Back to GetFilings.com

Table of Contents

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, 2005

Commission file number 1-14643

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 Exchange 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, 2004: $1,507,864,127

The number of common shares outstanding as of May 31, 2005: 69,165,165

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the 2005 Annual Meeting – Part III

Table of Contents

TABLE OF CONTENTS

Table of Contents

PART I

Item 1. Business

GENERAL DEVELOPMENT OF BUSINESS

Throughout this document, references to “STERIS Corporation,” “STERIS,” or the “Company,” are references to STERIS Corporation and its subsidiaries, except where the context makes it clear the reference is to STERIS Corporation itself and not its subsidiaries. The Company’s fiscal year ends on March 31. References to a particular “year” or “year-end” refer to the Company’s fiscal year.

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, pharmaceutical, scientific, research, industrial, and governmental customers throughout the world. The Company operates in three business segments: Healthcare, Life Sciences, and STERIS Isomedix Services (“Isomedix”).

RECENT EVENTS

Fiscal 2005 Acquisitions.  During fiscal 2005, the Company completed three strategic acquisitions that expanded its breadth of product and service offerings and global reach.

During the fourth quarter of fiscal 2005, the Company completed the acquisition of FHSurgical; a privately-held manufacturer of surgical tables with manufacturing facilities located in Orleans, France. The acquisition expanded the Company’s European distribution channel and enhanced the Company’s offerings of surgical tables. The acquired business is being integrated into the Company’s Healthcare segment.

During the fourth quarter of fiscal 2005, the Company completed the acquisition of certain assets of Cosmed Group, Inc. (“Cosmed”); a privately-held contract sterilization service provider with corporate offices located in Jamestown, Rhode Island. As a result of this transaction, five additional Ethylene Oxide processing facilities were added to the Company’s existing network of locations. The acquired Cosmed assets have been integrated into the Company’s Isomedix Services segment.

During the second quarter of fiscal 2005, the Company completed the acquisition of Albert Browne Limited and its subsidiaries (“Browne”); a privately-held manufacturer of chemical indicators, headquartered in Leicester, England. This acquisition provided the Company with an established European distribution channel and expanded the Company’s offerings of consumable products which are used with its broad line of infection control, sterilization, and decontamination capital equipment. The acquired business has been integrated into the Company’s Healthcare segment.

Fiscal 2004 Acquisitions.  During the first quarter of fiscal 2004, the Company completed the acquisition of Hamo Holding AG (“Hamo”); a privately-held manufacturer of washing/decontamination systems, with corporate offices located in Pieterlen, Switzerland. The acquisition provided the Company with a stronger European presence and the ability to offer a wider range of sterile processing solutions to customers worldwide. Hamo has been integrated into the Company’s Life Sciences and Healthcare segments.

During the first quarter of fiscal 2004, the Company completed the acquisition of certain assets related to the sterilization container business from Sterion Incorporated (“Sterion”). This acquisition complemented the Company’s existing sterile processing, storage, and related business. The acquired Sterion assets have been integrated into the Company’s Healthcare segment.

Results of operations for acquisitions for both years are included in the Consolidated Statements of Income from the date of acquisition. Further information regarding recent acquisitions is included in Note 2 to the Company’s consolidated financial statements, “Business Acquisitions.”

1

Table of Contents

Life Sciences Renewed Strategic Focus.  During the fourth quarter of fiscal 2005, the Company announced 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^™ business (automated cleaning systems for comparative medicine). The sale of this business did not have a material impact on the Company’s financial position, results of operations, or cash flows. In addition, during the fourth quarter of fiscal 2005, 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, governmental, and research markets.

INFORMATION RELATED TO BUSINESS SEGMENTS

GENERAL SEGMENT INFORMATION

Effective April 1, 2003, the Company realigned operations into three business segments: Healthcare, Life Sciences, and STERIS Isomedix Services. Segment information for years prior to April 1, 2003 has been reclassified to conform to the current segment structure. In the sections that follow, the Company has presented detailed information regarding these business segments.

Additional information regarding segment performance for each of the three years in the period ending March 31, 2005 is presented in Note 11 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” (“MD&A”).

HEALTHCARE SEGMENT

Description of Business.  The Company’s Healthcare segment offers capital equipment and accessories utilized within surgical environments, critical care environments, emergency departments, gastrointestinal environments, and sterile processing environments, and in infection control processes. The Healthcare segment also offers consumable products and services to the same customer base.

Products Offered.  The Healthcare segment offers a range of technologies for sterilizing medical devices and instruments, including low temperature liquid, steam, and Ethylene Oxide. These technologies, which meet rigorous sterility assurance standards and regulations, allow safe and effective re-use of medical equipment and devices in healthcare facilities throughout the world. The Healthcare segment also offers a variety of automated washer/disinfector systems used as a processing step before sterilization. These systems clean and disinfect a wide range of items from rolling instrument carts and other large healthcare equipment to small surgical instruments. These washing and sterilization products are offered through various brand names that include, but are not limited to: STERIS SYSTEM 1^®, Amsco^®, Hamo^™, and Reliance^®.

The segment’s capital equipment offerings also include general and specialty surgical tables, surgical and examination lights, equipment management systems, operating room storage cabinets, warming cabinets, scrub sinks, and other complementary products and accessories for use in hospitals and other healthcare facilities. This broad range of equipment is designed to be used in a wide variety of locations where diagnostic and therapeutic procedures are performed, including emergency rooms, general surgery suites, OB/GYN suites, ICU/CCU suites, and ambulatory surgery sites. These products are offered through various brand names that include, but are not limited to: Harmony^™, Amsco^®, SurgiGraphic^™, ASC 2000^™, Hamo^™, CMAX^®, and Hausted^®.

The Healthcare segment also offers infection prevention consumables and supplies that are used to help prevent the spread of infectious diseases and to monitor sterilization and decontamination processes. The segment’s consumables offer quality choices for infection and contamination prevention, including products used in instrument cleaning and decontamination systems and hard surface disinfectants. The segment also offers skin care and hand hygiene solutions for use by care-givers and patients in high risk and routine applications. Consumables are offered through various brand names that include, but are not limited to: Kindest Kare^®, Alcare^®, Verify^®, and Cal Stat^®.

2

Table of Contents

Services Offered.  The Healthcare segment offers various capital equipment preventive maintenance programs and repair services to support the effective operation of capital equipment over its lifetime. The segment also offers comprehensive sterilization management services to allow healthcare facilities to meet their instrument reprocessing needs. STERIS field service personnel are available worldwide to install, maintain, upgrade, repair, and troubleshoot equipment. Additionally, STERIS offers other support services such as facility planning, engineering support, device testing, and customer education.

Customer Concentration.  The Company’s Healthcare segment operates in the United States and throughout the world offering capital equipment, consumables, and services to large and small customers. For the year ended March 31, 2005, revenues generated by the segment in the United States and internationally amounted to $677.7 million and $118.7 million, respectively. For the year ended March 31, 2005, none of the segment’s customers represented more than 10% of total segment revenues. A loss of any single customer is not expected to have a material impact on the segment’s results of operations or cash flows.

Competition.  The Company’s Healthcare segment operates in highly regulated environments where the most intense competition results from the search for technological innovations, product performance, convenience and ease of use, and overall cost-effectiveness. The Company competes with a number of large companies with significant product portfolios and global reach, as well as a number of small companies with very limited product offerings with operations in few or single countries. The segment’s primary competitors include Getinge, Belimed, Johnson & Johnson, 3M, Ecolab, Cardinal, Skytron, Berchtold, Kimberly-Clark, and Becton Dickinson.

LIFE SCIENCES SEGMENT

Description of Business.  The Company’s Life Sciences segment is a global provider of integrated and validated capital equipment, cleaning chemistries, and service solutions to three broad markets: Pharmaceutical and research, defense and aerospace, and industrial decontamination. Within the pharmaceutical and research market, the segment is focused on delivering capital equipment, consumables, and related services to global pharmaceutical companies and private and public research facilities. Within the defense and aerospace market, the segment is focused on the development of decontamination technologies for government, military, and aerospace customers. The segment’s offerings to this market focus on VHP^® and modified VHP technologies for use in decontaminating military command centers, aircraft and vehicles, and spacecraft and spacecraft components. Within the industrial decontamination market, the segment is focused on developing decontamination solutions for first response, building decontamination, and food and beverage markets. Offerings to this customer base are similar to those offered to defense and aerospace customers; however, the markets are primarily non-military and typically require regulatory approval.

Products Offered.  The Life Sciences segment offers capital equipment and accessories to the target customer base described in the preceding paragraph. Washers offered by the segment provide efficient cleaning of various large and small materials and components utilized in manufacturing processes in the pharmaceutical and industrial markets, such as glassware, vessels, equipment parts, drums, and hoses. Sterilizers offered by the segment provide an efficient and effective way to sterilize and decontaminate medical devices and research tools used in the pharmaceutical and research environments, and assist in mitigating the risk of infectious diseases. VHP^® technology offered by the segment is used to create safer environments within emergency vehicle interiors and exteriors, high-containment bio-safety labs, and other closed room environments. The segment’s products are offered through various brand names that include, but are not limited to: Amsco^®, Hamo^®, Reliance^®, and Finn-Aqua^®.

The Life Sciences 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. The segment’s consumables offer quality choices for infection and contamination prevention, including products used in instrument cleaning and decontamination systems and hard surface disinfectants. The segment also offers skin care and hand hygiene solutions for use in high risk and routine applications. Consumables are offered through various brand names that include, but are not limited to: Kindest Kare^®, Alcare^®, and Cal Stat^®.

3

Table of Contents

Services Offered.  The Life Sciences segment offers various equipment preventive maintenance programs and repair services to support the effective operation of capital equipment over its lifetime. The segment also offers a variety of consulting services focused on biological and chemical contamination remediation and recovery solutions, risk/threat assessment, and biological contaminant mapping and assessment. STERIS field service personnel are available worldwide to install, maintain, upgrade, repair, and troubleshoot capital 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.

Customer Concentration.  The Company’s Life Sciences segment operates in the United States and throughout the world offering capital equipment, consumables, and services to large and small customers. For the year ended March 31, 2005, revenues generated by the segment in the United States and internationally amounted to $105.1 million and $113.5 million, respectively. For the year ended March 31, 2005, none of the segment’s customers represented more than 10% of total segment revenues, therefore a loss of any single customer is not expected to have a material impact on the segment’s results of operations or cash flows.

Competition.  The Company’s Life Sciences segment operates in highly regulated environments where the most intense competition results from the search for technological innovations, product performance, convenience and ease of use, and overall cost-effectiveness. Consolidations and reduced capital spending within the Company’s pharmaceutical customer base also results in intense competition. The Company competes with a number of large resourceful companies with significant product portfolios and global reach, as well as a number of small companies with very limited product offerings with operations in few or single countries, within the pharmaceutical and research and industrial markets. The Company competes with a small number of large companies within the defense and aerospace customer market. The Company’s performance within this market, which primarily includes governmental-type customers, is partially dependent on federal and state budgetary appropriations. The segment’s primary competitors include Getinge, Fidigari, Bioquel, MECO, and Scientek.

STERIS ISOMEDIX SERVICES SEGMENT

Description of Business.  Through a North American network of 21 facilities, the Company offers a comprehensive array of contract sterilization services using Gamma Irradiation (“Gamma”), Electron Beam Irradiation (“E-Beam”), and Ethylene Oxide (“EO”) technologies through its Isomedix Services segment. This segment offers sterilization, microbial reduction, and materials modification services to companies that supply products to the healthcare, industrial, and consumer product industries.

Services Offered.  Isomedix provides Gamma, E-Beam, and EO services to process approximately 50,000 truckloads of product per year. All three technologies can be effectively used to sterilize a wide range of products. Gamma, using cobalt-60 isotope, and E-Beam, using accelerated electrons, are irradiation processes. In addition to sterilization of medical products, E-Beam is used for material modification and cross-linking to improve product performance. EO is a gaseous process predominately used in the sterilization of surgical kits. Gamma and EO utilization account for greater than 90 percent of the overall industrial sterilization marketplace with E-Beam representing the remainder. The Isomedix locations are concentrated in major North American population centers and core distribution corridors, primarily in the Northeast, Midwest, Southwest, and southern California. Isomedix’s understanding of supply chain management enables it to adapt to increasing imports and changes in manufacturing points-of-origin. Isomedix’s growth is driven in part by demographics, mainly the aging baby boomer population and rising life expectancy. These events strengthen demand for medical procedures, driving increased consumption of single use devices and surgical kits. Isomedix’s technical services group provides support to customers in all phases of the sterilization design process, including product development, materials testing, and sterility validation.

Customer Concentration.  The Company’s Isomedix Services segment operates in North America. For the year ended March 31, 2005, revenues generated in the United States and Canada amounted to $98.1 million and $6.7 million, respectively. The segment’s comprehensive array of sterilization services are offered to large and small customers throughout the footprint of the Company’s strategically located facilities. For the year ended March 31, 2005, none of the segment’s customers represented more than 10% of total segment revenues. A loss of any single customer would not have a material impact on the segment’s results of operations or cash flows.

4

Table of Contents

Competition.  Isomedix operates in a highly regulated industry and competes in North America with Sterigenics International, Inc. and manufacturers that sterilize products in-house, among others.

INFORMATION WITH RESPECT TO STERIS’S BUSINESS IN GENERAL

Sources and Availability of Raw Materials.  The Company purchases in the ordinary course of business raw materials, sub-assemblies, components, and other supplies essential to the Company’s operations from numerous suppliers in the United States and abroad. The principal raw materials that the Company uses to conduct operations include stainless steel, organic chemicals, and plastic components. These raw materials are obtainable from several sources and are generally available within the lead times specified to vendors. Raw materials for which there are few sources, such as cobalt-60 radioisotope used within the Company’s Isomedix Services segment, generally have longer-term supply contracts as a basis to support supply reliability.

The Company has recently experienced increased prices for raw materials such as stainless steel, metals, and chemicals, which are important to the Company’s operations. The Company has not experienced, and does not foresee, extraordinary difficulty in obtaining the materials, sub-assemblies, components, or other supplies necessary for its business operations.

Intellectual Property.  The Company protects its technology and products by, among other means, filing United States and foreign patent applications. 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.

As of March 31, 2005, the Company held 263 United States patents and 702 foreign patents and had 107 United States patents and 481 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 brand names and trademarks to be valuable in the marketing of its products. As of March 31, 2005, the Company had a total of 804 trademark registrations in the United States and in various foreign countries in which the Company conducts business.

Research and Development.  Research and development constitutes an important part of the Company’s activities. For the years ended March 31, 2005, 2004, and 2003, research and development expenses totaled $35.5 million, $28.5 million, and $25.5 million, respectively. The majority of these expenses relate to Company sponsored research and development activities associated with commercial products.

Quality Assurance.  The Company manufactures, assembles, and packages products in the United States and throughout the world. Each of the production facilities are dedicated facilities which focus on particular processes and products. The Company’s success depends upon customer confidence in the quality of the production process and the integrity of the data that supports the Company’s product safety and effectiveness. The Company has implemented quality assurance procedures related to the quality and integrity of scientific information and production processes. Throughout the world, manufacturing processes at all of the Company’s equipment manufacturing facilities are ISO 9001 certified.

Government Regulation.  The Company’s business is subject to varying degrees of governmental regulation in the countries in which operations are conducted. The general trend is toward regulation of increasing stringency. In the United States, the development, manufacture, sale, and distribution of the Company’s products and services are subject to regulation by the Food & Drug Administration (“FDA”), the United States Environmental Protection Agency (“EPA”), the United States Nuclear Regulatory Commission (“NRC”), and other governmental authorities. International operations are also subject to a significant degree of government regulation and country-specific rules

5

Table of Contents

and regulations. Government regulations include detailed inspection of, and controls over, research and development, clinical investigations, product approvals and manufacturing, marketing and promotion, sampling, distribution, record-keeping, storage, and disposal practices.

The cost of compliance with applicable regulations represents a significant expense to the Company, and such past, current, or future regulations or their interpretation or application could have a material adverse impact on the Company. Further, additional governmental 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 governmental regulation or interpretation or application thereof, which may arise from current or future legislation or administration, cannot be predicted.

Failure to comply with any applicable regulatory requirements could result in sanctions being imposed on the Company, including warning letters, injunctions, monetary 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 has 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 Part I, Item 3, “Legal Proceedings.”

Environmental Matters.  The Company is subject to various laws and governmental regulations concerning environmental matters and employee safety and health in the United States and in 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 operations, cash flows, or competitive position.

Competition.  The markets in which the Company’s business is conducted are highly competitive and often highly regulated. Competition is intense in all of the Company’s business segments and includes many large and small competitors. Important competitive factors include product design and quality, safety, ease of use, product serviceability, and price. The Company 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 decontamination.

The Company believes that its long-term competitive position depends on its success in discovering, developing, and marketing innovative, cost-effective products and services. The Company focuses significant resources on research and development and management believes the Company is well positioned to compete globally in search of technological innovations. In addition to expenditures related to research and development, the Company continues to invest in high quality control, customer programs, distribution systems, and technical and other information services.

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 the Company in the future. In addition, some of the Company’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.

The principal means of competition vary among product categories and business segments, and are discussed in more detail in the section above titled, “Information Related to Business Segments.”

6

Table of Contents

Employees.  As of March 31, 2005, the Company had approximately 5,250 employees throughout the world. Management considers its relations with employees, including employees covered under collective bargaining agreements, to be good.

Methods of Distribution.  As of March 31, 2005, the Company employed 1,132 and 288 direct field sales and service representatives in the United States and in international locations, respectively. Sales and service activities are supported by a staff of regionally based clinical specialists, system planners, corporate account managers, and in-house customer service and field support departments. The Company has also contracted with distributors in select markets.

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

Seasonality.  The Company’s financial results have been, from time to time, subject to seasonal patterns. Historically, sales of certain of the Company’s product lines have been weighted toward the latter part of each year as a result of customer buying patterns. There can be no assurance that such patterns or trends will continue.

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. Revenues from operations outside of the United States amounted to $238.9 million, or 21.3%, of the Company’s total revenues for the year ended March 31, 2005. Revenues from Europe, Canada, and other international locations amounted to 60.0%, 19.9%, and 20.1%, respectively, of total international revenues for the year ended March 31, 2005.

For a geographic presentation of revenues for the three years ended March 31, 2005, see Note 11 to the Company’s consolidated financial statements, “Business Segment Information,” and Item 7, “MD&A.”

The Company’s operations are subject, in varying degrees, to a number of inherent risks. These include, among other things, foreign currency exchange rate 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 exchange rate fluctuations can increase or reduce the reported dollar amounts of the Company’s net assets and results of operations. Revenues were favorably impacted by $13.5 million, or 1.2%, and net income was negatively impacted by $3.7 million, or 4.1%, during fiscal 2005 as a result of foreign currency movements relative to the U.S. dollar. The Company cannot predict with certainty future changes in foreign currency exchange rates or the effect they will have on the Company’s operations.

Backlog.  Backlog is defined by the Company as the amount of unfilled capital purchase orders at a point in time. At March 31, 2005, the Company’s backlog amounted to $131.4 million, of which $65.4 million and $66.0 million related to the Company’s Healthcare and Life Sciences segments, respectively. At March 31, 2004, the Company’s backlog orders amounted to $129.6 million, of which $57.0 million and $72.6 million related to the Company’s Healthcare and Life Sciences segments, respectively. The majority of backlog orders in both years were expected to ship in the subsequent fiscal year.

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 on the Public Reference Room 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-ir.com. Also available on the Company’s website are the Company’s Corporate

7

Table of Contents

Governance Guidelines, Director Code of Ethics, and Code of Business Conduct, as well as Charters of the 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.

8

Table of Contents

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, 2005. 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/Operations” and “Sales Offices” refer to locations serving both the Healthcare and Life Sciences segments.

U.S. LOCATIONS (Including Puerto Rico)

INTERNATIONAL LOCATIONS

9

Table of Contents

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.

The FDA and the U.S. Department of Justice are conducting an investigation believed to involve the Company’s SYSTEM 1^® sterile processing system. In January 2005, the Company received a subpoena for documents in connection with the investigation. The Company is currently responding to this subpoena and has offered and intends to cooperate with the government agencies regarding this matter.

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 information regarding the Company’s commitments and contingencies is included in Item 7, “MD&A,” and in Note 10 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 2005 fiscal year.

EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth certain information regarding the executive officers of the Company:

10

Table of Contents

The following is a brief account of the recent business experience 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 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. Mr. Vinney is a director of Campbell Soup Company

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. Ms. Brlas is a director of Perrigo Company.

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.

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.

Dr. Patrick J. McCullagh serves as Vice President, Global Quality Systems Engineering and Regulatory Affairs. He joined the Company in July 2002 and served as Vice President, Engineering Research, until February 2005. Prior to joining STERIS, Dr. McCullagh most recently served as a self-employed technical consultant respecting medical devices, product development, and product submissions from May 2001 to June 2002. Prior to that, he served from May 2000 to May 2001 as Sr. Director, Marketing and Sales International with Orquest, a medical company specialty in orthobiological products.

Mark D. McGinley serves as Senior Vice President, General Counsel, and Secretary. He became Senior Vice President in March 2005. He joined the Company in March 2002 as Vice President, General Counsel, and Secretary. 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, a producer of specialty products and paints, and was employed by the BF Goodrich Company from 1990 to 2000 in various legal capacities, including General Counsel of the BF Goodrich Sealants, Coatings and Adhesives Group.

Robert E. Moss serves as Senior Vice President and Group President, STERIS Isomedix Services. He became Senior Vice President in March 2005. He served as Vice President and General Manager of Isomedix Services from

11

Table of Contents

1999 until April 2003 and as Vice President and Group President of Isomedix Services from April 2003 until March 2005. 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 American Hospital Supply Corporation, both medical products and services companies.

Gerard J. Reis serves as Senior Vice President and Group President, Life Sciences. He previously served 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.

12

Table of Contents

PART II

Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters, and Issuer Purchases 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. Subsequent to March 31, 2005, on May 17, 2005, the Company announced that its Board of Directors had declared a quarterly cash dividend in the amount of $0.04 per common share, payable on June 28, 2005, to shareholders of record as of the close of the stock transfer books on May 31, 2005. Payment of dividends, if any, in the future is subject to the discretion of the Company’s Board of Directors. At June 3, 2005, there were approximately 1,600 shareholders of record of the Company’s common shares.

Issuer Purchases of Equity Securities.  No repurchases of common shares were made by or on behalf of the Company during the fourth quarter of fiscal 2005. As of March 31, 2005, 2,726,000 shares remained authorized for repurchase under the share repurchase program that was approved by the Company’s Board of Directors and announced on July 28, 2004. This common share repurchase authorization does not have a stated maturity date.

Information related to common share repurchases made subsequent to March 31, 2005 is included in Note 16 to the Company’s consolidated financial statements, “Subsequent Events.”

13

Table of Contents

Item 6. Selected Financial Data

14

Table of Contents

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 (“MD&A”) 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 Supplementary Data.”

Financial Measures.  In the following sections of MD&A and in Item 1, “Business,” the Company, at times, may refer to financial measures that are not required to be presented in the consolidated 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:

In the following sections of MD&A and in Item 1, “Business,” the Company, at times, may also refer to financial measures which are considered to be “non-GAAP financial measures” under Securities and Exchange Commission rules. Non-GAAP financial measures used by the Company are as follows:

15

Table of Contents

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. These financial measures should not be considered an alternative to measures required by U.S. generally accepted accounting principles. The Company’s calculations of these measures may differ from calculations of similar measures used by other companies and investors should be careful when comparing these financial measures to those of other companies.

Revenues - Defined.  As required by Regulation S-X, the Company has presented separately on its Consolidated Statements of Income for each year 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 required by Regulation S-X. The terminology, definitions, and applications of terms that the Company uses to describe revenues may differ from terms used by other companies. The Company uses the following terms to describe revenues:

General Company Overview and Outlook.  The mission of STERIS Corporation is to provide a healthier today and safer tomorrow through knowledgeable people and innovative infection prevention, decontamination and health science technologies, products, and services. The Company’s dedicated employees around the world work together to supply a broad range of solutions by offering a combination of equipment, consumables, and services to healthcare, pharmaceutical, industrial, and governmental customers.

STERIS participates in industries that currently benefit from strong underlying demand, with the bulk of the Company’s revenues derived from the healthcare and pharmaceutical industries. As such, much of the growth in its markets is driven by the aging of the population throughout the world, as an increasing number of individuals are entering their prime healthcare consumption years. In addition, each of STERIS’s core industries also are benefiting from specific trends that drive growth. Within the healthcare market, there is increased concern regarding the level of hospital-acquired infections around the world. The pharmaceutical industry has been impacted by increased FDA scrutiny of cleaning and validation processes, mandating that manufacturers improve their processes. In the contract sterilization industry, where Isomedix competes, an increasing trend toward the outsourcing of sterilization services continues to drive growth.

Beyond STERIS’s core markets, infection-control issues are becoming a global concern, and emerging threats have gained prominence in the news. Through STERIS’s Life Sciences segment, the Company is actively pursuing new opportunities to adapt its proven technologies to meet the needs of emerging markets such as defense, aerospace, and industrial decontamination.

16

Table of Contents

Fiscal 2005 marked the second consecutive year that revenues exceeded $1.0 billion. Strong demand and expanded processing capacity within the Company’s Isomedix Services segment led to record revenues within the segment, which exceeded $100.0 million. Within the Healthcare segment, increased recurring revenues and strong demand for capital equipment from hospitals, primarily within the United States, led to record revenues of $796.4 million. Fiscal 2005 Life Sciences revenues were negatively impacted as a result of a decrease in new capital construction projects within the pharmaceutical industry.

During fiscal 2005, the Company completed three strategic acquisitions that expanded its breadth of product offerings and global reach. Within the Healthcare segment, the acquisitions of Browne and FHSurgical expanded the Company’s offerings of chemical indicators and surgical tables, respectively, within the European marketplace. Within the Isomedix Services segment, five EO processing facilities acquired from Cosmed expanded the Company’s processing capacity within its North American footprint of strategically located facilities. Fiscal 2005 acquisitions contributed $15.2 million to total fiscal 2005 revenues.

The Company’s financial position and cash flows remain strong. Improved working capital management and reduced capital spending levels resulted in record cash flows from operations of $151.4 million and record free cash flow of $95.2 million. The Company continues to maintain low debt levels with its debt to capital ratio approximating 12.1% at March 31, 2005. The Company’s strong financial position and cash flows currently afford it the financial flexibility to return value to shareholders. The value to shareholders may be in the form of strategic acquisitions that strengthen the Company’s long-term competitive position and potential common share repurchases and cash dividends.

A detailed discussion of the Company’s fiscal 2005 performance is included in the subsection of MD&A titled “Results of Operations.”

Matters Affecting Comparability.  The Company’s operating results for fiscal 2005 include the impact of acquisitions completed during the fiscal year from the date of acquisition. During fiscal 2005, the Company acquired Browne and FHSurgical and certain assets of Cosmed. The addition of Browne to the Company’s operations contributed $9.3 million, or 1.2%, to the Healthcare segment’s revenues for fiscal 2005. The addition of five EO facilities acquired from Cosmed contributed $5.9 million, or 5.6%, to the Isomedix Services segment’s revenues for fiscal 2005. The addition of Browne and Cosmed to the Company’s Healthcare and Isomedix Services segments contributed 1.6% and 4.5%, respectively, to the segments’ gross margin dollars for the year ended March 31, 2005. The acquisition of FHSurgical was completed on March 24, 2005 and, therefore, did not have a material impact on the Company’s fiscal 2005 operating results.

Because the Company conducts operations outside of the United States using various foreign currencies, its operating results are impacted by foreign currency movements relative to the U.S. dollar. During fiscal 2005, the Company’s revenues were favorably impacted by $13.5 million, or 1.2%, and net income was negatively impacted by $3.7 million, or 4.1%, as a result of foreign currency movements relative to the U.S. dollar.

Results of Operations.  The following subsections provide commentary regarding the results of operations of the Company for fiscal 2005 as compared to fiscal 2004 and for fiscal 2004 as compared to fiscal 2003.

17

Table of Contents

Fiscal 2005 as Compared to Fiscal 2004

Revenues.  The following table illustrates the changes in the Company’s revenues for the year ended March 31, 2005 as compared to the year ended March 31, 2004:

Revenues increased $32.7 million, or 3.0%, to $1,119.7 million for the year ended March 31, 2005, as compared to $1,087.0 million for fiscal 2004. For fiscal 2005, recurring revenues increased 8.8% as compared to fiscal 2004. The recurring revenues increase was generated from a 6.6% increase in consumable revenues and a 10.3% increase in service revenues as compared to fiscal 2004. Service revenues, which increased in all segments, were driven by a $16.8 million, or 19.1%, increase in the Isomedix Services segment. Within the Company’s Healthcare and Life Sciences segments, service revenues for fiscal 2005 increased 4.5% and 25.7%, respectively, as compared to fiscal 2004. Capital revenues declined $16.0 million, or 3.0%, during fiscal 2005, as compared to fiscal 2004. Within the Healthcare segment, strong demand for small order replacement equipment and for larger orders associated with new construction projects by hospital customers primarily in the United States resulted in an increase in capital revenues of 6.9% as compared to fiscal 2004. This strong performance was offset by a 22.2% decrease in Life Sciences capital revenues, year-over-year, as a result of reduced capital spending within the pharmaceutical industry in the European and United States marketplaces.

18

Table of Contents

International revenues for fiscal 2005 amounted to $238.9 million, a decrease of $5.6 million, or 2.3%, as compared to fiscal 2004. The decline in year-over-year international revenues was attributable to a 15.9% decrease in capital revenues primarily within the European marketplace. Within Europe, fiscal 2005 capital revenues from the Company’s Healthcare and Life Sciences segments decreased 4.5% and 39.3%, respectively, as compared to fiscal 2004. The decline in international capital revenues was partially offset by a 29.0% increase in recurring revenue streams year over year.

United States revenues for fiscal 2005 amounted to $880.9 million, an increase of $38.3 million, or 4.6%, as compared to fiscal 2004. United States revenues were positively impacted by a 5.7% increase in recurring revenues, which were driven by an increase in the Isomedix Services segment’s revenues of 19.3%. Recurring revenues were also positively impacted by service revenue increases of 4.1% and 102.6% in the Healthcare and Life Sciences segments, respectively, and a slight increase in consumable revenues of 0.5%. Year over year, United States capital revenues increased 3.0% as a result of strong demand from hospital customers during the second half of the fiscal year. The increase in capital revenues was driven by an 8.4% increase in capital revenues within the Company’s Healthcare segment. This increase was partially offset by a 17.1% decline in Life Sciences capital revenues, which resulted from reduced capital spending within the pharmaceutical industry.

Revenues are further discussed on a segment basis in the section of MD&A titled “Business Segment Results of Operations.”

Gross Profit.  The following table illustrates the changes in the Company’s gross profit for the year ended March 31, 2005 as compared to the year ended March 31, 2004:

Gross profit (margin) is impacted by the volume, pricing, and mix of sales of the Company’s products and services, as well as the costs associated with the products and services that are sold. Year-over-year, the Company’s gross profit percentage remained flat at 42.1%. Strong margin growth, resulting from higher volumes, within the Company’s Isomedix Services segment offset continued margin erosion within the Company’s Life Sciences segment. Margins within the Healthcare segment were favorably impacted by the introduction of the Browne consumable offerings. Overall, fiscal 2005 margins were negatively impacted by increased raw material prices, particularly related to stainless steel, a core material used in the manufacturing of capital equipment, and certain petroleum-based chemicals used in consumables formulations.

Gross margins are further discussed on a segment basis in the section of MD&A titled “Business Segment Results of Operations.”

19

Table of Contents

Operating Expenses.  The following table illustrates the changes in the Company’s operating expenses for the year ended March 31, 2005 as compared to the year ended March 31, 2004:

Significant components of total Selling, General, and Administrative expenses (“SG&A”) are compensation and benefit costs, fees for professional services, travel and entertainment, facilities costs, and other general and administrative expenses. As a percentage of total revenues, SG&A decreased 60 basis points to 26.0% for fiscal 2005 as compared to fiscal 2004. As a result of efforts to leverage costs of operations, the Company was able to deliver higher revenue levels without increasing operating expense levels at a commensurate rate.

As a percentage of total revenues, research and development expenses were 3.2% and 2.6% for fiscal 2005 and 2004, respectively. As compared to fiscal 2004, research and development expenses increased $7.1 million, or 24.9%, during fiscal 2005. The increase in research and development expenses is attributable to an increased emphasis on new product development, product improvements, and the development of new technological innovations. During fiscal 2005, the Company’s investments in research and development focused on, but were not limited to, enhancing capabilities of delivery systems in the defense and industrial areas, sterile processing combination technologies, and the area of prions.

Interest Expense, Net.  The following table illustrates the changes in the Company’s interest expense, net for the year ended March 31, 2005 as compared to the year ended March 31, 2004:

Interest expense, net consists of interest expense on debt, offset by interest earned on cash, cash equivalents, short-term investment balances, and other miscellaneous income. Interest expense increased year-over-year as a result of higher average debt levels and higher interest rates on outstanding debt during fiscal 2005 as compared to fiscal 2004. A detailed discussion of the Company’s outstanding debt is included in Note 6 to the Company’s consolidated financial statements, “Debt,” and in the subsection of MD&A titled, “Liquidity and Capital Resources.”

20

Table of Contents

Income Tax Expense.  The following table illustrates the changes in the Company’s income tax expense for the year ended March 31, 2005 as compared to the year ended March 31, 2004 and provides a comparison of the effective income tax rates for the aforementioned periods:

The effective income tax rate for fiscal 2005 was 39.4% as compared to 31.7% for fiscal 2004. The effective income tax rate for fiscal 2005 was negatively impacted as a result of a reduction of operating profits generated in international tax jurisdictions and the resulting inability of the Company to utilize a portion of foreign tax credits against foreign profits taxed in the United States, as well as certain non-cash adjustments. The effective income tax rate for fiscal 2004 benefited from the Company’s ability to use foreign tax credits and net operating loss carryforwards.

Business Segment Results of Operations.  The Company operates and reports in three business segments: Healthcare, Life Sciences, and STERIS Isomedix Services. Note 11 to the Company’s consolidated financial statements, “Business Segment Information,” and Item 1, “Business,” provide detailed information regarding each business segment. The following table illustrates the changes in business segment revenues for the year ended March 31, 2005 as compared to the year ended March 31, 2004:

Healthcare segment revenues represented 71.1% of total revenues for the year ended March 31, 2005 as compared to 69.3% for the year ended March 31, 2004. Healthcare segment revenues increased $43.5 million, or 5.8%, to $796.4 million for the year ended March 31, 2005, as compared to $752.9 million for the prior fiscal year. The increase in Healthcare revenues was primarily driven by a 6.9% increase in capital revenues, which resulted from strong demand for small order replacement equipment and for larger orders associated with new construction projects by hospital customers primarily in the United States. At March 31, 2005, the Healthcare segment’s backlog amounted to $65.4 million, as compared to $57.0 million at March 31, 2004. The Healthcare segment’s fiscal 2005 revenues were also positively impacted by a 4.8% increase in recurring revenue streams driven by strong service revenues within the United States hospital market and increased consumable revenues resulting from the business integration of Browne.

Life Sciences segment revenues represented 19.5% of total revenues for the year ended March 31, 2005 as compared to 22.6% for the year ended March 31, 2004. Life Sciences segment revenues decreased $27.5 million, or 11.2%, to $218.6 million for the year ended March 31, 2005, as compared to $246.1 million for the prior fiscal year. The decrease in Life Sciences revenues was driven by a 22.2% decrease in capital revenues. Fiscal 2005 Life Sciences revenues were negatively impacted as a result of a fewer number of new capital construction projects within the pharmaceutical industry. At March 31, 2005, the Life Sciences segment’s backlog amounted to $66.0 million, as compared to $72.6 million at March 31, 2004. An increase of 19.7% in recurring revenue streams partially offset the segment’s year-over-year decline in capital revenues.

21

Table of Contents

STERIS Isomedix Services segment revenues represented 9.4% of total revenues for the year ended March 31, 2005, as compared to 8.1% for the year ended March 31, 2004. The segment experienced revenue growth of $16.8 million, or 19.1%, during fiscal 2005, as compared to fiscal 2004. The year-over-year growth in revenues is the result of increased demand and higher utilization of expanded facilities capacity within the segment. A temporary reduction in industry processing capacity and the integration of Cosmed also benefited the segment’s revenues during fiscal 2005.

The following table illustrates the changes in business segment operating results for the year ended March 31, 2005 as compared to the year ended March 31, 2004:

NM - Not meaningful

To determine segment operating income (loss), the Company reduces the respective segment’s gross profit 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 based on each segment’s portion of revenues, headcount, or other variables in relation to the total Company.

Healthcare segment operating income increased $16.9 million, or 13.9%, to $138.6 million for the year ended March 31, 2005 as compared to $121.7 million during the prior fiscal year. Healthcare segment operating margins were 17.4% and 16.2%, respectively, for the years ended March 31, 2005 and March 31, 2004. Healthcare segment gross margins were 47.4% for the year ended March 31, 2005 as compared to 47.6% for the year ended March 31, 2004. Gross margins were negatively impacted by a continued shift in revenue mix toward capital equipment, which typically carries lower margins. Gross margins were also negatively impacted by increased raw material prices, particularly in the second half of fiscal 2005. The addition of Browne products to the Healthcare segment’s consumable offerings partially offset the negative margin impact of increased raw material prices and revenue shift.

Life Sciences segment operating loss was $14.5 million for the year ended March 31, 2005, as compared to operating income of $5.0 million during the prior fiscal year. Life Sciences segment gross margins were 29.8% for the year ended March 31, 2005 as compared to 32.2% for the year ended March 31, 2004. Operating results in the segment were negatively impacted by reduced volumes and the resulting lower fixed cost absorption along with increased raw material prices.

STERIS Isomedix Services segment operating income increased $7.2 million, or 53.0%, to $20.9 million for the year ended March 31, 2005 as compared to $13.6 million during the prior fiscal year. The segment’s operating margins were 19.9% and 15.5%, respectively, for the years ended March 31, 2005 and March 31, 2004, and gross margins were 37.9% and 34.8%, respectively, for fiscal 2005 and 2004. Operating performance in the segment benefited from increased volumes and improvements in processing utilization as a result of capital investments made during the past year. The integration of Cosmed also resulted in a benefit to the segment’s operating performance.

22

Table of Contents

Fiscal 2004 as Compared to Fiscal 2003

Revenues.  The following table illustrates the changes in the Company’s revenues for the year ended March 31, 2004 as compared to the year ended March 31, 2003:

Revenues increased 11.8% to $1,087.0 million for the year ended March 31, 2004 as compared to $972.1 million for the prior fiscal year. The year-over-year 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 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 revenues, $41.5 million can be attributed to the integration of Hamo and Sterion into the Company’s fiscal 2004 operations. Excluding the impact of the Hamo business acquisition and the Sterion asset purchase, organic revenue growth was 7.6% ($114.9 million year-over-year change in total revenues minus $41.5 million fiscal 2004 revenues associated with Hamo and Sterion, divided by $972.1 million fiscal 2003 total revenues) during fiscal 2004.

For the year ended March 31, 2004, revenues generated from the sale of capital equipment were $534.1 million, or 49.1% of total revenues, as compared to $467.6 million, or 48.1%, of total revenues, 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, revenues generated from recurring revenue streams were $552.9 million, or 50.9% of total revenues, as compared to $504.5 million, or 51.9% of total revenues, for the year ended March 31, 2003, representing an increase of $48.4 million, or 9.6%, year over year.

For the year ended March 31, 2004, international revenues represented 22.5% of total revenues as compared to 19.1% for the year ended March 31, 2003. As compared to the year ended March 31, 2003, international 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,

23

Table of Contents

organic international revenue growth was $26.0 million ($58.7 million year-over-year change in international revenues minus $32.7 million fiscal 2004 international revenues associated with Hamo), or 14.0% ($26.0 million international organic revenue growth divided by $185.8 million fiscal 2003 international revenues).

Further discussion regarding the Company’s fiscal 2004 segment revenues and a detailed analysis of the change in fiscal 2004 segment revenues as compared to fiscal 2003 is included in the section below titled “Business Segment Results of Operations.”

Gross Profit.  The following table illustrates the changes in the Company’s gross profit for the year ended March 31, 2004 as compared to the year ended March 31, 2003:

The cost of revenues as a percentage of total 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 Company’s gross profit percentage remained flat in fiscal 2004 as compared to fiscal 2003 due to the shift in product mix during 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 changes in the Company’s operating expenses for the year ended March 31, 2004 as compared to the year ended March 31, 2003:

Significant components of total SG&A are compensation and benefit costs, fees for professional services, travel and entertainment, facilities costs, and other general and administrative expenses. As a percentage of total revenues, SG&A was 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

24

Table of Contents

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 percentage of total 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 changes in the Company’s interest expense, net for the year ended March 31, 2004 as compared to the year ended March 31, 2003: