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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended September 30, 2004

Commission file number 0-20165

STERIS Corporation

(Exact name of registrant as specified in its charter)

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

The number of Common Shares outstanding as of October 29, 2004: 69,117,208

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STERIS Corporation

Form 10-Q

Index

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

STERIS CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands)

See notes to consolidated financial statements.

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STERIS CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

(Unaudited)

See notes to consolidated financial statements.

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STERIS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

See notes to consolidated financial statements.

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STERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

For the Three and Six Months Ended

September 30, 2004 and 2003

(dollars in thousands, except per share amounts)

1. Basis of Presentation

Throughout this document, references to “STERIS Corporation,” “STERIS,” or the “Company,” are references to STERIS Corporation and its subsidiaries.

The Company’s fiscal year ends on March 31. Reference to a particular “year” or “year-end” refers to the Company’s fiscal year.

Nature of Operations

The Company 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 governmental customers throughout the world. The Company operates in three business segments: Healthcare, Life Sciences, and STERIS Isomedix Services.

Interim Financial Statements

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, the accompanying unaudited consolidated financial statements contain all material adjustments (consisting of normal recurring accruals and adjustments) necessary to present fairly the financial condition, results of operations, and cash flows of the Company for the periods presented.

The information included in this Quarterly Report on Form 10-Q should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Quantitative and Qualitative Disclosures About Market Risk,” and the consolidated financial statements and notes thereto included in Items 7, 7A, and 8, respectively, of the Company’s Annual Report on Form 10-K for the year ended March 31, 2004, filed with the Securities and Exchange Commission on June 14, 2004. The consolidated balance sheet at March 31, 2004 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated upon consolidation.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions in certain circumstances that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates and, therefore, operating results for the three and six month periods ended September 30, 2004 are not necessarily indicative of results that may be expected for the fiscal year ending March 31, 2005.

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STERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

For the Three and Six Months Ended

September 30, 2004 and 2003

(dollars in thousands, except per share amounts)

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period’s presentation.

Significant Accounting Policies

A detailed description of the Company’s significant and critical accounting policies, estimates, and assumptions is included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2004 filed with the Securities and Exchange Commission on June 14, 2004 in the section of Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” titled, “Critical Accounting Policies, Estimates, and Assumptions,” and in Note 1 to the consolidated financial statements, “Accounting Policies.” The Company’s significant and critical accounting policies, estimates, and assumptions have not changed materially from March 31, 2004.

Stock-based Compensation

The Company has granted nonqualified stock options to certain employees to purchase the Company’s Common Shares at the market price on the date of grant. Stock options granted generally become exercisable to the extent of one-fourth of the optioned shares for each full year of employment following the date of grant and expire approximately 10 years after the date of grant, or earlier if an option holder ceases to be employed by the Company. Certain option agreements have provisions that provide for an adjustment to the normal vesting schedule, whereby, options vest on a prorated basis as defined by specific option agreements in the event of employment termination. The Company accounts for stock-based compensation under the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” as permitted by Statement of Financial Accounting Standards No. 123 (SFAS No. 123), “Accounting for Stock-Based Compensation,” as amended by Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure,” and accordingly recognizes no compensation expense when the exercise price equals the market price of the stock on the date of grant.

The following table illustrates the effect on the Company’s net income, earnings per basic Common Share, and earnings per diluted Common Share, had compensation cost for all options been determined based upon the fair market value recognition provisions of SFAS No. 123:

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STERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

For the Three and Six Months Ended

September 30, 2004 and 2003

(dollars in thousands, except per share amounts)

For the purpose of computing pro forma net income, the fair value of option grants was estimated at their grant date using the Black-Scholes option pricing model and the following assumptions for the three and six months ended September 30, 2004 and 2003:

The Black-Scholes option pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable, characteristics that are not present in the Company’s option grants. If the model permitted consideration of the unique characteristics of employee stock options, the resulting estimate of the fair value of the stock options could be different.

Recently Issued Accounting Standards and Accounting Standards Pending Adoption

In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”) was signed into law. The Act expands Medicare benefits, primarily adding a prescription drug benefit for Medicare-eligible retirees beginning in 2006. The law provides a federal subsidy to companies that sponsor post-retirement healthcare plans that provide prescription drug coverage. In May 2004, the Financial Accounting Standards Board issued FASB Staff Position No. 106-2 (“FSP No. 106-2”), “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003,” that provides guidance on the accounting for the effects of the Act for employers that sponsor post-retirement healthcare plans with prescription drug benefits. FSP No. 106-2 also requires those employers to provide certain disclosures regarding the effect of the federal subsidy provided by the Act. FSP No. 106-2 is generally effective for the first interim or annual reporting period beginning after June 15, 2004. The Company has adopted FSP No. 106-2 as of July 1, 2004. The Company has elected under the provisions of FSP No. 106-2, to defer recognizing any potential subsidy from the Act, until the final regulations necessary to fully implement the Act are issued. The reported post-retirement benefit cost for the three and six months ended September 30, 2004, presented in Note 7, “Benefit Plans,” does not reflect the effects of the Act on the Company’s post-retirement benefit plan.

