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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 December 31, 2004

Commission file number 1-14643

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 January 31, 2005: 69,294,481

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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 Nine Months Ended

December 31, 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,” mean 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 a combination of equipment, consumables, and services to healthcare, pharmaceutical, industrial, and government 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 (including 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 nine month periods ended December 31, 2004 are not necessarily indicative of results that may be expected for the full fiscal year ending March 31, 2005.

Reclassifications

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

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STERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

For the Three and Nine Months Ended

December 31, 2004 and 2003

(dollars in thousands, except per share amounts)

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 (“APB 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:

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 nine months ended December 31, 2004 and 2003:

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STERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

For the Three and Nine Months Ended

December 31, 2004 and 2003

(dollars in thousands, except per share amounts)

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 2004, the Financial Accounting Standards Board finalized Statement of Financial Accounting Standards No. 123R (“SFAS No. 123R”), “Share-Based Payment.” This revised standard addresses the accounting for share-based payment transactions in which a company receives employee services in exchange for either equity instruments of the company or liabilities that are based on the fair value of the company’s equity instruments. Under the revised standard, companies will no longer be able to account for share-based compensation transactions using the intrinsic value method in accordance with APB No. 25. Instead, companies will be required to account for such transactions using a fair value method and recognize expense in the consolidated statements of income. SFAS No. 123R is effective for interim or annual periods beginning after June 15, 2005 and allows, but does not require, companies to restate the full fiscal year during the period of adoption or restate all periods presented to reflect the impact of expensing share-based payments under SFAS No. 123R. The Company will adopt SFAS No. 123R as of July 1, 2005. The Company has not yet determined which fair value model and transitional provision it will follow. Note 1, “Basis of Presentation,” contains pro forma disclosures regarding the effect on the Company’s net income, earnings per basic Common Share, and earnings per diluted Common Share, had the Company applied a fair value method of accounting for share-based compensation as prescribed by SFAS No. 123. Depending on the model used to calculate share-based compensation expense in the future and other requirements of SFAS No. 123R, the pro forma disclosures currently used by the Company may not be indicative of the share-based compensation expense that will be recognized in the Company’s future financial statements. Further, the structure and timing of future grants may also have differing impacts on future results.

In October 2004, the American Jobs Creation Act of 2004 (the Jobs Creation Act) was signed into law. The Jobs Creation Act contains a number of provisions that might affect the Company’s future effective income tax rate. The most significant provisions would allow the Company to elect to deduct from its taxable income 85% of certain eligible dividends received by the Company from non-U.S. subsidiaries before the end of 2005 if those dividends are reinvested in the U.S. for eligible purposes. On December 21, 2004, the Financial Accounting Standards Board issued FASB Staff Position No. FAS 109-2 (FSP No. 109-2), “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004.” FSP No. 109-2 provides accounting and disclosure guidance for the repatriation provision and became effective upon issuance. The Company is currently evaluating the amount, if any, of such eligible dividends that its non-U.S. subsidiaries will remit, as well as the effects the Jobs Creation Act will have on its effective income tax rate and deferred assets and liabilities.

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 January 2004, the Financial Accounting Standards Board issued FSP No. FAS 106-1 and in May 2004 issued FSP No. FAS 106-2 both titled “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (“FSP No. 106-1” and “FSP No. 106-2”). FSP No. 106-1 allows companies to make a one-time election to defer the accounting for the effects of the Act.

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STERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

For the Three and Nine Months Ended

December 31, 2004 and 2003

(dollars in thousands, except per share amounts)

FSP No. 106-2 provides guidance on the accounting for the effects of the Act for employers that sponsor post-retirement healthcare plans with prescription drug benefits. Under the guidance of FSP No. 106-1, the Company elected to defer accounting for the effects of the Act. This deferral remains in effect until the appropriate effective date of FSP No. 106-2. For entities that elected deferral and for which the impact of the Act is significant, FSP No. 106-2 is effective for the first interim or annual period beginning after June 15, 2004. Entities for which FSP No. 106-2 does not have a significant impact are permitted to delay recognition of the effects of the Act until the next regularly scheduled measurement date following the issuance of FSP No. 106-2. The Company does not expect that the effects of the Act will have a significant impact on the Company’s financial position, results of operations, or cash flows and will therefore delay recognition until the Company’s regularly scheduled measurement date. The reported post-retirement benefit cost for the three and nine months ended December 31, 2004, presented in Note 7, “Benefit Plans,” does not reflect the effects of the Act on the Company’s post-retirement benefit plan.

2. Business Acquisition

On September 15, 2004, the Company announced that a subsidiary 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 $59,130, which includes $1,191 of direct acquisition 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. Through December 31, 2004, $23,108 has been preliminarily allocated to goodwill within the Company’s Healthcare segment and $23,871 has been preliminarily allocated to identified intangible assets, such as trademarks, technology and patents, customer lists, and non-competition agreements, which are expected to be amortized over a weighted average life of approximately seven years. 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.

