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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549



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Form 10-Q



QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)

OF THE SECURITIES EXCHANGE ACT OF 1934



For the quarter ended September 30, 2003



Commission file number 0-20165



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STERIS Corporation

(Exact name of registrant as specified in its charter)



|Ohio                                                          |  | 34-1482024                      
|------------------------------------------------------------- |  | --------------------------------
|(State or other jurisdiction ofincorporation or organization) |  | (IRS EmployerIdentification No.)



|5960 Heisley Road,Mentor, Ohio 44060-1834 |  | 440-354-2600                                       
|----------------------------------------- |  | ---------------------------------------------------
|(Address of principal executive offices)  |  | (Registrants telephone number,including area code)



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



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



The number of Common Shares outstanding as of October 31, 2003: 69,426,324



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##### Table of Contents

STERIS Corporation

Index



|                               |  |                                                                                       |  | Page (s)
|------------------------------ |  | ------------------------------------------------------------------------------------- |  | --------
|Part I - Financial Information |  |                                                                                      
|                               |  |                                                                                      
|Item 1.                        |  | Financial Statements                                                                  |  | 3-13    
|                               |  |                                                                                      
|                               |  | Independent Accountants Review Report                                                |  | 14      
|                               |  |                                                                                      
|Item 2.                        |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 15-22   
|                               |  |                                                                                      
|Item 3.                        |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 22      
|                               |  |                                                                                      
|Item 4.                        |  | Controls and Procedures                                                               |  | 22      
|                               | 
|Part II - Other Information    |  |                                                                                      
|                               |  |                                                                                      
|Item 1.                        |  | Legal Proceedings                                                                     |  | 23      
|                               |  |                                                                                      
|Item 4.                        |  | Submission of Matters to a Vote of Security Holders                                   |  | 23      
|                               |  |                                                                                      
|Item 6.                        |  | Exhibits and Reports on Form 8-K                                                      |  | 23      
|                               |  |                                                                                      
|                               |  | Signature                                                                             |  | 24      



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##### Table of Contents

PART I - FINANCIAL INFORMATION



|ITEM 1. |  | FINANCIAL STATEMENTS
|------- |  | --------------------



STERIS CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands)



|                                                                                                                              |  | September 30,2003 |         |   | March 31,2003 |  
|----------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ------------- | -
|                                                                                                                              |  | (Unaudited)       |         |   |               |  
|Assets                                                                                                                        |  |                   |         |   |               |  
|Current assets:                                                                                                               |  |                   |         |   |               |  
|Cash and cash equivalents                                                                                                     |  | $                 | 12,338  |   |               | $
|Accounts receivable (net of allowances of $8,806 and $8,637, respectively)                                                    |  |                   | 210,660 |   |               |  
|Inventories                                                                                                                   |  |                   | 119,707 |   |               |  
|Current portion of deferred income taxes                                                                                      |  |                   | 15,932  |   |               |  
|Prepaid expenses and other current assets                                                                                     |  |                   | 10,629  |   |               |  
|                                                                                                                              |  |                   |         |   |               |  
|Total current assets                                                                                                          |  |                   | 369,266 |   |               |  
|                                                                                                                              |  |                  
|Property, plant, and equipment, net                                                                                           |  |                   | 359,500 |   |               |  
|Intangibles, net                                                                                                              |  |                   | 225,273 |   |               |  
|Other assets                                                                                                                  |  |                   | 5,010   |   |               |  
|                                                                                                                              |  |                   |         |   |               |  
|Total assets                                                                                                                  |  | $                 | 959,049 |   |               | $
|                                                                                                                              |  |                   |         |   |               |  
|Liabilities and shareholders equity                                                                                          |  |                   |         |   |               |  
|Current liabilities:                                                                                                          |  |                   |         |   |               |  
|Current portion of long-term indebtedness                                                                                     |  | $                 | 2,417   |   |               | $
|Accounts payable                                                                                                              |  |                   | 57,257  |   |               |  
|Accrued income taxes                                                                                                          |  |                   | 10,610  |   |               |  
|Accrued expenses and other                                                                                                    |  |                   | 103,418 |   |               |  
|                                                                                                                              |  |                   |         |   |               |  
|Total current liabilities                                                                                                     |  |                   | 173,702 |   |               |  
|                                                                                                                              |  |                  
|Long-term indebtedness                                                                                                        |  |                   | 101,522 |   |               |  
|Deferred income taxes                                                                                                         |  |                   | 18,256  |   |               |  
|Other liabilities                                                                                                             |  |                   | 60,418  |   |               |  
|                                                                                                                              |  |                   |         |   |               |  
|Total liabilities                                                                                                             |  |                   | 353,898 |   |               |  
|                                                                                                                              |  |                  
|Shareholders equity:                                                                                                         |  |                   |         |   |               |  
|Serial preferred shares, without par value; 3,000 shares authorized; no shares issued or outstanding                          |  |                   |        |   |               |  
|Common Shares, without par value; 300,000 shares authorized; issued and outstanding shares of 69,492 and 69,741,
respectively |  |                   | 217,824 |   |               |  
|Retained earnings                                                                                                             |  |                   | 394,144 |   |               |  
|Accumulated other comprehensive income (loss):                                                                                |  |                   |         |   |               |  
|Minimum pension liability                                                                                                     |  |                   | (7,281  | ) |               |  
|Cumulative foreign currency translation adjustment                                                                            |  |                   | 464     |   |               |  
|                                                                                                                              |  |                   |         |   |               |  
|Total shareholders equity                                                                                                    |  |                   | 605,151 |   |               |  
|                                                                                                                              |  |                   |         |   |               |  
|Total liabilities and shareholders equity                                                                                    |  | $                 | 959,049 |   |               | $
|                                                                                                                              |  |                   |         |   |               |  



See notes to
consolidated financial statements.



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##### Table of Contents

STERIS CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

(Unaudited)



|                                     |  | Three Months EndedSeptember 30, |         | Six Months EndedSeptember 30,
|------------------------------------ |  | ------------------------------- | ------- | -----------------------------
|                                     |  | 2003                            |         | 2002                         
|Net revenues:                        |  |                                 |         |                              
|Product                              |  | $                               | 177,476 |                              
|Service                              |  |                                 | 79,913  |                              
|                                     |  |                                 |         |                              
|Total net revenues                   |  |                                 | 257,389 |                              
|                                     |  |                                 |         |                              
|Cost of revenues:                    |  |                                 |         |                              
|Product                              |  |                                 | 101,924 |                              
|Service                              |  |                                 | 44,851  |                              
|                                     |  |                                 |         |                              
|Total cost of revenues               |  |                                 | 146,775 |                              
|                                     |  |                                 |         |                              
|Gross profit                         |  |                                 | 110,614 |                              
|                                     |  |                                 |         |                              
|Operating expenses:                  |  |                                 |         |                              
|Selling, general, and administrative |  |                                 | 71,879  |                              
|Research and development             |  |                                 | 6,411   |                              
|                                     |  |                                 |         |                              
|                                     |  |                                 | 78,290  |                              
|                                     |  |                                 |         |                              
|Income from operations               |  |                                 | 32,324  |                              
|Interest expense, net                |  |                                 | 499     |                              
|                                     |  |                                 |         |                              
|Income before income taxes           |  |                                 | 31,825  |                              
|Income tax expense                   |  |                                 | 11,456  |                              
|                                     |  |                                 |         |                              
|Net income                           |  | $                               | 20,369  |                              
|                                     |  |                                 |         |                              
|Net income per share - basic         |  | $                               | 0.29    |                              
|                                     |  |                                 |         |                              
|Net income per share - diluted       |  | $                               | 0.29    |                              
|                                     |  |                                 |         |                              



See notes to
consolidated financial statements.



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STERIS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)



|                                                                                            |  | Six Months EndedSeptember 30, |        
|------------------------------------------------------------------------------------------- |  | ----------------------------- | -------
|                                                                                            |  | 2003                          |        
|Operating activities                                                                        |  |                               |        
|Net income                                                                                  |  | $                             | 36,841 
|Adjustments to reconcile net income to net cash provided by operating activities:           |  |                               |        
|Depreciation and amortization                                                               |  |                               | 23,905 
|Deferred income taxes                                                                       |  |                               | (1,289 
|Other items                                                                                 |  |                               | 910    
|Changes in operating assets and liabilities, excluding the effect of business acquisitions: |  |                               |        
|Accounts receivable                                                                         |  |                               | 11,488 
|Inventories                                                                                 |  |                               | (23,521
|Other current assets                                                                        |  |                               | 1,274  
|Accounts payable, net                                                                       |  |                               | (23,985
|Accruals and other, net                                                                     |  |                               | 2,300  
|                                                                                            |  |                               |        
|Net cash provided by operating activities                                                   |  |                               | 27,923 
|                                                                                            |  |                              
|Investing activities                                                                        |  |                               |        
|Purchases of property, plant, and equipment                                                 |  |                               | (30,736
|Investment in businesses, net of cash acquired                                              |  |                               | (36,814
|                                                                                            |  |                               |        
|Net cash used in investing activities                                                       |  |                               | (67,550
|                                                                                            |  |                              
|Financing activities                                                                        |  |                               |        
|Payments on long-term obligations                                                           |  |                               | (367   
|Borrowings/(payments) under credit facility, net                                            |  |                               | 33,900 
|Purchase of treasury shares                                                                 |  |                               | (14,139
|Stock option and other equity transactions                                                  |  |                               | 7,372  
|                                                                                            |  |                               |        
|Net cash provided by/(used in) financing activities                                         |  |                               | 26,766 
|Effect of exchange rate changes on cash and cash equivalents                                |  |                               | (742   
|                                                                                            |  |                               |        
|Increase (decrease) in cash and cash equivalents                                            |  |                               | (13,603
|Cash and cash equivalents at beginning of period                                            |  |                               | 25,941 
|                                                                                            |  |                               |        
|Cash and cash equivalents at end of period                                                  |  | $                             | 12,338 
|                                                                                            |  |                               |        



See notes to
consolidated financial statements.



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STERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

For the Three and Six Months Ended

September 30, 2003 and 2002

(dollars in thousands, except per share amounts)



1. Basis
of Presentation



STERIS Corporations (the
Company or STERIS) unaudited consolidated financial statements for the three and six months ended September 30, 2003 and 2002 included in this Quarterly Report on Form 10-Q have been prepared in accordance with the accounting
policies described in the Notes to Consolidated Financial Statements for the fiscal year ended March 31, 2003, which were included in the Companys Annual Report on Form 10-K filed with the Securities and Exchange Commission on June 20, 2003,
and in managements opinion contain all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the consolidated financial position, results of operations, and cash flows for the interim periods
presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted in accordance with the rules
and regulations of the Securities and Exchange Commission. These consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Form 10-K referred to above. The
consolidated balance sheet at March 31, 2003 has been derived from the audited consolidated financial statements at that date but does not include all the information and footnotes required by accounting principles generally accepted in the United
States for complete financial statements.



The consolidated
financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated upon consolidation. Certain reclassifications have been made to the Companys prior year
financial statements to conform to the current year classification.



2.
Reporting Segments



The Company develops, manufactures,
and markets infection prevention, contamination control, microbial reduction, and surgical and critical care support, products and services for healthcare, scientific, research, industrial, and government customers throughout the world. STERIS is
focused on helping customers address todays needs primarily in the healthcare and pharmaceutical industries. The healthcare industry is changing rapidly due to the growth of minimally invasive surgical and diagnostic procedures; heightened
public and professional awareness and concern for the increasing number of transmittable and antibiotic-resistant pathogens; and the rising cost of healthcare delivery. These trends have expanded the demand for rapid, safe, and efficient infection
prevention systems for critical tasks such as the sterile processing of devices and the handling, decontamination, destruction, and disposal of potentially infectious biohazardous agents or waste. The pharmaceutical industry is also expanding to
meet increased demand for new and generic drugs. Pharmaceutical, biotech, medical device, and other manufacturers are under growing pressure to adhere to stricter guidelines and increasing global standards for the validation and control of their
antimicrobial processes.



Effective April 1, 2003, STERIS
management realigned the Company into three segments to focus resources on specific missions and customer groups to achieve the Companys long term strategic initiatives and capture targeted growth opportunities. As a result, the Company began
reporting in three business segments: Healthcare, Life Sciences, and Isomedix Services. The Company followed the guidelines of Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related
Information (SFAS 131) as a basis to determine the aggregation of operations into segments. Each operation was grouped into a segment based on similar economic characteristics, nature of products and services, nature of production
processes, types or classes of customers, methods used to distribute products and services, and the nature of the regulatory environment.



The Healthcare reporting segment includes the Healthcare business and the Companys Skincare business, now known as the Applied Infection Control
business. The Healthcare segment competes within a variety of areas in the global medical marketplace. Each area is directly or indirectly associated with the infrastructure utilized within surgical environments in hospitals, teaching facilities,
universities, and alternate surgical facilities. The Healthcare business includes surgical support, sterile processing, equipment services, and contract sterilization for hospitals. The Applied Infection Control business consists of hygiene and
infection control products sold into acute care, non-acute care, and institutional/industrial markets.



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STERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

For the Three and Six
Months Ended

September 30, 2003 and 2002

(dollars in thousands, except per share amounts)



The Life Sciences reporting segment consists of the Life Sciences business and the Defense and
Industrial business. The Life Sciences business operates within a variety of industries which include providers of capital equipment, cleaning chemistries, and services to pharmaceutical and biopharmaceutical manufacturers, research and development
operations, as well as private and public research institutions. The Defense and Industrial business consists of the Companys Strategic Technology Enterprises subsidiary, which addresses emerging opportunities related to the threat of
biological and chemical contamination.



The Isomedix Services
reporting segment provides contract sterilization, microbiological reduction, and materials modification services in the form of ethylene oxide, gamma, and electron beam processing technologies. Isomedix serves customers in several diverse
industries including medical devices, labware, pharmaceuticals, food packaging, spices, cosmetics, and materials modification.



As of September 30, 2003, the Company had approximately 5,200 employees worldwide, with over 2,300 involved in direct sales, service, and field support.
Customer support and training facilities are located in major global market centers, and production and manufacturing operations are found in the United States, Canada, Germany, Finland, Sweden, and Switzerland.



3. Recently Issued Accounting Standards



In August 2001, Statement of Financial Accounting Standards No. 143,
Accounting for Asset Retirement Obligations (SFAS 143), was issued. This Statement requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the
liability is initially recorded, the entity capitalizes the associated retirement costs by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized
cost is depreciated over the remaining estimated useful life of the related asset. The Company adopted this Statement on April 1, 2003 and the impact of the adoption on the Companys consolidated financial statements was not considered
material.



In November 2002, the Emerging Issues Task Force
reached a consensus on Issue 00-21 (EITF 00-21), Accounting for Revenue Arrangements with Multiple Deliverables. EITF 00-21 addresses how to account for arrangements that may involve the delivery or performance of multiple
products, services and/or rights to use assets. The final consensus is applicable to agreements entered into in fiscal periods beginning after June 15, 2003 with early adoption permitted. The Company adopted EITF 00-21 effective July 1, 2003, and
the adoption of this Statement did not have an impact on the Companys consolidated financial statements.



In December 2002, Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation -Transition and Disclosure
(SFAS 148) was issued providing alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirements of
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, (SFAS 123) to require more prominent and more frequent disclosures in financial statements about the effects of stock-based
compensation. The transition guidance and annual disclosure provisions of SFAS 148 are effective for fiscal years ending after December 15, 2002, while the interim disclosure provisions are effective for periods beginning after December 15, 2002. As
permitted by SFAS 123 and SFAS 148, the Company has adopted the disclosure only provisions and does not recognize expense for stock options granted to employees when the exercise price equals the market price of the stock on the date of grant.



In December 2002, the Financial Accounting Standards Board
(FASB) issued Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Guarantees of Indebtedness of Others (FIN 45). FIN 45 requires that certain guarantees be
recorded at fair value and also that a guarantor make certain disclosures, even when the likelihood of making any payments under the guarantee is remote. The initial recognition and measurement provisions of FIN



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STERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

For the Three and Six
Months Ended

September 30, 2003 and 2002

(dollars in thousands, except per share amounts)



45 are applicable only to guarantees issued or modified after December 31, 2002. The related disclosure requirements are effective for interim or annual
periods ending after December 15, 2002, and are applicable to all guarantees issued by the guarantor subject to FIN 45s scope, including guarantees entered into prior to its issuance. See Note 12  Financial and Other Guarantees.



In January 2003, the FASB issued Interpretation No. 46,
Consolidation of Variable Interest Entities (FIN 46). FIN 46 clarifies the application of Accounting Research Bulletin (ARB) No. 51, Consolidated Financial Statements for certain entities in which
equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46
requires that variable interest entities, as defined, should be consolidated by the primary beneficiary, which is defined as the entity that is expected to absorb the majority of the expected losses, receive the majority of the gains, or both. The
Interpretation requires that companies disclose certain information about a variable interest entity created prior to February 1, 2003, if it is reasonably possible that the enterprise will be required to consolidate that entity. The application of
this Interpretation is required as of December 31, 2003 for entities created prior to February 1, 2003, and immediately for any variable interest entities created subsequent to January 31, 2003. The Company has evaluated its affiliated entities and
does not have any entity it is affiliated with but does not currently consolidate that will meet the definition of a variable interest entity.



In May 2003, Statement of Financial Accounting Standards No. 150, Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity (SFAS 150), was issued to establish standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS 150 requires an issuer to
classify a financial instrument that is within its scope as a liability, or an asset, which may have previously been classified as equity. The Company adopted SFAS 150 effective June 30, 2003, as required, and the adoption of this Statement did not
have an impact on the Companys consolidated financial statements.



4.
Common Shares



The following is a summary of Common Shares
and Common Share equivalents outstanding used in the calculations of earnings per share:



|                                                         |  | Three Months EndedSeptember 30, |  | Six Months EndedSeptember, 30
|-------------------------------------------------------- |  | ------------------------------- |  | -----------------------------
|                                                         |  | 2003                            |  | 2002                         
|                                                         |  | (in thousands)                 
|Weighted average Common Shares outstanding - basic       |  | 69,347                          |  | 69,118                       
|Dilutive effect of stock options                         |  | 1,223                           |  | 1,255                        
|                                                         |  |                                 |  |                              
|Weighted average Common Shares and equivalents - diluted |  | 70,570                          |  | 70,373                       
|                                                         |  |                                 |  |                              



5. Stock Compensation Plans



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. Generally, stock options granted 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. The Company accounts for stock based compensation under the provisions of Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to



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STERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

For the Three and Six
Months Ended

September 30, 2003 and 2002

(dollars in thousands, except per share amounts)



Employees, as permitted by SFAS 123, Accounting for Stock-Based Compensation, as amended by SFAS 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.



Had the compensation cost for the stock options granted in the three or six month period ended September 30, 2003 and 2002,
been determined based on the value at the grant date consistent with the fair value method, the Companys net income and earnings per share would have been reduced as indicated below:



|                                          |  | Three Months EndedSeptember 30,       |        | Six Months EndedSeptember 30,
|----------------------------------------- |  | ------------------------------------- | ------ | -----------------------------
|                                          |  | 2003                                  |        | 2002                         
|                                          |  | (in thousands, except per share data)
|Net income:                               |  |                                       |        |                              
|As reported                               |  | $                                     | 20,369 |                              
|Add: Expense included in reported results |  |                                       |       |                              
|Less: Fair value of options granted       |  |                                       | 1,509  |                              
|                                          |  |                                       |        |                              
|Pro forma                                 |  | $                                     | 18,860 |                              
|Earnings per share:                       |  |                                       |        |                              
|Basic:                                    |  |                                       |        |                              
|As reported                               |  | $                                     | 0.29   |                              
|Pro forma                                 |  | $                                     | 0.27   |                              
|Diluted:                                  |  |                                       |        |                              
|As reported                               |  | $                                     | 0.29   |                              
|Pro forma                                 |  | $                                     | 0.27   |                              



Fair value was
estimated at the date of grant using the Black-Scholes option pricing model and the following weighted-average assumptions for the six months ended September 30, 2003 and 2002, respectively: risk-free interest rate of 3.54% to 3.96%; dividend yield
of 0%; expected volatility of 45%; and an expected option life of 5 years.



6. Comprehensive Income



Comprehensive income
amounted to $20,227 and $17,755, net of tax, for the three months ended September 30, 2003 and 2002, respectively. For the six months ended September 30, 2003, comprehensive income totaled $42,152, net of tax, compared to $33,455, net of tax, for
the six months ended September 30, 2002. The difference between net income and comprehensive income for the periods resulted from the change in the cumulative foreign currency translation adjustment.



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STERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

For the Three and Six
Months Ended

September 30, 2003 and 2002

(dollars in thousands, except per share amounts)



7. Inventories



Inventories are stated at cost, which does not exceed market. The Company uses the last-in, first-out (LIFO) and first-in, first-out (FIFO) cost methods.
Inventory costs include material, labor, and overhead. Inventories were as follows:



|                  |  | September 30,2003 |         | March 31,2003
|----------------- |  | ----------------- | ------- | -------------
|Raw material      |  | $                 | 34,434  |              
|Work in process   |  |                   | 24,193  |              
|Finished goods    |  |                   | 61,080  |              
|                  |  |                   |         |              
|Total inventories |  | $                 | 119,707 |              
|                  |  |                   |         |              



8. Non-recurring Transactions



Fiscal 2001 Charge



The Company concluded a review of manufacturing, service, and support
functions during the fourth quarter of fiscal 2001. Those efforts were used to identify opportunities for efficiency and productivity improvements beyond those initiated during the fourth quarter of fiscal 2000. As a result of this review and the
related plan to initiate improvements in those and other functions, a charge of $41,476 ($28,204 net of tax, or $0.41 per diluted share) was recorded. This charge primarily related to plans for manufacturing consolidations, upgrading of the
Companys service, sales, and distribution organizations, and associated workforce reductions. The implementation of these actions began in the fourth quarter of fiscal 2001 and resulted in a reduction of approximately 335 employees in the
manufacturing and support functions by the end of the fourth quarter of fiscal 2002.



Restructuring reserves of $642 and $1,150 remained as of September 30, 2003, and March 31, 2003, respectively, and related primarily to severance obligations. These remaining severance payments at September 30, 2003,
which relate to four former employees, will continue until December 2004.



9. Contingencies



There are various pending
lawsuits and claims arising out of the conduct of STERISs business. In the opinion of management, the ultimate outcome of these lawsuits and claims will not have a material adverse effect on STERIS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 or claims or their effect. See the Companys Annual Report on Form 10-K filed
with the Securities and Exchange Commission on June 20, 2003. STERIS presently maintains product liability insurance coverage in amounts and with deductibles that it believes are prudent.



10. Business Segment Information



Financial information for each of the Companys reportable segments, as defined by SFAS 131, is presented in the following table. The Company has
redefined its reporting segments as described herein and, as a result, has reclassified its revenues and operating income (loss) based on its revised segment reporting. Operating income (loss) for each segment reflects the full allocation of all
distribution, corporate, and research and development expenses to the reporting segments. The accounting policies for the reporting segments are the same as those for the consolidated company.



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##### Table of Contents

STERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

For the Three and Six
Months Ended

September 30, 2003 and 2002

(dollars in thousands, except per share amounts)



|                         |  | Three Months EndedSeptember 30, |         | Six Months EndedSeptember 30, |  
|------------------------ |  | ------------------------------- | ------- | ----------------------------- | -
|                         |  | 2003                            |         | 2002                          |  
|Net revenues:            |  |                                 |         |                               |  
|Healthcare               |  | $                               | 179,672 |                               | $
|Life Sciences            |  |                                 | 56,875  |                               |  
|Isomedix                 |  |                                 | 20,842  |                               |  
|                         |  |                                 |         |                               |  
|Total net revenues       |  | $                               | 257,389 |                               | $
|                         |  |                                 |         |                               |  
|Operating income (loss): |  |                                 |         |                               |  
|Healthcare               |  | $                               | 28,855  |                               | $
|Life Sciences            |  |                                 | 462     |                               |  
|Isomedix                 |  |                                 | 3,007   |                               |  
|                         |  |                                 |         |                               |  
|Total operating income   |  | $                               | 32,324  |                               | $
|                         |  |                                 |         |                               |  



The following is information about the
Companys operations by geographic area:



|                        |  | Three Months EndedSeptember 30, |         | Six Months EndedSeptember 30,
|----------------------- |  | ------------------------------- | ------- | -----------------------------
|                        |  | 2003                            |         | 2002                         
|Net revenues            |  |                                 |         |                              
|United States           |  | $                               | 204,074 |                              
|Non-United States       |  |                                 | 53,315  |                              
|                        |  |                                 |         |                              
|Total net revenues      |  | $                               | 257,389 |                              
|                        |  |                                 |         |                              
|                        |  |                                 |         |                              
|                        |  | September 30,2003               |         | March 31,2003                
|Long-lived assets       |  |                                 |         |                              
|United States           |  | $                               | 325,753 |                              
|Non-United States       |  |                                 | 38,757  |                              
|                        |  |                                 |         |                              
|Total long-lived assets |  | $                               | 364,510 |                              
|                        |  |                                 |         |                              



Long-lived assets are
those assets that are identified with the operations in each geographic area including property, plant, and equipment and other assets. Revenues are based on the location of these operations and their customers. During the quarter ended September
30, 2003, revenues from a single customer did not aggregate to five percent or more of total revenues.



11. Treasury Shares



On
July 24, 2002 the Company announced that its Board of Directors had authorized the purchase of up to 3.0 million STERIS Common Shares. The shares may be used for the Companys employee benefit plans or for general corporate purposes.



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##### Table of Contents

STERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

For the Three and Six
Months Ended

September 30, 2003 and 2002

(dollars in thousands, except per share amounts)



During the first half of fiscal 2004, the Company purchased 640,300 of its Common Shares at an
average price of $22.08 per Common Share and 2,359,700 Common Shares remained authorized for purchase. At September 30, 2003, 275,929 Common Shares were held in treasury.



12. Financial and Other Guarantees



The Company generally offers a limited one-year parts and labor warranty on its products. The specific terms and conditions of those warranties vary
depending on the product sold and the location where the Company does 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 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 in the Companys warranty liability are as follows:



|                                    |  | September 30,2003 |       
|----------------------------------- |  | ----------------- | ------
|Balance, March 31, 2003             |  | $                 | 4,861 
|Warranties issued during the period |  |                   | 4,461 
|Settlements made during the period  |  |                   | (3,890
|                                    |  |                   |       
|Balance, September 30, 2003         |  | $                 | 5,432 
|                                    |  |                   |       



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 from customers under these contracts are initially recorded as a
liability for deferred service contract revenue on the accompanying consolidated balance sheets. The liability recorded for deferred service revenue was $14,698 and $11,149 as of September 30, 2003 and March 31, 2003, respectively. Such deferred
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 revenue has been excluded
from the table presented above.



13. Acquisitions



On April 8, 2003, the Company acquired Hamo Holding AG (Hamo)
headquartered in Pieterlen, Switzerland. The results of Hamos operations have been included in the Companys consolidated financial statements since the acquisition date. Hamo is a leading provider of washing / decontamination systems
used in healthcare, pharmaceutical, and research industries. The acquisition provides an established distribution channel expanding the marketing capabilities of the Companys existing sterilization and washing / decontamination products in
Europe and Asia, and adds manufacturing capacity in Switzerland.



The purchase price of $49.7 million, consisting of cash paid and debt assumed, is subject to final settlement of certain working capital adjustments as guaranteed by the seller. The allocation of the purchase price is subject to further
adjustment as the Company finalizes costs associated with integration activities and valuations of certain assets acquired and liabilities assumed.



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##### Table of Contents

STERIS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

For the Three and Six
Months Ended

September 30, 2003 and 2002

(dollars in thousands, except per share amounts)



On May 7, 2003, the Company acquired certain assets related to the sterilization container business
from Sterion Incorporated for $2.9 million in cash. The Sterion Sterilization Container System offers healthcare personnel a simple and reliable system for managing instrument sterile processing, storage and aseptic transport.



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##### Table of Contents

INDEPENDENT ACCOUNTANTS REVIEW REPORT

Board of Directors and Shareholders

STERIS Corporation



We have reviewed the accompanying consolidated balance sheet of STERIS Corporation and subsidiaries as of September 30, 2003, the related consolidated
statements of income for the three and six months ended September 30, 2003 and 2002 and the consolidated statements of cash flows for the six months ended September 30, 2003 and 2002. These financial statements are the responsibility of the
Companys management.



We conducted our review in
accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons
responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States, which will be performed for the full year with the objective
of expressing an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.



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



We have previously audited, in accordance with auditing standards generally accepted in the United States, the consolidated balance sheet of STERIS
Corporation and subsidiaries as of March 31, 2003 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 April 22, 2003, 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, 2003, is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.



/s/    Ernst & Young LLP



Cleveland, Ohio

October 21, 2003



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##### Table of Contents

|ITEM 2. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- |  | -------------------------------------------------------------------------------------



Overview



Revenues for the second quarter of fiscal 2004 increased 10.6% to $257.4 million as compared to second quarter fiscal 2003 revenues of $232.7 million.
Gross margin percentages increased to 43.0% for the second quarter of fiscal 2004 from 41.4% in the second quarter of fiscal 2003. Operating expenses for the second quarter of fiscal 2004 increased as a percentage of revenues to 30.4% as compared to
28.9% in the comparable quarter of fiscal 2003. Net income for the second quarter of fiscal 2004 increased to $20.4 million, or $0.29 per diluted share, compared with second quarter fiscal 2003 net income of $18.4 million, or $0.26 per diluted
share.



Revenues for the first half of fiscal 2004 were $516.7
million, a 13.8% improvement over revenues of $454.1 million in the comparable fiscal 2003 period. Gross margin percentages also improved to 42.0% for the first six months of fiscal 2004, compared with 41.4% in the same period of fiscal 2003.
Operating expenses increased slightly as a percentage of revenues during the first half of fiscal 2004 to 30.7% from 30.5% in the same period a year ago. Net income for the first half of fiscal 2004 increased to $36.8 million, or $0.52 per diluted
share, compared with $31.2 million, or $0.44 per diluted share, in the first half of fiscal 2003.



Results of Operations



Net Revenues and Cost of Revenues

(in thousands, except percentages)



|                        |  | Three Months EndedSeptember 30, |         |   | Increase |  
|----------------------- |  | ------------------------------- | ------- | - | -------- | -
|                        |  | 2003                            |         |   | 2002     |  
|Healthcare              |  | $                               | 179,672 |   |          | $
|Life Sciences           |  |                                 | 56,875  |   |          |  
|Isomedix                |  |                                 | 20,842  |   |          |  
|                        |  |                                 |         |   |          |  
|Total net revenues      |  |                                 | 257,389 |   |          |  
|Cost of revenues        |  |                                 | 146,775 |   |          |  
|                        |  |                                 |         |   |          |  
|Gross profit            |  | $                               | 110,614 |   |          | $
|                        |  |                                 |         |   |          |  
|                        |  |                                 |         |  
|Gross margin percentage |  |                                 | 43.0    | % |          |  



The increase in
Healthcare revenues for the second quarter of fiscal 2004 reflected increased volumes and the contribution of newly acquired businesses. The increase in volume was driven by new construction and project activity at hospitals, which remained strong.
The percentage growth rate was reduced due to slower growth in new products developed internally and through marketing alliances. Healthcare revenue was composed of 44.9% capital goods and 55.1% consumables and services in the second quarter of
fiscal 2004, compared to 45.4% capital goods and 54.6% consumables and service in the second quarter of fiscal 2003.



The increase in Life Sciences revenue for the second quarter of fiscal 2004 reflected strong demand primarily from pharmaceutical producers as well as
manufacturing efficiencies gained from capacity expansions in fiscal 2003. The acquisition of Hamo and favorable foreign currency exchange rates also contributed to the increase in revenues this quarter. Life Sciences revenue was composed of 75.0%
capital goods and 25.0% consumables and services in the second quarter of fiscal 2004, compared to 69.3% capital goods and 30.7% consumables and service in the second quarter of the prior year.



The increase in Isomedix revenues for the second quarter of fiscal 2004
reflected increased pricing and ongoing growth in the medical device market. These factors were partially offset by weaker demand in the labware market.



Net consolidated revenues for the second quarter of fiscal 2004 from capital goods were $123.4 million, or



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47.9% of consolidated revenues, compared to $108.2 million, or 46.5% in the second quarter of fiscal 2003. Revenues from capital goods increased 14.0% in the
second quarter of fiscal 2004 compared to the same period in the prior year. Second quarter fiscal 2004 revenue from consumables and service totaled $134.0 million, or 52.1% of consolidated revenue, compared to $124.5 million, or 53.5% in the second
quarter of fiscal 2003. Revenues from consumables and service increased 7.6% in the second quarter of fiscal 2004 compared to the second quarter of fiscal 2003.



United States revenues for the second quarter of fiscal 2004 were $204.1 million, or 79.3% of consolidated revenues, with $53.3 million, or 20.7% of
consolidated revenues from markets outside the United States. United States revenues for the second quarter of fiscal 2003 were $189.0 million, or 81.2% of consolidated revenues with $43.7 million, or 18.8% from markets outside the United States.



The cost of revenues increased $10.5 million, or 7.7%, to
$146.8 million in the second quarter of fiscal 2004 compared to $136.3 million in the same period of the prior year. The cost of revenues as a percentage of revenue was 57.0% in the second quarter of fiscal 2004 compared to 58.6% in the second
quarter of fiscal 2003. The corresponding gross margin percentages were 43.0% and 41.4% in the second quarters of fiscal 2004 and fiscal 2003, respectively. Improved overall product mix and pricing, as well as manufacturing efficiencies, contributed
to the increase.



Operating Expenses

(in thousands, except percentages)



|                                     |  | Three Months EndedSeptember 30, |        | Increase |  
|------------------------------------ |  | ------------------------------- | ------ | -------- | -
|                                     |  | 2003                            |        | 2002     |  
|Selling, general, and administrative |  | $                               | 71,879 |          | $
|Research and development             |  |                                 | 6,411  |          |  
|                                     |  |                                 |        |          |  
|Total                                |  | $                               | 78,290 |          | $
|                                     |  |                                 |        |          |  



Selling, general, and
administrative expenses increased 17.0% or $10.4 million dollars to $71.9 million in the second quarter of fiscal 2004 compared to $61.5 million in the second quarter of fiscal 2003. Compensation increased $2.3 million primarily due to additional
compensation for Hamo employees. General and administrative expenses increased $4.9 million in the second quarter of fiscal 2004 due to increased expenses related to the realignment of the divisions and additional depreciation expense from completed
plant projects, which were offset by $1.9 million of favorable impact from foreign currency exchange rates. Consulting and professional fees increased $2.6 million due to the Companys information technology investments, as well as several
market strategy and safety awareness projects. Additionally, travel and entertainment expenses increased $0.7 million due to travel related to the continuing Hamo integration.



Research and development expenses increased 11.4% to $6.4 million in the second quarter of fiscal year 2004 compared to $5.8
million in the second quarter of the prior year due to continued investment. Research and development expenses as a percent of revenues were 2.5% in the second quarter of fiscal 2004 and fiscal 2003.



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Net Revenues and Cost of Revenues

(in thousands, except percentages)



|                        |  | Six Months EndedSeptember 30, |         |   | Increase |  
|----------------------- |  | ----------------------------- | ------- | - | -------- | -
|                        |  | 2003                          |         |   | 2002     |  
|Healthcare              |  | $                             | 359,241 |   |          | $
|Life Sciences           |  |                               | 115,300 |   |          |  
|Isomedix                |  |                               | 42,128  |   |          |  
|                        |  |                               |         |   |          |  
|Total net revenues      |  |                               | 516,669 |   |          |  
|Cost of revenues        |  |                               | 299,484 |   |          |  
|                        |  |                               |         |   |          |  
|Gross profit            |  | $                             | 217,185 |   |          | $
|                        |  |                               |         |   |          |  
|                        |  |                               |         |  
|Gross margin percentage |  |                               | 42.0    | % |          |  



The increase in
Healthcare revenues for the first half of fiscal 2004 reflected increased volumes and the contribution of newly acquired businesses. The increase in volume was driven by new construction and project activity at hospitals, which remained strong. The
percentage growth rate was reduced due to slower growth in new products developed internally and through marketing alliances. Healthcare revenue was composed of 45.4% capital goods and 54.6% consumables and services in the first six months of fiscal
2004, which was consistent with the first half of fiscal 2003.



The increase in Life Sciences revenue for the first half of fiscal 2004 reflected strong demand primarily from pharmaceutical production and research facilities as well as manufacturing efficiencies gained from capacity expansions in fiscal
2003. In addition, the acquisition of Hamo and favorable foreign currency exchange rates contributed to the year over year revenue increase. Life Sciences revenue was composed of 72.9% capital goods and 27.1% consumables and services in the first
half of fiscal 2004, compared to 68.1% capital goods and 31.9% consumables and service in the first half of the prior fiscal year.



The increase in Isomedix revenue for the first six months of fiscal 2004 reflected increased pricing and ongoing growth in the medical device market.
These factors were partially offset by weaker demand in the labware market.



Net consolidated revenues for the first half of fiscal 2004 from capital goods were $247.0 million, or 47.8% of consolidated revenues, compared to $208.3 million, or 45.9% in the first half of fiscal 2003. Revenues
from capital goods increased 18.6% in the first half of fiscal 2004 compared to the same period in the prior year. Revenues from consumables and service totaled $269.7 million in the first half of fiscal year 2004, or 52.2% of consolidated revenue,
compared to $245.8 million, or 54.1% in the first half of fiscal 2003. Revenues from consumables and service increased 9.7% in the first half of fiscal 2004 compared to the first half of fiscal 2003.



United States revenues for the first half of fiscal 2004 were $403.0 million,
or 78.0% of consolidated revenues, with $113.7 million, or 22.0% of consolidated revenues from markets outside the United States. United States revenues for the first half of fiscal 2003 were $372.4 million, or 82.0% of consolidated revenues with
$81.7 million, or 18.0% from markets outside the United States.



The cost of revenues increased $33.6 million, or 12.6%, to $299.5 million in the first half of fiscal 2004 compared to $265.9 million in the same period of the prior year. The cost of revenues as a percentage of revenue was 58.0% in the
first half of fiscal 2004 compared to 58.6% in the first half of fiscal 2003. The corresponding gross margin percentages were 42.0% and 41.4% in the first half of fiscal 2004 and fiscal 2003, respectively. Life Sciences experienced the highest rate
of revenue growth and the largest improvement in its gross margin rate when comparing the six months ending September 30, 2003 and September 30, 2002. The Life Sciences increase in gross margin is due to increased revenues of capital goods, coupled
with improved production methods that have helped to reduce production costs.



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Operating Expenses

(in thousands, except percentages)



|                                     |  | Six Months EndedSeptember 30, |         | Increase |  
|------------------------------------ |  | ----------------------------- | ------- | -------- | -
|                                     |  | 2003                          |         | 2002     |  
|Selling, general, and administrative |  | $                             | 144,559 |          | $
|Research and development             |  |                               | 14,078  |          |  
|                                     |  |                               |         |          |  
|Total                                |  | $                             | 158,637 |          | $
|                                     |  |                               |         |          |  



Selling, general, and
administrative expenses increased 13.2%, or $16.9 million to $144.6 million in the first half of fiscal 2004 compared to $127.7 million in the first half of fiscal 2003. Compensation increased $3.9 million primarily due to additional compensation
for Hamo employees. Consulting and professional fees increased $5.9 million primarily attributable to the Companys information technology investments, market strategy and safety awareness projects. Travel and entertainment expenses increased
$1.3 million primarily due to travel related to the Hamo integration. General and administrative expenses increased approximately $4.3 million due to increased depreciation expenses related to information technology and facilities upgrades and
improvements, as well as the realignment of the divisions, which were offset by favorable currency exchange rates of $2.6 million.



Research and development expenses increased 31.2% to $14.1 million in the first half of fiscal year 2004 compared to $10.7 million in the first half of
the prior year. Research and development expenses as a percent of revenues were 2.7% in the first six months of fiscal 2004 compared to 2.4% in the first six months of fiscal 2003. The increase related to increased expenditures on product
development and the completion of certain project development stages.



Income from Operations



Income from operations
for the second quarter increased 10.8% to $32.3 million compared to $29.2 million in the second quarter of fiscal 2003. The Healthcare segment operating income increased $3.0 million, or 11.6% to $28.9 million for the quarter. Life Sciences
operating income decreased $0.3 million to $0.5 million for the second quarter of fiscal 2004 compared to the same period in fiscal 2003. The Isomedix segment experienced a $0.5 million or 20.1% increase to $3.0 million in operating income for the
second quarter of fiscal 2004 compared to the same period in fiscal 2003.



Income from operations increased 17.6% to $58.5 million in the first half of fiscal 2004 compared to $49.8 million in the first half of the prior year. The Healthcare segment increased operating income $6.4 million,
or 13.9% to $52.5 million in the first half of fiscal 2004 compared to $46.1 million in the same period of the prior fiscal year. The Life Sciences segment decreased its operating loss by $2.3 million, or 94.6%, to a loss of $0.1 million in the
first six months of fiscal year 2004 compared to an operating loss of $2.4 million in the same period of the prior fiscal year. The Isomedix segment operating income increased $0.2 million to $6.2 million in the first half of fiscal 2004 compared to
$6.0 million in the first half of fiscal 2003.



Interest Expense



Interest expense, net, increased $0.1 million, or 20.8%,
in the second quarter of fiscal 2004 to $0.5 million compared to the second quarter of fiscal 2003. Interest expense, net, increased 3.3% for the first half of fiscal 2004 to $1.0 million compared to the same period in fiscal year 2003. The weighted
average interest rate applicable to the Companys outstanding borrowings under the Companys $325.0 million Revolving Credit Facility (the Facility) was



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1.83% as of September 30, 2003, compared to 2.59% as of September 30, 2002. The Companys borrowings under the Facility increased $33.9 million from
March 31, 2003 to September 30, 2003 to support the acquisitions of Hamo and Sterion and the repurchase of the Companys common shares.



Income Taxes



Income tax expense was 36.0% of pretax earnings for the second quarter and first half of fiscal 2004 and fiscal 2003.



Liquidity and Capital Resources



Cash Flows

(in thousands, except percentages)



|                                                                                           |  | Six Months EndedSeptember 30, |         |   | Increase (Decrease) |  
|------------------------------------------------------------------------------------------ |  | ----------------------------- | ------- | - | ------------------- | -
|                                                                                           |  | 2003                          |         |   | 2002                |  
|Operating activities:                                                                      |  |                               |         |   |                     |  
|Net income                                                                                 |  | $                             | 36,841  |   |                     | $
|Non-cash items                                                                             |  |                               | 23,526  |   |                     |  
|Changes in operating assets and liabilities, excluding the effect of business acquisitions |  |                               | (32,444 | ) |                     |  
|                                                                                           |  |                               |         |   |                     |  
|Net cash provided by operating activities                                                  |  | $                             | 27,923  |   |                     | $
|                                                                                           |  |                               |         |   |                     |  
|Investing activities:                                                                      |  |                               |         |   |                     |  
|Purchases of property, plant, and equipment                                                |  | $                             | (30,736 | ) |                     | $
|Investment in businesses, net of cash acquired                                             |  |                               | (36,814 | ) |                     |  
|                                                                                           |  |                               |         |   |                     |  
|Net cash used in investing activities                                                      |  | $                             | (67,550 | ) |                     | $
|                                                                                           |  |                               |         |   |                     |  
|Financing activities:                                                                      |  |                               |         |   |                     |  
|Borrowings (payments) on long-term obligations and credit facility, net                    |  | $                             | 33,533  |   |                     | $
|Repurchase of treasury shares                                                              |  |                               | (14,139 | ) |                     |  
|Stock option and other equity transactions, net                                            |  |                               | 7,372   |   |                     |  
|                                                                                           |  |                               |         |   |                     |  
|Net cash provided by (used in) financing activities                                        |  | $                             | 26,766  |   |                     | $
|                                                                                           |  |                               |         |   |                     |  



The decrease in
operating cash flows for the first six months of fiscal 2004 as compared with the first six months of fiscal 2003 was largely affected by unfavorable working capital changes between periods. Accounts receivable increased $8.9 million as revenues
increased year over year and inventory levels increased $18.8 million in an effort to level load annual production at some of the Companys manufacturing facilities to meet anticipated demand of the third and fourth quarters. Further
contributing to the increase in working capital was a $15.8 million reduction of accounts payable that was partially offset by a $7.9 million increase of accrued payroll and miscellaneous operating expenses.



Net cash used in investing activities increased primarily due to the $36.8
million cash investment in Hamo. The cash used for the acquisition of Hamo does not reflect an additional $8.5 million in debt assumed or the additional expenses incurred related to the acquisition. The Company also used an additional $0.3 million
compared to prior year for purchases of property, plant, and equipment in the first half of fiscal 2004.



Net cash provided by (used in) financing activities increased primarily due to borrowings of $33.9 million which



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increased the Companys outstanding balance on the Facility in order to complete the Hamo acquisition, the Sterion acquisition, and the repurchase of
the Companys common shares.



Working Capital

(in thousands, except percentages)



|                                          |  | September 30,2003 |         |         | March 31,2003 |   |            | Increase (Decrease)in Working Capital | 
|----------------------------------------- |  | ----------------- | ------- | ------- | ------------- | - | ---------- | ------------------------------------- | 
|                                          |  |                   |         | Dollars |               |   | Percentage |                                      
|Cash and cash equivalents                 |  | $                 | 12,338  |         |               | $ | 25,941     |                                       | 
|Accounts receivable, net                  |  |                   | 210,660 |         |               |   | 211,687    |                                       | 
|Inventories                               |  |                   | 119,707 |         |               |   | 90,135     |                                       | 
|Current portion of deferred income taxes  |  |                   | 15,932  |         |               |   | 14,904     |                                       | 
|Prepaid expenses and other assets         |  |                   | 10,629  |         |               |   | 11,765     |                                       | 
|                                          |  |                   |         |         |               |   |            |                                       | 
|Total current assets                      |  | $                 | 369,266 |         |               | $ | 354,432    |                                       | 
|                                          |  |                   |         |         |               |   |            |                                       | 
|Current portion of long-term indebtedness |  | $                 | 2,417   |         |               | $ | 1,959      |                                       | 
|Accounts payable                          |  |                   | 57,257  |         |               |   | 72,969     |                                       | 
|Accrued income taxes                      |  |                   | 10,610  |         |               |   | 15,098     |                                       | 
|Accrued expenses and other                |  |                   | 103,418 |         |               |   | 101,025    |                                       | 
|                                          |  |                   |         |         |               |   |            |                                       | 
|Total current liabilities                 |  | $                 | 173,702 |         |               | $ | 191,051    |                                       | 
|                                          |  |                   |         |         |               |   |            |                                       | 
|Working capital                           |  | $                 | 195,564 |         |               | $ | 163,381    |                                       | 
|                                          |  |                   |         |         |               |   |            |                                       | 
|Current ratio                             |  |                   | 2.1     |         |               |   | 1.9        |                                       | 
|Debt-to-total capital ratio               |  |                   | 14.4    | %       |               |   | 9.5        | %                                     | 



During the first six
months of fiscal 2004, the Companys current ratio increased due to the increase in inventories and decrease in accounts payable. These increases in working capital were partially offset by the decrease in cash and cash equivalents. The Company
continued to maintain adequate financial flexibility, and as of September 30, 2003, had $237.9 million available on its Facility. Improved management of current liabilities and the unused Facility continued to reduce the Companys need to
maintain a large cash and cash equivalent balance relative to historical requirements.



As described further in the cash flows discussion above, the Company increased its outstanding balance on the Facility during the first six months of fiscal 2004 in order to facilitate the Hamo acquisition, the
Sterion acquisition, and the repurchase of the Companys common shares. The Company increased its debt-to-total capital ratio (defined as long-term debt divided by long-term debt plus total equity) to 14.4% from 9.5% in the first half of fiscal
2004 mainly due to the investment in Hamo. As of September 30, 2003 and March 31, 2003, the Companys outstanding balance related to the Facility was $87.1 million and $53.2 million, respectively.



The Companys working capital increased by $32.2 million primarily as a
result of a $29.6 million increase in inventory and a decrease in accounts payable of $15.7 million, offset by a $13.6 million decrease in cash. The increase in inventory reflected $11.2 million from the Hamo acquisition and level loading at some of
the Companys manufacturing facilities to meet the demand of the third and fourth quarters. The decrease in accounts payable of $15.7 million was primarily attributable to the timing of vendor payments which led to a normalized balance as of
September 30, 2003.



The Company believes that its available
cash, cash flow from operations, and sources of credit will be adequate to satisfy its operating and capital needs for the next twelve months. The Companys management and Board of Directors continually review the operating and capital
requirement as well as the overall capital structure of the corporation.



The Company intends to offer $50 million of senior notes to certain institutional investors in an offering exempt from the registration requirements of the Securities Act of 1933. If the offering is completed, the
Company intends to use the proceeds from the offering to repay a portion of the Facility in order to enable the Company to continue to invest in technology and for possible acquisitions.



The senior notes to be offered have not been registered under the Securities Act of 1933 and may not be offered or sold in
the United States absent registration or an applicable exemption from registration requirements. This statement shall not constitute an offer to sell or a solicitation of an offer to buy such notes and is issued pursuant to Regulation FD and Rule
135c under the Securities Act of 1933.



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|ITEM 2. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
|------- |  | ------------------------------------------------------------------------------------------------



Market Risk



The overall effects of foreign currency exchange rates on the Companys business during the periods discussed have not been significant. Movements
in foreign currency exchange rates create a degree of risk to the Companys operations. These movements affect the United States dollar value of sales made in foreign currencies and the United States dollar value of costs incurred in foreign
currencies. Changing currency exchange rates also affect the Companys competitive position, as exchange rate changes may affect profitability and business and/or pricing strategies of non-United States based competitors.



Contingencies



The Company is subject to various claims and lawsuits as well as unasserted claims that arise in the ordinary course of
business. Liabilities, costs, and disclosures associated with these matters require estimates and judgment based on professional knowledge and experience of management and its legal counsel. Management has made estimates as to the likelihood of
unfavorable outcomes and the amounts of such potential losses. When estimates of the Companys exposure for claims or pending or threatened litigation matters meet the criteria of Statement of Financial Account Standards No. 5, Accounting
for Contingencies, amounts are recorded as charges to net earnings. The ultimate resolution of any exposure to the Company may change as further facts and circumstances are made available.



Seasonality



The Companys financial results have been subject to recurring seasonal fluctuations. A number of factors have
contributed to the seasonal patterns, including sales promotion and compensation programs, customer capital equipment buying patterns, and international business practices. Sales and profitability of certain of the Companys product lines have
historically been disproportionately weighted toward the latter part of each quarter and generally weighted toward the latter part of each fiscal year. However, there is no assurance that these patterns will continue.



Forward-Looking Statements



This document contains statements concerning certain trends, expectations,
forecasts, estimates, or other forward-looking information affecting or relating to the Company or its industry that are intended to qualify for the protections afforded forward-looking statements under the Private Securities Litigation
Reform Act of 1995 and other laws and regulations. Forward-looking statements speak only as to the date of this report, and may be identified by the use of forward-looking terms such as may, will, expects,
believes, anticipates, plans, estimates, projects, targets, forecasts, and seeks, or the negative of such terms or other variations on such terms or
comparable terminology. Many important factors could cause actual results to differ materially from those in the forward-looking statements including, without limitation, disruption of production or supplies, changes in market conditions, political
events, pending or future claims or litigation, competitive factors, technology advances, and changes in government regulations or the application or interpretation thereof. Other risk factors are described in the Companys Form 10-K and other
securities filings. Many of these important factors are outside STERISs control. No assurances can be provided as to any future financial results. Unless legally required, the Company does not undertake to update or revise any forward-looking
statements even if events make clear that any projected results, express or implied, will not be realized. Other potential risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements
include, without limitation, (a) the potential for increased pressure on pricing that leads to erosion of profit



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|ITEM 2. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
|------- |  | ------------------------------------------------------------------------------------------------



margins, (b) the possibility that market demand will not develop for new technologies, products or applications, or the Companys business initiatives
will take longer, cost more or produce lower benefits than anticipated, (c) the possibility that compliance with laws, court rulings, regulations, or certification requirements of domestic and foreign authorities may delay or prevent new product
introductions, affect the production and marketing of existing products, or otherwise affect Company performance, (d) the potential of international unrest or effects of fluctuations in foreign currencies of countries where the Company does a
sizeable amount of business, and (e) the possibility of reduced demand, or reductions in the rate of growth in demand, for the Companys products and services.



|ITEM 3. |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- |  | ----------------------------------------------------------



A discussion of market risk exposures is included in Part II, Item 7a, Quantitative and Qualitative Disclosure about Market Risk, of the
Companys 2003 Annual Report and Form 10-K. There were no material changes during the three and six months ended September 30, 2003.



|ITEM 4. |  | CONTROLS AND PROCEDURES
|------- |  | -----------------------



As of September 30, 2003, a review was performed under the supervision and with the participation of the Companys management, including the Chief
Executive Officer (CEO) and the Chief Financial Officer (CFO), of the effectiveness of the design and operation of the Companys internal control over financial reporting. Based on that review, the Companys
management, including the CEO and the CFO, concluded that the Companys internal control over financial reporting was effective as of September 30, 2003.



During the quarter ended September 30, 2003, there were no significant changes in the internal control over financial reporting that have materially
affected, or are likely to materially affect, the Companys internal control over financial reporting.



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PART II - OTHER INFORMATION



|ITEM 1. |  | LEGAL PROCEEDINGS
|------- |  | -----------------



Reference is made to Part I, Item 1, Note 9 of this Report on Form 10-Q, which is incorporated herein by reference.



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



The Company held its Annual Meeting of Shareholders on July 25, 2003, at the Renaissance Quail Hollow Resort, 11080 Concord-Hambden Road, Concord, Ohio,
U.S.A. At the Annual Meeting, shareholders re-elected four Class I directors to serve for terms expiring at the Annual Meeting in 2005 and, pursuant to a shareholder proposal, recommended a change to the current process for electing directors.
Results of the voting on directors were: Stephen H. Hardis, 61,549,773 votes for, 2,539,189 votes withheld, Raymond A. Lancaster, 62,668,045 votes for, 1,420,917 votes withheld, J.B. Ritchey, 62,661,354 votes for, 1,427,608 votes withheld, and Les
C. Vinney, 62,669,534 votes for, 1,419,428 votes withheld. Results on the proposal recommending a change to the current process for electing directors were 43,050,644 votes for, 10,037,638 against, 279,510 abstain, and 15,798,243 broker non-votes.
The Board of Directors is in the process of considering the shareholder recommendation.



|ITEM 6. |  | EXHIBITS AND REPORTS ON FORM 8-K
|------- |  | --------------------------------



| | (a) | Exhibits
| | --- | --------



|Exhibit Number |  | Exhibit Description                                                                                                                                            
|-------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|               | 
|10.1           |  | Amendment No. 3 to Credit Agreement, dated July 31, 2003, among STERIS Corporation, various financial institutions, and KeyBank National Association, as Agent.
|               | 
|15.1           |  | Letter Re: Unaudited Interim Financial Information                                                                                                             
|               | 
|31.1           |  | Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                         
|               | 
|31.2           |  | Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                         
|               | 
|32.1           |  | Certification of the Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                             



| | (b) | Reports on Form 8-K:
| | --- | --------------------



On July 24, 2003, STERIS furnished a Current Report on Form 8-K including the press release issued in connection with the fiscal 2004 first quarter
results of operation.



On September 4, 2003, STERIS furnished a
Current Report on Form 8-K with a copy of materials that were prepared for analysts and presented by the Companys senior management on September 4, 2003.



On September 24, 2003, STERIS furnished a Current Report on Form 8-K with a copy of materials that were prepared for the UBS Global Life Sciences
Conference and presented by the Companys senior management on September 23, 2003.



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SIGNATURE



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



STERIS Corporation  (Registrant)/s/    Laurie BrlasLaurie Brlas Senior Vice President and Chief Financial Officer November 12, 2003




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EXHIBIT 15.1 LETTER RE: UNAUDITED INTERIM FINANCIAL INFORMATION



Board of Directors and Shareholders

STERIS Corporation



We are aware of the incorporation by reference in the following Registration Statements and related Prospectuses of our report dated October 21, 2003,
relating to the unaudited consolidated interim financial statements of STERIS Corporation and Subsidiaries that are included in its Form 10-Q for the quarter ended September 30, 2003:



|RegistrationNumber |  | Description                                                                                                                                                                                                      
|------------------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                   | 
|333-101308         |  | Form S-8 Registration Statement  STERIS Corporation 2002 Stock Option Plan                                                                                                                                      
|                   | 
|333-91302          |  | Form S-8 Registration Statement  Nonqualified Stock Option Agreement between STERIS Corporation and Mark. D. McGinley                                                                                           
|                   | 
|333-63774          |  | Form S-8 Registration Statement  Nonqualified Stock Option Agreement between STERIS Corporation and Peter A. Burke                                                                                              
|                   | 
|333-63770          |  | Form S-8 Registration Statement  Nonqualified Stock Option Agreement between STERIS Corporation and Charles L. Immel and Restricted Shares Agreement between STERIS
Corporation and Charles L. Immel            
|                   | 
|333-40082          |  | Form S-8 Registration Statement  Nonqualified Stock Option Agreement between STERIS Corporation and Laurie Brlas and the Nonqualified Stock Option Agreement between STERIS
Corporation and David L. Crandall   
|                   | 
|333-40058          |  | Form S-8 Registration Statement  Nonqualified Stock Option Agreement between STERIS Corporation and Les C. Vinney                                                                                               
|                   | 
|333-65155          |  | Form S-8 Registration Statement  STERIS Corporation 1998 Long Term Incentive Compensation Plan                                                                                                                  
|                   | 
|333-55839          |  | Form S-8 Registration Statement  Nonqualified Stock Option Agreement between STERIS Corporation and John Masefield and the Nonqualified Stock Option Agreement between STERIS
Corporation and Thomas J. DeAngelo
|                   | 
|333-32005          |  | Form S-8 Registration Statement  STERIS Corporation 1997 Stock Option Plan                                                                                                                                      
|                   | 
|333-06529          |  | Form S-3 Registration Statement  STERIS Corporation                                                                                                                                                             
|                   | 
|333-01610          |  | Post-effective Amendment to Form S-4 on Form S-8  STERIS Corporation                                                                                                                                            
|                   | 
|33-91444           |  | Form S-8 Registration Statement  STERIS Corporation 1994 Equity Compensation Plan                                                                                                                               
|                   | 
|33-91442           |  | Form S-8 Registration Statement  STERIS Corporation 1994 Nonemployee Directors Equity Compensation Plan                                                                                                         
|                   | 
|33-55976           |  | Form S-8 Registration Statement  STERIS Corporation 401(k) Plan                                                                                                                                                 
|                   | 
|33-55258           |  | Form S-8 Registration  STERIS Corporation Amended and Restated Non-Qualified Stock Option                                                                                                                       



/s/    ERNST & YOUNG LLP



Cleveland, Ohio

November 12, 2003



25