In December 2003, the FASB revised Statement of Financial Accounting Standards No. 132 (“SFAS No. 132”), “Employers’ Disclosures about Pension and Other Post-retirement Benefits.” As revised, SFAS No. 132 requires additional disclosures for defined benefit pension and other post-retirement benefit plans including quarterly disclosure of the various components of net periodic benefit costs and expanded annual disclosures about plan assets, obligations, cash flows, net periodic benefit cost, and investment strategies. Note 7, “Benefit Plans,” includes the additional pension and other post-retirement benefit plan disclosures required by SFAS No. 132.

2. Business Acquisition

On September 15, 2004, the Company announced that it had acquired Albert Browne Limited and its subsidiaries (“Browne”), a privately-held manufacturer of chemical indicators, headquartered in Leicester, England for 28.9 million British pounds sterling ($52,132), net of 3.2 million British pounds sterling ($5,807) of cash acquired at the close of the transaction. Browne is a leading provider of chemical indicators to healthcare facilities in over 70 countries. The acquisition provides the Company with an established European distribution channel and expands the Company’s offering of consumable products used with its broad line of capital equipment for infection control and decontamination.

The purchase price is subject to the final settlement of certain working capital adjustments as guaranteed by the seller. The purchase price of $58,730, which includes costs associated with the transaction, has been preliminarily allocated to net assets and goodwill and is subject to further adjustment as the Company finalizes costs associated with the acquisition and the valuation of identified intangible assets and certain tangible assets acquired and liabilities assumed.

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STERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

For the Three and Six Months Ended

September 30, 2004 and 2003

(dollars in thousands, except per share amounts)

The consolidated financial statements include the operating results of Browne from the date of acquisition. Pro forma results of operations have not been presented because the effect of this acquisition is not deemed significant. Goodwill created as a result of this acquisition has been allocated to the Company’s Healthcare segment.

3. Common Shares

Basic earnings per share is calculated based upon the weighted average number of Common Shares outstanding. Diluted earnings per share is calculated based upon the weighted average number of Common Shares outstanding plus the dilutive effect of Common Share equivalents determined using the treasury stock method. The following is a summary of Common Shares and Common Share equivalents outstanding used in the calculations of basic and diluted earnings per share:

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STERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

For the Three and Six Months Ended

September 30, 2004 and 2003

(dollars in thousands, except per share amounts)

5. Inventories

Inventories are stated at the lower of cost or market. The Company uses the last-in, first-out (LIFO) and first-in, first-out (FIFO) cost methods. An actual valuation of inventory under the LIFO method is made only at the end of the fiscal year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations are based on management’s estimates of expected year-end inventory levels and are subject to the final year-end LIFO inventory valuation. Inventory costs include material, labor, and overhead. Inventories consisted of the following:

6. Income Taxes

Income tax expense includes U.S. federal, state and local, and foreign income taxes, and is based on reported pre-tax income. Income tax expense is provided on an interim basis based upon the Company’s estimate of the annual effective income tax rate. In determining the estimated annual effective income tax rate, the Company analyzes various factors, including projections of the Company’s annual earnings and taxing jurisdictions that the earnings will be generated in, the impact of state and local income taxes, the Company’s ability to utilize tax credits and net operating loss carryforwards, and available tax planning alternatives. The effective income tax rates for the three month periods ended September 30, 2004 and 2003 were 37.4% and 36.0%, respectively. For the six month periods ended September 30, 2004 and 2003, the effective income tax rates were 36.5% and 36.0%, respectively.

7. Benefit Plans

The Company provides defined benefit pension plans for certain manufacturing and plant administrative personnel throughout the world as determined by collective bargaining agreements or employee benefit standards set at the time of acquisition of certain businesses. In addition to providing pension benefits to certain employees, the Company sponsors an unfunded post-retirement medical benefit plan for a group of U.S. employees comprised substantially of the same employees who receive pension benefits under the U.S. defined benefit plans. Benefits under this plan include retiree life insurance and retiree medical insurance, including prescription drug coverage and Medicare supplemental coverage. Additional information regarding the Company’s defined benefit pension plans and post-retirement medical benefit plan, including detailed information regarding employees covered and assumptions used to determine the benefit obligation and net periodic benefit cost is included in Note 9, “Benefit Plans,” to the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on June 14, 2004.

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STERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

For the Three and Six Months Ended

September 30, 2004 and 2003

(dollars in thousands, except per share amounts)

The components of net periodic benefit cost for the Company’s defined benefit pension plans and other post-retirement benefit plan were as follows:

8. Contingencies

The Company is involved in various patent, product liability, consumer, commercial, environmental, tax proceedings and claims, government investigations, and other legal proceedings that arise from time to time in the ordinary course of business. In accordance with Statement of Financial Accounting Standards No. 5, “Accounting for Contingencies,” the Company records accruals for such contingencies to the extent that the Company concludes that their occurrence is both probable and estimable. The Company considers many factors in making these assessments, including the professional judgment of experienced members of management and the Company’s legal counsel. The Company has made estimates as to the likelihood of unfavorable outcomes and the amounts of such potential losses. In the opinion of management, the ultimate outcome of these proceedings and claims is not anticipated to have a material adverse effect on the Company’s consolidated financial position, results of operations, or cash flows. Litigation is inherently unpredictable and actual results could differ from the Company’s estimates. The Company records anticipated recoveries under applicable insurance contracts when assured of recovery.

To the extent that management of the Company believes it is probable that a taxing authority will take a sustainable position on a matter contrary to the position taken by the Company, the Company provides tax accruals. If the Company prevails in matters for which accruals have been established or is required to pay amounts in excess of established accruals, the Company’s effective income tax rate in a given financial statement period may be materially impacted.

Refer to Part II, Item I, “Legal Proceedings,” on page 29 of this Form 10-Q.

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STERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

For the Three and Six Months Ended

September 30, 2004 and 2003

(dollars in thousands, except per share amounts)

9. Business Segment Information

The Company operates and reports in three business segments: Healthcare, Life Sciences, and STERIS Isomedix Services. Note 12, “Business Segment Information,” to the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on June 14, 2004 provides detailed information regarding each business segment. Operating income (loss) for each business segment reflects the full allocation of all distribution, corporate, and research and development expenses to the reporting segment. The accounting policies for reportable segments are the same as those for the consolidated Company. Financial information for each of the Company’s reportable business segments is presented in the following table:

Financial information for each of the Company’s geographic areas is presented in the following table. Revenues are based on the location of these operations and their customers. Long-lived assets are those assets that are identified within the operations in each geographic area, including property, plant, equipment, goodwill, intangibles, and other assets.

10. Repurchases of Common Shares

On July 28, 2004, the Company announced that its Board of Directors had authorized the repurchase of up to 3.0 million STERIS Common Shares. This Common Share repurchase authorization replaced the Common Share repurchase authorization of July 24, 2002. During the first half of fiscal 2005, the Company repurchased 1,539,100 of its Common Shares for $33,868, representing an average price of $22.01 per Common Share. During the second quarter of fiscal 2005, the Company repurchased 274,000 of its Common Shares for $5,719, representing an average price of $20.87 per Common Share. At September 30, 2004, 2,726,000 Common Shares remained authorized for repurchase and 884,284 Common Shares were held in treasury.

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STERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

For the Three and Six Months Ended

September 30, 2004 and 2003

(dollars in thousands, except per share amounts)

11. Financial and Other Guarantees

The Company generally offers a limited one-year parts and labor warranty on its capital equipment. The specific terms and conditions of those warranties vary depending on the product sold and the country where the Company conducts business. The Company provides for the estimated cost of product warranties at the time product revenue is recognized. Amounts due to customers for the Company’s future performance under these warranties are recorded as a current liability on the accompanying consolidated balance sheets. Factors that affect the Company’s warranty liability include the number and type of installed units, historical and anticipated rates of product failures, and material and service costs per claim. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.

Changes to the Company’s warranty liability during the first half of fiscal 2005 were as follows:

The Company also issues product maintenance contracts to its customers that are accounted for in accordance with the requirements of FASB Technical Bulletin No. 90-1, “Accounting for Separately Priced Extended Warranty and Product Maintenance Contracts.” Such contracts generally range in terms from 1 to 5 years and require the Company to maintain and repair the Company’s product over the maintenance contract term. Amounts received from customers under these contracts are initially recorded as a liability for deferred service contract revenue on the accompanying consolidated balance sheets. The liability recorded for deferred service contract revenue was $13,363 and $12,342 as of September 30, 2004 and March 31, 2004, respectively. Such deferred service contract revenue is then amortized on a straight-line basis over the contract term and recognized as service revenue on the accompanying consolidated statements of income. The activity related to the liability for deferred service contract revenue has been excluded from the table presented above.

12. Foreign Currency Forward Contracts

The Company has entered into foreign currency forward contracts with notional values of 8.0 million euro and 3.0 million British pounds sterling to reduce its transactional foreign currency exposures. The estimated fair value of these forward contracts was $8 at September 30, 2004 and is included in “Accrued expenses and other” on the accompanying consolidated balance sheets. The contracts are marked to market, with gains and losses recognized in the consolidated statements of income.

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Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

STERIS Corporation

We have reviewed the consolidated balance sheet of STERIS Corporation and subsidiaries as of September 30, 2004, and the related consolidated statements of income for the three and six month periods ended September 30, 2004 and 2003, and the consolidated statements of cash flows for the six month periods ended September 30, 2004 and 2003. These financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of STERIS Corporation and subsidiaries as of March 31, 2004 and the related consolidated statements of income, shareholders’ equity and cash flows for the year then ended, not presented herein, and in our report dated June 4, 2004, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of March 31, 2004, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Cleveland, Ohio

October 25, 2004

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Non-GAAP Financial Measures

In the following sections of Management’s Discussion and Analysis of Financial Condition and Results of Operations, 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 U.S. generally accepted accounting principles. Certain of this information is considered to be “non-GAAP financial measures” under the Securities and Exchange Commission rules. The Company has used the following non-GAAP financial measures in the context of this report on Form 10-Q: Backlog, debt to capital, and days sales outstanding. The Company defines these non-GAAP financial measures as follows:

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

Executive Overview

The Company recognized net income of $18.9 million, or $0.27 per diluted share, during the second quarter of fiscal 2005, representing a decrease of 7.2% from the comparable prior year period’s net income of $20.4 million, or $0.29 per diluted share. For the first six months of fiscal 2005, net income was flat as compared to the same prior year period. Net income for both periods was negatively impacted by weakness in the Company’s Life Sciences segment, which experienced ongoing volume declines.

Revenues for the second quarter of fiscal 2005 were $264.8 million, an increase of $7.5 million, or 2.9%, as compared to $257.4 million during the prior year second quarter. For the first six months of fiscal 2005, revenues were $519.6 million as compared to $516.7 million for the same period of fiscal 2004, representing an increase of $3.0 million, or 0.6%. Increased revenues in the Company’s Healthcare segment, where capital equipment demand continued to improve, and mid-teen percentage revenue growth in the Company’s Isomedix Services segment, were the main drivers of improved overall revenues. These factors were partially offset by a decline in revenues in the Company’s Life Sciences segment, which was impacted by a number of consolidations within the European pharmaceutical industry that led to the cancellation or delay of several new facility construction projects. The Life Sciences segment also experienced softness in demand from North American customers reflecting cautiousness regarding capital spending.

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The Company’s gross profit percentage was 42.1% for the second quarter of fiscal 2005 as compared to 43.0% for the second quarter of fiscal 2004. The 90 basis point decline in the gross profit percentage quarter over quarter was a result of lower margins in the Life Sciences segment driven by lower volumes and a slight decline in the Healthcare segment reflecting a change in revenue mix. The quarter’s gross profit percentage was also negatively impacted by changes in foreign currency exchange rates in relation to the U.S. dollar. The Company’s gross profit percentage was 42.6% for the first half of fiscal 2005 as compared to 42.0% for the first half of fiscal 2004. The fiscal 2005 year to date gross profit percentage exceeded the prior year levels as a result of the generation of a higher margin revenue mix during the first quarter of fiscal 2005 as compared to the first quarter of fiscal 2004.

The Company continues to focus its capital spending on investments in new and existing facilities, business expansion projects, and information technology improvements. In the first half of fiscal 2005, capital expenditures amounted to $25.5 million, of which $15.0 million related to second quarter spending. The Company also continued to step up its investment in research and development to strengthen its competitive position in global marketplaces. The increase in research and development expenditures during the first six months of fiscal 2005 reflects an increased emphasis on new product development, product improvements, development of new technological innovations, and the focus of research and development efforts on the streamlining of manufacturing processes and the standardization of products.

During the second quarter of fiscal 2005, the Company announced that it had acquired Albert Browne Limited, a manufacturer of chemical indicators based in the United Kingdom. This acquisition provides the Company with an established European distribution channel that fits the Company’s strategic goal of expanding its offering of consumable products used with its broad line of capital equipment for infection control and decontamination.

Results of Operations

In the following subsections, the Company has presented its fiscal 2005 second quarter and fiscal 2005 year to date results of operations, and has compared these results to the corresponding periods of the prior fiscal year.

Revenues

As prescribed by Regulation S-X, the Company has presented separately on its Consolidated Statements of Income for each period presented, revenues generated as either product revenues or service revenues. In discussing revenues, the Company, at times, may refer to revenues in differing detail than that which is prescribed by Regulation S-X. Although the terminology that the Company employs to describe revenues may be similar to the terms used by other companies, the definitions and uses of these terms may differ significantly among companies. The Company uses the following terms to describe revenues:

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The following table illustrates the changes in the Company’s revenues for the three and six month periods ended September 30, 2004 as compared to the same periods in the prior year: