sciences segments.

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ITEM 3. LEGAL PROCEEDINGS

The Company is involved in a number of legal proceedings and claims, which the Company believes arise from the ordinary course of its business, given its size, history, complexity, nature of its business, and industries in which it participates. These legal proceedings and claims generally involve a variety of legal theories and allegations, including without limitation, personal injury (e.g., slip and falls, automobile accidents), product liability (e.g., based on the operation or claimed malfunction of products), product exposure (e.g., claimed exposure to chemicals, asbestos, contaminants), property damage (e.g., claimed damage due to leaking equipment, fire), economic loss (e.g., breach of contract, other commercial claims), employment (e.g., wrongful termination), and other claims for damage and relief. In fiscal 2004, the Company settled a wrongful discharge lawsuit with a former employee. In connection with that settlement, the Company became aware of an investigation initiated based on discussions between the former employee and the FDA regarding the Company’s SYSTEM 1^® sterile processing system. The investigation is currently being conducted by the FDA and the U.S. Department of Justice and is ongoing. The Company has offered and intends to cooperate with the government agencies regarding this matter, if requested.

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The Company believes it has adequately reserved for its current litigation and that the ultimate outcome of its pending lawsuits and claims will not have a material adverse effect on the Company’s consolidated financial position or results of operations taken as a whole. Due to their inherent uncertainty, however, there can be no assurance of the ultimate outcome of current or future litigation, proceedings, investigations, or claims or their effect. The Company presently maintains product liability insurance coverage and other liability coverage in amounts and with deductibles that it believes are prudent.

From time to time, STERIS is also involved in legal proceedings as a plaintiff involving contract, patent protection, and other claims asserted by the Company. Gains, if any, from these proceedings are recognized when they are realized.

Additional discussion regarding the Company’s commitments and contingencies is included in Item 7, Management’s Discussion and Analysis (“Contingencies”) and in Note 11 to the Company’s consolidated financial statements, “Commitments and Contingencies.”

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth quarter of the Company’s 2004 fiscal year.

Executive Officers of the Registrant

The following table sets forth certain information regarding the executive officers of the Company, as of March 31, 2004.

The following is a brief account of the business experience during the past five years of each such executive officer:

Les C. Vinney serves as President and Chief Executive Officer. He assumed this role in July 2000. Mr. Vinney joined the Company’s Board of Directors in March 2000 at the same time as he was appointed to

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his previous role as the Company’s President and Chief Operating Officer. Mr. Vinney joined STERIS as Senior Vice President and Chief Financial Officer in August 1999. He became Senior Vice President Finance and Operations in October 1999. Immediately before his employment with STERIS, Mr. Vinney served as Senior Vice President and Chief Financial Officer at The BF Goodrich Company, a manufacturer of advanced aerospace systems, performance materials, and engineered industrial products. During his eight year career with BF Goodrich, Mr. Vinney held a variety of senior operating and financial management positions, including Vice President and Treasurer, President and CEO of the former Tremco subsidiary, and Senior Vice President, Finance and Administration of BF Goodrich Specialty Chemicals.

William L. Aamoth serves as Vice President and Corporate Treasurer. He joined the Company in March 2001. Prior to joining the Company, Mr. Aamoth was employed by Hayes Lemmerz International, a manufacturer of automotive wheels, brakes, and related systems, from January 2000 through January 2001, serving as Treasurer. From May 1992 to December 1999, Mr. Aamoth was employed by TRW, Inc., a manufacturer and service provider of automotive, aerospace, and information technology products, serving most recently as Assistant Treasurer, International.

Laurie Brlas serves as Senior Vice President and Chief Financial Officer. She joined the Company in April 2000. Prior to joining STERIS, Ms. Brlas was employed by OfficeMax, Inc., a retailer of goods and services to business customers and consumers, from September 1995 through April 2000, serving most recently as Senior Vice President and Corporate Controller.

Dr. Peter A. Burke serves as Senior Vice President and Chief Technology Officer. He became Senior Vice President in March 2002. Dr. Burke joined the Company in March 2001 as Vice President and Chief Technology Officer. Prior to joining STERIS, Dr. Burke was employed by Carter-Wallace, Inc., a manufacturer and distributor of consumer and pharmaceutical products, from January 1996 to March 2001, serving most recently as Vice President, Research and Development.

David L. Crandall serves as Vice President and Group President, Applied Infection Control. He joined the Company in April 2000 and served as Vice President, Manufacturing and Distribution until April 2003. Prior to joining the Company, Mr. Crandall was employed by United Technologies Group, a manufacturer of high technology products for the aerospace and building systems industries, from December 1968 to April 2000, serving most recently as Director of Manufacturing, North American Operations.

Charles L. Immel serves as Senior Vice President and Group President, Healthcare. He joined the Company in May 2001 and served as Senior Vice President, Sales and Marketing and President, Commercial Products until April 2003. Prior to joining STERIS, Mr. Immel was employed by Baxter Healthcare Corporation, a medical products and services company specializing in critical care applications, from July 1983 to May 2001, serving most recently as Vice President and General Manager of Baxter’s Therapeutic Commercial Business.

Mark D. McGinley serves as Vice President, General Counsel, and Secretary. He joined the Company in March, 2002. Prior to joining STERIS, Mr. McGinley was employed by Noveon, Inc., an international specialty chemicals manufacturer. Mr. McGinley also served as Associate General Counsel of The Glidden Company and was employed by the BF Goodrich Company from 1990 to 2000 in various legal capacities, including General Counsel of BF Goodrich Sealants, Coatings and Adhesives Group.

Robert E. Moss serves as Vice President and Group President, STERIS Isomedix Services. He served as Vice President and General Manager of Isomedix Services from 1999 until April 2003. Mr. Moss joined the Company in 1990 serving as Vice President Operations until 1999. Prior to joining the Company, Mr. Moss held senior leadership positions with Cardinal Health and Divisions of the American Hospital Supply Corporation.

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Morten C. Nielsen serves as Vice President and Group President, Life Sciences. He joined the Company in March 2002 serving as President Commercial Operations Europe until April 2003. Prior to joining the Company he served as Vice President Europe for the Boston Scientific Corporation, a manufacturer of medical devices for less invasive therapies, from 1997 until March 2002, and held senior management positions with American Home Products.

Gerard J. Reis serves as Senior Vice President and Group President, Defense and Industrial. He joined the Company in July 1994 as Vice President, Administration. He served as Senior Vice President, Administration from October 1999 until April 2003.

Michael J. Tokich serves as Vice President and Corporate Controller. He joined the Company in May 2000 as Assistant Corporate Controller. He became Corporate Controller in December 2000. Prior to joining the Company, Mr. Tokich was employed by OfficeMax, Inc., a retailer of goods and services to business customers and consumers, from July 1994 to May 2000, serving most recently as Divisional Vice President, Assistant Controller.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS, AND ISSUER PURCHASE OF EQUITY SECURITIES

Market Information and Dividends

The Company’s Common Shares are traded on the New York Stock Exchange under the symbol “STE.” The following table sets forth, for the periods indicated, the high and low sales prices for the Company’s Common Shares.

The Company has not paid any cash dividends on its Common Shares since its inception. Payment of dividends, if any, in the future is subject to the discretion of the Company’s Board of Directors. At May 28, 2004, there were approximately 1,668 shareholders of record of the Company’s Common Shares.

Issuer Purchases of Equity Securities

On July 24, 2002, the Company announced that its Board of Directors had authorized the purchase of up to 3.0 million STERIS Common Shares. The Company purchased no Common Shares under the Company’s Share repurchase programs during its fourth quarter of fiscal 2004.

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ITEM 6. SELECTED FINANCIAL DATA

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following sections of Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with information contained in Item 1, “Business,” Item 6, “Selected Financial Data,” and information contained in the Company’s consolidated financial statements, included in Item 8, “Financial Statements and Supplemental Data.”

Non-GAAP Financial Measures

In the following sections of Management’s Discussion and Analysis of Financial Condition and Results of Operations and in Item 1, “Business,” the Company, at times, may refer to information extracted from the Company’s consolidated financial statements, but not required to be presented in the financial statements under accounting principals generally accepted in the United States. Certain of this information is considered to be “non-GAAP financial measures” under the Securities and Exchange Commission rules. Specifically, the Company defines the following financial measures used in the context of this report on Form 10-K as follows:

Free Cash Flow- is defined by the Company as cash flows from operating activities as presented in the consolidated statements of cash flows, which are presented in Item 8, “Financial Statements and Supplemental Data,” less capital expenditures. Thus for the year ended March 31, 2004, free cash flow amounted to $55.7 million ($123.3 million cash flows from operating activities, less capital expenditures of $67.6 million). For the year ended March 31, 2003, free cash flow amounted to $74.7 million ($133.3 million cash flows from operating activities, less capital expenditures of $58.6 million). Management uses this as a measure to gauge the Company’s ability to sustain basic operations.

Backlog- is defined by the Company as the amount of unfilled purchase orders at a point in time. Thus, at March 31, 2004 and 2003, the Company’s backlog amounted to $129.6 million and $147.5 million, respectively. Management uses this as a measure to assist in the projection of short-term financial results of the Company.

Debt to Capital- is defined by the Company as total long-term debt divided by the sum of long-term debt and shareholders’ equity. The components of the calculation are presented in the Company’s consolidated financial statements, which are included in Item 8, “Financial Statements and Supplemental Data.” Thus, at March 31, 2004, debt to capital amounted to 13.8% ($109.1 million long-term debt divided by the sum of $109.1 million long-term debt plus $680.7 million shareholders’ equity). At March 31, 2003, debt to capital amounted to 9.50% ($59.7 million long-term debt divided by the sum of $59.7 million long-term debt plus $569.5 million shareholders’ equity). Management uses this as a measure to gauge the Company’s ability to borrow, provide strength/protection against creditors, fund growth, develop outside of basic business operations, and measure the risk of the Company’s financial structure.

Days Sales Outstanding- is defined by the Company as the average collection period for sales revenue. The components of the calculation are presented in the Company’s consolidated financial statements, which are included in Item 8, “Financial Statements and Supplemental Data.” At March 31, 2004, this measure can be calculated as accounts receivable ($255.4 million) divided by the trailing four quarters sales revenue ($1.09 billion) multiplied by 365. Thus at March 31, 2004, the Company’s days sales outstanding amounted to approximately 86 days. At March 31, 2003, this measure can be calculated as accounts receivable ($211.7 million) divided by the trailing four quarters sales revenue ($972.1 million) multiplied by 365. Thus at March 31, 2003, the Company’s days sales outstanding amounted to approximately 79 days. Management uses this figure to help gauge cash flows from operations.

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In addition to the above-referenced non-GAAP financial measures, the Company sometimes refers to operating profit, operating margin, net income, earnings per share, and other financial figures on an “as adjusted” basis, excluding certain transactions or amounts that are non-recurring or are not indicative of future results, in order to provide meaningful comparative analysis between the years presented. For example, when discussing changes in net revenues, the Company may, at times, exclude the impact of the Hamo Holding AG (“Hamo”) business acquisition on fiscal 2004 financial results.

The Company has presented these measures because it believes that meaningful analysis of the Company’s financial performance requires an understanding of certain additional factors underlying that performance and the Company’s judgments about those particular factors.

The Company has not presented non-GAAP financial measures in the context of its consolidated financial statements, included in Item 8, “Financial Statements and Supplementary Data.”

General Company Overview and Outlook

STERIS Corporation is an industry leader in the development, manufacturing, and marketing of infection prevention, contamination control, microbial reduction, and surgical and critical care support products and services for healthcare, scientific, research, industrial, and government customers throughout the world. During fiscal 2004, the Company made significant progress towards achieving its strategic objectives and was able to surpass the $1.0 billion revenue mark for the first time in Company history. This progress toward achieving the Company’s strategic objectives included:

Detailed discussion of the Company’s fiscal 2004 performance is included in the sub-section of Management’s Discussion and Analysis of Financial Condition and Results of Operations titled “Results of Operations.” Further discussion of the Company’s fiscal 2004 performance related to each of its business segments is included in the sub-section titled “Business Segment Results of Operations.”

Looking ahead, the Company is committed to achieving a competitive advantage in its industries through technological innovations, investments in research and development, and product and geographic breadth. The Company anticipates that industry growth, coupled with market share gains, success of new products and services, and the integration of business acquisitions completed during fiscal 2004 will result in continued revenue and earnings growth for fiscal 2005.

Matters Affecting Comparability

The Company’s operating results for fiscal 2004 include the operating results for its business acquisitions completed during the fiscal year. The primary business acquisition completed during fiscal 2004 was the acquisition of Hamo, a leading provider of washing/decontamination systems used in the healthcare, pharmaceutical, and research industries. This transaction, which gives the Company a stronger European presence and allows the Company to offer a wider range of sterile processing solutions to customers worldwide, was completed as of April 8, 2003. The addition of Hamo to the Company’s operations contributed $38.3 million to total net revenues for the year ended March 31, 2004.

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As the Company conducts business throughout the world using various local currencies, the Company’s operating results are impacted by currency movements relative to the U.S. dollar. During fiscal 2004, the Company’s net revenues were favorably impacted by approximately 2.3% as a result of foreign currency movements in relation to the U.S. dollar.

Results of Operations

The following subsections provide commentary regarding the results of operations of the Company for fiscal 2004 as compared to fiscal 2003 and for fiscal 2003 as compared to fiscal 2002.

Fiscal Year 2004 as Compared to Fiscal Year 2003

The following subsections describe some of the significant components of the Company’s results of operations and provide a comparison of the year ended March 31, 2004 to the year ended March 31, 2003.

Net Revenue

The following table illustrates the change in net revenue for the year ended March 31, 2004 as compared to the year ended March 31, 2003:

Total net revenues consist of product and service revenues from the Company’s three business segments, net of sales returns and allowances.

Product net revenue consists primarily of net revenue from the sterile processing family of products, which includes sterilizers, washing systems, freeze dryers, and VHP technology; the surgical support family of products, which includes lights, tables, and ceiling management systems; the accessory family of products, which includes sterilization, washer, light, and table accessory products; and the consumable product family, which includes STERIS SYSTEM 1^® consumables and various wraps, lotions, and cleaning consumables. For the year ended March 31, 2004, product net revenues represented 69.4% of total net revenues, as compared to 70.7% of total net revenues for the year ended March 31, 2003.

Service net revenue consists primarily of net revenue from parts and labor in connection with the servicing of the Company’s capital products, as well as net revenues from the STERIS Isomedix Services segment. For the year ended March 31, 2004, service net revenue was 30.6% of total net revenues, as compared with 29.3% of total net revenues for the year ended March 31, 2003.

On a consolidated basis, total net revenues increased 11.8% to $1.09 billion for the year ended March 31, 2004 as compared to $972.1 million for the prior fiscal year. The year over year net revenue growth was a result of the Company’s marketing programs, pricing strategies, the introduction of new products and services developed internally and through strategic alliances, the continued penetration of new international markets, and tactical acquisitions. Fiscal 2004 net revenues were favorably impacted by approximately 2.3% as a result of foreign currency movements in relation to the U.S. dollar. Of the $114.9 million year over year change in net revenues, $41.5 million can be attributed to the integration of Hamo and Sterion to the Company’s fiscal 2004 operations. Excluding the impact of the Hamo business acquisition and the Sterion asset purchase, organic net revenue growth was 7.6% during fiscal 2004.

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For the year ended March 31, 2004, consolidated net revenues derived from the sale of capital equipment were $534.1 million, or 49.1% of consolidated net revenues, as compared to $467.6 million, or 48.1%, for the year ended March 31, 2003, representing an increase of $66.5 million, or 14.2%, year over year.

For the year ended March 31, 2004, consolidated net revenues generated from recurring revenue streams, which consists of consumable products and services offered by the Company, were $552.9 million, or 50.9% of consolidated net revenues, as compared to $504.5 million, or 51.9%, for the year ended March 31, 2003, representing an increase of $48.4 million, or 9.6%, year over year.

Further discussion regarding the Company’s fiscal 2004 segment net revenues and a detailed analysis of the change in fiscal 2004 segment net revenues as compared to fiscal 2003 is included in the subsection of Management’s Discussion and Analysis of Financial Condition and Results of Operations titled “Business Segment Results of Operations.”

The following table illustrates the change in total net revenue on a geographic basis for the year ended March 31, 2004 as compared to March 31, 2003.

For the year ended March 31, 2004, international net revenues represented 22.5% of total net revenues as compared to 19.1% for the year ended March 31, 2003. As compared to the year ended March 31, 2003, total international net revenues increased 31.6%. Of the $58.7 million year over year change in international revenues, $32.7 million can be attributed to the integration of the Hamo product and service offerings. Excluding the impact of the Hamo business acquisition, organic international revenue growth was $26.0 million, or 14.0%.

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Cost of Revenues

The following table illustrates the change in the cost of revenues for the year ended March 31, 2004 as compared to March 31, 2003 and provides a comparison of the Company’s gross profit information for fiscal 2004 as compared to fiscal 2003:

The cost of revenues as a percentage of total consolidated net revenues remained flat at 57.9% in both fiscal 2004 and fiscal 2003, with the corresponding gross profit percentage remaining flat at 42.1%. The gross profit percentage remained flat in fiscal 2004 as compared to fiscal 2003 due to the shift in the product mix in fiscal 2004 which included higher sales volumes of lower margin capital equipment relative to the prior fiscal year, offset by higher service margins. In absolute dollars, the cost of revenues increased 11.7% in fiscal 2004 to $629.1 million from $563.3 million during fiscal 2003.

Operating Expenses

The following table illustrates the change in operating expenses for the year ended March 31, 2004 as compared to the year ended March 31, 2003:

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Significant components of total selling, general, and administrative expenses are compensation and associated costs, fees for professional services, travel and entertainment, and other general and administrative operating expenses. As a percent of total net revenues, selling, general, and administrative expenses were 26.6% for the year ended March 31, 2004 as compared to 26.5% for the year ended March 31, 2003. For the year ended March 31, 2004, professional service fees increased $6.9 million, or 33.0%, as compared to the year ended March 31, 2003. The increased fees for professional services are primarily a result of the Company’s ongoing efforts to fully implement and integrate an enterprise resource planning (“ERP”) system. Travel and entertainment expenses for fiscal 2004 amounted to $18.8 million, representing an increase of 7.9% over the prior year ended March 31, 2003. Travel and entertainment expenses increased during fiscal 2004 as a result of additional travel resulting from the Company’s business acquisitions and integration thereof, additional travel costs related to marketing and promotion of the Company’s products and services, as well as travel expenses related to sales force activities. General and administrative expenses increased by approximately $11.9 million for the year ended March 31, 2004, as compared to the year ended March 31, 2003. The most significant component of the change in general and administrative expenses was insurance expense, which increased $1.9 million, or 16.0% from the prior fiscal year. Increased insurance expense for fiscal 2004 was primarily a result of increased coverage and premium expense across all of the Company’s operations, foreign and domestic.

As a percent of total net revenues, research and development expenses were 2.6% for the years ended March 31, 2004 and 2003. As compared to the year ended March 31, 2003, research and development expenses increased by $2.9 million, or 11.5%, during fiscal 2004. The increase in research in development expenses, year over year, is attributable to an increased emphasis on new product development, existing product improvement, and research and development facility enhancement projects.

Interest Expense, net

The following table illustrates the change in interest expense, net for the year ended March 31, 2004 as compared to the year ended March 31, 2003:

Interest expense, net consists primarily of interest expense on long-term debt, offset by interest earned on cash, cash equivalents, and short-term investment balances. The increase in interest expense, net for the year ended March 31, 2004 as compared to the year ended March 31, 2003 is primarily a result of an increase in the average outstanding debt balance during fiscal 2004, a majority of which related to additional debt from the $100 million private placement completed in December 2003. Additional information regarding the $100 million private placement is included in Note 6 to the Company’s consolidated financial statements, “Long-Term Debt,” and in the subsection of Management’s Discussion and Analysis of Financial Condition and Results of Operations titled “Liquidity and Capital Resources.”

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Income Taxes

The following table illustrates the change in income tax expense for the year ended March 31, 2004 as compared to the year ended March 31, 2003 and provides a comparison of the effective tax rate for the year ended March 31, 2004 as compared to March 31, 2003:

For fiscal 2004, the Company realized a lower effective tax rate as compared to fiscal 2003. The effective tax rates for both years are different from the U.S. federal statutory income tax rate. The effective tax rate variance from the U.S. federal statutory income tax rate in fiscal 2004 is due primarily to tax planning initiatives which have resulted in the Company’s ability to recognize foreign tax benefits in the U.S. related to taxes paid on earnings of foreign operations. The fiscal 2003 variance is due to state and local income taxes and a favorable change in the method in which research and development credits are calculated.

Business Segment Results of Operations

Effective April 1, 2003, management realigned the Company into three business segments to focus resources on specific missions and customer groups to achieve the Company’s long-term strategic initiatives and to capture targeted growth opportunities. As a result, the Company began reporting in three business segments: Healthcare, Life Sciences, and STERIS Isomedix Services. The following provides a brief description of each business segment:

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The following table provides a summary of the Company’s net revenues by business segment for fiscal 2004 as compared to fiscal 2003. It should be read in conjunction with the detailed analysis that follows. Fiscal 2003 financial information has been reclassified based upon the fiscal 2004 segment reporting structure.

Healthcare- Healthcare segment net revenues represented 69.3% of total net revenues for the year ended March 31, 2004 as compared to 71.7% for the year ended March 31, 2003. The increase in Healthcare net revenues for fiscal 2004 of 7.9% is primarily a result of net revenues realized from acquired businesses and strong service net revenue growth. During 2004, the integration of the operations of Hamo resulted in Healthcare net revenue of $23.1 million. These revenues represent 41.7% of the $55.4 million year over year change in Healthcare net revenue. Excluding the impact of the Hamo business acquisition, Healthcare net revenue increased 4.6% during fiscal 2004 as compared to fiscal 2003. Demand for smaller order capital goods from hospitals decreased during fiscal 2004. It would appear that many hospitals are spending their limited capital budgets on larger facility construction projects, which may be forcing them to slow down replacement equipment purchases. The slowdown in hospital expenditures for replacement equipment was partially offset by an increased focus on service offerings, as hospital customers attempted to extend the life of existing equipment. During fiscal 2004, the Company improved its service offerings, by introducing five new levels of service provisions to better meet customer needs. These new service offerings in fiscal 2004 also served to drive an increase in Healthcare services net revenue. For fiscal 2005, the Company expects the lower level of expenditures for replacement equipment by hospitals to continue. The Company expects that increased service purchases by hospitals, enhanced service lines, successful integration of fiscal 2004 business acquisitions, and the introduction of new product offerings will help to offset the potential diminution of capital expenditures by hospitals.

Life Sciences- Life Sciences segment net revenues represented 22.6% of total net revenues for the year ended March 31, 2004 as compared to 20.1% for the year ended March 31, 2003. The increase in Life Sciences net revenues for fiscal 2004 of 26.0% is primarily a result of net revenues realized from acquired businesses, strong demand from the pharmaceutical industry, and increased net revenues from the Defense and Industrial business, where the Company is collaborating with the United States Department of Defense regarding certain chemical and biological decontamination products. During fiscal 2004, the integration of the operations of Hamo resulted in Life Sciences product net revenue of $15.2 million. These revenues represent 29.9% of the $50.8 million year over year change in Life Sciences product net revenue. Excluding the impact of the Hamo business acquisition, Life Sciences net revenue increased 18.2% during fiscal 2004 as compared to fiscal 2003. For fiscal 2005, the Company expects continued net revenue growth from pharmaceutical companies, particularly in the European market. The Company also anticipates continued growth in net revenues from its work with governmental entities, such as the Department of Defense and the Federal Aviation Administration.

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STERIS Isomedix Services- STERIS Isomedix Services net revenue represented 8.1% of total net revenues for the year ended March 31, 2004 as compared to 8.2% for the year ended March 31, 2003. The increase in STERIS Isomedix Services net revenues for fiscal 2004 of 10.9% is primarily a result of increased demand from medical device manufacturers for ethylene oxide sterilization. During fiscal 2004, the Company began to fill recently expanded gamma irradiation capacity in several locations which is expected to satisfy foreseeable demand requirements.

The following table provides a summary of the Company’s operating results by business segment for fiscal 2004 as compared to fiscal 2003. It should be read in conjunction with the detailed analysis that follows. Fiscal 2003 financial information has been reclassified based upon the fiscal 2004 segment reporting structure.

To calculate segment operating income, the Company reduces the respective segment’s net revenues by direct expenses and indirect cost allocations, which reflect the full allocation of all distribution, corporate, and research and development expenses. Corporate cost allocations are typically based on each segments portion of net revenues, headcount, or other variables in relation to the total Company.

The Company’s consolidated operating income increased $14.6 million, or 11.6%, to $140.4 million during fiscal 2004 from $125.8 million during fiscal 2003.

The Healthcare segment’s operating income increased 6.6%, or $7.5 million, compared to fiscal 2003, attributable to a 7.9% increase in revenue generated by certain general product and service pricing initiatives, a favorable mix shift from lower margin capital goods to higher margin consumable products and services, which were complemented with the acquisitions of Hamo and the Sterion product line. The impact of these increases was partially offset by increased direct and indirect operating expenses as discussed above in the section titled “Operating Expenses.”

The Life Sciences segment’s operating income increased significantly year over year to $5.0 million compared to $0.8 million in the prior fiscal year. The increase in Life Sciences segment’s operating income was attributable to increased net revenues of 26.0% during fiscal 2004 resulting from increased customer demand, the favorable impact of foreign currency exchange rates during fiscal 2004, and the incremental impact of the Hamo acquisition. In addition, the continued initiatives focused on improvements of manufacturing processes resulted in additional operational efficiencies, which also contributed to the year over year increase in operating income. The impact of these increases was partially offset by increased direct and indirect operating expenses as discussed above in the section titled “Operating Expenses.”

STERIS Isomedix Services segment year over year operating income increased 26.9% during fiscal 2004 to $13.6 million compared to $10.7 million during fiscal 2003. STERIS Isomedix Services segment’s operating income increase was attributable to net revenue growth of 10.9% during fiscal 2004 versus fiscal

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2003, successful pricing initiatives, and increased customer demand for higher margin services. The impact of these increases was partially offset by increased direct and indirect operating expenses as discussed above in the section titled “Operating Expenses.”

Fiscal Year 2003 as Compared to Fiscal Year 2002

Overview

During fiscal 2003, the Company continued to strengthen financially due to the execution of the Company’s operational and strategic initiatives. Revenues for fiscal 2003 increased $105.4 million or 12.2% to $972.1 million, compared to $866.7 million in fiscal 2002. Year over year revenue growth was driven by increased demand in each of the Company’s Healthcare, Life Sciences, and STERIS Isomedix Services Segments.

Gross margins increased 15.1% or $53.6 million to $408.8 million, which was 42.1% of revenue during fiscal 2003 compared to $355.2 million or 41.0% of revenue in fiscal 2002. The gross margin improvement realized in fiscal 2003 was due to effective price improvement initiatives, cost savings generated from the deployment of more efficient distribution strategies, and benefits of plant consolidations. Gross margins in fiscal 2002 were negatively impacted by plant consolidation costs and inefficiencies caused by capacity constraints.

Operating expenses decreased as a percentage of revenues to 29.1% in fiscal 2003, as compared to 31.7% in fiscal 2002. The improvement in fiscal 2003 was due to the Company’s successful efforts to effectively leverage its selling, general, and administrative resources to generate additional revenue during fiscal 2003. While the Company held selling, general, and administrative expenses relatively flat year over year, the Company increased investment in research and development in an effort to stimulate new product development.

Net income increased $33.2 million or 71.9% to $79.4 million, or $1.12 per diluted share in fiscal 2003, compared with fiscal 2002 net income of $46.2 million, or $0.65 per diluted share. The Company’s development and successful execution of strategies to improve earnings and strengthen its financial position resulted in increased earnings. Increased revenues combined with effective efforts to control costs and create efficiencies, including lowering interest costs by reducing debt levels, generated the year over year net income improvement. In addition, the effective tax rate declined 1.0% to 36.0% in fiscal 2003 from 37.0% in fiscal 2002.

The Company produced cash flows from operations of $133.3 million in fiscal 2003, a decrease of 6.1% compared with fiscal 2002 operating cash flows of $142.0 million. The Company used the cash flows primarily to reduce its outstanding debt by $58.1 million and to purchase $16.1 million of the Company’s Common Shares. The reduction of the Company’s debt levels reduced its debt-to-capital ratio to 9.5% at March 31, 2003 as compared to 19.1% at March 31, 2002. The Company also utilized these cash flows to invest in $58.6 million of property, plant, and equipment as the Company continued to increase its production capacity and began the implementation of a new ERP system.

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Results of Operations

Net Revenues and Cost of Revenues

The increase in Healthcare revenues for fiscal 2003 reflected a higher level of capital spending among U.S. hospitals. The increase in Life Sciences revenues reflected strong demand primarily from pharmaceutical producers and from capacity expansions. Both segments benefited in fiscal 2003 from the successful introduction of new products.

Net revenues for fiscal 2003 from capital goods were $467.6 million, or 48.1% of consolidated revenues, as compared to $405.3 million, or 46.8%, in fiscal 2002. Revenues from capital goods increased $62.3 million, or 15.4% in fiscal 2003 compared to fiscal 2002. Fiscal 2003 recurring revenues contributed $504.5 million, or 51.9% of consolidated revenues, as compared to $461.4 million, or 53.2%, in fiscal 2002. Recurring revenues from consumables and services increased $43.1 million, or 9.3% in fiscal 2003 compared to fiscal 2002.

United States revenues for fiscal 2003 were $786.2 million, or 80.9% of consolidated revenues, with $185.9 million, or 19.1% from international markets. United States revenues for fiscal 2002 were $733.6 million, or 84.6% of total revenues, with $133.1 million, or 15.4% from international markets.

Cost of revenues increased 10.1% in fiscal 2003 to $563.3 million from $511.5 million in fiscal 2002. The cost of revenues as a percentage of revenues was 57.9% in fiscal 2003 compared to 59.0% in fiscal 2002. The corresponding gross profit percentage for fiscal 2003 was 42.1% compared to 41.0% in fiscal 2002. Gross profit increased in fiscal 2003 due to pricing improvements and cost savings from distribution efficiencies. These margin improvements were offset by an increase in sales of lower gross profit Life Sciences capital equipment. In fiscal 2002, gross profit was negatively impacted by inefficiencies related to the Company’s capacity expansion efforts and continuing plant consolidation costs associated with selected product lines. These continuing plant consolidation costs consisted primarily of moving costs for inventory and machinery and equipment that will be utilized at other locations, as well as continuing employee relocation and retraining costs. Most plant consolidation efforts were completed by March 2002.

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Operating Expenses

Selling, general, and administrative expenses, as a percent of revenues, were 26.5% and 29.2% in fiscal 2003 and fiscal 2002, respectively, as management continued its focus on controlling costs while supporting revenue growth.

Selling, general, and administrative expenses increased $4.6 million, or 1.8%, to $257.5 million in fiscal 2003 compared to $252.9 million in fiscal 2002. Compensation increased $6.3 million as a result of merit increases as well as increased benefit costs and a redesigned commission plan. Professional fees increased $7.5 million as a result of increased consulting hours related to the Company’s system implementation project. Travel and entertainment expenses increased $1.3 million in fiscal 2003 due to additional travel resulting from increased revenue growth, as well as lower expenses in fiscal 2002 due to a period of time following September 11, 2001 when all nonessential travel was cut. Insurance and tax expenses increased $5.0 million as a result of an increase in casualty and property premiums and self-insurance loss experience. These increases were offset by decreased commission expenses of $3.8 million due to the redesigned commission plan, decreased marketing expenses of $3.4 million as a result of the Company’s cost control efforts, decreased administrative expenses of $4.9 million reflecting the benefit of a legal settlement, and decreased depreciation and amortization expenses of $3.2 million resulting from the adoption of SFAS 142 and the elimination of goodwill amortization.

Research and development expenses increased 17.6% to $25.5 million in fiscal 2003 compared to $21.7 million in fiscal 2002. Research and development expenses as a percent of revenues were 2.6% in fiscal 2003 compared to 2.5% in fiscal 2002. The increase is related to an increased emphasis on product development, as well as increased salary and facility expansion expenses.

Interest Expense, Net

Interest expense, net, decreased 76.7% to $1.7 million in fiscal 2003 compared to $7.3 million in fiscal 2002. The decrease was due primarily to the effects of lower interest rates and the reduction in the amount of debt outstanding. Additionally, the Company reduced its outstanding debt $55.2 million in fiscal 2003 to $61.7 million at March 31, 2003.

Income Taxes

Income tax expense was 36.0% of pretax income in fiscal 2003, compared to 37.0% in fiscal 2002. The comparable effective tax rates for both years are different from the U.S. federal statutory income tax rate primarily because of state and local income taxes, goodwill amortization (in fiscal 2002), and a favorable change in the method in which research and development credits are calculated.

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Liquidity and Capital Resources

The following table summarizes significant components of the Company’s cash flow statement for the years ended March 31, 2004 and 2003:

Cash Flows

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Net Cash Provided by Operating Activities

Net cash provided by operating activities was $123.3 million for the year ended March 31, 2004 compared to $133.3 million for the year ended March 31, 2003. The decrease in the net cash inflow from operating activities of $10.0 million is primarily a result of an increase in the cash outflows for working capital purposes, partially offset by an increase in net income of $14.8 million, or 18.6%, and an increase in non-cash items of $7.4 million. The following table illustrates the key components of the Company’s working capital as of March 31, 2004 and 2003:

Working Capital