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 Nine Months Ended

December 31, 2004 and 2003

(dollars in thousands, except per share amounts)

Options to purchase the following number of Common Shares at the following weighted average exercise prices were outstanding but excluded from the computation of diluted earnings per share because the exercise prices were greater than the average market price for the Common Shares during the period:

4. Comprehensive Income

Statement of Financial Accounting Standards No. 130, “Reporting Comprehensive Income,” establishes standards for reporting comprehensive income. Comprehensive income includes net income as currently reported under U.S. generally accepted accounting principles and other comprehensive income. Other comprehensive income considers the effect of additional economic events that are not required to be recorded in determining net income, but rather are reported as a separate component of shareholders’ equity. The following table illustrates the components of the Company’s comprehensive income for the three and nine month periods ended December 31, 2004 and 2003:

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 in which the earnings will be generated, the impact of state and local income

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STERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

For the Three and Nine Months Ended

December 31, 2004 and 2003

(dollars in thousands, except per share amounts)

taxes, the Company’s ability to use tax credits and net operating loss carryforwards, and available tax planning alternatives. The effective income tax rates for the three month periods ended December 31, 2004 and 2003 were 37.7% and 27.5%, respectively. For the nine month periods ended December 31, 2004 and 2003, the effective income tax rates were 37.0% and 32.7%, respectively. The higher effective income tax rates in both fiscal 2005 periods resulted primarily from a reduction of operating profits generated in international tax jurisdictions and the resulting inability of the Company to fully utilize a portion of foreign tax credits against foreign profits taxed in the United States.

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 two groups 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.

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 and regulatory proceedings and claims 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

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STERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

For the Three and Nine Months Ended

December 31, 2004 and 2003

(dollars in thousands, except per share amounts)

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 materially 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 does not prevail 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 1, “Legal Proceedings,” on page 31 of this Form 10-Q.

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 business 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 U.S. and International 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.

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STERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

For the Three and Nine Months Ended

December 31, 2004 and 2003

(dollars in thousands, except per share amounts)

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 six months 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. The Company did not repurchase any Common Shares during the third quarter of fiscal 2005. At December 31, 2004, 2,726,000 Common Shares remained authorized for repurchase and 825,146 Common Shares were held in treasury.

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 nine months 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.

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STERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

For the Three and Nine Months Ended

December 31, 2004 and 2003

(dollars in thousands, except per share amounts)

The liability recorded for deferred service contract revenue was $10,713 and $12,342 as of December 31, 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 9.6 million euro and 5.3 million British pounds sterling to reduce its transactional foreign currency exposures. The Company has recorded an accrued loss of $1.3 million related to these contracts at December 31, 2004, which 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.

13. Subsequent Events

On January 7, 2005, the Company announced that it had completed the previously announced (November 16, 2004) agreement to acquire certain assets of Cosmed Group, Inc. (“Cosmed”), a privately-held contract sterilization service provider with corporate offices located in Jamestown, Rhode Island, for $73,000. The acquisition was funded through a combination of cash and the Company’s existing revolving credit facility. The acquired business will be integrated into the Company’s Isomedix Services segment. As a result of this transaction, Isomedix added five ethylene oxide processing facilities to its current network of locations. The Company’s financial position, results of operations, and cash flows as of and for the three and nine month periods ended December 31, 2004 do not reflect the effects of this transaction. The operating results of Cosmed will be included in the Company’s consolidated financial statements from the date of the acquisition.

On January 26, 2005, the Company announced, in its fiscal 2005 third quarter earnings release, that it had completed a detailed analysis of strategic alternatives within its Life Sciences segment designed to reshape the segment’s product portfolio and improve profitability. As a first step in this process, the Company announced the sale of its Detach^™ product line (automated cleaning systems for comparative medicine) subsequent to the end of the third quarter. The sale of the Detach^™ product line did not have a material impact to the Company’s financial position, results of operations, or cash flows subsequent to December 31, 2004. In addition, the Company announced that it intends to explore the sale of its lyophilizer (freeze dryer), pure steam generator, and water still product lines, which currently represent approximately 30% of Life Sciences revenues.

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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 December 31, 2004, and the related consolidated statements of income for the three and nine month periods ended December 31, 2004 and 2003, and the consolidated statements of cash flows for the nine month periods ended December 31, 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 review, 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.

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

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 financial measures that are not required to be presented in the financial statements under U.S. generally accepted accounting principles. The Company has used the following financial measures that are not required to be presented under U.S. generally accepted accounting principles in the context of this report: Backlog, debt to capital, and days sales outstanding. The Company defines these financial measures as follows:

The Company has presented these financial 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. These financial measures should not be considered an alternative to measurements required by GAAP. The Company’s calculation of these measures may differ from similar measures used by other companies and investors should be careful when comparing the these financial measures to those of other companies.

Executive Overview

Revenues for the third quarter of fiscal 2005 were $284.4 million, an increase of $10.1 million, or 3.7%, as compared to $274.3 million during the prior year third quarter. For the first nine months of fiscal 2005, revenues were $804.0 million as compared to $791.0 million for the same period of fiscal 2004, representing an increase of $13.1 million, or 1.7%. Increased revenues in the Company’s Healthcare and Isomedix Services segments were the drivers of overall revenue growth during both periods. These factors were partially offset by a decline in revenues in the Company’s Life Sciences segment during both periods. Additional discussion of segment revenues for the three and nine month periods is presented in subsequent sections of Management’s Discussion and Analysis of Financial Condition and results of Operations titled, “Revenues” and “Business Segment Results of Operations.”

The Company’s gross margin percentage was relatively flat for both fiscal 2005 periods presented as compared to the respective fiscal 2004 periods. Strong gross margin growth in the Company’s Isomedix Services segment offset continued margin erosion within the Company’s Life Sciences segment for both periods presented. Healthcare margins decreased slightly quarter over quarter due to changes in revenue mix and remained flat for the 2005 year to date period as compared to the same prior year period. The addition of the Albert Browne Limited (“Browne”) product line during the fiscal 2005 third quarter benefited the Healthcare segment’s gross margins. Additional discussion of the Company’s gross margin is presented in a subsequent section of Management’s Discussion and Analysis of Financial Condition and Results of Operations titled, “Gross Profit.”

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The Company’s net income was $24.5 million, or $0.35 per diluted share, for the third quarter of fiscal 2005, representing a decrease of 9.7% from the comparable prior year period’s net income of $27.1 million, or $0.38 per diluted share. For the first nine months of fiscal 2005, net income was $61.0 million, or $0.87 per diluted share, as compared to $64.0 million, or $0.91 per diluted share, representing a decrease of $3.0 million, or 4.6%. The decline in net income for both periods reflects significantly higher effective income tax rates during fiscal 2005, which offset operating income increases of 5.5% and 2.5% for the three and nine month periods ended December 31, 2004, respectively. Information related to the effective income tax rate changes for both periods is discussed in a subsequent section of Management’s Discussion and Analysis of Financial Condition and Results of Operations titled, “Income Tax Expense.”

The Company continues to focus its capital spending on investments in new and existing facilities, business expansion projects, and information technology improvements. For the first nine months of fiscal 2005, capital expenditures amounted to $38.8 million, of which $13.3 million related to third 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 nine months of fiscal 2005 reflects an increased emphasis on new product development, product improvements, and the development of new technological innovations.

On September 15, 2004, the Company announced that a subsidiary had acquired Browne, a manufacturer of chemical indicators based in Leicester, England. The acquired business, which has been integrated into the Company’s Healthcare segment, provides the Company with an established European distribution channel and expands its offering of consumable products used with its broad line of capital equipment for infection control and decontamination. For the quarter ended December 31, 2004, revenues resulting from the Browne acquisition amounted to 1.4% of total Company revenues and contributed 2.3% to the Company’s overall gross margins.

On January 7, 2005, the Company announced that it had completed the previously announced (November 16, 2004) acquisition of certain assets of Cosmed Group, Inc. (“Cosmed”), a contract sterilization service provider with corporate offices located in Jamestown, Rhode Island. This acquired business will be integrated into the Company’s Isomedix Services segment. As a result of this transaction, Isomedix Services added five ethylene oxide processing facilities to its current network of locations.

On January 26, 2005, the Company announced, in its fiscal 2005 third quarter earnings release, that it had completed a detailed analysis of its customers’ needs in the Life Sciences segment and identified several steps to reshape the segment’s product portfolio and improve profitability. As a first step of this strategy, the Company announced the sale of its Detach^™ product line (automated cleaning systems for comparative medicine) subsequent to the end of the third quarter. The sale of the Detach^™ product line did not have a material impact to the Company’s financial position, results of operations, or cash flows subsequent to December 31, 2004. In addition, the Company announced that it is exploring the sale of its lyophilizer (freeze dryer), pure steam generator, and water still product lines, which account for approximately 30% of Life Sciences segment revenues. These strategic steps will enable the Company to dedicate more management resources to further develop its core sterilization, washing, and decontamination product offerings to the pharmaceutical, biopharmaceutical, and research markets. Assuming all of these steps are executed during fiscal 2006, the Company anticipates a reduction in pre-tax earnings of approximately $2.0 to $3.0 million, excluding any gain or loss from asset sales. In the first full fiscal year following completion, the Company expects these steps to add approximately $3.0 million to $5.0 million to annual pre-tax earnings.

Results of Operations

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

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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. The terminology, definitions, and applications of terms that the Company employs to describe revenues may differ significantly from terms used by other 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 nine month periods ended December 31, 2004 as compared to the same periods in the prior year:

(dollars in thousands)